Earnings call transcript: Alphatec Q2 2025 beats EPS and revenue forecasts

Alphatec Holdings Inc. (ATEC), a medical technology company with a market capitalization of $1.56 billion, delivered a robust performance in Q2 2025, exceeding both earnings per share (EPS) and revenue forecasts. The company reported an EPS of $0.02, significantly outperforming the anticipated -$0.04, marking a 150% surprise. Revenue reached $185.54 million, surpassing the expected $178.8 million by 3.77%. According to InvestingPro analysis, ATEC is currently trading near its Fair Value. Despite an initial 1.4% decline in stock price to $10.73, after-hours trading saw a 1.96% rise to $10.94, reflecting investor optimism.

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Key Takeaways

• Alphatec reported its first quarter of non-GAAP net income.
• The company increased its full-year revenue guidance to $742 million.
• After-hours trading showed a positive investor reaction with a 1.96% stock price increase.
• Alphatec’s surgical revenue grew by 29% year-over-year.
• The company is preparing for a significant product launch in early 2026.

Company Performance

Alphatec’s Q2 2025 results demonstrated strong financial health, with a 27% year-over-year increase in total revenue, continuing its impressive 25.53% revenue growth trend over the last twelve months. The company maintains a healthy liquidity position with a current ratio of 2.75, indicating strong ability to meet short-term obligations. The company’s focus on surgical innovations and expanded procedural offerings contributed to its robust performance. With a strategic emphasis on market expansion and technological advancements, Alphatec continues to strengthen its position as the third-largest spine player in the U.S.

Financial Highlights

• Revenue: $186 million, up 27% year-over-year
• Earnings per share: $0.02, beating the forecast of -$0.04
• Adjusted EBITDA: $23 million, representing 13% of revenue
• Free cash flow: $5 million
• Cash and available cash: $217 million

Earnings vs. Forecast

Alphatec exceeded expectations with an EPS of $0.02, compared to the forecasted -$0.04, resulting in a 150% surprise. Revenue also surpassed forecasts, reaching $185.54 million against the expected $178.8 million, a 3.77% surprise. These results reflect a strong quarter and positive momentum for the company.

Market Reaction

Despite an initial 1.4% drop in stock price to $10.73, Alphatec’s shares rose by 1.96% in after-hours trading to $10.94. This positive movement suggests that investors are optimistic about the company’s strong earnings performance and revised guidance. The stock has demonstrated remarkable strength with a 59.34% return over the past year, significantly outperforming many peers in the medical technology sector.

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Outlook & Guidance

Alphatec increased its full-year revenue guidance to $742 million, with surgical revenue expected to reach $666 million. The company is targeting an 18% adjusted EBITDA margin by 2027, with expectations of positive free cash flow for the full year 2025. The upcoming robotic system launch in early 2026 is anticipated to drive further growth. Analyst consensus remains highly optimistic, with price targets ranging from $11 to $22.50, suggesting potential upside from current levels.

Executive Commentary

"We are just getting started. Our ecosystem has years to reflect improvement, and our best is truly yet to come," stated CEO Pat Miles, highlighting the company’s growth potential. CFO Todd Cunning emphasized, "We continue to grow at five to six times that of the overall market," underscoring Alphatec’s competitive edge.

Risks and Challenges

• Potential delays in the robotic system launch could impact growth projections.
• Market saturation and increased competition in the spine market.
• Economic uncertainties and supply chain disruptions may affect operational efficiency.

Q&A

During the earnings call, analysts inquired about Alphatec’s geographic expansion strategies and growth drivers in surgical volume. The company’s plans for capital expenditure and investment strategy were also discussed, reflecting confidence in its future growth trajectory.

Full transcript - Alphatec Holdings Inc (ATEC) Q2 2025:

Mark, Conference Call Moderator: Good afternoon, everyone, and welcome to the webcast of ATEC’s Second Quarter Financial Results. We would like to remind everyone that participants on the call will make forward looking statements. These statements are based on the current expectations and are subject to uncertainties that could cause actual results to differ materially. These uncertainties are detailed in documents filed regularly with the SEC. During this call, you may hear the company refer to non GAAP or adjusted measures.

Reconciliations of these measures to U. S. GAAP can be found in the supplemental financial tables included in today’s press release, which identify and quantify all excluded items and provide management’s views of why this information is useful to investors. Leading today’s call will be ATEC’s Chairman and CEO, Pat Miles and CFO, Todd Cunning. Now I will now turn the call over to Pat Miles.

Please go ahead, sir.

Pat Miles, Chairman and CEO, ATEC: Hey, thanks, Mark. Really appreciate it. Welcome to the Q2 twenty twenty five financial results call from ATEC. There will be some forward looking statements, so read that at your leisure. So I would consider this a good to great quarter.

And so Q2 twenty twenty five financial results, the surgical revenue growth of 29%, which is about six times the market. So I would think that that’s growth leadership. Dollars 23,000,000 in adjusted EBITDA, which is a record for us and 13% of revenue, it improved eight eighty basis points year over year. So which inflects us in that $5,000,000 in free cash flow. And so the profitable revenue growth leadership has has continued.

And so the profitable growth of continues at a $186,000,000 in total revenue. The total revenue growth was 27%. As I said, the surgical revenue growth at 29%. The way we look at same store sales, so revenue growth in established territories was 29%. That tells you that the demand in the areas of of where we have established distributors has continued to grow.

It’s not just adding people. The surgeon user growth of 21%, I think, speaks for itself and is is suggest that we’re compelling adoption. We I I mentioned the $23,000,000 of adjusted EBITDA marks the fifth consecutive quarter of positive adjusted EBITDA. It’s 4x improvement over last year, same quarter. We are clearly well past the inflection point on profitability.

We are not only leveraging infrastructure investments we’ve made, but we’re seeing the fruits of the changes implemented last year and, and around expense control. We have an infrastructure in place to support over a billion dollars in in in revenue, and improving EBITDA performance combined with heightened attention on asset management, has produced $5,000,000 in free cash flow. And so, again, I I’m very proud of of the team and and and what they’ve done. We have 217,000,000 of cash and access to cash. We are profitable from a non GAAP net income perspective, and our voracious growth has made us the third in market share in The U.

S. And so I would say that that’s a good quarter. And what I’ll do is turn it over to Todd and let him get into the details of it.

Todd Cunning, CFO, ATEC: All right. Well, thank you, Pat, and good afternoon, everybody. I’ll begin today with the second quarter twenty twenty five P and L highlights. Total revenue was $186,000,000 up $40,000,000 year over year. That’s 27% growth compared to the prior year.

The $186,000,000 in revenue was comprised of $168,000,000 in surgical revenue and $17,000,000 of EOS revenue. Our first quarter surgical revenue of $168,000,000 grew 29% compared to the prior year period. That represents $38,000,000 in year over year growth. We saw no selling day difference year over year as we do include Good Friday in our selling day calculation because history has shown that surgical volume on that day is typically in line with other Fridays. Procedural volume growth was 28%, driven by strong surgeon adoption of 21% and increased utilization of 6%.

Surgeon adoption at this pace reflects both the attractiveness of our portfolio and the coordinated investments we’re making in sales talent to meet that demand. Average revenue per procedure growth was 1%, and that reflects the strong comp we saw from average revenue per case in the 2024. Our same store sales in The U. S. Or sales that come from sales agents that have been in territory for a year or more grew 29% year over year, which demonstrates that we continue to grow significantly in the markets where we are already established.

Our strong surgeon adoption, increased utilization and same store sales growth results are testament to us growing both our share of wallet with existing surgeons and new surgeon adoption within territory. We know that clinical distinction drives surgeon adoption. In the first half of the year, we’ve furthered our clinical distinction by expanding our procedural offering. This includes a new cervical retractor system and unique segmental cervical plating system, corpectomy solutions for cervical and thoracic applications and meaningful new applications for SafeOp in MEPs. We continue to invest in the organic innovation machine, the foundation for future growth.

EOS revenue increased $17,000,000 in the first quarter, up 11% compared to last year. Demand in The U. S. Market, where we have a strong presence with our implant sales force, continues to be the biggest driver of growth in both deliveries and new orders, which positions us for strong system installations and the accompanied implant pull through in coming years. Turning to the remainder of the P and L.

First quarter non GAAP gross margin was 70%, flat sequentially and down 130 basis points compared to the previous year, primarily driven by increased biologics attach rate and product mix associated with the strength in our cervical business. Non GAAP R and D was $14,000,000 in the second quarter, up in absolute dollars both sequentially and year over year, reflecting our continuing investment in the long term growth of the business. Non GAAP R and D expense was approximately 8% of sales in the quarter, with top line growth driving 170 basis points of leverage. Non GAAP SG and A of $108,000,000 was approximately 58% of sales in the second quarter. SG and A was down $4,000,000 sequentially, and the absolute increase in SG and A year over year was driven by variable costs related to our 29% increase in Surgical revenue.

The remaining non variable SG and A was down in absolute dollars year over year. These reductions in absolute dollars of SG and A spend reflect the changes we’ve made to how we operate the business, increased emphasis on driving profitability and cash flow. SG and A improved nearly 1,100 basis points year over year, with 800 basis points coming from both variable expense rate improvement and infrastructure leverage. Approximately 300 basis points of improvement came from leveraging depreciation associated with our prior year instruments investment. We reported total non GAAP operating expense of $122,000,000 which was approximately 66% of sales.

By maintaining discipline as we support strategic growth initiatives, we delivered a modest 7% increase in operating expenses while continuing to invest in the growth drivers of the business. Those efforts, along with our durable top line growth, drove over 1,100 basis points of expansion in our operating margin year over year. I’ll turn next to adjusted EBITDA, which was $23,000,000 or 13% of sales in the second quarter compared to $6,000,000 and 4% of sales in the prior year period, an $18,000,000 increase. This is the best performance we’ve had since the start of ATEC’s transformation. The quarter also marks our third consecutive period with an over 40% drop through on year over year revenue growth to adjusted EBITDA, reflecting both infrastructure scalability and an improving variable selling expense profile.

You can see on the chart on this slide that the profit margin expansion that we are executing has been both significant and consistent. Our trailing twelve months of adjusted EBITDA now sits at $62,000,000 We’re driving meaningful margin expansion that aligns with the priorities outlined in our long range plan and is a result of disciplined execution. These deliberate results give us great confidence in our ability to continue delivering on our financial commitments and translate revenue growth into profit and cash flow. Turning to the balance sheet. We ended the first quarter with $157,000,000 in cash on hand.

Additionally, we had access to $60,000,000 of available borrowing on our revolving line of credit, which was undrawn at quarter end, making our total cash and available cash $217,000,000 Our positive free cash flow of $5,000,000 was again at the favorable end of the 0 to $5,000,000 range that we previously communicated. A record $16,000,000 in cash generated from operating activities allowed us to continue investing in surgical instruments while we’re still delivering positive free cash flow and increasing our overall cash balance sequentially by $4,000,000 We can clearly see the company’s inflection to cash flow generation is taking shape with our trailing twelve months of cash use improving to $22,000,000 this quarter. This year, we are seeing the benefit of the operational improvements we’ve been making, everything from how we plan our inventory purchases to our hiring plans to the operational standards for field assets. I’m very proud of the cross functional teamwork and results we’ve delivered in this area across our company. Execution against those goals contributed to our positive free cash flow in the second quarter and the underlying dynamics of the business reinforce our confidence that we will be cash flow positive for the full year.

Given the magnitude and increasing trend of EBITDA we are generating, our laser focus on managing assets efficiently and the strength of our cash position, it is clear we will not need additional financing. Our financial outlook for this year expects continued strong revenue growth to drive incremental profit margin expansion. We are increasing our full year revenue guidance by $8,000,000 to $742,000,000 as a result of the strong Q2 performance in our Surgical business. Our revenue outlook for the full year 2025 expects adoption of our unique procedural approach to drive Surgical revenue of approximately $666,000,000 and we expect EOS revenue of approximately $76,000,000 As it relates to free cash flow, our second quarter performance further reinforces our confidence in delivering positive free cash flow for the full year 2025. With respect to the cadence of our cash flows for the remainder of ’twenty five, we expect the third quarter free cash flow to range from a positive $1,000,000 to positive $5,000,000 with the fourth quarter generating additional positive cash flow resulting in us being cash flow positive for the full year 2025.

Turning to the outlook for the full year 2025 adjusted EBITDA, we expect sales growth to continue to leverage the infrastructure we’ve built, contributing to an adjusted EBITDA of $83,000,000 a 5,000,000 increase versus our prior guidance of $78,000,000 Notably, trailing twelve months of adjusted EBITDA of $62,000,000 of the second quarter speaks to our ability to deliver on our full year commitment of $83,000,000 As a reminder, our adjusted EBITDA guidance includes us absorbing the impact of expected tariffs in the second half of the year. We continue to estimate the impact of tariffs on our cost of goods sold to be in the low single digit millions of dollars for the full year. We are off to a great start at the half year mark and have confidence we can deliver on our commitments in the back half of the year. The chart on the slide depicts the consistency of the profitability progress we are making and the tremendous power of our business model to drive future profitability. Our adjusted EBITDA guidance of $83,000,000 will generate an adjusted EBITDA margin of 11%.

That implies a 40% drop through of the incremental growth in revenue dollars to adjusted EBITDA. This trajectory positions us well to achieve our 2027 adjusted EBITDA margin goal of 18% at $1,000,000,000 in revenue. Now reflecting on where our financial results are at the midpoint through the year, I’d highlight a few things. First, we continue to grow at five to six times that of the overall market. Second, we’ve generated $62,000,000 of adjusted EBITDA over the last twelve months and are at 13% of sales in the second quarter.

Third, we have our first quarter of non GAAP net income at $3,000,000 And fourth, we have delivered free cash flow of $5,000,000 this quarter. I think it is safe to say we’ve passed the inflection to profitability. It’s exciting to see the team’s hard work paying off as we’ve arrived as a profitable growth company. And with that, I’ll turn the call back to Pat.

Pat Miles, Chairman and CEO, ATEC: Thanks, Todd. Greatly appreciate it. I want to give you some meaningful reflection as to, where the growth is coming from and why the growth is happening. And I would say that the strategy, is steadfast. Our execution, relentless.

We are executing and fulfilling the commitments. The pillars of our business are really are we doing something better clinically? Are we creating clinical distinction? Clinical distinction does compel surgeons, and we are compelling surgeon adoption. I think it’s reflective of the of the 21% new surgeon growth, and we continue to expand and elevate the the the Salesforce.

And so I think under the auspices of those three pillars,

: I think a lot of good things are going on.

Pat Miles, Chairman and CEO, ATEC: I wanna explain a little bit. We’ve we’ve made statements in the past of things like the spine market needs ATEC, and and that is that is not a a a boastful comment. What it does is it is it’s intended to express just how unsettled the spine market is. If you have 10 spine surgeons, how you address the same patient, you’ll get 10 different answers. The reason for this is the spine is highly complex.

It is raw with the myriad of variables that undermine durability. And so when you start to look at the revision rate in spine surgery versus total joints, you’re gonna find that that the spine revision rates are multiples of total joints. And looking at the graphic, you can see total hip sir total hip surgery in ten years is around five percent. Total knee surgery in five years is three percent. And then you’re getting fifteen fifteen to twenty five to thirty percent in short and long segment spine surgery.

And so, I would suggest that that is a is a reflection of a lot of variables that need controlling. Historically, industry’s response has been more widgets or tools to increase the placement precision of the widgets, and I would suggest that that’s not enough. It’s why our view is that the challenges are much more complex and the solutions require greater sophistication. It is, it is really what that’s that’s what drove the design and development of our ecosystem that not only addresses intraoperative challenge, but also improves tariffs’ data driven decision making. And so when you, when you look at what we’ve built, we have built an ecosystem that’s scalable for a long run.

It is why we previously invested in a technology infrastructure that will fuel durable long term growth and profitability. Having previously made these investments enables us to focus our R and D efforts on magnifying the values of each individual technology and then integrate them into a fully comprehensive system. So our end to end ecosystem enables, influence not only in the interoperative phase of spine surgery, which has historically been where spine companies are focused, but also informs preoperative decision making as well as postoperative analytics, outcomes, and trends. So all of this information is fed into the insight portal that uses AI and machine learning models to better inform decision making. And so we believe that these are profoundly important elements that that drive a a long term growth profile based upon the many challenges in spine surgery.

So our foundational informatic investments several years ago in SAFOC, Valens, and EOS enable our ecosystem really to come to life. We’re in the process of architecting informatics and spine procedures into the very best integrated experience. Something else that’s not that’s not been done in spine surgery. Recall the goals of spine surgery. It’s decompression, stabilization, and alignment.

And providing information about the nerves is a foundational of foundational importance with SafeOp, be it the location of the nerve, the health of the nerve, the status of the nerve. These are foundational elements of a a successful interoperative experience. Assuring precision during implant placement or stabilization with navigation robotics through valence is a piece of the pie, not the whole pie, but another foundation of foundational importance as it relates to the goals of spine surgery. And then providing not only alignment parameters and tools for interoperative assessment and reconciliation for which to align the spine as well as providing patient specific implant as required. And so since is since Valence is the next piece of the puzzle to be launched, I wanna spend just a moment on how we will approach the market.

First and foremost, A Tech is a procedure company. Valence will be integrated directly into the step by step workflow of our proprietary spine procedures, things like PTP. And so navigating the the front of the spine, the anterior column with both neurophysiology from a neural perspective and navigation is is is is elegance. And so using the robot to assist in screen place in the back will be the first fully integrated system. What this does is is it democratizes the technique to a much broader surgeon audience who have previously been apprehensive because either they did not train or were just unfamiliar with lateral surgery.

So we see this as another catalyst. The system will have a very small footprint, which we wanna, again, take up little room in the in the operating room. And lastly, we will be very, very aggressive in terms of how we place them. And so our goal is the very best integrated system possible. And so if if you if you look at what we’re doing, really, what we’re doing is is utilizing objective measure that is that enables variable mitigation.

I think where others approach the industry through the proliferation of widgets, we’re taking the approach of variable mitigation through objective measure. We’re objectifying the spine experience. That means bringing measure and supplying more scientific tools to the surgeon versus just relying upon surgical experience experience or distraught. Like so many other fields, by bringing objectivity, we will further the predictability and impact the durability that’s so so much needed. A key to this strategy is automation.

We must be able to collect and translate data that will improve surgery in an automated way. History has demonstrated that it won’t get done if it requires a manual process. We’re in the very early stages of employing our our spine procedure through data mined from our ecosystem. So a a good ways to go. And so the the interest is is to make sure that that, one appreciates why we say that the spine market needs ATEC.

So when you appreciate the unacceptably high revision rates in spine, you have to realize that our approach to variable mitigation is resonating with customers. The numbers suggest as much as well as attracting the best salespeople. That is why we say the spine market needs a day. It should be it should not be a surprise that after six plus years of growing at multiples of the rest of the market, we are now the third largest U. S.

Spine player. We have and will continue to benefit from the dislocation and disruption in the spine market. However, our ecosystem and procedural strategy will continue to fuel our outsized profitable growth. As we’ve said for some time, we will continue to be rewarded by the focus. And so with 100% focus on spine, combined with a team that has unmatched clinical know how and expertise added to a perpetuating effort to create the very best sales team in the business makes ATEC far and away the preferred destination.

And so I remind you that, we are just getting started. Our our ecosystem has years to reflect in improvement, and, and then our our best is is truly yet to come. So a quick thanks to the ATEC faithful. It is them that’s creating this juggernaut. And with that, we will take questions.

Mark, Conference Call Moderator: And the first question comes from the line of Matt Miksic with Barclays. Matt, please go ahead.

Matt Miksic, Analyst, Barclays: Hey, thanks so much. Really appreciate you taking the question and let me just congratulate you on a really strong quarter top line and the direction of cash flow is really encouraging and impressive, congrats. I wanted to ask a little bit about, Pat, your question that I get as well as everything is going, of course, everything is going well, folks start asking for something else. But as strong as the top line has been, as robust as the lateral and prone lateral has been on the enabling technology side and sort of digital side, maybe two parts of one question. What do you anticipate to make the robot different when you do start to put that out in front of folks more and we get a more routine look at it?

And then also what kinds of investments are you having to make or have you made to kind of support the integration of, as you point out, a turnkey front to back solution imaging to automation and and enabling technology? Thanks.

Pat Miles, Chairman and CEO, ATEC: Yeah. You know, Matt, it’s it’s cathartic for me to look back on some of

Todd Cunning, CFO, ATEC: our

Pat Miles, Chairman and CEO, ATEC: original discussions on on robotics. And and and it’s it’s it’s it’s fascinating, to me that, historically speaking, I recall when we assembled multiple products to make for a procedure, the response of the marketplace was, hey. We have we have a retractor. You know, we have one we have a neurophysiology piece in our ENT group, and and we have a implant, you know, a bunch of implants. And one of the problems when you look at the unacceptably high revision rates in spine surgery is that nothing has been designed and developed for the requisite utility within a specific patient population.

And because there’s such a a volume of variables in spine, you know, what happens is is is that everybody just, you know, creates generalized equipment. And I think what makes us different is the procedural architecture of very specific application. And and one of the real opportunities in navigation robotics is to integrate these elements into the workflow of a spine procedure. And so it’s it’s amazing. Right?

It’s like, here’s us, you know, coming out with lateral surgery, and we have a tremendous run rate. And and and the reason we have a tremendous run rate is because there’s a unique know how in terms of the assembly of goods. And I would say it’s the same thing with regard to navigation robotics. I could care less about navigation robotics. What I care about is the reproducibility associated with the surgical experience that requires precision.

And if navigation is a tool that provides us increased precision without radiation, I wanna integrate that in in a unbelievably elegant way. And so where we see the reward in navigation robotics is in the integration of the workflow associated with the spine procedure. We have a interoperative camera. That interoperative camera has a very unique ability to be moved around during the case such that it gets the best view, and there’s no one standing in front of it in the Operating Room. If if if you guys and the investment community could stand in the Operating Room, you’d appreciate the chaos that it that it it that exists.

And to create an elegant workflow where it’s all about execution, using all of the EOS elements about how you’re gonna do something based upon, you know, creating a surgical plan, integrating that surgical plan and all elements into it such that the the robotic piece becomes informed by what the plan is and understands angulation, pedicle volume, and all the other elements such that the the operating room just becomes an execution place. And so our view is is that these things just become part of procedures that ultimately get wrapped into a workflow and that what we have the opportunity to do is make the operating room something that just is all about execution, not not about clinic on you know, on time clinical decision making. And and so we want that to be done before the surgery starts, and then we’ll assess how we did after. We think that that’s how the ecosystem informs better surgery. Sorry for the diatribe.

No. It’s great.

Matt Miksic, Analyst, Barclays: That’s super helpful. Thank you.

Pat Miles, Chairman and CEO, ATEC: Yes, sir.

Mark, Conference Call Moderator: And your next question comes from the line of Yong Lee with Jefferies. Yong, please go ahead.

Yong Lee, Analyst, Jefferies: All right, great. Thanks for taking the question. I guess to to start, just kinda curious. You know, really strong same store growth. I was wondering, you know, how much of the contribution is from the reps added maybe two years ago?

And how much is being helped by the availability of more instrument sets from last year’s investments as well as some of the initiatives with these instruments and instruments that utilization.

Pat Miles, Chairman and CEO, ATEC: Let let me start with a subjective and and give and give have a harder job on the objective. The the first of all, like, you know, half the time, I I I think to myself, you know, are are we communicating the success of the internal teams thoughtfully enough? And that’s what it’s like. I would tell you we’ve evolved as an operational, institution. And, you start to think about, the utility of of assets, and and, we have matured immensely.

And I would I would tip my hat to the team who’s who who ultimately, is responsible for that effort. And so I I would tell you that that, the same store sales dynamic is worth compelling people. And they’re you know, you could believe it or not, but it’s all you’re gonna see is continue a continued growth profile from, from elevated sophistication in the field, and we’ll continue to compel people. We love adding people who are relevant and and and and also people who buy into the surgical thesis. And so I, I can’t quantify it, and I’ll I’ll I’ll defer to Todd’s view with regard to the the increase.

But that’s why we love the same store sales so much is because it’s reflective of a demand profile that when we say, gosh, we’re creating clinical distinction, There becomes a proxy for compelling adoption, and it’s just not us popping off with regard to, hey. More and more people are doing it.

Todd Cunning, CFO, ATEC: Yeah. And, Young, I think there’s a a couple ways to to think about it. I mean, clearly, the the people we’ve brought on board for the last twelve, eighteen, twenty four months have been significant contributors to our growth. And we know that’s true because, as we say, what we do today impacts results twelve to eighteen to twenty four months from here. And I know it’s true because I can see the data.

I think what’s more important or the way I like to think about it is it’s really about the surgeon adoption and the surgeon utilization. And you saw both utilization and surgeon adoption be very strong in the quarter. And I think that speaks to the penetration story. And so it’s kind of tied to Pat’s commentary about same store sales being strong. But clearly, we’re getting greater utilization with our existing surgeon base as well, which I think we’ve talked a lot about.

As people get comfortable with our procedures, they apply those procedures to more complex procedures, and we kind

Pat Miles, Chairman and CEO, ATEC: of get a greater share

Todd Cunning, CFO, ATEC: of wallet over time as you’re I think we’re seeing that play out. As it relates to our efficiency and the utilization of our instruments, I mean, clearly, as we bought forward, I think that buy forward certainly has enabled us to continue to lean into our growth opportunities. We continue to do that. I think the operational sophistication that Pat speaks to has been another leg to that another degree of freedom for us to really be placing assets and instruments, where there’s opportunities. And then what we’re doing is we’re monitoring, the progress of the success of those opportunities, better so that we are ensuring that we’re getting the kind of utilization of the assets that we need.

So we’ve elevated our operational sophistication significantly, which has continued to really enable our outsized growth that we’ve seen.

Yong Lee, Analyst, Jefferies: Great. Very helpful. I’ll just keep it to one and congrats on taking the third share in The U. S.

Pat Miles, Chairman and CEO, ATEC: Yes. Thanks. Thanks, Joe.

Mark, Conference Call Moderator: And your next question comes from the line of Vik Chopra with WF. Vik, please go ahead.

Vik Chopra, Analyst, WF: Good afternoon and congrats on a nice quarter. Thanks for taking the questions. Two for me. You’re guiding to over 20% organic growth this year. Maybe just talk about any puts and takes to consider as we build out our models for Q3 and for the rest of the year?

And then I had a quick follow-up, please.

Todd Cunning, CFO, ATEC: Yes, Vic. I think when I look at where we came into the year, I think we guided to $732,000,000 We’re now halfway through. We’re at $742,000,000 so it’s a $10,000,000 increase since we initially guided into the year. We feel pretty good about that. I think the normal cadence of some sequential step down Q2 to Q3 is typical.

I think that’s kind of where the second half modeling will probably shake out relative to seasonality, if you will. Does that help?

Vik Chopra, Analyst, WF: Yes. That does help. And maybe just a quick update on your robot launch plans. And, you know, are you still on track for early twenty twenty six? And will we see it at mass?

Thank you.

Pat Miles, Chairman and CEO, ATEC: The answer is yes and yes. The no. It it it’s, you know, kinda much like I I was I was going through my my diatribe with Matt. It it’s, you know, the the we are doing the alpha on the robotic piece, and it it it continues in earnest. You’ll see the navigation piece added, so we’ll be doing cases by the end of this year with a combined system in the market.

And then, you know, expect the the influence to be twenty twenty six. But but I guess as much as anything, I’m just I’m I’m super proud of what the reflected utility looks like to to see the a a PTP, which clearly is something that’s near and dear, and watch it, through a navigated, and robotic experience, it’s it’s, it’s exceedingly elegant. And and so it provides me nothing but confidence in its influence of a a broadened footprint. And so the the the one of the really nice things is is, you know, just because the footprint is not very big, the influence can be very big. And we love the fact that we’re not pushing in a a a monster piece of equipment that oftentimes is delivered in a in a semi truck.

What we’re doing is bringing in something that could be delivered in a suitcase. And but the the the key is the influence clinically. And I think that based upon the design sophistication of our guys in Colorado and our guys in San Diego who have been awesome, they you know, I I think it’s it’s it’s an extremely sophisticated, small footprint tool that ultimately is gonna be exceedingly, effectual. And, we’re going to try to put it in as many places and be as disruptive as we can possibly be.

Mark, Conference Call Moderator: And your next question comes from the line of Matthew O’Brien with Piper Sandler. Matthew, please go ahead.

Anna, Analyst Representative, Piper Sandler: Hi, there. This is Anna on for Matt. Thanks for taking your question. You had another quarter of strong surgical volume growth, I think 28%. And I’m just

Mikaela, Analyst Representative, Canaccord: wondering if you could give a

Anna, Analyst Representative, Piper Sandler: bit more color as to really what drove that. And then maybe if you could split that out between what you’re seeing in the ASC versus, the hospital sort of the trends there and your expectations going forward? Thanks.

Todd Cunning, CFO, ATEC: Yeah. I think when when you look at maybe I’ll take the second question first to get out of the way. You know, our ASC mix is certainly sub 10%. I mean, it’s it’s not it’s not big at this stage, but certainly an opportunity, I think, for for spine in general to kinda grow and influence for sure. And I I think we’re well positioned for that because oftentimes, the ASC is really about patient selection.

And I think when you when you think about patient selection, you think about how do you select those patients. And I think EOS and EOS Insight’s a great a great tool for that. But

Pat Miles, Chairman and CEO, ATEC: It’s it’s about controlling pain too. I mean, it’s one of the things with, like, more it’s a morbidity dynamic. And so I think all of our minimally invasive stuff is right for that. But, I think it’s it’s a it becomes a a purge dynamic for who should be selected within that realm. Yeah.

Yeah.

Todd Cunning, CFO, ATEC: So I think that’s the the answer on on the ASC. The the the question we had on on our growth in the quarter and what really drove the organic sales growth, mean, clearly, volume was a big piece of that. I think in this quarter, we saw a bit more utilization contribution than we have in quarters past and feel good about that. I think the overall dynamic is we continue to compel surgeons, and and we’re continuing to fuel that or support that, that, that surgical interest, that surgical adoption with the right sales force. And I think oftentimes people kinda get it backwards.

It’s like, oh, I’m gonna go hire the sales guy, and he’s gonna drive this drive adoption. But but in reality, I think people are are drawn to what we’re doing. Clearly, disruption in the market from a company standpoint has made fertile hunting ground for finding the right people to support the adoption and the demand from a surgical standpoint that exists. And so we really feel good about the dynamics of the marketplace. We love our portfolio.

We’re making we continue to make investments in the portfolio. I talked about a number of areas that we launched in the first half of this year that should continue to be tailwinds into the second half in terms of specific portfolio additions. We feel like we’re in a good spot at the halfway mark.

Anna, Analyst Representative, Piper Sandler: Great. Thanks and congrats on the quarter

Pat Miles, Chairman and CEO, ATEC: again. Thank you.

Mark, Conference Call Moderator: And your next question comes from the line of Josh Jennings with TD Cowen. Josh, please go ahead.

Josh Jennings, Analyst, TD Cowen: Hi, thank you and echo the congrats on the strong print. Maybe a follow-up to the last question just to build on your answer, Pat and Todd, just on the drivers of the growth. I mean, the PTP, LTP, the lateral franchise seems like continuing to gain share in The U. S. Lateral market.

And then you have these new products as you’ve called out with the cervical fracture, cervical plating, corpectomy, I think deformity. Maybe just help parse through the outperformance so far in the first half of the years have been more weighted towards from or driven more by the collateral business or some of these new product introductions? And on top of that, maybe talk about the halo effect that you’re experiencing with nonlateral products.

Pat Miles, Chairman and CEO, ATEC: Yeah. I would say it’s it’s a it’s a bit like you described. You know, it’s I think, you know, some of the initiation of people’s interest in ATEC has been in the lateral realm. And there’s a sophistication with guys like, you know, surgeons like, you know, Louise Pimenton, Bill Taylor, and the people who originally built the lateral franchise, you know, are kind of the foundational, leaders of of what we’ve built here. And so I think that there’s such a sophistication that that I think that becomes the original.

And that’s really kind of, you know, been the the growth driver. But to your point, you know, what we’re seeing now is is that much like SafeOp has informed lateral surgery, we’re seeing EOS informing deformity. And so now we’re starting to see, gosh. You know, you these guys are starting to integrate the information that comes out of EOS into the the not only the surgical plan, but the the deformity structure of what they’re trying to build, you know, you know, from a long construct perspective. So, you know, what what we’re seeing and what makes us so bullish is just the relevance of the ecosystem.

And, candidly, I don’t think that we’ve even begun to see our EOS influence yet. Clearly, we haven’t even launched, Valence. And so I I think that there’s two elements of a in it that, you know, that will ultimately be a very integrated ecosystem that haven’t even started yet. And so we see those things taking place, and we understand kind of the relevance of the technology, and and we see that playing out with confidence. And then that confidence drives things like cervical that are, you know, more difficult to distinguish, but what what we’re seeing is is an opportunity to distinguish ourselves in those in those realms.

Again, the distinguishment may be slightly more, sophisticated, slightly, you know, less grand, but there’s still meaningful surgical distinctions that ultimately drive a confident surgically that people are applying the goods. And so, you know, I think that that the term, coined of the of the halo effect is a great one because it’s reflective of just an expanded confidence in what we’re trying to build.

Josh Jennings, Analyst, TD Cowen: Great. And my follow-up, I mean, it’s related and really just looking at the surgeon user growth acceleration 2Q versus 1Q. I mean, you trimming that to I mean, clearly the success in the market portfolio build out, similar kind of frame up is, I mean, are you seeing more lateral surgeons come in or is the expansion of the portfolio driving that surgeon user growth acceleration because more surgeons are coming in for for nonlateral ATEC procedures and and products? Thanks for taking the questions.

Todd Cunning, CFO, ATEC: Yeah, Josh. I I actually think when you look at it, it’s it’s that we’re just garnering broader interest, and and we’re getting just a a broader level of influence and attracting a broader set of surgeons. And and I think, you know, we internally, we could point to a a number of them.

Pat Miles, Chairman and CEO, ATEC: You know what’s been fascinating? I I think you’ll appreciate this, Josh, is that if you, if you look at our market share, and then you look at our market share where there’s videos, it it it’s it’s meaningfully bigger. And and, I don’t wanna get into the numbers of it, but I will tell you, we’ve not yet reflected the value of it in in the in in the ecosystem description as we as we have outlined it. It’s still like, all of these things are coming to fruition. But, again, we’re seeing an outsized market share in those places where we have an EOS part because guys are utilizing, guys are interested in our goods, our ability to infiltrate those accounts as high.

And so I would say that we’ve never had a bigger interest from academic institutions as we have in the last, you know, half a year. And so, again, I think it just speaks to we’re getting in front of more fellows, or or being more relevant from an academic perspective, And and just we continue to to see an expanse in the volume of surgeons interested in what we’re doing.

Josh Jennings, Analyst, TD Cowen: Makes sense. Thanks so much.

Pat Miles, Chairman and CEO, ATEC: Thank you. Thanks, Josh.

Mark, Conference Call Moderator: And your next question comes from the line of Ben Haynor with Lake Street Capital Markets. Ben, please go ahead.

: Good afternoon, gentlemen. Thanks for taking the questions. First off, just on the penetration story and some of the E. S. Commentary that you just mentioned there, can you maybe talk about what you’ve seen from some of the geographies that you’ve historically or recently been under indexed to?

I mean, it clearly seems like there’s a tipping point where you guys compel adoption with individual surgeons, individual facilities. But how does that play out on a kind of a geographic basis? Is there a concentration that kind of gets you get the adoption accelerating?

Pat Miles, Chairman and CEO, ATEC: Yeah. Let let let me take a shot at just kind of the the the generalities around it. It’s like those of those of you who’ve been in Spine for a long time appreciate that the EOS images is far and away the most coveted image in Spine. It it it it’s it’s not even it’s undeniable. Having an active position, a weight bearing position, and and understanding in space where I need to fix something from an alignment perspective is of is of substantial value.

And so what we’ve seen is, historically, a lot of academic institutions utilize that technology in a way that that ultimately, they’re yearning for some translation ability to it. They see us bringing a translation tool to that effort, and they become enthusiastic with regard to where it could go. When you start to think about the volume of variables that undermine the durability of spine surgery, and you say, what is missing? And what’s missing becomes the the informatic or the predictive nature of things. And what EOS provides is the foundational standards by which you can ultimately create a predictive environment.

And so their enthusiasm is for us to push the envelope from an informatic perspective such that we can get to a predictive state. And that that’s where I would tell you, you know, what’s the value of a company that ultimately, furthers the durability of an environment from twenty five percent to 10% or less and then 5% or less. I think that’s real value creation. That’s how we’re serving the interest of the space, and that’s why we see the academic institutions run towards.

Mark, Conference Call Moderator: And your next question comes from the line of Caitlin Cronin with Canaccord. Caitlin, please go ahead.

Mikaela, Analyst Representative, Canaccord: Hey, guys. It’s Mikaela on for Caitlin. Congrats on the strong quarter and thanks for taking the question. Two from us, but maybe I’ll ask them together. You raised guidance a bit more than the beat.

Can you maybe give a little bit more color on where we can expect the increased expectation in the second half? And then two, if there are any changes to free cash flow generation expectations and the timing of the cash through this year?

Pat Miles, Chairman and CEO, ATEC: Yes, Mikaela.

Todd Cunning, CFO, ATEC: Thank you for your question. So relative to the guide, I think you look at where we came into the year at seven thirty two. We’re now sitting here at seven forty two on the full year. And to your point, we did raise the second quarter guidance here or the guidance here in the second quarter for the full year by a bit more than the beat, we would expect that to kind of land in third quarter. So I think as I shared earlier, we would expect a sequential step down in absolute revenue Q2 to Q3.

And then that Q3, though, still is probably a bit higher than where the Street’s at today relative to the points I just made in terms of where we’d expect that back half raise to show up. As it relates to cash flows, our expectation for the third quarter would be a range of plus one to plus five, and then positive again in the fourth quarter so that we would be, again, positive on the full year. So what I would tell you is we haven’t really changed our cash flow guidance. We continue to land on the favorable end of the range, and that continues to give us confidence that we can deliver on the commitments we’ve made. You know, I think just overall guidance philosophy, as as you’ve probably experienced, has been, we try to put numbers out there that we believe we can achieve and have a reasonable opportunity to exceed.

So that’s how you should think about the guidance.

Mikaela, Analyst Representative, Canaccord: Got it. Thanks so much and congrats again.

Pat Miles, Chairman and CEO, ATEC: Thank you.

Mark, Conference Call Moderator: And your next question comes from the line of David Saxon with Needham. David, please go ahead.

Pat Miles, Chairman and CEO, ATEC0: Great. Good afternoon, Pat and Todd. Thanks for taking my questions and congrats on the quarter. Juggling a couple of calls, so I’ll just keep it high level and hopefully this hasn’t been asked. Just on the portfolio, motion preservation is something you don’t have.

I think you’ve talked about it in the past. But just given your focus on lateral and PTP, I guess, critical is filling that gap just to your overall growth outlook?

Pat Miles, Chairman and CEO, ATEC: Yeah. I I I would say, I I think I think motion preservation in a well selected patient is good surgery. But the the reality is we have so much work to do with regard to our current ecosystem, and I think there’s so much promise in terms of what we’re doing. Know, You we’re gonna let the other guys do the motion preservation stuff for a while. And and so what we’re gonna do is we’re gonna exploit an asset base that is best in class.

And there’s so much opportunity to run with that. We we can’t be more enthusiastic. The level of sophistication in our neurophysiology group is outlandish. The level of sophistication in our navigation robotic group, outlandish. The the sophistication in the imaging group is is unbelievable.

Same with the the mechanical side. And so it’s like, let’s exploit what we do unbelievably well. And and so that’s that’s kinda who we’re gonna be. And and so

Todd Cunning, CFO, ATEC: for as far as

Pat Miles, Chairman and CEO, ATEC: the the eye can see at this point, that’s who we are, and and it’s been reflective of a reasonably good run rate.

Pat Miles, Chairman and CEO, ATEC0: Great. Thanks so much.

Mark, Conference Call Moderator: And your next question comes from the line of Jason Witts with ROTH. Jason, please go ahead.

Pat Miles, Chairman and CEO, ATEC1: Hi, thanks for taking the questions and congrats on solid performance. First off, maybe just a financial question. In terms of CapEx spend for the year, I guess we can back into it, but how should we be sort of modeling this going forward? I mean, what’s your philosophy on CapEx? It sounds like you guys are committed pretty much from here on to positive free cash flow.

So how does the CapEx kind of work into that assumption?

Todd Cunning, CFO, ATEC: Yes, Jason. I think the bulk of our CapEx spend is in instrumentation to support surgical growth. And so as we’ve talked about it, and we laid this out in our long range plan construct, is that for every dollar of year over year surgical growth, we invest $0.75 into inventory and instrumentation. And that instrumentation part, of course, in the cash flow statement shows up in PPE and E. Obviously, the inventory stuff shows up in working capital and inventory and operating cash.

So that’s where it shakes out. I made the comment in my prepared remarks that we generated $16,000,000 of operating cash, inclusive of our investment in inventory, and then spent about 9,000,000 or $10,000,000 in surgical instruments, and we netted out $5,000,000 of positive cash flow. And so that should give you a sense for how that shakes out within our cash flow. And you can kind of look at that line historically. And I think as we think about growth, the inventory and the instrumentation is a $0.75 on the dollar ratio of dollar growth year over year.

Pat Miles, Chairman and CEO, ATEC1: That’s very helpful. Thank you. And maybe just one quick other question on EOS. In terms of the revenue you’re reporting, that’s I assume that’s specifically for capital sales. But can you give us a sense of how much of your business is capital sales versus some kind of purchase agreement type arrangement at this point with EOS and how that’s sort of shaping

Todd Cunning, CFO, ATEC: Yes, Jason. The way it shakes out is the about $5,000,000 a quarter or so is in a recurring revenue stream, maintenance and warranty and the like, and then the balance is capital.

Pat Miles, Chairman and CEO, ATEC1: But in terms of your sales of your approach to the market, are you selling most of your systems?

Todd Cunning, CFO, ATEC: Yes. We primarily sell the systems.

Pat Miles, Chairman and CEO, ATEC1: Okay. That answers my question. I’ll jump back in queue. Thanks very much, guys.

Pat Miles, Chairman and CEO, ATEC: Thanks Jason.

Mark, Conference Call Moderator: And your next question comes from the line of Sean Lee with H. C. Wainwright. Sean, please go ahead.

Pat Miles, Chairman and CEO, ATEC2: Hey, good afternoon guys. Congrats on a great quarter and thanks for taking my question. So as I was wondering, a main pillar of the company’s growth strategy is to expand the certain user base into new procedures that these they just have never tried before for their PTP or deformity. So I was wondering, maybe do you have any evidence, maybe antidotal stories on how many of these new surgeons have you seen that are that are trying the new procedures among the ones that come in for training?

Pat Miles, Chairman and CEO, ATEC: Yeah. I guess just just from an anecdotal perspective, you know, I think one of the frustrations of lateral surgery historically has been, if the goals of of spine surgery are decompression, stabilization, and alignment, you know, the lateral position is a more difficult position for which to realign a patient. Additionally, it’s a very difficult position to place pedicle screws. And so, you know, what’s happened with regard to PTP or prone transcellus is they’re in a much better position by which to garner alignment or lordosis as well as to do have access to both the front and the back of the spine. And so what we’ve seen is people who have historically dismissed lateral as a surgical tool, I think get reinvigorated by the fact that that there are so many options provided by a a a prone position lateral approach that they, in essence, increment their way back into a level of interest.

You know, one of the things that it it feels like is we’ve we’ve inspired a fair amount of enthusiasm around the PPP thing, And, and and there are certain, people who have not trained in lateral surgery who I think will be, helped or assisted by navigation. And so to be able to take navigation and integrate it with neurophysiology into the workflow of surgery, we feel like that just opens up or democratizes more people’s interest in that technique. Because I don’t think that anybody doesn’t wanna have that in their armamentarium of tools to apply to patients. It’s more a matter of where are they comfortable So the ways that we can make people comfortable through technology is what our interest is. And we’re seeing that being played out in in in real time.

So anecdotally, that that’s everything.

Pat Miles, Chairman and CEO, ATEC2: Yeah. Thanks for your thanks That’s for very helpful. That’s all I have.

Mark, Conference Call Moderator: There’s no further questions at this time. I will now hand it over to Pat Miles for closing remarks. Pat?

Pat Miles, Chairman and CEO, ATEC: Yeah. I I would just, you know, end like the last slide said, is our best is yet ahead, and we have a heck of a run-in front of us. We wanna be the preferred location, destination to the best of the best salespeople to translate the type of things that are going on in here. So anyway, thanks everybody for your support and interest in ATEC.

Mark, Conference Call Moderator: That concludes today’s conference call. You may now disconnect.

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