Alphatec (ATEC) Q2 2026 Earnings Call Transcript

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DATE

Tuesday, Aug. 4, 2026, at 4:30 p.m. ET

CALL PARTICIPANTS

• Chairman and Chief Executive Officer - Patrick Miles
• Executive Vice President and Chief Financial Officer - J. Todd Koning

TAKEAWAYS

• Total Revenue -- $214 million in the second quarter, representing 15% growth year over year.
• Surgical Revenue -- $196 million, an increase of 17% year over year driven by higher case volumes and surgeon adoption.
• Adjusted EBITDA -- $36 million, increasing 53% year over year and reflecting a 17% margin.
• GAAP Gross Margin -- 72.2%, an increase from 69.6% in the prior year period.
• Non-GAAP Gross Margin -- 72.5%, representing 260 basis points of expansion year over year due to inventory efficiency and cost reductions.
• Net New Surgeon Growth -- 24% year over year, serving as a leading indicator for future procedure volume.
• Surgical Case Volume -- 20% year over year, reflecting increased utilization across the company's procedural platforms.
• Revenue Per Case -- Declined 2.7% year over year, primarily attributed to biologics attachment and international mix.
• Sequential Revenue Per Case -- Increased 1.5% compared to the first quarter of 2026, indicating stabilizing underlying business dynamics.
• EOS Revenue -- $17 million in the quarter, compared to $14 million in the first quarter of 2026.
• EOS Insight Adoption -- accounts using the platform saw a 32% increase in implant revenue within six months of implementation.
• Operating Cash Flow -- $34 million generated during the quarter, despite significant investments in inventory.
• Free Cash Flow -- $1 million, exceeding the company's break-even expectation and marking the fourth consecutive quarter of positive trailing 12-month free cash flow.
• Cash and Liquidity -- $119 million in cash and $85 million in borrowing capacity, providing total liquidity of $204 million.
• Inventory and Instrument Investment -- $33 million invested in the quarter to support expected revenue growth in the second half of 2026.
• Full-Year Revenue Guidance -- Reaffirmed at approximately $882 million, representing roughly 15% annual growth.
• Full-Year Surgical Revenue Guidance -- Approximately $805 million, reflecting expected growth of 17% for the year.
• Full-Year Adjusted EBITDA Guidance -- Raised to approximately $140 million, up from the previous outlook of $134 million.
• Full-Year Free Cash Flow Guidance -- Reaffirmed at a minimum of $20 million for fiscal year 2026.
• Interest Expense Reduction -- More than $6 million in annual savings expected following the consolidation of legacy debt into a single credit facility maturing in 2031.
• Third Quarter Free Cash Flow Guidance -- Projected to be between $4 million to $6 million.
• EOS Insight Penetration -- Currently 15% to 20% of the existing EOS installed base, with expectations for rapid expansion.

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RISKS

• Koning stated, "Fundamentally, it's the fact that our biologics attach rate has stabilized rather than improved," noting that this lack of improvement compared to prior expectations contributed to a decline in revenue per procedure.
• Miles stated, "disappointed in some of the biologics attachments," identifying the need for more discipline in the sales channel to improve attachment rates to procedures.

SUMMARY

Management reported that Alphatec Holdings (NASDAQ:ATEC) continued to scale its procedural ecosystem during the second quarter, achieving its fourth consecutive quarter of positive trailing 12-month free cash flow. The company stated that its growth algorithm, which relies on clinical distinction to drive surgeon adoption and expanded utilization, resulted in surgical case volume growth of 20%. Management noted that the integration of informatics through EOS Insight is providing access to academic institutions and driving significant revenue lifts at established accounts. The company reported that it has front-loaded capital investments in inventory and instrument sets to support an anticipated acceleration in surgical revenue growth to 17% in the second half of the year.

• CEO Miles noted that the company has achieved a tenfold increase in quarterly revenue over the eight years since the turnaround began, stating, "it is more of a starting point" for building a long-term spine surgery standard.
• Management identified the deformity and pediatric markets as significant growth catalysts, with EOS imaging and alignment data serving as a "hunting license" to gain entry into prestigious academic centers.
• The company is transitioning its Valence technology from a navigation platform into a procedural operating system, recently receiving FDA clearance for interoperative alignment (IOA).
• CFO Koning explained that the $20 million free cash flow target for the full year is supported by a significant step up in the fourth quarter, driven by "incremental EBITDA growth combined with the fact that you're investing less in sets and inventory."
• Management reported that international expansion in Japan, Australia, and New Zealand is proving that the company's clinical model translates globally, with international markets expected to become a larger part of the business.
• The company noted that 15% to 20% of the EOS fleet has adopted EOS Insight, with Miles stating, "we are in its absolute infancy" regarding data collection and predictive analytics capabilities.

INDUSTRY GLOSSARY

• ACDF: Anterior cervical discectomy and fusion; a surgical procedure to treat nerve root or spinal cord compression by removing a damaged disc in the neck.
• ALIF: Anterior lumbar interbody fusion; a type of spinal fusion that involves approaching the spine from the front of the body.
• BMP: Bone morphogenetic protein; a protein used in spinal fusion to stimulate bone growth.
• EOS Insight: A cloud-based informatics platform that provides automated 3D spinal alignment measurements and surgical planning.
• IDE: Investigational Device Exemption; a regulatory process that allows a device to be used in a clinical study to collect safety and effectiveness data.
• PTP: Prone Transpsoas; a proprietary lateral approach to spine surgery performed with the patient in the prone position.
• SafeOp: An automated neural screening and somatosensory evoked potential (SSEP) monitoring technology used during surgery.
• TLIF: Transforaminal lumbar interbody fusion; a surgical technique to stabilize the spinal vertebra and the disc or shock absorber between at the lower back.
• Valence: An interoperative navigation system integrated into the company's procedural workflow.

Full Conference Call Transcript

Operator: 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 current expectations and are subject to uncertainties that could cause actual results to differ materially. These uncertainties are detailed in documents filed regularly with the SEC. During this call, you may hear the company refer to non-GAAP or adjusted measures. Reconciliations of these measures to U.S. GAAP can be found in the supplemental financial tables included in today's press release, which identify and quantify all excluded items and provide management's view of why this information is useful to investors.

Leading today's call will be ATEC's Chairman and CEO, Pat Miles; and CFO, Todd Koning. Now I'll turn the call over to Pat Miles.

Patrick Miles: Thank you much. Appreciate it. Welcome to our Q2 2026 financial results call. There will be some forward-looking statements, so please review at your leisure. This quarter reflects a solid performance in both growth and profitability. We did $214 million in Q2, up 15%, with surgical up 17%, cases were up about 20%, and surgeons about 24%. Those are the leading indicators that affirm that this is both a utilization story and an adoption story. We're adding surgeons. They are doing more with us. The business is working and we are scaling. The quarter also showed strong leverage. We generated $36 million of adjusted EBITDA, up $15 million sequentially at a 17% margin, while producing positive cash flow.

When you step back, this is exactly the compounding engine we've been building. More surgeons, more cases, more platform pull-through, and now it's dropping to the bottom line, creating profitable growth. EOS came in at $17 million for the quarter. Fundamentally, EOS affords us access, and as importantly, accelerated hardware usage from EOS Insight when it goes live. I'll come back to that later. Todd's going to take you through the numbers, and then I'll walk you through the catalysts that give us more enthusiasm today than ever before. We are just getting started. Over to you, Todd.

J. Koning: Thank you, Pat. The second quarter results reflect the continued strength and consistency of the company we are building. We delivered strong revenue growth, significant profitability expansion, and positive free cash flow, extending our track record of converting top-line performance into meaningful financial results through disciplined execution and scale. We've been very deliberate in how we allocate resources, invest in growth initiatives, improve asset efficiency, and leverage our infrastructure as the business grows. That discipline continues to translate revenue growth into expanding EBITDA margins and cash generation. Consistent with recent quarters, we continue to see robust surgeon adoption and procedural volume growth, clear indicators of long-term demand for our procedural solutions.

Total revenue was $214 million, up 15% year-over-year, with surgical revenue of $196 million, growing 17%, a $28 million increase over the prior year period. That growth continues to be driven by the core elements of our model, approximately 24% growth in surgical adoption and 20% procedural volume growth. The consistency of net new surgeon adds and case volume, both at or above 20% again this quarter, speaks to the ongoing momentum and durability in our surgical business. Overall revenue per case declined approximately 2.7% year-over-year, driven by case mix and strong international growth. The remaining pressure was primarily attributable to biologics attachment, which stabilized in Q2 but remained below prior year levels.

Improving biologics attachment remains an area of focused execution. Encouragingly, and consistent with prior periods, our average revenue per case across individual core procedures remains strong. Lateral, ALIF, and cervical were all up year-over-year. Also, revenue per case improved sequentially by 1.5% in the quarter, reflecting increasing stability in the underlying business. Turning to EOS. Revenue was $17 million in the quarter, up from $14 million in Q1, and essentially flat year-over-year, with demand for systems remaining strong. EOS Insight adoption continues to grow, and we are seeing increasing evidence that these accounts become meaningful adopters of our procedural solutions following implementation. Among established EOS Insight accounts, implant revenue increased approximately 32% within 6 months of go-live.

These results reinforce the strategic value of EOS and EOS Insight as important drivers of surgeon engagement, procedural adoption, and long-term growth. Turning to the P&L, gross margin for the quarter was 72.5%, an increase of 260 basis points year-over-year, driven by continued improvement in inventory efficiency, cost reductions, and product mix. Operating expenses grew 11% while improving approximately 260 basis points as a percentage of revenue, signifying strong operating leverage and reflecting our approach to make disciplined, targeted reinvestments in the business. The combination of strong revenue growth, gross margin expansion, and disciplined execution drove adjusted EBITDA of $36 million, up approximately 53% year-over-year.

Adjusted EBITDA margin expanded 420 basis points to 17%, further proof of the increasing scalability of our operating model and our ability to deliver expanding profitability. Turning to the balance sheet, we ended the quarter with approximately $119 million in cash and $85 million of available borrowing capacity, providing roughly $204 million of total liquidity. We generated $34 million of operating cash flow during the quarter while investing approximately $33 million in inventory and instrument sets to support continued surgeon adoption growth of more than 20% and position the business for the expected revenue ramp in the second half of 2026.

As a result, we generated approximately $1 million of positive free cash flow, exceeding our expectation of roughly break-even, and delivered positive trailing 12-month free cash flow for the fourth consecutive quarter. We expect the third quarter to reach $4 million to $6 million of free cash flow. During the quarter, as we announced previously, we completed our new term loan A and revolving credit facility with JPMorgan and TD Cowen. The transaction consolidated 2 legacy facilities into one single capital structure, extended our maturities to 2031, and is expected to reduce annual interest expense by more than $6 million.

Together, these actions further strengthen our balance sheet, lower our cost of capital, and provide additional flexibility as we continue to grow and scale the business. Turning to the revenue outlook, we are maintaining our full-year revenue guidance of approximately $882 million, representing growth of roughly 15% for the year. This includes surgical revenue of approximately $805 million, unchanged from our prior outlook, and representing growth of approximately 17%, and EOS revenue of approximately $77 million. We expect high-teens surgical case volume growth in the second half of the year.

Average revenue per case is expected to decline in the low single digits for the full year, with the year-over-year impact continuing to moderate as we move through the second half and exit the year. This implies that the second-half surgical revenue growth will accelerate to 18% from 17% in the first half of the year. Given our growth outlook, sustained improvement in gross margins, and ongoing operating discipline, we are raising our adjusted EBITDA guidance to approximately $140 million, representing a 16% margin, up from our prior outlook of $134 million. We continue to expect at least $20 million of free cash flow for the full year.

We are reaffirming our revenue and free cash flow guidance and raising our profitability outlook, reflecting our confidence in the continued progression of margins, profitability, and cash flow generation. With that, I'll turn the call back to Pat.

Patrick Miles: Thanks, Todd. Our strategy is unchanged because it is working. If we go back 8 years since we started the ATEC turnaround, we have 10x the quarterly revenue. I don't say this because it reflects a destination, but more to reinforce that we are doing things differently. For us, it is more of a starting point. We are generating results because we remain committed to creating clinical distinction, earning surgeon adoption, and building an aligned sales machine that scales. That's been our model for years. Serve spine surgery uniquely well, earn surgeon trust, and evolve the sales model. Creating clinical distinction is the root of everything we do. We don't focus on designing individual products.

We integrate them into procedures that make for better surgical intervention. Adoption and growth come because the surgeons whose trust we've earned make the clinical decision to keep expanding what they do with us. We know that philosophy is working because surgeon demand remains very high. But clinical distinction only compounds if you have a sales machine to carry it into the field. Our disciplined, energized, and built-to-scale sales force is part of the procedure. It's what turns a better procedure into broad adoption. Put the 3 commitments together and the outcome is straightforward. Do something clinically meaningful, surgeons adopt, and it scales.

What creates a 20% increase in case volume and a 24% net new surgeon growth is that we focus on selling entire procedures, not just widgets. The volume of variables that undermine spine surgery success are many. The opportunity to mitigate them through carefully architected spine procedures is apparent. We assemble procedures from the ground up, and better spine procedures leads to expanded indications, expanded indications to greater complexity, and all that generates more revenue. We start in lateral for a reason. It's where we have the most know-how and the most apparent opportunity for us to create distinction. PTP has profoundly improved surgery, creating optionality for the surgeon while minimizing morbidity for the patient.

I was reminded of this recently while watching a lateral case. What used to be a long surgery with a myriad of variables is now a reproducible, efficient, and confidence building surgeon experience. The benefits of lateral surgery for patients has been apparent for decades. The challenge has been enabling more surgeons to feel confident that they can predictably perform the procedure safely and reproducibly. The advancements we've introduced to lateral surgery, including SafeOp, Valence, patient positioners, retractors, and implants, all designed to function as an entire comprehensive procedure, have produced a compounding effect on growth. We train and convert a surgeon to perform lateral surgery safely and reproducibly.

Once that surgeon becomes more confident, they begin to treat more and more of their patients laterally instead of using other approaches and also to use the lateral approach to address more complex pathologies. That is why our new surgeon growth metric is such an important leading indicator of future growth and why we know that we have just scratched the surface of our long-term potential. Once surgeons trust you in lateral, they expand their utilization across other procedures, such as cervical, TLIF, posterior fixation. That's how surgeon utilization compounds. More surgeon users applying multiple products within each procedure is how we drive convoyed sales or products per case.

It's what happens when you design procedures the right way from the ground up. EOS continues to be a pivotal part of our strategy. Installation can be bumpy quarter-to-quarter, but the post-installation EOS experience is playing out as expected. EOS Edge is a foundationally necessary clinical tool that avails us access to many of the world's most prestigious institutions. These were hard, if not impossible, institutions for us to access previously. However, with a tool as clinically relevant as EOS, we gain access, which gives us a hunting license to drive and expand adoption of our surgical procedures. What's also becoming increasingly important is that many of these institutions are training the next generation of spine surgeons.

By establishing ourselves with leading academic centers and fellowship programs, we are expanding our influence with a younger cohort of surgeons who are learning alignment-based, data-driven surgery from the outset. From this access, EOS is shaping future adoption. When EOS becomes part of the clinical workflow from diagnosis, pre-surgical planning, interoperative reconciliation, and follow-up, it starts driving case volume through Insight, alignment, bone mineral density assessment, surgical planning, patient-specific rods. Over time, EOS builds something more valuable than one product. It generates a structured data set. That becomes the moat. We are already realizing the benefit to the tune of about a 32% revenue lift per surgeon after EOS Insight is adopted.

This is still just the beginning of the advantage we expect to see EOS and Insight provide, but early returns are very encouraging. Turning to surgical execution, historically, spine companies competed around implants. We think the future belongs to those who can meaningfully improve how surgery is diagnosed, planned, executed, and evaluated. That's exactly what we've invested in with EOS, Valence, and SafeOp. Interoperatively, let me start with Valence. Across the initial clinical experience, we're seeing what we expected. Surgeons finding value in the technology, the workflow is elegant, and the procedural integration is working. The experience continues to improve with increased usage and feedback. We've been very deliberate with Valence.

Our near-term focus has been getting the experience right through expanded utilization. We've always thought Valence as a foundation to bringing more technology into the OR. Milestones like our recent FDA clearance for IOA, or interoperative alignment, and Contour 3D, our automated rod bender, expand our capability, while strengthening the technology foundation we're building. We don't view Valence as another navigation platform. We believe it will become the operating system through which more of the procedural experience is orchestrated. SafeOp plays an equally important role. It continues to evolve and expand in its utility across more procedures. It's a source of real-time, actionable intelligence around neurolocation and health, helping surgeons make better real-time decisions interoperatively.

When you combine improved surgeon decision-making through EOS Insight with interoperative technology such as Valence and SafeOp, with the procedural innovations we've introduced over the past several years, what emerges is an integrated ecosystem that deepens surgeon confidence and makes ATEC increasingly essential to surgical execution. Our aim is to be indispensable. EOS, Valence, and SafeOp move us meaningfully closer to that objective. Another area where we are seeing growing influence is in deformity. These are some of the most demanding procedures in spine, and we're earning a seat at the table in partnering with leading KOLs.

EOS imaging, alignment data, bone mineral density assessment, patient-specific planning, patient-specific rods, and a differentiated deformity portfolio all come together to help surgeons execute a myriad of complex cases with greater confidence. What's encouraging is that many of these relationships started elsewhere in the portfolio and migrated to complex deformity based upon the trust through EOS, use of our lateral, cervical, and other procedures. International growth has proved our clinical distinction model translates globally. We've been deliberate in focusing our efforts in some of the most attractive spine markets in the world: Japan, Australia, and New Zealand. And we're seeing the model play out as intended. Clinical distinction drives surgeon confidence. Surgeon confidence expands utilization. Utilization drives growth.

As we enter these new markets, we're exporting and replicating a proven model. In every market where we successfully replicate, that model expands the long-term opportunity in front of us. Our international growth is a reflection of a clinical thesis that works. When you step back and look at our business today, what gives us great confidence is the ecosystem that we've built and are refining. We've talked throughout this call about the growth algorithm at ATEC. Clinical distinction compels surgeon adoption. Surgeon adoption expands utilization. Utilization compounds over time. The encouraging thing is that multiple cats are now reinforcing that algorithm simultaneously. We have procedural innovation driving the convoyed sales effect.

Lateral continues to earn surgeon confidence and expand utilization. EOS and EOS Insight are creating access and building a differentiated informatics platform. We are growing our influence in deformity and pediatrics, commercializing Valence, integrating SafeOp more deeply into surgical execution, and successfully replicating our clinical model in attractive international markets. We continue to be a magnet for the best sales talent in spine. Each of these catalysts is an expression of the same strategy. Create clinical distinction, earn surgeon trust, and expand utilization. Scale the business with the best sales force in spine. That's what we're doing. Let me leave you with this. I'm excited for the back half of the year.

As we discussed, new surgeon growth in Q1 and Q2 exceeded 20%, which is a powerful leading indicator for future growth. Both EOS installations and orders rebounded nicely in Q2, reinforcing our confidence in the opportunity ahead. International is contributing as designed and will become a bigger part of our story over time. We have also continued to invest in instruments and inventory while attracting the right people to support the strong surgeon adoption we continue to see. We're in this for the long haul. We are building ATEC for decades and beyond. This quarter showed we can continue to grow at multiples of the market and turn that growth into profitability and cash.

We are the preferred destination in spine. Best surgeons, best talent, and best outcomes. It's a long game. We believe the long game belongs to us. Thanks to everyone on the call, and most especially the ATEC faithful. Our best days are yet ahead. With that, Operator, let's take some questions.

Operator: The first question comes from Vik Chopra with BMO Capital Markets.

Vikramjeet Chopra: Congrats on a nice quarter. Pat or Todd, I guess, whoever wants to answer this one. With surgical volumes growing 20% in the quarter and surgeon users are up 24%, I guess where do you see the greatest remaining opportunities to drive sales force productivity and SG&A leverage as the business scales towards a $1 billion-plus in revenues?

Patrick Miles: Yes, Vik, thanks for the question. I'll start. I think that the lateral piece is in its infancy. And I would love to see more TLIF turn into lateral. And as a 10% market shareholder, they're just -- there is so much opportunity out there, it's kind of crazy. And so I see from a sales force efficiency perspective, just picking up more of that business. Clearly, we'll talk about it, but disappointed in some of the biologics attachments. So there's opportunity to pick up just more biologic attachment to the volume of procedures that we're doing. And so totally bullish on the back half. We're in the infancy of the whole deformity thing.

We've not yet reflected the type of footprint that we can create in deformity. We're in its infancy. I think EOS, the influence coming from EOS is in its infancy. So there's just tons of place I see as being opportune for us to continue to grow at an outpaced rate.

J. Koning: And Vik, I'd add just on the scaling and how that translates to the profitability of the business, like clearly you saw a strong profitability drop-through of about 45% here in the second quarter. We raised the guidance really on the strength of an improving gross margin profile in the second half of the year. And so, last year we dropped through about 40% of the revenue growth to profitability. Our guidance implies about the same 40%. And so feel quite good about our ability to continue to grow the business and see that scale and improved profitability profile as we grow.

Patrick Miles: Just as an add to that, I think the structure has been built. And I think when you start to think about the ecosystem from a product perspective and then just foundationally, just the buildings and the people and the like, we'll continue to grow people-wise, but it's going to be one of those things where we'll continue to build off the scale.

J. Koning: Correct.

Vikramjeet Chopra: Can I just ask a quick follow-up, Pat? You mentioned the biologics attachment rate. I think you said in your prepared remarks that it stabilized during the quarter. Can you talk about what initiatives you have in place to drive improvement? And when we should expect that headwind to become neutral or potentially a tailwind?

Patrick Miles: Yes, I think the 2 things in the near term is more discipline from a selling perspective is clearly a key one. We're also going to continue to put the pedal to the metal on new products. And I think we have a number of new products coming forth that are going to enable us to continue to provide a meaningful distinction. I think it's one of the hardest places ever outside of BMP to create real product distinction. And that's why we did the Theradaptive deal. It's one of those things where it's like, we realized that we'll be the second company to have BMP on the marketplace. Medtronic's doing $700 million in BMP.

It's purely the most unique product in the space. It's the one that's gone through the IDE. We'll have gone through the IDE with Theradaptive. And so we're totally enthusiastic that we, in essence, got that done, just saying as we need to distinguish ourselves in a space that's ultimately profoundly important to the field.

Operator: Our next question comes from Mathew Blackman of TD Cowen.

Mathew Blackman: Can you hear me okay?

Patrick Miles: Loud and clear.

Mathew Blackman: Great, guys. I've got 1.5 questions. Let's start with -- and both for Todd, I guess the half question, any chance you'd be willing to break down the 20% worldwide surgical procedure growth into U.S. versus OUS? Just curious if we could get some geographic granularity on that? And then one follow-up.

J. Koning: Matt, we're not breaking that out at the moment. I think as we get more meaningfully sized outside the U.S., we'll begin to break that out. But it is a growing contribution, for sure.

Mathew Blackman: Okay, and I guess the real question is, obviously you had talked about revenue per procedure for the full year when we spoke last quarter, being flattish, now you're talking about sort of being down low single digits. Can you just tell us what changed? Is it that the biologics attachment rate? Is it still outsized cervical uptake or is deformity lagging? Just any help into understanding the change and the outlook for the revenue per procedure, and then I'll hop back in queue.

J. Koning: Yes, absolutely, Matt. So I think, one, it's important to note, we grew volumes in the first half 20%, and our guidance implies high-teens volumes in the second half. So I think the underlying growth and health of the business is strong. Those volumes obviously being driven by both cervical and international, which is a mix headwind, and that may be a little bit more of a mix headwind than our guidance implied. But fundamentally, it's the fact that our biologics attach rate has stabilized rather than improved.

And so what we did was we include less improvement in the second half than we had previously from an attach rate standpoint to ensure that we had essentially reflected the current level of performance in our attach rate in the second half. And then as we go into the fourth quarter, the revenue per procedure comps get just a bit easier. And so that's how we think about the second half revenue per procedure.

Mathew Blackman: Okay, fair enough. I just wanted to make sure. It does sound like it's cervical mix, maybe slower ramp on biologics, but importantly not sort of lagging on the deformity side. I know 2Q isn't the biggest quarter, but 3Q certainly could be. I just want to make sure that opportunity is still sort of front and center.

J. Koning: Yes, you're right, Matt. I think the point is that when we looked at our revenue per procedure performance in the quarter, about three quarters of, I'll call it the miss in terms of revenue per procedure of where we wanted it to be, was really a biologics phenomena more than anything.

Patrick Miles: Yes, I was going to pipe, yes, just the deformity influence just continues to grow as expected. And so the EOS thing is playing out. And I can't be more enthusiastic about the foundational thesis of it and just how it's being reflected in the field.

Mathew Blackman: And you also have more deformity sets out this quarter than you did, sorry, in the third quarter than you did last year, right? That's also part of the incremental CapEx spend this year?

J. Koning: Yes.

Operator: The next question comes from Allen Gong of JPM.

Allen Gong: Hi, this is [ Henry ] on for Allen. I appreciate you taking the questions. Recently from some of the other ortho companies, we've heard indications of maybe some procedure volume slowdowns. Can you add any color on what you're seeing from your perspective? And maybe more specifically, if there's been any material impact from the recent ACA changes? And then just a quick follow-up.

Patrick Miles: Yes, I'll let Todd speak to ACA change. But the dynamic is one of -- our volume was robust. Our new surgeon additions, robust. I think that it's fascinating in terms of what's elective and what's not. And I think that neural pain is one of those things where there's an inevitability of an intervention. If you go under the knife to get a spine surgery, rarely is it elective. And so we're seeing -- we're a proxy for nothing, just as a quick point. But we're seeing robust volumes and kind of a consistent marketplace. And so, Todd...

J. Koning: Yes, and just on the ACA piece, we've done some analysis. And I think our work would suggest that we're probably less than 5% exposed to ACA volume, so we really think it's a non-factor for us. And then turning to gross margins a little bit. It was obviously a great quarter from that perspective. Is there anything in particular you both would like to call out on the performance this quarter? And then looking forward, how sustainable can we expect results like this to be?

J. Koning: Thanks, Henry. I think the 3 things I called out in my prepared remarks were just inventory efficiency, and that's really just a function of the good work our operations team and our sales channel have done in terms of improving our -- just really the -- yes, just like turning our sets and being able to understand where our inventory is and controlling it within the field. And hence you get less write-off and less loss as a function of that. So it's really the chain of custody that we've improved there and through a lot of good focused work. I think on the second point, is we've improved some cost reductions, so our standard margins are solid.

And that's really a function of either new design work we've done or revised designs that we've done. So -- or it's also the work of or the result of just volume efficiency with our supply chain partners. So I think, again, from an operations and engineering standpoint, good work is being rewarded from a gross margin standpoint there. And then the third piece is the mix. And so we had less biologics and less EOS mix in the quarter, and so both of those things are a function of the sales dynamic.

And so as you look in the second half, we obviously have a lot more EOS mix in the second half than we do in the first half, which is why our guidance would imply something closer to 71%, which is about 50 basis points better than what our previous guidance would have implied in the second half.

Operator: The next question comes from Tom Stephan of Stifel.

Thomas Stephan: First one, just on free cash flow. Todd, maybe for you, I think you mentioned $4 million to $6 million in 3Q. So hopefully my math here is right, but that implies $25 million or so in the fourth quarter to get to the $20 million plus, which is a pretty big step up sequentially and year-over-year. And I think in the second quarter free cash flow might have been down a bit year-over-year. So, Todd, talk to the -- I guess drivers of that improvement notably as we kind of exit 2026. And where your level of confidence stands in achieving that $20 million plus free cash flow number for the full year? And then I'll have a follow-up.

J. Koning: Thanks, Tom. So we, as I noted on the call, we've invested $33 million this quarter. Frankly, we invested about the same amount in the first quarter. So if our range is $90 million to $100 million on the full year, we've done $66 million. So we've front-loaded that investment and clearly that's purposeful to take advantage of the growth opportunities we have in the second half. And so if you look at where we are today and if you take a drop-through of 36.5%, or excuse me, 36% year-over-year in the second half on revenue growth to EBITDA, you come to the conclusion that our Q3 to Q4 step up in EBITDA is about $10 million.

And so if we deliver $5 million as a midpoint on the free cash flow in Q3, you add $10 million of it to -- to that to get to Q4. So now you're at $15 million. And knowing that you're going to spend less on sets and inventory in the fourth quarter than you do in the third quarter by the order of probably $10 million to $15 million or so. That really is that bridge that gets you from $5 million to $25 million, Tom.

So I know optically it's a big step up, but the components really are incremental EBITDA growth combined with the fact that you're investing less in sets and inventory in the fourth quarter than you are really in the first three quarters.

Thomas Stephan: Got it. Super clear. Appreciate it. And then maybe to shift gears a bit just to surgical. Pat or Todd, it'd be great if you could comment on surgical trends kind of throughout 2Q, exiting 2Q, and notably into 3Q. I guess when I look at the implied guide to hit surgical, which you maintained, I think it does require the 2-year CAGR in the back half to remain fairly consistent with the second quarter. So maybe if you can talk to surgical trends and what drives your confidence in sustaining kind of this 2Q performance through the back half?

J. Koning: Thanks, Tom. I think a couple things. When you looked at the year-over-year dollar adds in Q2, we were at $28 million, and that's compared to $26 million in the first quarter. So surgical dollar adds year-over-year accelerated Q1 to Q2. So that's good. The year-over-year growth at 17% stabilized from Q1. So I think that's another good measure. When you look at the year-over-year, 2-year CAGRs, to your point, it actually is a bit of an acceleration in Q2 over Q1, and the same holds for the dollar add rate in Q2 over Q1. So I think the trends, I think all point to a stabilizing and improving environment as we've worked through the first half so far.

Then I really point to the fact that we've seen north of 20% surgeon adds. That's generated 20% surgical volume. That surgical volume growth at 20% is north of the high teens that's implied in the guide in the second half. And when we look at the pipeline, look at the opportunity, we've clearly forward-invested in the sets and inventory to take the most of the opportunity that we see in front of us. And so we think we're well-positioned from a sales force and a set addition standpoint. So we have the assets to drive the revenue.

And I think the dynamics that have really gone on in the first half of the year, all point to our confidence in the second half.

Operator: The next question comes from Patrick Wood of UBS.

Patrick Woodt: You've got, [ Daniela ] on for Patrick. Appreciate you taking my question. I wanted to ask you about Valence and how the launch has been going. You called out in the prepared remarks that EOS placements have been notable across academic centers, so I was wondering if you've also seen outsized demand for Valence at those facilities? Or perhaps it's more the outpatient ASC settings since I'm sure the smaller footprint and lower ASP versus peers is a great value prop. So any color you could give on the facility mix of placements would be very helpful.

Patrick Miles: Yes, I wish I could provide great distinction because your question is totally relevant. And the interesting part is we're seeing academic institutions evaluate and kind of integrate the Valence piece, and the early experience from a utilization perspective has kind of been both. And it's gone kind of as we expected. The real virtue, in my mind, just becomes the elegant workflow of it. There's an in-field camera, which may seem like a small thing to you guys, but it's completely controllable by the surgeon. And I think what's been the great reception is just the ability to, again, control all the variables within the procedure.

Because of the cost of goods, one would presume this is a great ASC tool, which we believe it to be as well, but what we're seeing is kind of a mix in terms of both academic and community hospital and ASC-type utilities. So I wish I could provide you some great insight other than the fact that the utilization is going as planned. We're placing as many as we expected to, and most of them are going the way of earn-out type of dynamics. People aren't coming up with capital in the same way they did years ago.

Operator: The next question comes from David Saxon of Needham & Company.

David Saxon: I wanted to follow up on the case volume growth assumption, the high teens in the back half versus 20% in the first half. So I guess, directionally, a slowdown, what's driving that? And then on the case mix perspective, cervical starts to face tougher comps, I believe. So just your level of confidence in sustaining the lateral case volume growth, so you can, in fact, start to see that better case mix.

Patrick Miles: Yes, I'll do the subjective and I'll let Todd do the quantitative, which is always harder. What we're seeing is really kind of new product acceptance on the lateral side. And so there's a lot of enthusiasm and momentum. PTP continues to show up big. And so as we see new users and the expectation of utilization and a ramping dynamic, I think that there's a lot of confidence here. Also, the whole deformity season is still forthcoming in the grand scheme of things. So our view that we're going to get, again, more thoracolumbar type of volume is there.

Those are the general things that provide my confidence, and I think numerically, we're just trying to be as thoughtful as we possibly can in terms of being methodical. And so...

J. Koning: Yes, I think, David, your question is volumes were 20%, but we're guiding to high teens. Why? Why the deceleration from a volume standpoint? And I would just point to the fact that we just reaffirmed our full-year guide. We beat the consensus a bit in the first -- in second quarter. And so ultimately, we're just trying to focus on execution. And I think that kind of is the result of keeping the full-year guide unchanged in the context of beating the consensus number in the second quarter.

Operator: The next question comes from Caitlin Roberts of Canaccord Genuity.

Caitlin Roberts: it's Mikaela for Caitlin. Congrats on a solid quarter. Last quarter you outlined some initiatives to improve your EOS execution. Can you maybe talk a little bit more about the progress you've made there? And are there any additional investments you need to make? Maybe if you can talk more about like what you're seeing so far in Q3 and how we should think about placement throughout the remainder of the year? Sorry, that was a long one.

Patrick Miles: No, it's a good one. Can I tell you, like, the EOS thing is one of the biggest differentiators that we have within the whole ecosystem, and it is a foundational tool. And as I said in my prepared remarks, I don't know of a more clinically relevant tool there is. And when you start to think about just the opportunity to effectuate improved surgery, the type of information that the surgeons are distilling, I think, is such a key piece. And so, here's an example, and I'll get right to the answer to the questions.

But when you start to think about three-dimensional reconstruction of the spine and you start to think about the Scoliosis Research Society providing a 3D classification, we can be the proxy of that classification. And so when you start to think about, hey, I'm going to do a surgery, I'm going to be able to immediately understand the classification. We should be able to create some predictive elements around that, how the patient is going to do within that classification and plan the case that way. And so the types of institutions that are coming forth and buying into this thesis has been significant, both from an academic perspective.

You know what's been interesting is we've seen placements in the community as well. Like there's an institution where I was speaking to somebody internally today, whereby these guys are generating a lot of revenue from an EOS unit in their clinic. And so the great part is it's a private group generating revenue in their clinic that ultimately effectuates better surgery. And so it's a very thesis that we've laid down in terms of just why we're doing what we're doing. The other thing is you're seeing the translation of EOS Insight. And so I think we gave -- if you're using EOS Insight, we're seeing a 32% increase in revenue in that institution.

And so you start to see, gosh, these things are starting to take hold. And so from an infrastructure perspective, I would just say that we continue to get more sophisticated. I would say the early experience from our capital equipment, the process wasn't as robust as we probably could have been. And so the type of sophistication that we've brought into the company that's guiding and leading those efforts is, it's a different day. And the sophistication is far better. And so I would just tell you that I see this thing becoming more and more predictable. I think the people internally that are driving that effort continue to elevate.

And so I don't see us needing a significantly different group, but I would tell you that what we're doing is just getting better. And that's kind of how we've been throughout the entirety of the 8 years I've been here is we've integrated a technology, we've improved the technology, and we've gotten significantly better. And the same thing is taking place today right now.

Operator: The next question comes from Lawrence Biegelsen of Wells Fargo.

Larry Biegelsen: Maybe another one on EOS. I believe in your prepared remarks, you said you feel like you have the right team now in place. How are you feeling about their productivity levels? And what is the level of risk and ramp to hitting your guide? And then looking to next year, should we expect incremental rep investment?

Patrick Miles: Yes, I would say great confidence in our guide. I would tell you that, again, this is the weirdest system that I've ever been associated with. And I would tell you to channel check me. I've never met a surgeon who doesn't want an EOS. The challenge becomes in, really, as much as anything, it's even less price. It's more of, hey, do I have room for it? And it's some of the installation dynamics that ultimately create the challenge. And can I put it in a place where I'll get the volume required to ultimately offset the expense of it? And so I feel great about where we are. We're going to continue to get better.

And -- but I will tell you, as it relates to our guide and what we look at to get to $1 billion in '27, I feel great about where we are. We can't sell enough of these from my perspective. It's like, I'm never going to be satisfied with regard to where we are with the volume of these things. Because ultimately, they become foundational tools for which we can put EOS Insight in. And that's the piece that will ultimately pull the surgical field forward in terms of just the planning and the execution and the evaluation of what we're doing. And so probably a lot of subjective commentary there, but I would say I'm highly confident.

We got the right team in place. We're going to continue to get better. And I like the setup.

Operator: The next question comes from Mason Carrico with Stephens.

Mason Carrico: On new surgeon users, have you seen any change in the composition of what new surgeons buy first? Historically, I know that lateral was the entry point, but is the larger share coming from, or I guess recent new adds at least coming from surgeons starting in cervical or some other category?

Patrick Miles: You know what, it's been interesting, really. It's like -- I would say the place that we're getting into sooner is in academic institutions. And I would say a younger guy who is less far along in his surgical career that may not want to take on lateral will ultimately go down the cervical road, just because I think it's the best thing that surgeons do from an outcome perspective. It's the most predictable intervention that surgeons have as ACDF. And so I think that our portfolio has really distinguished itself in terms of just the assembly of goods, kind of the same procedural thesis that we've applied from our original lateral.

And so the great part though is, you know what, they ultimately all get to lateral. And the beauty is, is they start to buy into the whole procedural thesis and that procedural thesis walks in there. I think when we started the turnaround of the company, we knew that the best place to distinguish ourselves was in the lateral realm. And so that was the place that everybody jumped in. And I would almost say that it was a more mature surgeon cohort. And so these younger guys I think are just, again, being very thoughtful and predictable.

And I would suggest that some of those are doing what you say, which is they're coming on and jumping into the cervical realm.

J. Koning: And I think it's also reflective of the fact that we've recently launched some fairly distinguished cervical portfolios, products that really are attracting people in a way they haven't in the past.

Patrick Miles: Yes, I think in a great way. I can't say enough nice things about our product development team and our marketing team on the cervical side. They've done an outstanding job.

Mason Carrico: Got it. That's helpful. And then on the dynamic of EOS getting you in the door at some leading institutions and giving you a hunting license within them, could you just unpack the mechanics of that a little bit? How many months after an EOS installation do you get your first surgeon user coming online? Is it usually 1 surgeon or multiple surgeons at once? Any incremental detail you're willing to give there?

Patrick Miles: Yes, as you know, it becomes such a subjective walk and it's different in every place, be it academic or otherwise. But what would be typical is, we get the installation in. We've been very effective in terms of getting the image sharing agreement with the institutions as well, which ultimately is the foundation for the EOS Insight software. And so usually there's a few surgeons that are kind of driving that whole effort because they've either been here or they've experienced the utility of the software. And then we'll have a clinical account manager go out and spend time and ultimately familiarize them with the utility.

But usually I would say it's 3 or 4 guys that ultimately engage into that effort. And then what we've seen is it ramp. And what's been fun is like seeing the patient-specific rods really start to take off and be the reflection of the utility of the EOS Insight software. And so get the system in there, familiarize the group with our clinical account manager, make sure that the pass off to the local rep is effective, continue to go and sit with the surgeon and review surgeries, which is a hunting license like no other. And then start to reflect in patient-specific rods, which has just been phenomenal. And so we've seen a meteoric rise in that.

We've seen great engagement, and that's why you're seeing the 32% increase in places where we've installed the software. And so it's not like, I think that initially people didn't understand why we were so enthusiastic with regard to the value that the EOS unit brings. We are in the infancy of it with regard to the alignment stuff, the case planning, the bone mineral density measures, like the volume of things that we can integrate through this effort is huge. And so we feel like we are in the early, early days of this. And that's why I think that there's so much bullishness in terms of the route forward.

Operator: The next question comes from Keith Hinton of Freedom Capital Markets.

Keith Hinton: Great, yes, just one on EOS Insight. Can you talk a little bit about where the penetration rate is for EOS Insight into the installed base, kind of what your goals are for the next, say, 12 to 24 months? And in terms of the new placements that you're getting, are you seeing EOS Insight sort of penetrating those accounts more quickly than the legacy accounts? Or is it just sort of a matter of time across the board?

Patrick Miles: Yes, it's a great question. And I would say early, I'd say 15% to 20% on the EOS fleet. But the great part is it's happening in a hurry. The other thing I think is relevant is, EOS was such a foundational pediatric tool. Like, the whole low dose was the original attraction to a lot of the hospitals that acquired them. And one of the things that has been just so exciting is our ability to be relevant with regard to EOS Insight into these pediatric institutions by delivery of Insight, which becomes the software tool that enables them to help plan better.

And so I would tell you that the early experience has been more on the adult side. The enthusiasm has been all around reconstructive deformity surgery, mostly in adults. But what we're starting to see is more and more of the pediatric institutions totally appreciative of what's forthcoming with regard to the SRS classification that I made mention to. And so when you start to think about where we are in the phase of this?

We are in its absolute infancy, like the volume of EOS units can continue to multiply over the next 10 years and the type of insights and the type of data collection that we could do and the translation of the data collection ultimately moves the field forward. And so we remain totally bullish. I would tell you that we're early in the experience if only 20% of the installed base has Insight, as you can appreciate. We have to get through the data sharing elements, but that's going much more expedient than we would have expected. And so I think once people start to appreciate the features of the tool, they are in love with it.

Keith Hinton: Great. And then if I could just sneak in on one quick one about the guide. You mentioned in terms of revenue per case, going from flattish to down low single digits, partially on the bio attach rate, but you're still expecting some improvement on bio attach rate in the back half. So, if you were to not see that improvement and just have bio attach be kind of flat versus the front half of the year, how much potential downside would that create on the revenue per case side?

J. Koning: Yes, not a ton, Keith. It's really only assumed in the fourth quarter.

Operator: The last question comes from Sean Lee of H.C. Wainwright.

Xun Lee: Congrats on a great quarter, guys. So I was thinking more on the longer term. I noticed that the growth in new surgeon users has remained strong and ahead of both revenue and the case growth. So I was wondering generally how long -- how many quarters does it take for these surgeons to really become repeat users of Alphatec? And on a longer-term perspective, from -- did you value breadth more, increasing more surgeons or depth and more procedures per surgeon?

Patrick Miles: Yes, I love the guys who adopt and then utilize. And I'm just partially kidding. It's a fascinating question. I think that when we talk about earning trust, like I think we really mean it. It's like, spine surgery is no game. And I think that the surgeons are anxious when they just start using a new company. And I think that once they hit a certain comfort level, and I think there's kind of consistent dynamics around the design and development of certain goods. And so what happens is there just becomes a familiarity of it. And I think it's kind of the hardest thing to turn people away.

And so if someone was trained on a certain company and they're halfway through their career, sometimes it's very hard to turn them just because of the lack of familiarity with some of the mechanisms and whatnot. But what's been interesting with the EOS thing is I would tell you that the cohort that we're attracting is a younger cohort. And to me it makes me happy because I think we have a longer run and I think the type of impact that we've had on the academic institutions as of late especially based upon the foundational EOS thing has been really rewarding.

And so maybe we're not getting the big whale who we're turning from a different company at the same rate we're getting a new guy who's utilizing or has a less busy practice, but growing into a busy practice. And so I would tell you that it's tough to quantify specifically, but it's one of those things where we're seeing a great uptake with a younger cohort of surgeon that ultimately has a huge run ahead. I think that the kind of dynamic that inspires them to join us is the assembly of goods, which is the procedural thing, which they have seen and heard about from the lateral thing.

They'll try it in cervical, then they'll apply it to the lateral. But over time, I think the initial impetus for them joining us is the EOS and EOS Insight and that kind of predictive analytics route, if you will.

J. Koning: Yes. And the only thing I'd add to that, Sean, is every year in our fourth quarter call, we show how the different cohorts of surgeons grow in their utilization. And so, you can see a curve that's reasonably consistent over time. And after -- excuse me, after maybe 4 or 5 years, that curve starts to bend a bit. But it's a pretty consistent experience over the first 3 to 4 years.

Operator: I would now like to turn the conference back over to CEO, Pat Miles for closing remarks.

Patrick Miles: Yes, just a thank you to all those on the call, especially the ATEC faithful. Love what we're building, and thanks for your interest.

Operator: This concludes today's conference. Thank you for your participation. You may now disconnect.

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