Alphatec Holdings, Inc.

and welcome to the webcast of ATEC's third 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 NANGAP or adjusted measures. Reconciliations of NANGAP measures to US 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 ATEX Chairman and CEO, Pat Miles, and CFO, Todd Koning. And now I will turn the call over to Pat Miles.

Thank you, Kathleen. So really a great Q3. So super excited about what's going on here. We've outgrown everyone in this fine business again by at least 2x. I'm expecting more. And our focus is on perpetuating profitable growth. And so Just a couple of stats from a Q3 highlight perspective. $151 million in total revenue, which is 27% growth. 30% surgical revenue growth. Excited about that. Needs a lot of volume. So 20% surgical volume. 9% growth in revenue per procedure. 19% in new surgeon users. So that's back up and good. We did over 200 surgeon training engagements. EOS Insight is launched, and we have a record number of orders year-to-date. The profitability is good at $7.4 million in adjusted EBITDA, greater than 50% sequential reduction in cash burn, so we're on track to generate cash in Q4 24, and we increased our term loan capacity by $50 million, so that's helpful. Our value creation and cash generation is really the focus of what we're doing. So as a spine focused company, creating value clearly is our intention. And so we're accomplishing this through multiple means. And the first one is, and I think that nobody questions our capacity to do this because we've done it for five straight years, which is really lead in revenue generation. And so By leading in revenue generation and increasing profitability, clearly it will reflect in cash flow. And so what I want to do is provide you why we are so confident in this walk. And so as it relates to revenue, as I said, it's been five years of growth at multiples of anybody in the spine industry. Three years of organic growth greater than $100 million. Our procedural strategy is absolutely the right one and it's driving industry high ASBs 20% surgical volume, 19% new surgeon growth. So that's being well accepted. Our sales force continues to expand rapidly. We have record EOS orders year to date. And what that does is lay the foundation for future growth. So can't be more excited about that. 25% growth guidance in 24 with 27% growth in Q3 and 26% year to date. I would tell you that no one feels better about the perpetuating revenue growth leadership that we have taken on over the last five years. I think the focus on increasing profitability is hugely important. Third consecutive quarter of flat operating expenses, second consecutive quarter of adjusted EBITDA positive greater than expectation, 10% adjusted EBITDA margin implied for Q4-24. When you start to think about what leverage you can pull to impact profitability. Improving efficiency of asset and inventory is a big one. This is a people and a sets an instrument business. And so we are, when you look at kind of the approach we're taking on the people side, we are taking a very focal effort in people investment. So if you're a sales guy or you're a product development guy, we like your chances in terms of joining the family. We're keeping a very focused effort with regard to hiring. As of late, we've strategically narrowed our organizational structure. We have to be lean and mean, and what we're doing is making sure that we streamline the organization. We are closer now to the end user as we have ever been, and we are aiming to keep it that way. All of these things ultimately reflect in cash flow. So we have an infrastructure in place with all of our facilities to ultimately scale this business, and that was the intention from the beginning. We are positioned with sets and inventory to fuel expansive growth. We have a lot of sets and inventory to grow into. Our adjusted EBITDA in Q4-24 will continue to contribute and our sustained inflection deposit cash flow beginning in Q2-25 will continue. So we love it and we love the flexibility that the $50 million expansion our existing term loan has provided us. And we have great partners in Braidwell and Pharmacon that we can't be more thrilled about. So I would say that we are aligned and focused on achieving our long-term financial commitments. We said back in 23 we'd do $1 billion in 27 in revenue. We'd have an adjusted EBITDA of $180 million. Our margin would be 18%, and we'd have free cash flow of $65 million. Nothing has changed with regard to our ability to fulfill our LRP. We are on our way. Let me turn it over to Todd to provide you some financial details.

Thank you, Pat, and good afternoon, everyone. We appreciate you joining us today. I'll begin with revenue. Third quarter total revenue was $151 million, up 27% compared to the prior year, and up 4% sequentially. The $151 million in revenue was comprised of $135 million in surgical revenue and $15 million of EOS revenue. Third quarter surgical revenue of $135 million increased $32 million, 30% growth over the prior year. Procedural volume growth was 20%, a reflection of strong surge in adoption and utilization. We saw strong contributions across the portfolio, particularly in our lateral and expandable implant technologies, which contributed to the 9% growth in average revenue per procedure. Third quarter results grew 5 million sequentially, as we benefited from the increase, product availability, and new territory additions. EOS revenue in the third quarter was $15 million, up 7% compared to last year. Notably, our year-to-date EOS order volume has been the strongest we've ever seen, which is encouraging for Q4 and 2025. Next, I'll turn to results for the remainder of the P&L. Third quarter, non-GAAP gross margin was 69%, down 60 basis points compared to the prior year due to the impact of product mix. Third quarter non-GAAP R&D was $13 million and approximately 9% of sales compared to $13 million and 11% of sales in the prior year. We continue to invest in innovation and future growth of the business while top line growth drove 250 basis points of leverage. Non-GAAP SG&A was $100 million and approximately 67% of sales in the third quarter compared to $80 million and 68% of sales in the prior year period. An improvement of 150 basis points. Now included in this period's SG&A is a step in depreciation related to the purchase of instrument sets. As a percent of sales, depreciation increased about 180 basis points year over year. So excluding that impact, SG&A improved 330 basis points, driven primarily by infrastructure leverage. Total non-GAAP operating expense amounted to $114 million and approximately 75% of sales in the third quarter. compared to 94 million and 79% of sales in the prior year period, demonstrating 390 basis points of operating leverage year over year. In the third quarter, we achieved our second consecutive quarter of positive adjusted EBITDA, which was $7.4 million, a 5% margin. That compares to a loss of $400,000 and 0% of sales in the prior year, a 530 basis point improvement. drop through of the year-over-year growth in revenue dollars to adjusted EBITDA was 24%. Adjusted EBITDA improvement was driven by 330 basis points of SG&A leverage and 250 basis points of R&D leverage and slightly offset by 60 basis points of gross margin impact. The chart on the next slide depicts the deliberate substantial profitability execution that we have demonstrated since the beginning of 2022. Adjusted EBITDA has increased from a loss of 13 million and 18% of sales to a contribution of 7 million and 5% of sales here in the third quarter of 2024, a 2,300 basis points improvement. The drivers of that progress have contributed as we expected, with the improvement driven by variable selling rate, followed by SG&A infrastructure leverage and R&D leverage. In fact, our non-GAAP operating expenses have been flat sequentially for the last three quarters, resulting in adjusted EBITDA growth and guidance that implies Q4 adjusted EBITDA of $17 million for 10% of sales. The considerable margin expansion that the business has produced gives us great confidence in our ability to deliver on our financial commitments and translate revenue growth into cash generation. Turning to the balance sheet, we ended the third quarter with $81 million in cash. That carrying value was $538 million. As we begin to move past the phase of intense growth investment, we reduced free cash use in the third quarter by over 50% sequentially to $21 million. That was net of approximately $30 million in cash that was directed toward inventory and instruments to support distribution expansion and new product launches. The chart at the bottom of the slide depicts the linear progression towards cash generation as we exit 2024, with the improving cash use trend from Q1 leading to an inflection in cash generation in the fourth quarter. The improvement from the third quarter to the fourth quarter is primarily driven by reduced instrument and inventory spend and an increase in adjusted EBITDA partially offset the working capital. We continue to expect cash use to range between $125 million and $135 million for the full year of 2024. In conjunction with the financial results released today, We announced an increase in our term loan of $50 million, bringing the total term loan to $200 million. Through this transaction, we have added another strong lending partner in Pharmacon. The key terms of the loan are the same as the original facility, bearing an interest rate of SOFR plus 5.75%, and interest-only payments until its maturity in 2028. With this incremental capital, our pro forma cash at close is $128 million. Upon closing the transaction, we used proceeds to pay down our revolver balance. Exiting the year, we expect to have access to cash and liquidity of $145 million, which we believe provides us with ample liquidity going into 2025, where we expect to be cash flow breakeven. I'd also like to share our thoughts for the $316 million convertible notes that mature in August 2026. While we won't rule out doing a convert if the equity is at the right price, We expect the material improvement in EBITDA over the next few years to allow us to refinance without dilution. As we progress towards our 2027 long-range plan financial targets, when we expect a billion dollars in revenue with 18% adjusted EBITDA margins and cash flowing, the company will have a different level of access to financing alternatives. Turning to our increased outlook for the full year 2024. The strong surgeon adoption and large volume of surgeon training are great indicators of durable revenue growth and are a testament to the ATEC clinical distinction. We expect that to fuel total revenue growth of 25% to approximately $605 million. That includes surgical revenue growth of 28% to approximately $540 million and EOS revenue of approximately $65 million. That implies surgical volume grows at a high teens rate and revenue per surgery grows at a high single-digit rate for the full year. Sales growth is powering leverage, and with the third quarter adjusted EBITDA outperformance, we are raising full-year adjusted EBITDA guidance to approximately $27 million, which equates to 640 basis points of margin expansion. That implies a 30% drop-through of the year-over-year growth in revenue dollars, a material acceleration compared to 22% drop-through, in 2023. We continue to expect cash use to range between $125 and $135 million for the full year 2024. Our expectations for cash flow breakeven in 2025 remain unchanged. We expect the cadence next year to include seasonal cash use in the first quarter, followed by positive free cash flow in quarters two through four. I'll close today with reinforcing how well we are positioned for growth in 2025 and why that translates to cash flow breakeven. When you look at this year, our adjusted EBITDA is expected to be $27 million. We will have invested $140 million in capex and inventory and $17 million in interest and other working capital. In 2025, our expectation is that we will have $75 million of adjusted EBITDA consistent with our long-range plan assumption. Because we come into the year with an asset base from the 2024 investment that will support 2025 revenue growth, the required investment in theft and inventory in 2025 is $50 million. We will also expect to see a step up in interest of our working capital to $25 million. That all adds up to a cash flow breakeven year. We recognize that execution on cash generation is crucial to rebuilding shareholder value. As such, we are focused on growing revenue and expanding profitability to generate cash, which has informed how we are directing investments and the realignment of internal resources. Those efforts are complete and strengthen our position as we progress towards cash generation. Our organization has a lot of work to do and a lot to be excited about. As we seek to rebuild shareholder value, know that this leadership team is confidently aligned. We know what needs to be prioritized, and the work is underway. With that, I'll turn the call back over to Pat.