Alphatec Holdings, Inc.

everyone and welcome to the webcast of ATEC's first 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-gap 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 ATEX Chairman and CEO Pat Miles and CFO Todd Koenig. Now I will turn the call over to Pat Miles.

Thanks much Greg and welcome everybody to the Q1 2025 financial results ATEC earning call. There will be a few forward looking statements which I would ask for you to review at your leisure. So really a great start to 2025. Enjoyed revenue growth at 22% with surgical growth at 24%. That's about four times the market if you're keeping track. This is really a phenomenal result for the largest pure play spine company in ATEC. So Q1 is always a little challenging seasonally when it comes to profitability and cash flow. As cash flow or case volume slows compared to Q4, taxes reset, and we see a disproportionate share of meetings and events. But in spite of all of that, we delivered $11 million of adjusted EBITDA, which is our second best quarter ever. and above expectations. And from a cash flow perspective, our cash burn in Q1 was at the low end of the range at $15 million. So profitability and cash flow performance in Q1 has really put us in a great position to meet or exceed our 2025 goals. And I think if we hearken back, the changes we made last year resulted in a much more cash efficient organization. And so we are 100% committed to continuing to operate the company in a deliberate manner and deliver growth profitability, and cash flow commitments as stated. So the revenue came in at $169 million. Really, the key thing I'd like to highlight is the strength of the surgical growth, where we saw 24% year-over-year growth. Underpinning this growth was an 18% increase in the number of surgeons utilizing ATEC procedures The fact that revenue grew 23% in established territories demonstrates how we continue to gain surgeon and territory penetration where we have established representation and so what I would tell you is. Our thesis is working and where we have representation that's been established, we continue to compel adoption and so. The durable revenue growth drives profitability and cash flow clearly. EOS order growth was also a record for which we're very, very encouraged. It's a foundation of our strategy. And finally, as the largest pure play, we continue to be the preferred destination in spine. The environment for recruiting sales talent couldn't be better. And really, we're off to a great start with great confidence in terms of moving into the year. So anyway, with that, I'll turn it over to Todd.

Well, thank you, Pat, and good afternoon, everybody. I'll begin today with the first quarter 2025 P&L highlights. Total revenue was $169 million, up 22% compared to the prior year. The $169 million in revenue was comprised of $152 million in surgical revenue and $17 million of EOS revenue. First quarter surgical revenue of $152 million grew 24% compared to the prior year period. That represents nearly $30 million in year-over-year growth. When normalizing for selling days we grew 32 million year over year or 26%. Procedural volume growth was 17% driven by strong surge in adoption of 18%. This level of adoption clearly reflects the compelling nature of our portfolio and is supported by the ongoing investments in the sales force. Average revenue per procedure growth was a strong 6% as we continue to capture more of the procedural revenue opportunity. Same store sales or sales that come from sales agents that have been in territory for a year or more grew 23% year over year, which demonstrates that we continue to grow significantly in the markets where we are already established through growing both our share of wallet with existing surgeons and new surgeon adoption. EOS revenue increased 17 million in the first quarter, up 8% compared to last year. Record order volume has fueled a 28% year over year increase in the order book. evidence of the demand for our unique end-to-end informatics solution, and positions us for strong system installations and the accompanied implant pull-through in the coming years. Turning to the remainder of the P&L, first quarter non-GAAP gross margin was 70%, down 50 basis points compared to the previous year and up 70 basis points sequentially, primarily driven by product mix. Non-GAAP R&D was $13 million and approximately 8% of sales, Top line growth drove 230 basis points of leverage while absolute spend has remained roughly flat. Non-GAAP SG&A was $111 million and approximately 66% of sales. Approximately 400 basis points of year over year improvement came from variable expense rate improvement while the balance came from infrastructure leverage. We reported total non-GAAP operating expense of $124 million. which was approximately 74% of sales. By maintaining disciplined cost management, we delivered a modest 8% 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 a 900 basis point expansion in our operating margin year over year. I'll turn next to adjusted EBITDA, which was positive for the fourth consecutive quarter. Our first quarter adjusted EBITDA was $11 million, equating to a 6% margin and over 800 basis points of improvement compared to the prior year period. We are very pleased with this performance. It is the second best performance we've had since the start of ATEX transformation. This quarter also marks our second consecutive period with an over 40% drop through on a year-over-year revenue growth to adjusted EBITDA, reflecting both infrastructure scalability and an improving variable selling expense profile. You can see in the chart in the slide that the profit margin expansion that we are executing has been significant and consistent. This quarter marks 12 consecutive quarters of adjusted EBITDA margin expansion. We entered 2025 a stronger company, and that is clearly reflected in our first quarter results. This progress stems from the changes we implemented last year to improve in two key areas. Firstly, the management and prioritization of our human resources, and secondly, strengthened focus and operational improvements in managing inventory and instrumentation sets. We are driving meaningful margin expansion that aligns with the priorities outlined in our long-range plan and as 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 now to the balance sheet, we ended the first quarter with $153 million in cash on hand. Additionally, we had access to $60 million of available borrowing on our revolving credit line, which was undrawn at quarter end, making our total cash and available cash $213 million. Our free cash use of $15 million in the first quarter represents a $55 million improvement in cash use over the first quarter 2024. We managed our free cash use performance to the favorable end of the $15 to $20 million range that we previously communicated. and would have beat if not for working capital headwinds. And these headwinds were modest and transient. And we believe the metrics will improve over the course of 2025. Our first quarter cash management execution and the underlying dynamics of the business reinforces our confidence that we will be cashflow positive for the full year. In March, we successfully refinanced our 2026 convertible note. Refinancing effectively pushed out the maturity to 2030. provide a dilution protection up to $23.46, and maintain the same low coupon rate of 75 basis points. We used the $405 million of proceeds to pay for the fees and the cap call and bought back 80% of the existing convert, the maximum allowed under creeping tender rules. The net proceeds of $82 million gives us flexibility to address the remaining $63 million of the 26 notes when the time is right. Our financial outlook for the year expects continued strong revenue growth to drive incremental profit margin expansion. As we exited the first quarter of the year and contemplated our full year outlook, we felt it prudent to simply flow through the beat on the top and bottom line. This approach is consistent with our philosophy of guiding the numbers we believe we can achieve and have a reasonable opportunity to exceed. As it relates to cash flow, our first quarter performance further reinforces that we will be cash flow positive for the full year 2025. With respect to the cadence of our cash flows for the remainder of 2025, we expect the second quarter to range from $0 to $5 million, with the third and the fourth quarters generating positive cash flow, resulting in us being cash flow positive for the full year 2025. Our revenue outlook for the full year 2025 expects adoption of our unique procedural approach to drive revenue growth of 20% to approximately $734 million compared to our previous guidance of $732 million. That includes surgical revenue growth of 21% to approximately $658 million, which will be fueled by mid-teen surgical volume growth and mid-single digit revenue per surgery growth. We expect EOS revenue of approximately $76 million. Turning to the outlook for the full year 2025 adjusted EBITDA, we expect sales growth to continue to leverage the infrastructure we have built, contributing to an adjusted EBITDA of $78 million versus our prior guidance of $75 million. This includes us absorbing the impact of expected tariffs in the second half of the year. Our direct exposure to tariffs is limited to the EOS units we import from France to support the U.S. installations and the associated repair parts. We estimate the impact of tariffs on our cost of goods sold to be in the low single-digit millions of dollars. The chart on the slide depicts the consistency of the profitability progress we are making. Our adjusted EBITDA guidance of 78 million will generate an adjusted EBITDA margin of 11%. That implies a 39% 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 billion in revenue. So in conclusion, through our investments in the team and infrastructure, we have built a fast-growing 100% spine-focused company. We are delivering on a return on those investments through durable revenue growth leadership and consistent operating leverage improvement. which is beginning to inflect the cash flow generation. With that, I'll turn the call back over to Pat.