Alphatec Holdings, Inc.

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 ATEX chairman and CEO Pat Miles and CFO Todd Conning. Now, I will now turn the call over to Pat Miles. Please go ahead, sir.

Hey, thanks, Mark. Really appreciate it. Welcome to the Q2 2025 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 2025 financial results, the surgical revenue growth of 29%, which is about six times the market. I would think that that's growth leadership. $23 million in adjusted EBITDA, which is a record for us, and 13% of revenue. It improved 880 basis points year over year, which inflects us in that $5 million in free cash flow. And so the profitable revenue growth leadership has continued. And so the... profitable growth continues at $186 million 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 where we have established distributors has continued to grow. It's not just adding people. The surge in user growth of 21% I think speaks for itself and suggests that we're compelling adoption. I mentioned that $23 million 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 around expense control. We have an infrastructure in place to support over a billion dollars in revenue. And improving EBITDA performance combined with heightened attention on asset management has produced $5 million in free cash flow. And so, again, I'm very proud of the team and what they've done. We have $217 million 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.

All right. Well, thank you, Pat. And good afternoon, everybody. I'll begin today with the second quarter 2025 P&L highlights. Total revenue was $186 million, up $40 million year over year. That's 27% growth compared to the prior year. The $186 million in revenue was comprised of $168 million in surgical revenue and $17 million of EOS revenue. Our first quarter surgical revenue of $168 million grew 29% compared to the prior year period. That represents $38 million 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 surge in 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 is 1%, and that reflects the strong comp we saw from average revenue per case in the second quarter of 2024. Our same-store sales in the US are sales that come from sales agents that have been in territory for a year or more through the 29% year-over-year, which demonstrates that we continue to grow significantly in the markets where we are already established. Our strong surge in 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, a unique segmental cervical plating system, corpectomy solutions for cervical and thoracic applications, and meaningful new applications for SAFO in MEPs. We continue to invest in the organic innovation machine, the foundation for future growth. EOS revenue increased $17 million in the first quarter, up 11% compared to last year. Demand in the US 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&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 attached rate and product mix associated with a strength in our cervical business. Non-GAAP R&D was $14 million 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&D expense was approximately 8% of sales in the quarter. The top line growth driving 170 basis points of leverage. Non-GAAP SG&A of 108 million with approximately 58% of sales in the second quarter. SG&A was down $4 million sequentially and the absolute increase in SG&A year over year was driven by variable costs related to our 29% increase in surgical revenue. The remaining non-variable SG&A was down in absolute dollars year over year. These reductions in absolute dollars of SG&A spend reflect the changes we've made to how we operate the business to increase emphasis on driving profitability and cash flow. SG&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 instrument investments. We reported total non-GAAP operating expense of $122 million, 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 million or 13% of sales in the second quarter compared to $6 million and 4% of sales in the prior year period, an $18 million increase. This is the best performance we've had since the start of APEX 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 in the chart on this slide that the profit margin expansion that we are executing has been both significant and consistent. Our trailing 12 months of adjusted EBITDA now sits at $62 million. 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 million in cash on hand. Additionally, we had access to $60 million of available borrowing on our revolving line of credit, which was undrawn at quarter end, making our total cash and available cash $217 million. Our positive free cash flow of $5 million was again at the favorable end of the $0 to $5 million range that we previously communicated. A record $16 million in cash generated from operating activities allowed us to continue investing in surgical instruments while we still delivering positive free cash flow and increasing our overall cash balance sequentially by $4 million. We can clearly see the company's inflection to cash flow generation is taking shape with our trailing 12 months of cash use improving to $22 million 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 reinforced 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 million to $742 million as a result of the strong Q2 performance in our surgical business. Our revenue outlook for the full year 25 expects adoption of our unique procedural approach to drive surgical revenue of approximately $666 million, and we expect EOS revenue of approximately $76 million. 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 2025, we expect the third quarter free cash flow to range from a positive $1 million to positive $5 million, 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 million, a $5 million increase versus our prior guidance of $78 million. Notably, our trailing 12 months of adjusted EBITDA of $62 million as of the second quarter speaks to our ability to deliver on our full year commitment of $83 million. 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 million 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 billion in revenue. Now reflecting on where our financial results are at the mid-week point 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 million of adjusted EBITDA over the last 12 months, and are at 13% of sales in the second quarter. Third, we have our first quarter of non-GAAP net income at $3 million. And fourth, we have delivered free cash flow of $5 million 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.