Alphatec Holdings, Inc.

Good afternoon, 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-GAAP or adjusted measures. Reconciliation of these 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. Sell-side analysts planning to ask a question must be registered through the dedicated analyst link included in today's materials. If you have not yet registered, please do so now to be included in the Q&A queue. Leading today's call will be the ATEX Chairman and CEO, Pat Miles, and CFO, Todd Koning. Now, I will turn the call over to Pat Miles.

Thanks, Paige. Appreciate it. Welcome to the Q1 2026 financial results call from ATEC. There will be some forward-looking statements, so please review at your leisure. With that, let me start simple. The business is working and it's scaling. We did $192 million in Q1. This was short of our internal expectation, primarily due to a shortfall in EO sales performance. Surgical revenue was up 17%, mostly in line with consensus. What matters most is what is fueling that growth. Cases up 21%, surgeons up 23%. That's not only a utilization story, it's an adoption story. We're adding surgeons and they're doing more with us. We have created a durable growth model. EOS revenue was $14 million for the quarter. As stated, this was short of our quarterly goal and we have taken steps to bolster the team in sales, downstream marketing, and EOS support. However, the important thing we are seeing is EOS Insight is evolving into more than a product, but a platform. Growth and adoption of our EOS Insight platform is creating significant momentum. EOS has enabled us to gain access to prestigious institutions and a hunting license within those institutions, which is increasingly paying off for us. We generated $21 million of EBITDA, and yes, we used $11 million of cash, but that was a function of timing and intent. We're leaning into and investing in what's working. When you step back, ATEC has become a compounding engine. More surgeons, more cases, and more platform pull-through. And we're still just at the beginning of what we know we can do. With that, I will turn it over to Todd.

Well, thank you, Pat, and good afternoon, everyone. I'll start with the first quarter 2026 revenue. Total revenue was $192 million, up 14% year-over-year, with surgical revenue of $178 million, growing 17%. Sequentially, surgical revenue declined 6%, which was more pronounced than we have historically seen, primarily due to lower revenue per procedure contribution. Our strong year-over-year growth continues to be driven by the core elements of our model, which are 21% procedural volume growth driven by 23% growth in new surgeon users and continued revenue per procedure expansion within our individual procedures. The consistent trends in net new surgeon additions and strong case volume, both above 20% again this quarter, speak to the ongoing momentum and durability in our surgical business. Revenue per case declined approximately 3% year-over-year, driven primarily by mixed impacts. In the US, we saw a higher mix of cervical procedures, which have a lower average revenue per case. In addition, our strong OUS performance reduced reported revenue per case by approximately 130 basis points. Finally, our overall biologics attachment rate was lower than expected. Importantly and consistent with the prior periods, we are seeing strength in core individual procedural ASPs for lateral, ALIF, and cervical, which were up 2%, 4%, and 8%, respectively, year over year. Turning to EOS, revenue was $14 million, down $3 million year over year, as the number of system deliveries were lower than the prior year period, resulting in lower revenue recognition for the quarter. These results were below our expectations for the quarter, and we have taken steps to address this by strengthening our sales team and downstream marketing function. The installed base of global EOS units increased by 7% year over year. In the U.S., the EOS Edge installed base, which is a prerequisite for EOS Insight, grew by 39% year-over-year, and the amount of EOS Insight accounts more than doubled. We continue to see strong utilization trends in these EOS Edge accounts and increasing evidence of implant pull-through following EOS Insight adoption. Implant volumes at EOS Insight accounts are increasing meaningfully post-go-live, reinforcing the long-term strategic and financial value of the platform. Turning to the P&L, gross margin for the quarter was 71.6%, representing over 120 basis points of improvement year over year. This expansion was driven by continued asset efficiency improvements, temporary mixed benefit from lower than expected EOS and biologics sales, and ongoing cost improvements in operational discipline. Non-GAAP operating expenses grew approximately 6% year over year. well below the revenue growth, reflecting continued operating leverage in the business and discipline management of expenses. First quarter non-GAAP R&D was $14 million, or 7% of revenue, up slightly year over year as we continue to invest in innovation and launch new procedural solutions. Non-GAAP SG&A was $118 million, which grew 6% and was 62% of revenue, improving by 420 basis points year over year, which is primarily driven by improvements in our variable selling costs and slower depreciation growth. As a result of the continued top-line revenue growth and discipline management of expenses, we continued to see margin expansion and profitability improvements. Adjusted EBITDA was $21 million in the first quarter, representing 11% of revenue and growing 97% year over year. Importantly, we delivered 45% drop-through on incremental revenue, demonstrating the scalability of the business model. Overall, we continued to see meaningful operating leverage, consistent margin expansion, and improving profitability aligned with our long-term plan. Turning now to the balance sheet, we ended the quarter with approximately $140 million in cash. Free cash used for the quarter was approximately $11 million at the favorable end of our expected range. Our cash flow profile continues to reflect positive operating cash flow, with operating cash flow generating cash for the fourth consecutive quarter while continuing to invest in instruments and inventory to support growth. Notably, we invested approximately $33 million in inventory and instruments this past quarter to support the demand we are seeing from our 20% plus growth in surgeon adoption and the corresponding growth in our sales team. Our consistent profitable growth, strong cash generation, and increasingly attractive EBITDA profile, now exceeding $100 million on a trailing 12-month basis, have positioned us to mature our capital structure. As a result of our strong operating performance and continued progression to a more scaled and profitable financial profile, we were able to announce today that we recently entered into a new Term Loan A and revolving credit facility led by JP Morgan and TD Cowan. This new bank facility, which replaces our previous term loan and asset-backed revolver, simplifies our capital structure. It extends maturities to 2031 and reduces interest expense by more than $6 million annually. We estimate this new facility will save the company as much as $35 million in interest over the life of the facility. At close, the new loan has a rate of SOFR plus 275 basis points. The new facility matures in May 2031. We are very pleased with the bank syndicate we partnered with in this new facility. This transaction reflects the continued maturation of the business and the continued improvement of our capital structure and credit profile. Turning to the revenue outlook, we now expect total revenue for full year 2026 of approximately $882 million, representing 15% growth year over year. This includes surgical revenue of approximately 805 million unchanged from our prior guidance, representing 17% growth or a $118 million increase year over year. We expect surgical case volume growth in the high teens and average revenue per case to be flat for the full year. We now expect EOS revenue of approximately $77 million, reflecting updated expectations for our EOS business. We take guidance very seriously, and this update reflects our current outlook and a clear, realistic view of near-term performance, while reinforcing our confidence in the long-term opportunity. Importantly, we are maintaining our surgical revenue guidance, reflecting continued confidence in the underlying demand and growth drivers of the business. To recap our financial outlook, we expect revenue to grow 15% to $882 million for the full year. We continue to expect adjusted EBITDA of approximately $134 million, even with the reduced revenue expectations, which reflect the confidence we have in our profitability progression. This is a 15% margin, representing approximately 35% drop through on the incremental revenue dollar year over year. For free cash flow, we continue to expect at least $20 million in free cash flow for the full year, with the second quarter expectations for free cash flow to approximate zero. We recognize that adjusting our guidance is a significant decision, and we believe that the updated guidance appropriately reflects our current outlook as we remain laser focused on delivering the profitable sales growth implied in our 2026 guide. To put our first quarter financial performance in perspective, We drove 14% overall revenue growth and 17% surgical revenue growth at an annualized scale of approximately $800 million, with strong operating leverage translating into significant profitability expansion while making material improvements to our balance sheet. While the quarter didn't live up to our growth expectations, we are confident in our ability to continue to grow at multiples in the market, translating that into profitability and cash flow. With that, I'll turn the call back to Pat.