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.

Thanks, Todd. Our strategy hasn't changed because we know it works. We start with clinical distinction. If it doesn't matter in the OR, it doesn't matter. But if it makes surgery better in the OR, it matters to us greatly. This is how we have built the best procedural approaches in our industry. Second is surgeon adoption. We don't sell products. We develop approaches that improve surgery, elevate workflows, and build trust. We know this philosophy is effective because our surgeon demand remains very high. Third is the sales engine. We're continually assembling and improving upon a sales force that is disciplined, aligned, and energized, and built to scale. Put that together, and it's very straightforward. Do something clinically meaningful, surgeons adopt, and we scale it. We're not focused on widgets, or as we like to say, the currency of our business. We assemble procedures from the ground up. Everything you see here is designed to work together. That's what has driven and will continue to drive our model. We don't sell one thing, be it a screw, a plate, an implant, or a rod. We offer procedural approaches that make surgery better. And better procedures over time lead to expanded indications, greater complexity, and increased revenue. While we call that a convoy sales effect, it's really just a result of designing procedures the right way, leading to better patient outcomes. We start in lateral for a reason, because it is where we have the greatest collection of know-how and how we most distinguish. The surgery works. It's reproducible, efficient, and surgeons feel comfortable with it very quickly. I was in a case last Friday, an L4-5 spondy. 15 minutes in, discite was restored, and under an hour, the case was done with minimal blood loss and morbidity. That same case used to take four hours and was a very different experience. Far less reproducible for the surgeon, far less predictable for the patient. PTP has profoundly improved surgery for both surgeon and patient. That's what creates confidence. And once surgeons experience reproducible success in lateral, they don't stay with just that procedure. They expand their utility into cervical, T-lift, posterior fixation, all things across the board. Our growth isn't dependent on just adding incremental surgeons. It's expanding indications for procedures they adopt and moving them to other approaches, which is what happens after they trust you. That's what the model is really about, and that's how it compounds. EOS continues to be a big deal for us. And while installation timing was a challenge in the quarter, the EOS experience is playing out exactly as we expected. First, EOS Edge gets us in the door with leading institutions that were hard to impossible for us to access previously. Places like Duke, NYU, HSS, Northwestern, University of Virginia, University of Maryland, just to name a few. Then EOS becomes part of the workflow, pre-surgical planning, interoperative reconciliation, and follow-up. Then it starts driving the case volume, insight, patient-specific rods, alignment. And over time, it builds something more valuable than any one product. It's data generation. That's the moat. We're already seeing EOS impact, about 30% revenue lift per surgeon after inside adoption. So EOS isn't just additive, it's multiplicative. What's happening with insight right now is important. We're moving from imaging to intelligence, 3D alignment, patient-specific planning, starting to predict outcomes, not just react to them. And every case makes the system better. That's how this compounds. We are creating a true structured data advantage. At the core of this is our ability to take EOS imaging and convert it into quantitative, actionable intelligence. It's becoming smarter, more predictive, and more embedded into clinical decision-making. That's how you build clinical distinction. This is where owning the image and translating into data matters. Valence is early, but it's doing exactly what we need it to do. It fits seamlessly into the surgical workflow. It doesn't get in the way. The footprint is very small. It actually makes the case cleaner. And that's everything. If it disrupts the surgeon's workflow, it doesn't get used. We're seeing strong utility, positive surgeon feedback, and real usage. And the same pattern we've seen before. It works. Surgeons trust it. It grows. That's how this is playing out. Japan looks very familiar in a good way. We're leading with lateral, building early confidence, and seeing surgeons engage. I have seen it firsthand. I was in the OR a couple of weeks ago, and the surgery was methodical, predictable, and reproducible. This is the same pattern. They adopt. They do more. They expand. It's early, but it's exactly what we wanted to see. In closing, when I think about ATEC, it's pretty straightforward. We're focused, 100% inspired. We built real leadership in lateral. We're doing the same thing in deformity with EOS, and we've put the infrastructure in place to scale. Most importantly, we're growing and becoming more profitable at the same time. We've established a system and ecosystem that builds upon itself. Last point, why people are coming here, surgeons and reps, because we care about what they care about. We don't push widgets. We give them procedures and increasingly information. That improves predictability and patient outcomes. That drives surging interest and adoption, leading to more cases. That, in turn, attracts sales agents and builds careers. And that's why ATIC is the preferred destination and spot. With that, we will take questions.

As a reminder, 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. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We will now open the floor up for questions. In consideration of others, please limit yourself to one question. Our first question comes from the line of Matthew Blackman with TD Cowan. Your line is open, please go ahead.

Good afternoon, everybody. Can you hear me okay? we can hear you yet you guys okay yep go ahead thank you thank you um so i guess this is not really a fair question but i i do need to ask it in the context of the lrp guys 2027 um feel confident comfortable today reaffirming that billion dollar revenue number obviously all the other pieces feel like they're in a good place uh but the billion dollar top line particularly in the context of You know, I think consensus is at about 4% or 5% higher than that. Just any thoughts on that 2027 LRP number where consensus is relative to how things shook out here in the first quarter and relative to the new guide, just the big step up that's implied to get to that 2027 number, particularly that consensus number. I'll leave it at that. That's my one question. Thank you.

A reminder to unmute yourself locally.

Matt, can you hear us? Matt, can you hear us?

I can hear you now.

Could you repeat your question for us, please?

Sure. My one question was Uh, actually in regards to the, the 2027 LRP, um, aside from all the margins, uh, sort of metrics withdrawal tracking, uh, above plan, you know, the revenue, uh, target a billion dollars, you know, more so just looking at, in the context of where consensus is, which is about four to 5% higher than that. With the new guidance here for 2026, it's a pretty big incremental revenue step up to get to that number. Just your level of comfort here sitting today. with that LRP revenue number for 2027, and to the extent you're willing to comment on where consensus is sitting for 2027, just given some of these puts and takes that you're absorbing here early here in 2026. Thank you so much. Can you guys hear me? Anyone?

Hi, Matthew. I can hear you. I think we might be having some technical difficulties with the main speaker line room. Please just hold that momentarily.

Okay.

Okay. Can you? Okay. Can you? Okay. Can you? Okay.

Are you guys back?

Matt? Yeah. I'm going to give a shot here answering your question. So I think your question ultimately is, given the fact that we've adjusted our guidance to reflect our current expectations around our EOS number, I would tell you that the guide in terms of where we are on EOS and the adjustment that we've made is really to reflect some very near-term execution issues that we believe that we've addressed through adding incremental sales talent and downstream marketing resources to the organization. And so we fundamentally believe that that's going to address the issues that we have, and I think the guidance would suggest that as well. as ultimately we believe that we've addressed the foundational issues that are execution related. So as we would expect to exit this year, more in line with what our original guide would have assumed, and therefore believe that we are on track to accomplish the goals that we laid out in the context of our long-range plan.

Okay. I'll leave it at that. I'll get back in queue. Appreciate it.

Our next question comes from the line of Alan Gong with JP Morgan. Your line is open. Please go ahead.

Thanks for the question. Mine is kind of on the forward trajectory and specifically the price. pricing per case headwind that you saw this quarter. You know, it was good to see volume stick back up to 20% plus, but it sounds like that price per case headwind could be, you know, sticking around, especially as cervical and, you know, some of your faster growing businesses sound like they're going to continue to put pressure onto that. Is that the right way to think about it going forward so that, you know, maybe for this year we should be forecasting continued, you know, revenue per case headwinds offset by volume growth?

Yeah, Alan, I think that our guidance implies kind of high teens volume growth with kind of flattish revenue per procedure growth or essentially no growth on the revenue per procedure. And your commentary and your understanding, I think, is correct in the sense that, as I called out in my prepared comments, our revenue per procedure growth or the score of the decline this quarter was really a function of mixed growth. attributed to both strong cervical procedures because cervical procedures have a lower revenue per procedure contribution, as well as a strong performance in our international business, which does, uh, currently have a lower revenue per procedure profile as well. Um, and then the third piece is a little bit more execution related associated with our biologics attachment rate. And so again, there, we believe that we've got, uh, some, uh, upcoming product launches and improvements in our execution associated with that part of the business as well. And so as we think about how to model our revenue per procedure for the balance of the year, we're thinking about that to be flat on a year-over-year basis.

I would just add, you know, if you look at the places where we make investments, we get a response. And, you know, if you look across lateral investments, It grew. ASB grew. It was reflective of exactly what we intended from the build perspective. And so to me, it's like, you know, frustrating to see that, you know, the mix impact the overall. But but, you know, where we're investing and where we're distinguishing ourselves, I think we're prospering.

Yeah, I think that's a good point, Pat, in the context of the prepared remarks. We said lateral grew two percent revenue per procedure. ALIF grew, I think, 4%, and ultimately Cervical grew 8%. We've made significant investments in those areas. Right.

Got it. And then I guess the question on your ability to reiterate adjusted EBITDA, it was definitely good to see you able to kind of keep cost under control, but, you know, seems as though, you know, there are some areas where you potentially may need to increase investment, you know, such as what you had talked about for Edo's insight. So how should we think about, you know, balancing potential need for increased investment and, you know, driving revenue growth? How do you kind of balance those two things? What are your priorities? Thank you.

Yeah. You know, I think it's, it's, it's, it's an interesting question. And, and, you know, one of the things that I feel great about is, is the infrastructure's in place. And, you know, what's, what's interesting is when you grow 39% a year over year in, in EOS edge, um, uh, base, just the opportunity for you to, uh, exploit that, um, that base is, is, is very, very evident. Um, what's what's maddening about this business is the installation elements. And what happens is, is there's always a build out with regard to installation. So it makes some of the installation choppy, which the revenue rec reflects the installation. And so I don't see it as a, as an investment required requirement for us to grow. You know, we're growing 30% by surgeon in accounts that have EOS. The thesis is totally intact. And that's like, to me, I'm thrilled about the reflection of the demand profile of, around those places where we have systems installed and we have the EOS Insight software installed. And so to me, this is just the quarter-by-quarter dynamics of a long-term execution. And so I'm totally thrilled about the EOS business in general, irritated by the lumpiness, but don't see some new investment profile required at all.

Okay, our next question comes from the line of Matt Mixick with Barclays. Your line is open. Please go ahead.

Hey, can you hear me okay? Yeah, we can hear you. Excellent, thank you. So I know this call is going to be moving a little bit slow here with the audio, so I'll try to keep this. tight end to one. Maybe just obviously the numbers in surgical came in a little bit later than expected. We didn't hear or see anything in the quarter that would suggest there was anything wrong with time or anything tripping up companies in time. Can you maybe talk a little bit about if there were some phasing in Q1, if there was some, I don't know, new territories catching up, difficult comps, like regional, I don't know if it was storms. Not many companies would say much about storms, but was there anything that you'd say, you know what, this would have been a better quarter if, you know, this, any kind of color and maybe confidence of sequential, you know, performance, either, you know, sequentially, acceleration sequentially, anything you can help us understand about the sequence from here to get to your new full year number. Thanks so much.

Yeah, Matt, I'll start with just a little bit of color and then let Todd jump in. But I would say you know, the most comforting part is that the momentum reflected in the business where we most distinguish continues to be profoundly robust. And so that's the part that I think we find most comforting. And, you know, clearly the surge in additions up over 20%, it speaks to a business in demand. And so it was kind of a goofy quarter. I'll let Todd provide his view, but it's like you know, we're seeing strength, you know, right out of the gate in Q2. And so it's, it's, uh, um, to me, it's, this is a quarter by quarter lumpiness.

And, and Matt, maybe just to put a little bit more finer point on that or add to that, you know, I think your question about like the Q1 in total, I mean, clearly there, there's been some, there was some weather in kind of late January, uh, you know, FedEx was restrained for almost an entire week, uh, I think the Northeast had two storms. Now, there's weather every year, so how much of that is discrete impact here? Probably some amount, given the fact that I think there was more weather this year than historically expected. is normal. So I think there's that consideration. You know, I think the question of really just, you know, at the end of the day, where we exited March was probably a bit softer than we had expected it to end. And, you know, I think we attribute that to just some of the growth that we didn't see in our traditional posterior kind of open procedures and some bio attachment along with that. I think to Pat's point, though, the good news is, you know, you started to see definitely a sequential improvement in April, which ultimately gives us confidence as we grow into the second quarter and the seasonality we see from Q1 to Q2. And so I think it's important to kind of keep in context that historically the seasonality between kind of April and March and all of that's a little bit hard to predict. And so fundamentally, I think we believe that we're in a good spot relative to our guidance. And our guidance philosophy hasn't changed. And so, you know, I think the other thing just more structurally going from Q1 to Q2, you obviously have the deformity season that comes up, starts in kind of late May and into June. And so that will ultimately drive some improvement there. When you think about our overall demand profile and the investment we've made in sets and inventory to support that increased demand, that's there. And, you know, again, I think we take a step back and we look at the overall volume growth and the surge in adoption. And that is really what gives us a level of confidence that, you know, we're in the same spot relative to where we expected to be coming into the year on a full year growth basis expectation. And so, you know, I think we ultimately hang our hat on the strong surge in adoption and the volumetric components of the business. It's a history utilization. Yeah.

Maybe just one. I don't know if you can still hear me, but just, you know, I noticed that surgeon adoption was up year over year. I mean, it is obviously up 22%, but it's faster than than a year ago. Surgeon adoption growth and anything you can just understand thematic question of like acceleration of trends or momentum and is that you know how much of a leading indicator is that is fact that it's growing faster now? You know what would we treat that too? And is that is that you know? uh tell us anything about what to expect in the in the in the coming quarters uh as well the fact that that's accelerating instead of flowing um and thanks again for taking the question

Yeah. You know, my, my, again, my, my, my general sense is the volume of, of people adopting our lateral portfolio is growing and is growing at a, at an expedient rate. And so, you know, the, the, the frustrating part is I think to, to Todd's point is it's like, you know, you see the, the growth profile, you see the price per surgery with regard to the lateral contribution and, The stuff where I think is more conventional, I would say short segment surgery that's open, that is like everybody else's, just seem flat. And then the biologic impact, I think, was bad. Theradaptive can't come fast enough. And so it's one of those things where it's like... Again, I think the procedural strategy has been well adopted. I think the EO stuff is working as planned, clearly distinguishing and lateral. But when we're not profoundly different than somebody else, we don't do profoundly better than everybody else.

I think the only thing I'd add there, Matt, would just be the continuing growing contribution from our international business. I think that both is a surge in adoption story as well as a revenue contributor story. and a growing revenue contributor as we grow through the rest of the year.

And the beauty of that thing is it's completely reflective of the lateral thesis that the company's been built on. And we're seeing the same type of adoption dynamics happen internationally. So to me, that's a great reflection.

Our next question comes from the line of Matthew O'Brien with Piper Sandler. Your line is open. Please go ahead.

Good afternoon. This is Anna. I forgot. Thanks for taking our question. I wanted to ask on sort of the cadence for the rest of the year. You know, it sounds like the majority of work has been done here in terms of realigning the sales team for EOS, you know, new reps coming on board. um, some investment and additional marketing resources. So I presume it'll take some time for these new reps to ramp though. So just as we look at the cadence for the rest of the year, you know, um, when would you anticipate things in the EO franchise getting back on track for, um, foreseeable future? Thanks.

Yeah, this is Todd. I think our expectation is that begins to contribute in a more, um, full way in the second half. And so that's really how we're thinking about it. We think the overall growth in the second quarter should be similar to our first quarter results at about 14%. And I think our guide implies essentially 17% overall revenue growth in the second half as EOS contributes more meaningfully.

You know, just to make sure that I appreciate the question, too. It's like, you know, the cadence of adding surgical sales rep has been totally consistent and they're coming from all players. And so, you know, what you're getting is just the consistency of the reflection of attracting more salespeople. So that that's going on as it has in the same cadence and is not slowed at all. That part, I think, is just continuing. If anything, really the focal part of the frustration is around EOS placements. And the dynamic is we've got to continue to improve as a capital equipment provider. But when you miss by three units or whatever, five units, in the grand scheme of things, what it doesn't do is impede the belief in or what's going on in the field. And what's going on in the field is absolute expansion of the utility of the device once we get in place.

Our next question comes from the line of David Saxon with NIDA. Your line is open. Please go ahead.

Yeah, great. Good afternoon. Thanks for taking my questions. Maybe to start, I just want to clarify, Todd, the comment you just made about second quarter. You said something about 14. Can you clarify, is that 14 million for EOS for the second quarter or 14% overall growth for the second quarter?

My commentary. David, was that we would expect the overall growth to mirror first quarter's overall growth at 14%.

Okay, great. And then my one question is just on the follow-up on the revenue per case assumption and the guidance. So like specifically what's embedded in that in terms of how U.S. case mix trends over the balance of the year and biologics attachment rate, like really just trying to understand if cervical mix continues to be strong and you know no change to the biologics attachment uh rate like kind of what's the risk to the flat revenue for uh revenue per case assumption thanks so much

Yeah, David, I think the idea here is that we would continue to see a relative contribution of cervical to the overall business as we've seen the strength of its growth over the last really number of quarters. That business continues to grow and we continue to drive adoption through that procedural mix. You know, we saw about 38% biologics attachment rate. We would expect that to go up a couple points. You know, I think things that would make sense there, why we believe that is wanting just a greater sales force execution and focus on that front, as well as the fact that you enter deformity season. And those deformity season cases tend to be longer, longer constructs. So one, you get just more revenue per case on average from that. Plus, they tend to have a higher utilization of biologics as well. And so that's more or less where we believe that the growth in, or excuse me, that is how I constructed the revenue for procedure math for the balance of the year.

Great. Thank you.

Our next question comes from the line of Caitlin Roberts with Canaccord Genuity. Your line is open. Please go ahead. Hi, thanks for taking the question.

Maybe just to turn back to EOS and I think you noted the weakness was execution related. If you could provide any more color on that specifically and if any of the weakness is related to more of the capital environment or appetite by facilities and then just following on from that. do any of those hurdles translate into the other capital parts of your business with valence and navigation?

Yeah, thanks for the question. I would say that the EOS thing bleeding into the valence thing is really a non-starter. One of the challenges associated with EOS has always been the structural build-out. It's like literally you're doing construction on a room just based upon the size of the unit. And so what happens is if you have more EOS unit that requires more build-out, the predictability associated with the delivery becomes or the installation becomes less. And it's one of the scenes where it's like when we said, hey, we're going to get better with regard to the sales piece, we're going to get better with regard to the downstream marketing piece, and we're going to get better with regard to the support piece. The support piece really is making sure that we're aligned with regard to the timing associated with the installation and so forth. Those things are somewhat challenging. They have nothing to do with valence. And, you know, I always hate, you know, to suggest that we're a proxy for anything, you know, with regard to understanding the capital equipment environment. It's just tough to tell. And so we're irritated over the lack of execution. We committed to a number of units. We didn't fulfill the number of units. I got to tell you, the demand profile is phenomenal. And the thesis of it is great. The construction and installation is less good. And so that's kind of the way I think about the business, but I don't see it bleeding into anything else. I just see it as an execution flaw.

Thank you. Our next question comes from the line of Tom Stephan with Stifle. Your line is open. Please go ahead.

Great. Hey guys, thanks for taking the questions. I wanted to ask about the 2026 surgical outlook. Hopefully I have some of these numbers correct. I think surgical up 17% in the quarter, full year guidance also 17%. Comms get much more difficult. You talked about March below expectations, but April came back. Business seemingly has become a little unpredictable, I feel like in the last couple of quarters. So Todd or Pat, What gives you the confidence in maintaining the outlook for surgical when you de-celled again in one cue and with guidance implying the stacks re-accelerate? Is it April? Are there incremental drivers that can continue to support growth? Thanks.

Yeah, this is Pat. I'll always provide the color and I'll let Todd make me right or not based upon the numbers. The thing that gives us confidence is just the demand profile around the procedures that most distinguish us and the volume of surgeons that continue to flock toward us. To see... A historical growth rate in the volume of surgeons and then to see historically what they've done from a utilization perspective gives us a lot of confidence. If you like looking at kind of the demographics of the types of surgery and seeing, you know, that, you know, what we were losing more is some conventional stuff. Q2 and Q3 are conventional fests, if you will. It's a lot of long reconstruction stuff. The way that EOS is impacting our business, I would say that gives us a lot of confidence. And so as I look at just the demographics of how the revenue was reflected, I remain totally bullish. And so clearly the comps get harder, but it's one of those things where it's like when the business is coming in as you expected it from a procedural type standpoint, and you see the surgeons joining, for me, it just gives me, it feels like a tailwind.

And Tom, I think your question is totally a fair one in terms of the deceleration that we've seen. And how do we think about Q2 onwards in light of our Q1 performance? And so I would point to a couple of things. One, I made the comment about March was not as good as we had expected. Although April has rebounded and feel like that gives us a good platform into Q2. And so I think fundamentally, a lot of this is where do you start? And so I think the April start is a confidence builder there. Second point I'd make is just the structural increase from Q1 to Q2 in terms of the deformity season. We've invested in incremental assets, whether that be small stature sets and or rather a patient positioners. And so it's like, we know that demand is there. And so we have invested to fulfill the expectation of that demand to come. And that happens both in Q2 and Q3. I think we talked about our ability to drive increased biologics attachment rate through focused sales execution efforts. The international contribution continues to get better as we walk through the year. And I think that has been demonstrated as we've gone. And so our confidence there is high as well. And so I think for all those reasons, we believe that the path from, you know, Q1 to Q2 and onwards is very much intact. And then I think just if you look at the total surge in adoption, again, I think it's just a great leading indicator. It historically has been. And I think, you know, to have sales, you got to have customers and the customers are growing at 20 percent plus.

Got it. Thanks, guys.

Our next question comes from the line of Ross Osborne with Wells Fargo. Your line is open. Please go ahead.

Hi, thanks for taking our questions. So maybe moving on to Valence, would you discuss placements to date and what early pull-through numbers look like?

Yeah, not going to speak to the specific numbers, you know, and, you know, I think what we, or at least how we characterized this year was one of Let's get as much experience as we can. Let's make sure the product is absolutely perfect. It is doing everything that we've expected. And so I would tell you that, you know, And these are things that you won't appreciate is my presumption. Clearly not trying to be insulting, but there's an infield camera that is hugely elegant. And just the ability to have the surgeon control the elements in the room is exactly what you want. You also don't want a huge piece of capital. It's not a huge piece of capital. And so. It's doing everything that we've expected. It's been utilized in PTP mostly. You know, it's trending toward more than the numbers that we provided for the year as a target. And so we're totally bullish on it. Super excited about just the type of clinical impact it can have and the workflow that's been initiated with its design. And so, again, hugely confident, hugely bullish. The ability to integrate the best neurophysiology in class with the most elegant, seamlessly effective workflow will increase the volume of PTP users. There's no question in my mind. So it's going as planned.

Thank you.

Our next question comes from the line of Keith Hinton with Freedom Capital Markets. Your line is open. Please go ahead.

Hey, guys. Good afternoon. This is Nakul for Keith. First of all, thank you for taking our questions. We have two questions. The first one being the revenue per procedure appearing to be down approximately 4% year over year. We think that's the first case of down zero years since at least 2021 or maybe earlier. What are the drivers there and how are you thinking about revenue per procedures for the rest of 2026 and in the out years?

Yeah. So as I shared my prepared remarks, you've got about a... clearly a mixed impact from a stronger growth in our cervical procedures. Cervical procedures carry a lower revenue per procedure profile than our overall average. And so since that led the growth, that pulled the overall average revenue per procedure down. The second is our strong performance outside the US. They also have a lower revenue per procedure profile than our overall average. And so really the two primary drivers there are mix related. Uh, and then the final driver is just lower, um, uh, biologics attachment rate. And so, so that had an impact. I would just tell you though, as when you look at, um, our anterior column, so think about lateral and a lift laterals revenue per procedure group, 2% a list revenue per procedure group, 4%, uh, cervicals revenue per procedure group, 8%. And so I think the revenue per procedure growth or our ability to capture, uh, the revenue opportunity in a procedure continues to expand. And that's the important piece to this. And I think that is also a fulfillment of the investment thesis that we've laid forth.

Great. Just the last one. So in 2025, growth in surgeon users was in line with procedure growth. It seems to imply procedures for surgeon was around Slack, you're over here. Where are you today in terms of penetration rate with active US spine surgeons? And going forward, how should we think about the balance between increasing breadth and depth in terms of driving volume growth? Also, once again, thanks for taking your questions.

Yeah, I mean, we obviously saw another strong quarter of surge in adoption. I think your question on utilization rates, I think if you go back to 2022, we saw utilization rates or we've seen utilization rates grow on average about 3% a year in the U.S. Clearly, on average, we're seeing greater utilization. That utilization number is obviously pulled down by the strong adoption numbers that we see. And so we averaged out at about 3%. And, you know, we continue to feel good about that. And I think going back to some of the themes of this call in terms of why we have confidence in our full year guide on the surgical revenue piece is fundamentally related to the fact that we see strong demand for new surgeons to come here. and have always seen that demand translate into procedural adoption. And so we expect to continue to see that throughout the balance of this year, which gives us confidence in our overall guide. Okay, perfect. Thanks.

Our next question comes from the line of Sean Lee with HC Wainwright. Your line is open. Please go ahead.

Hey, good afternoon, guys, and thanks for taking our questions. I just have a bit of a higher level one. So with the EOS revenue and the guidance staying at a low growth this year, I was wondering, does the strategic case of where EOS sits inside the procedure ecosystem, where, you know, is the platform as a door knocker of a sort as well as for a driver for surge and pull through. Does that case still hold? And do you think it maybe makes sense to rethink some of the hardware and monetization model as well?

Sean, it doesn't make me think It makes me so enthusiastic about what we're doing. You know, imagine from where we've come. You know, it's Alpha Tech Spine getting access to the institutions like HSS, NYU, Duke, Northwestern, University of Virginia, University of Maryland. It is unbelievable the type of access that EOS has given us. And probably the thing that I am most kind of disappointed in myself in is enabling you guys to understand the uniqueness of this informatic tool. There is nobody in the business that has a tool that ultimately provides for information. A preoperative image, a plan integrated into the interoperative experience and then evaluated postoperatively. It's all the same image. And so that provides you what's called a structured data set. And your ability to translate a structured data set is unlike anything anybody else has. And it's all automated. The nemesis of spine surgery historically has been a lack of data. And so for us to have these structured data set that automatically fuels information into a depot that we could translate to mitigate variables. We've talked in previous calls about the revision rate in spine and how, you know, mitigating variables is the route to greater predictability. The fact that we've missed on a few installations and then to suggest that we're going to rethink the thesis is not even a consideration. I would tell you that I just got back from the American Academy of Neurosurgery. You know who the big players are? It's Medtronic, Globus, and ourselves. You know who the most promising player is? A-Tech Spine. And so it's one of these things for us to translate this tool. In five years, it's going to be the father-son game. And so it's... um, any inference that there is any blinking with regard to the thesis is, is, is, is misdirected. And so sorry for the diatribe, but I got to tell you, it's like, um, uh, this, this has to run the size of Texas. You have a team that's committed to the size of Texas and the, and you know, the, the, the, uh, you miss on the construction on a few placements of EOS and people questioning it is, is, is a word I would choose not to use. So anyway, appreciate the question.

Thanks for that. And thanks again for taking our question.

We have reached the end of the question and answer session. I will now hand the call back to Pat Miles for closing remarks.

Just a quick comment. I just want to thank everybody for dialing in. I've never been more bullish and more enthusiastic with regard to the build of a tech spine. I'm thrilled about the volume of people coming over here from competitive companies that are supporting the effort. It's like our best days are out in front of us. The strategic thesis is such the right one. We're going to be the data source in this in this business. And so just want to share my enthusiasm for for where we are. and look forward to discussions as the year progresses, because we will continue to prosper as we have for the last eight years. So anyway, thanks very much for your interest and look forward to more.

This concludes today's call. Thank you for attending. You may now disconnect.