Alphatec Holdings, Inc. 2026 Q2 Earnings Call

Thanks much. Appreciate it. Welcome to our Q2 2026 financial results call. There will be some forward-looking statements, so please review at your leisure. This quarter reflects a solid performance in both growth and profitability. We did $214 million in Q2, up 15%, with surgical up 17%. Cases were up about 20% and surgeons about 24%. Those are the leading indicators that affirm that this is both a utilization story and an adoption story. We're adding surgeons. They are doing more with us. The business is working, and we are scaling. The quarter also showed strong leverage. We generated $36 million of adjusted EBITDA, up $15 million sequentially at a 17% margin while producing positive cash flow. When you step back, this is exactly the compounding engine we've been building. More surgeons, more cases, more platform pull-through, and now it's dropping to the bottom line, creating profitable growth.

EOS came in at $17 million for the quarter. Fundamentally, EOS affords us access, and as importantly, accelerated hardware usage from EOS Insight when it goes live. I'll come back to that later. Todd's going to take you through the numbers, and then I'll walk you through the catalysts that give us more enthusiasm today than ever before. We are just getting started. Over to you, Todd. Thank you, Pat.

The second quarter results reflect the continued strength and consistency of the company we are building. We delivered strong revenue growth, significant profitability expansion, and positive free cash flow, extending our track record of converting top-line performance into meaningful financial results through disciplined execution and scale. We've been very deliberate in how we allocate resources, invest in growth initiatives, improve asset efficiency, and leverage our infrastructure as the business grows. That discipline continues to translate revenue growth into expanding EBITDA margins and cash generation. Consistent with recent quarters, we continue to see robust surgeon adoption and procedural volume growth, clear indicators of long-term demand for our procedural solutions. Total revenue was $214 million, up 15% year-over-year, with surgical revenue of $196 million, growing 17%, a $28 million increase over the prior year period.

That growth continues to be driven by the core elements of our model. Approximately 24% growth in surgical adoption and 20% procedural volume growth. The consistency of net new surgeon adds and case volume, both at or above 20% again this quarter, speaks to the ongoing momentum and durability in our surgical business. Overall, revenue per case declined approximately 2.7% year-over-year, driven by case mix and strong international growth. The remaining pressure was primarily attributable to biologics attachment, which stabilized in Q2 but remained below prior year levels. Improving biologics attachment remains an area of focused execution. Encouragingly, consistent with prior periods, our average revenue per case across individual core procedures remained strong. Lateral, ALIF, and cervical were all up year-over-year. Revenue per case improved sequentially by 1.5% in the quarter, reflecting increasing stability in the underlying business.

Turning to EOS, revenue was $17 million in the quarter, up from $14 million in Q1 and essentially flat year-over-year, with demand for systems remaining strong. EOS Insight adoption continues to grow, we are seeing increasing evidence that these accounts becoming meaningful adopters of our procedural solutions following implementation. Among established EOS Insight accounts, implant revenue increased approximately 32% within six months of go live. These results reinforce the strategic value of EOS and EOS Insight as important drivers of surgeon engagement, procedural adoption, and long-term growth. Turning to the P&L. Gross margin for the quarter was 72.5%, an increase of 260 basis points year-over-year, driven by continued improvement in inventory efficiency, cost reductions, and product mix.

Operating expenses grew 11% while improving approximately 260 basis points as a percentage of revenue, signifying strong operating leverage and reflecting our approach to make disciplined, targeted reinvestments in the business. The combination of strong revenue growth, gross margin expansion, and disciplined execution drove adjusted EBITDA of $36 million, up approximately 53% year-over-year. Adjusted EBITDA margin expanded 420 basis points to 17%, further proof of the increasing scalability of our operating model and our ability to deliver expanding profitability. Turning to the balance sheet, we ended the quarter with approximately $119 million in cash and $85 million of available borrowing capacity, providing roughly $204 million of total liquidity.

We generated $34 million of operating cash flow during the quarter while investing approximately $33 million of inventory and instrument sets to support continued surgeon adoption growth of more than 20% and position the business for the expected revenue ramp in the second half of 2026. As a result, we generated approximately $1 million of positive free cash flow, exceeding our expectation of roughly breakeven, and delivered positive trailing 12-month free cash flow for the fourth consecutive quarter. We expect the third quarter to reach $4 million-$6 million of free cash flow. During the quarter, as we announced previously, we completed our new term loan A and revolving credit facility with J.P. Morgan and TD Cowen. The transaction consolidated two legacy facilities into one single capital structure, extends our maturities to 2031, and is expected to reduce annual interest expense by more than $6 million.

Together, these actions further strengthen our balance sheet, lower our cost of capital, and provide additional flexibility as we continue to grow and scale the business. Turning to the revenue outlook, we are maintaining our full year revenue guidance of approximately $882 million, representing growth of roughly 15% for the year. This includes surgical revenue of approximately $805 million, unchanged from our prior outlook and representing growth of approximately 17%, and EOS revenue of approximately $77 million. We expect high teens surgical case volume growth in the second half of the year. Average revenue per case is expected to decline in the low single digits for the full year, with the year-over-year impact continuing to moderate as we move through the second half and exit the year. This implies that the second half surgical revenue growth will accelerate to 18% from 17% in the first half of the year.

Given our growth outlook, sustained improvement in gross margins, and ongoing operating discipline, we are raising our adjusted EBITDA guidance to approximately $140 million, representing a 16% margin, up from our prior outlook of $134 million. We continue to expect at least $20 million of free cash flow for the full year. We are reaffirming our revenue and free cash flow guidance and raising our profitability outlook, reflecting our confidence in the continued progression of margins, profitability, and cash flow generation. With that, I'll turn the call back to Pat.

Thanks, Todd. Our strategy is unchanged because it is working. If we go back eight years since we started the ATEC turnaround, we have 10Xed the quarterly revenue. I don't say this because it reflects a destination, but more to reinforce that we are doing things differently. For us, it is more of a starting point. We are generating results because we remain committed to creating clinical distinction, earning surgeon adoption, and building an aligned sales machine that scales. That's been our model for years. Serve spine surgery uniquely well, earn surgeon trust, and evolve the sales model. Creating clinical distinction is the root of everything we do. We don't focus on designing individual products. We integrate them into procedures that make for better surgical intervention. Adoption and growth come because the surgeons whose trust we've earned make the clinical decision to keep expanding what they do with us.

We know that philosophy is working because surgeon demand remains very high. But clinical distinction only compounds if you have a sales machine to carry it into the field. Our disciplined, energized, and built to scale sales force is part of the procedure. It's what turns a better procedure into broad adoption. Put the three commitments together and the outcome is straightforward. Do something clinically meaningful, surgeons adopt, and it scales. What creates a 20% increase in case volume and a 24% net new surgeon growth is that we focus on selling entire procedures, not just widgets. The volume of variables that undermine spine surgery success are many. The opportunity to mitigate them through carefully architected spine procedures is apparent. We assemble procedures from the ground up, and better spine procedures leads to expanded indications, expanded indications to greater complexity, and all that generates more revenue.

We start in lateral for a reason. It's where we have the most know-how and the most apparent opportunity for us to create distinction. PTP has profoundly improved surgery, creating optionality for the surgeon while minimizing morbidity for the patient. I was reminded of this recently while watching a lateral case. What used to be a long surgery with a myriad of variables is now a reproducible, efficient, and confidence-building surgeon experience. The benefits of lateral surgery for patients has been apparent for decades. The challenge has been enabling more surgeons to feel confident that they can predictably perform the procedure safely and reproducibly. The advancements we've introduced to lateral surgery, including SafeOp, Valence, patient positioners, retractors, and implants, all designed to function as an entire comprehensive procedure, have produced a compounding effect on growth. We train and convert a surgeon to perform lateral surgery safely and reproducibly.