Alphatec - Q4 2025

Transcript

Operator (participant)

Good afternoon, everyone, and welcome to the webcast of ATEC's fourth quarter and full year 2025 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. 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 ATEC's Chairman and CEO, Pat Miles, and CFO, Todd Koning. Now, I will turn the call over to Pat Miles.

Pat Miles (CEO)

Thank you much, Tiffany. Welcome everybody to the Q4 2025 financial results call. You will realize that there will be some forward-looking statements. Please read this at your leisure. Clearly, some very good things are going on at ATEC, and we're doing some special things. I would call that uniquely positioned. I'd say uniquely positioned in a market that remains disrupted, and I think we're benefiting significantly from a 100% spine focus. I think there's no question about it, we're leading in lateral and advancing it, clearly more complex things. Deformity leadership is in our midst. EOS Insight is out and available and wreaking havoc, meaning it's providing information.

We've built an infrastructure for a long run. I would tell you that we have durable and profitable sales growth for as far as the eye can see. When we talk about profitable growth, Q4 2025 highlights are $213 million in revenue, which is a 20% revenue growth, 21% surgical revenue growth in Q4, 20% revenue growth in established territories. That's same-store sales. 23% new surgeons, $33 million in Adjusted EBITDA, and $8 million in free cash flow.

For the full year, it's $764 million, which is $153 million in year-over-year growth, which is fantastic, and congratulations to the ATEC faithful, which is 25% total revenue growth, which gave us an Adjusted EBITDA of $93 million, which is 12% of revenue. We had free cash flow of $3 million, improving significantly, I shall say. From a key procedural advancement, we continue to evolve our technology and cannot be more proud of the team. In 2025, we saw the release of our bone mineral density test out of EOS. A lot of EOS Insight pediatric tools, a lot of work in cervical with regard to the retractor and with regard to the Segmental Plating System, SPS.

We have a full line of 3D-printed implants which have been released. We have a corpectomy system, which has been released, and a number of different biologics. I would say a productive year, and with that, I'll have Todd review some of the financial metrics.

Todd Koning (CFO)

All right. Well, thank you, Pat, and good afternoon, everyone. I'll begin with fourth quarter revenue performance. Total revenue in the fourth quarter was $213 million, up $36 million, or 20% year-over-year, and up $16 million sequentially from the third quarter. Revenue was comprised of $190 million in surgical revenue and $23 million in EOS revenue. Fourth quarter surgical revenue grew 21% year-over-year and 7% sequentially, representing $33 million of incremental revenue. Procedural volume growth of 21% was driven by continued surgeon adoption, with net new surgeon users increasing 23% in the quarter. Average revenue per procedure was flat, consistent with expectations. In the U.S. revenue per case increased 1.4%, with lateral and cervical both up 6%, partially offset by procedural mix towards cervical cases.

U.S. growth was offset by 120 basis point of mix headwind from the international business, which carries a lower average revenue per case. Same-store sales in the U.S. grew 20% year-over-year, demonstrating strong growth within the established territories. EOS revenue increased $23 million, up 14% year-over-year. As we exit 2025 and begin 2026, I've never felt better about the sustainability of our top-line growth. First, we continue to dominate the lateral space with increasing clinical relevance of our integrated ecosystem, supported by disciplined expansion of the sales channel. Not only are we taking share in lateral, more importantly, we are expanding the addressable markets as we train and develop more surgeons who previously treated patients primarily from a posterior approach.

We see this phenomenon clearly in statistics that track surgeon utilization over time, which I will address later in this presentation. Secondly, 2025 showed burgeoning influence in deformity. Once again, it is our strategy of increasing clinical relevance with an integrated ecosystem that is driving adoption. EOS is the unparalleled gold standard in deformity imaging. The growth in our installed base of EOS Edge systems has given us access to accounts that we previously had at no access to. In addition to that, we are seeing implant usage within six months of adoption of EOS Insight grow at almost double our average growth rate. The EOS Insight opportunity is significant, as it is currently installed on only a small percentage of the EOS Edge installed base. All of this comes together when you see the accelerating momentum in surgeon user growth.

The last two quarters of 2025 show the highest level of surgeon growth in the last two years. One consequence of our growth in deformity is that it caused a shift in the seasonality of our business. We've all gotten used to the dramatic sequential increase in fourth quarter. This year's impact was less pronounced, as both second and third quarters were marked by strong deformity volumes. What initially looks like deceleration is masking underlying momentum. Similarly, year-over-year growth in Q4 was less than year-over-year growth in Q2 and Q3, partially due to the seasonality of the deformity business and partially due to the variation in quarter-by-quarter contribution of commercial expansion in the 2024 comparable year.

You can see from the chart on the left that we've grown consistently over time. The chart on the right shows that our $33 million in surgical revenue dollar growth in Q4 was strong and consistent with our historical contribution. When you step back and look at the annual growth in dollars, it allows you to see.

Operator (participant)

Ladies and gentlemen, this is the operator. I apologize, but there will be a slight delay in today's conference. Please hold, and the call will resume momentarily. Thank you for your patience. Ladies and gentlemen, this is the operator. I apologize for the technical issues. I would now like to turn the call back over to Todd.

Todd Koning (CFO)

Well, thank you, Tiffany, and I apologize for the technical issues on the line there. I will start with the Q4 P&L highlights. Turning to the remainder of the P&L, fourth quarter non-GAAP gross margin was 70.5%, flat sequentially and up 80 basis points compared to the previous year, driven by mix, product mix, volume leverage, and improving asset efficiency. Non-GAAP R&D was $14 million in the fourth quarter. R&D investment was up year-over-year by half a million in absolute dollars, reflecting our continued investment in the long-term growth of the business. Non-GAAP R&D expense was approximately 6.5% of sales in the quarter, with top-line growth driving over 100 basis points of leverage year-over-year. Non-GAAP SG&A of $118 million was approximately 55% of sales in the fourth quarter.

SG&A grew 12% year-over-year compared to our 20% increase in revenue, which drove over 400 basis points of operating margin expansion. We continued to leverage the company's foundational infrastructure investments and improve our variable selling expense, which account for about half of the improvement. The remaining half of the SG&A improvement, or 210 basis points, came from leveraging the depreciation associated with our prior year instrument investments. We reported total non-GAAP operating expense of $132 million, which was approximately 62% of sales. Our operating expense investments reflect continued prioritization of strategic growth initiatives, supporting sales expansion and new product development. Our foundational infrastructure is in place, we continue to expand the sales force, build out procedural solutions, and integrate technology, data, and information into the operating room experience.

The operating leverage we are seeing reflects structural improvements in variable costs and the scalability of the infrastructure we have built. I'll turn next to Adjusted EBITDA, which grew by 61% year-over-year to $33 million, delivering nearly 400 basis points of improvement compared to the prior year period. The drop through on the year-over-year revenue growth to Adjusted EBITDA in the quarter was 35%, as we lapped the impact of the cost rationalization actions we took early in the fourth quarter of 2024. We are driving meaningful margin expansion that aligns with the priorities outlined in our long-range plan and as a result of disciplined execution. Our fourth quarter exit rate of 16% Adjusted EBITDA margin reinforces confidence in our 2026 guidance and long-range plan commitments. I'll turn next to full year 2025 results.

Total revenue was $764 million, up 25% compared to the prior year. The $764 million in revenue was comprised of $687 million in surgical revenue and $77 million in EOS revenue. Surgical revenue grew 26% compared to 2024, driven by procedural volume growth of 22% and average revenue per procedure growth of 3%. EOS revenue was $77 million, up 15% year-over-year. Non-GAAP gross margin was 70.2%, flat compared to the prior year, driven by volume leverage and asset efficiency. Non-GAAP R&D for the full year was $57 million and approximately 7% of sales, an improvement of 140 basis points compared to the prior year.

Non-GAAP SG&A was $449 million and approximately 59% of sales, an improvement of 790 basis points compared to the prior year. 2025 Adjusted EBITDA was $93 million and approximately 12% of sales, a year-over-year improvement of $63 million and 720 basis points compared to 2024. The drivers of leverage improvement for the full year were consistent with those that we saw in the fourth quarter. Drop through of incremental revenue dollars to total Adjusted EBITDA was 41% for the full year, up significantly from the 31% in 2024. While investing for future growth, we delivered industry-leading revenue growth and significant margin expansion at scale. We are becoming the company we set out to build. Turning to the balance sheet.

We ended the fourth quarter with $161 million in cash on hand. Additionally, we had access to $60 million of available borrowing on a revolving credit line, which was undrawn at the quarter end, making our total cash and available cash $221 million. Our positive free cash flow of $8 million in the quarter was again at the favorable end of the $6 million-$8 million range that we previously communicated. We generated $21 million of cash from operating activities while continuing to invest in surgical instruments. Free cash flow for the full year was $3 million. The company generated $45 million in cash from operating activities during this year, while investing $42 million back into the business to fuel growth.

2025 marks our first full year of positive free cash flow, representing a clear transition to a business that generates cash. We enter 2026 with a strong cash position and the ability to self-fund growth while continuing to strengthen the balance sheet. Next, I'll provide detail on full year 2026 outlook. Continued adoption of our procedural approach is expected to drive revenue growth of 17% to approximately $890 million. Consistent with the outlook shared in the January pre-announcement, this includes surgical revenue of approximately $805 million, supported by mid-teens volume growth and low single-digit revenue per surgery growth, and EOS revenue of approximately $85 million. This next slide provides context on how our revenue growth algorithm will continue to drive growth in 2026 and beyond.

I'll begin with surgeon adoption, which is fueled by the impact of ATEC clinical distinction and our unique procedural approach. You can see in the chart on the left that the growth of new surgeon users has consistently been strong, growing another 20% in 2025. Consistent and recurring contributor to volume growth is surgeon utilization. The chart on the right depicts the steady ramp in utilization that each of our new surgeon cohorts has demonstrated over time. We compel surgeons through clinical distinction, often beginning with lateral. Initial adoption creates a halo effect across additional procedures, driving predictable utilization growth over time. Each new surgeon relationship that we develop typically unlocks a multiyear utilization growth opportunity. The underlying case utilization for the existing surgeons in each of the past several years has averaged growth in the mid-teens.

If historical utilization trends persist, a significant portion of the case volume implied in our 2026 guide can be supported by existing surgeons alone before accounting for incremental new surgeon additions. To recap, our financial outlook for 2026, we expect continued strong revenue growth to drive incremental profit margin expansion.

We are beginning to see measurable gross margin improvement, driven by asset efficiency and cost improvement efforts, and expect margins to approach 71% as we exit 2026. We will continue to invest in our priorities, which are expanding the sales channel and new product development. Growing operating expenses at approximately 11%, while growing revenue at 17%, will fuel nearly 400 basis points of operating margin improvement compared to 2025.

Given our strong profitability performance in the fourth quarter, we are increasing our Adjusted EBITDA guidance for the full year 2026 to $134 million. The chart on the next 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 $134 million will generate an Adjusted EBITDA margin of 15% for the full year. Given the profitable revenue growth we've generated this year, we continue to self-fund the investment in instruments and inventory to support our future revenue growth. After accounting for cash interest, excess, and obsolete inventory and other working capital requirements, we expect to generate $110 million of operating cash before incremental asset investment.

While we will see our investment in inventory and instruments reflect the $0.75 on the dollar growth relationship, we expect to deliver at least $20 million of free cash flow. We are delivering durable revenue growth, expanding profitability, and increasing cash generation, all at scale. The operating discipline across the organization is translating growth into sustainable financial strength. Most importantly, we remain focused on helping surgeons perform better surgery because that is the foundation for long-term value creation. With that, I'll turn the call back to Pat.

Pat Miles (CEO)

Thanks much, Todd. Todd just reviewed the reflection of our work, gives me the opportunity to share with you guys how we're serving the field. I would tell you that our strategy, if nothing else, is steadfast, consistent. We are creating clinical distinction, mostly through proceduralization at this point. It is clearly a compelling adoption, we continue to expand and elevate our sales force. When we speak of clinical distinction, clearly, we have created unrivaled leadership in lateral. It is our growth engine. The reason for the continued applied learning is associated with increasing complexity in its application. PTP is being applied to more challenging pathologies. A foundational reason why surgeons have confidence in applying PTP to more complex pathologies is our neuromonitoring platform. It is far and away best in class.

It is unique to ATEC. It is a significant moat to precluding others from doing what we are doing. No platform exists outside of SafeOp that provides automated monitoring of not only the nerve location, but also the nerve health. When we think of lateral sophistication, we cannot be more excited about Valence. Valence will continue to serve as a centerpiece of our intraoperative strategy. It is purpose-built to be seamlessly integrated into our spine procedures, namely PTP. Valence is a fully integrated platform that provides both navigation and robotically controlled precision when, where required. It is part of the designed workflow of surgery, so it's not anything other than part of the surgery as we have designed it.

We are very excited for a controlled release throughout 26, and as the replacement cycle for Stealth avails itself, we will happily assert ourselves. We think our timing and the product is very, very good. We often talk about our best days are yet ahead. Much of that stems from having a minority market share in an established market and little in an untapped market. We think that we can extend lateral surgery through PTP, not only in what was traditionally a billion-dollar market space, but also across TLIF and PLIF. We will continue to earn share in the fastest-growing segments of spine surgery, there remains much untapped opportunity. When we talk about our growth machine, it is predicated on expanding surgeon users and increased utilization. Todd reviewed that reasonably clearly.

That is what has driven our more than double the outsized growth of anyone else in the space. The reason surgeons adopt is that when we see a prospective operative candidate, a patient, they don't think widgets, they think: What spine procedure can I apply to help this patient? They want a fully thought out and designed contemplation of how to address specific pathology. When they experience that, it creates trust. That trust creates confidence or a halo into earning more of their practice. This is how utilization is increased. More surgical success creates more confidence and more users. More confidence creates more utilization. We have earned our customers' confidence, no doubt. You don't grow 25% a year without winning more customers and earning more of their business. From lateral, we go to deformity.

The number of variables that undermine success in deformity surgery is innumerable, hence an end-to-end requirement for an ecosystem. It is not just to help with screw placement that is required for success in deformity. It is the ability to assess through a standing, full-body, weight-bearing image. The magic that this image is not only standardized, but is also the standard in deformity surgery.

The ability to understand alignment via AI-generated automated alignment measures and bone mineral density in the same scan, again, is unique to ATEC. It clearly elevates the field. It is information that should be available to all who do deformity surgery. Then create a 3D model of those images to better understand and simulate surgery is vitally important. We are building a structured data set through the modeling of these images to provide predictive analytics that better inform surgical plans.

We will integrate this information into the operative experience through Valence and collect data to confirm we got what we intended. An example of how we apply this information to surgery in pediatric surgery is pictured above. Take the most coveted image, standing full body weight-bearing image, get automated alignment measures with EOS Insight, create a model and 3D plan.

Nobody can get a low-dose axial image without EOS 3D reconstruction to understand the rotational aspect of the deformity is highly valuable. Now, we proceduralize with our patient positions, understand where the correction is intraoperatively, assure we can have best-in-class implants and instruments to facilitate the correction, and use SafeOp to ensure that there is no neural issues. Most companies only make implants.

ATEC thinks about how to address pathology, we think in terms of all the elements required for optimal patient outcomes. It is not a small difference. We have started to translate revenue not only through the capital sales of EOS, but in the patient-specific implants that are created from the EOS scan. Our ability to understand the specific implant requirements, their reflection on spine correction, and how the spine functions over time is unique to ATEC.

Not only do we have a unique, actionable informatics set for alignment, but also bone mineral density. Understanding the underlying bone quality enables greater predictability in what type of surgery will be tolerated. Often, the operation is on an elderly or sick patient whose bone quality has been compromised. This again is unique to ATEC.

I hope this gives you some insight into our end-to-end ecosystem and why we know that we are advancing the field of spine with our proprietary-driven procedural ecosystem. As if there is another example required that ATEC is playing the long game, we have signed an exclusive distribution partnership with Theradaptive. Our current knowledge suggests that we will have the next BMP on the spine market. BMP is currently a $700 million product for a competitive spine company. The market is huge, and we are confident that in several years we will have the most advanced BMP in existence.

It will be easy to use, it'll have familiar handling, it'll have 2x to 3x faster bone formation than the gold standard, 325% higher molar osteoinductivity than the current alternative, and projected to have the highest safety margin of any BMP on the market. We can't be more excited about our relationship with Theradaptive and the expectation of what that will provide our procedural strategy. We have built a foundation from which to scale.

We are in a position for long-term profitable growth. We will continue to lever our infrastructure investments, integrate data and informatic platform into surgical experience, expand and evolve the procedural approaches, proliferate algorithm-based sales growth model, deepen partnerships with leading hospital systems and academic institutions, and drive focal international growth.

From a financial outlook, it's been reviewed, a $890 million commitment for 2026 in revenue, a $134 million in Adjusted EBITDA, which is 15%, and $20 million in cash flow. I would tell you that we are uniquely positioned, and there's zero ways about it. I would also say that we are the preferred destination in spine. We're executing on the long game with discipline and conviction. We're the preferred destination for both surgeons and sales talent. Our growth is sustainable because of our innovation, and execution is aligned. With that, we will take questions.

Operator (participant)

We will now open the floor up for questions. In consideration of others, please limit yourself to one question. The first question comes from Mathew Blackman with TD Cowen.

Matthew Blackman (Research Analyst)

Good afternoon, everybody. Can you hear me okay?

Pat Miles (CEO)

Yeah, we got you loud and clear, Matt.

Matthew Blackman (Research Analyst)

Great. Thanks, Todd. I apologize. I'm gonna ask two questions. I'm sorry for breaking the rules right out of the gate. The first one, if you'll just indulge me, just the shares are trading off after the market, and I just wanna make sure I'm not missing something.

Just to recap, 4Q, you'd already pre-announced the revenues, came in in line. EBITDA was a new input, and that came in about 10% higher than consensus. Then 2026, you'd already pre-announced the revenue guidance of $890 in that same release in January, but you've now taken up the EBITDA guidance for 2026. I just wanna make sure I'm capturing all the moving parts and not missing something.

Pat Miles (CEO)

That's all correct, Matt.

Matthew Blackman (Research Analyst)

Okay. All right. I, I appreciate that. Maybe, Todd, if you could, you did mention in your prepared remarks that, complex contribution may be changing the seasonal patterns. I was hoping you could help us with the cadence for 2026, maybe even just starting with the first quarter. You know, I think consensus is about $202 million in revenues, $90 million in EBITDA. Is, is that the right spot to be, and any commentary on how the rest of the year should play out? I'll leave it at that, I swear.

Pat Miles (CEO)

I think, if you look at the full year growth of 17%, I think as we think about the seasonality of our revenue, you know, I think you look at the increased seasonality in Q2 and Q3, I'm kinda looking at 2025 as being probably where I would like to get folks in terms of the revenue seasonality. If you think about the first quarter was about 22.1% of sales in 2025, 24.5% in Q2, and about 25.5% in Q3. I think those are kind of the starting point that we're thinking about, just to respect the seasonality that we saw on the basis of the guidance that we have.

Matthew Blackman (Research Analyst)

Okay, the EBITDA pattern should be similar as well?

Pat Miles (CEO)

Yeah, I think so. I mean, I think it's probably a little bit more drop through in the first quarter over the average, and probably a little bit lower than that in the balance of the year to kinda get you to the 32% overall.

Matthew Blackman (Research Analyst)

Okay. All right. Thank you. I'll hop back in the queue. Appreciate it.

Pat Miles (CEO)

Yep.

Operator (participant)

The next question comes from Ben Haynor with Lake Street Capital Markets.

Ben Haynor (Managing Director of Medical Technology Research)

Hey, good afternoon, gentlemen. Thanks for taking the question. Just curious on what you're seeing out in the field in terms of attracting the sales folks that you want. Are you still getting kind of the pick of the litter? Any territories you're seeing, particular strength or penetration on that that maybe had not been bright spots in the past?

Pat Miles (CEO)

Yeah. Ben, this is Pat. I would say that we have a very clear hiring algorithm, and it is going exactly as one would expect. I would tell you, like, when we say things like we're the preferred destination, it's our subtle, you know, desire to send the message that people are coming our way. You know, without getting into specifics in terms of territorial dynamics, I would tell you that there is great demand for our portfolio, both via the surgeons and the people who wanna sell it.

Ben Haynor (Managing Director of Medical Technology Research)

Got it. Thank you very much for taking the questions.

Pat Miles (CEO)

Thanks.

Operator (participant)

That concludes our question and answer session. I will now turn the call back over to Pat for closing remarks.

Pat Miles (CEO)

Yeah, thanks very much for those on the call, and appreciate your interest in ATEC, and we look forward to the continuation of a long, profitable run. Thanks.

Operator (participant)

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.