ATEC - NASDAQ

Good afternoon, everyone, and welcome to the webcast of Alphatec Holdings, Inc.'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 Alphatec Holdings, Inc.'s Chairman and CEO, Patrick Miles, and CFO, J. Todd Koning. I will now turn the call over to Patrick Miles.

Thank you much, Tiffany, and welcome, everybody, to the Q4 2025 financial results call. You will realize that there will be some forward-looking statements, so please read this at your leisure. So clearly, some very good things are going on at Alphatec Holdings, Inc., and doing some special things. I would call that uniquely positioned and say uniquely positioned in a market that remains disrupted. I think we are benefiting significantly from a 100% spine focus. I think there is no question about it. We are 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 is providing information. We 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. And so when we talk about profitable growth, Q4 2025 highlights are $213,000,000 in revenue, which is a 20% revenue growth; 21% surgical revenue growth in Q4; 20% revenue growth in established territories—that is same-store sales; 23% new surgeons; $33,000,000 in adjusted EBITDA; and $8,000,000 in free cash flow. So for the full year, it is $764,000,000, which is $153,000,000 in year-over-year growth, which is fantastic. And congratulations to the Alphatec Holdings, Inc. faithful, which is 25% total revenue growth, which gave us an adjusted EBITDA of $93,000,000, which is 12% of revenue. And we had free cash flow of $3,000,000, improving significantly, I shall say. From a key procedural advancement, we continue to evolve our technology and cannot be more proud of the team. So 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 device, which has been released, and a number of different biologics. So I would say a productive year. And with that, I will have Todd review some of the financial metrics.

Alright. Well, thank you, Patrick, and good afternoon, everyone. I will begin with fourth-quarter revenue performance. Total revenue in the fourth quarter was $213,000,000, up $36,000,000, 20% year over year, and up $16,000,000 sequentially from the third quarter. Revenue was comprised of $190,000,000 in surgical revenue and $23,000,000 in EOS revenue. Fourth-quarter surgical revenue grew 21% year over year and 7% sequentially, representing $33,000,000 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 a 120 basis point 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 to $23,000,000, up 14% year over year. As we exit 2025 and begin 2026, I have 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 market 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 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 base. All of this comes together when you see the accelerating momentum in surgeon user growth. The last February 2025 showed 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 have all gotten used to the dramatic sequential increase in the 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 have grown consistently over time, and the chart on the right shows that our $33,000,000 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—

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—

Well, thank you, Tiffany, and I apologize for the technical issues on the line there. So 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 $14,000,000 in the fourth quarter. R&D investment was up year over year by $5,000,000 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 $118,000,000 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 continue to leverage the company's foundational infrastructure investments and improve our variable selling expense, which accounts for about half of the improvement. The remaining half of the SG&A improvement, or 120 basis points, came from leveraging the depreciation associated with our prior-year instrument investments. We reported total non-GAAP operating expense of $132,000,000, which was approximately 62% of sales. Our operating expense investments reflect continued prioritization of strategic growth initiatives supporting sales expansion and new product development. While 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 will turn next to adjusted EBITDA, which grew by 61% year over year to $33,000,000, 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 2024. We are driving meaningful margin expansion that aligns with the priorities outlined in our long-range plan and is 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 will turn next to full-year 2025 results. Total revenue was $764,000,000, up 25% compared to the prior year. The $764,000,000 in revenue was comprised of $687,000,000 in surgical revenue and $77,000,000 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 $77,000,000, 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 $57,000,000 and approximately 7% of sales, an improvement of 140 basis points compared to the prior year. Non-GAAP SG&A was $449,000,000 and approximately 59% of sales, an improvement of 790 basis points compared to the prior year. 2025 adjusted EBITDA was $93,000,000 and approximately 12% of sales, a year-over-year improvement of $63,000,000 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. Now turning to the balance sheet. We ended the fourth quarter with $161,000,000 in cash on hand. Additionally, we had access to $60,000,000 of available borrowing on a revolving credit line, which was undrawn at the quarter end, making our total cash and available cash $221,000,000. Our positive free cash flow of $8,000,000 in the quarter was again at the favorable end of the $6,000,000 to $8,000,000 range we previously communicated. We generated $21,000,000 of cash from operating activities while continuing to invest in surgical instruments. Free cash flow for the full year was $3,000,000. The company generated $45,000,000 in cash from operating activities during this year while investing $42,000,000 back into the business to fuel growth. 2025 marks our first full year of 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 will provide detail on full-year 2026 outlook. Continued adoption of our procedural approach is expected to drive revenue growth of 17% to approximately $890,000,000, consistent with the outlook shared in the January preannouncement. This includes surgical revenue of approximately $805,000,000, supported by mid-teens volume growth and low single-digit revenue per surgery growth, and EOS revenue of approximately $85,000,000. This next slide provides context on how our revenue growth algorithm will continue to drive growth in 2026 and beyond. I will begin with surgeon adoption, which is fueled by the impact of Alphatec Holdings, Inc. 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. Another 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 to clinical distinction, often beginning with lateral. That 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 a store 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 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 adjusted EBITDA guidance for the full year 2026 to $134,000,000. 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 $134,000,000 will generate an adjusted EBITDA margin of 15% for the full year. Given the profitable revenue growth we 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 $110,000,000 of operating before incremental asset investment. While we will see our investment in inventory and instruments reflect the $0.75 on the dollar growth relationship, expect to deliver at least $20,000,000 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 will turn the call back to Patrick.

Thanks much, Todd, and Todd just reviewed the reflection of our work, and so it gives me the opportunity to share with you guys how we are serving the field.

And 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 compelling adoption.

And we continue to expand and elevate our sales force.

And so 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 learnings 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 Alphatec Holdings, Inc. 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 and where required. It is part of the design workflow of surgery. So it is not anything other than part of the surgery as we have designed it. We are very excited for controlled release throughout 2026, 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. So 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. So we think that we can extend lateral surgery through PTP not only in what was traditionally a $1,000,000,000 market space, but also across TLIF and PLIF. We will continue to earn share in the fastest growing segments of spine surgery, and there remains much untapped opportunity. So when we talk about our growth machine, it is predicated on expanding surgeon users and increased utilization. We have 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 do not 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 utilizations increase. More surgical success creates more confidence and more users. More confidence creates more utilization. We have earned our customers' confidence. No doubt.

You do not 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 is that this image is not only standardized, but it 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 Alphatec Holdings, Inc. It clearly elevates the field. It is information that should be available to all who do deformity surgery. To then create a 3D model of those images to better understand and simulate surgery is vitally important. We are building a structured dataset through the modeling of these images to provide predictive analytics that better inform surgical plans.

We will then integrate this information into the optics—

operative experience, surveillance, and collect data to confirm we got what we intended. An example of—

how we apply this information to surgery, 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 have best-in-class implants and instruments to facilitate the correction, and then use SafeOp to assure that there are no neural issues. Most companies only make implants.

When Alphatec Holdings, Inc. 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, 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 Alphatec Holdings, Inc. Not only do we have a unique axial informatics set for alignment, 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 Alphatec Holdings, Inc. 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 Alphatec Holdings, Inc. 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 $700,000,000 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 will have familiar handling.

It will have two to three times faster bone formation than the gold standard.

That is 3,325% higher molar osteoinductivity than the current alternative, and projected to have the highest safety margin of any BMP on the market. So we cannot be more excited about our relationship with Theradaptive and the expectation of what that will provide our procedural strategy. So 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 informatics platforms into the surgical experience, expand and evolve the procedural approaches, proliferate an algorithm-based sales growth model, deepen partnerships with leading hospital systems and academic institutions, and drive focal international growth. So from a financial outlook, it has been reviewed: $890,000,000 commitment for 2026 in revenue, $134,000,000 in adjusted EBITDA, which—

is 15% and $20,000,000 in cash flow. I would tell you that we are unique, and there are zero ways about it. And so I would also say that we are the preferred destination in spine. We are executing on the long game with discipline and conviction. We are the preferred destination for both surgeons and sales talent. Our growth is sustainable because our innovation and execution are aligned. So with that, we will take questions. We will now open for questions. In consideration of others, please limit yourself to one question. The first question comes from Mathew Blackman with TD Cowen.

Good afternoon, everybody. Can you hear me okay? Yeah, we have you loud and clear, Matt. Great. Thanks, Todd, and I apologize. I am going to ask two questions. I am sorry for breaking the rules right out of the gate. The first one, if you will just indulge me: the shares are trading off after the market. I just want to make sure I am not missing something. So just to recap, Q4, you had already preannounced the revenues, came in in line. EBITDA was a new input, and that came in about 10% higher than consensus. Then 2026, you had already preannounced the revenue guidance of $890,000,000 in that same release in January, but you have now taken up the EBITDA guidance for 2026. I just want to make sure I am capturing all the moving parts and not missing something.

That is all correct, Matt.

Alright. I appreciate that. Maybe, Todd, if you could, you did mention in your prepared remarks that a 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. I think consensus is about $202,000,000 revenues, $90,000,000 in EBITDA. Is that the right spot to be? And any commentary on how the rest of the year should play out? And I will leave it at that, I swear.

Yeah, I think if you look at the full-year growth of 17% and think, as we think about the seasonality of our revenue—and I think you look at the increased seasonality in Q2 and Q3—I am kind of looking at 2025 as being probably where I would like to get folks in terms of the revenue seasonality. And so 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. And so I think those are kind of the starting point that we are thinking about just to respect the seasonality that we saw on the basis of the guidance that we have.

Okay, and the EBITDA pattern should be similar as well?

Yeah, I think so. I mean, I think it is 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 kind of get you to the 32% overall.

Okay. Alright. Thank you. I will hop back in the queue. Appreciate it.

Yep.

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

Good afternoon, gentlemen. Thanks for taking the question. Just curious on what you are seeing out in the field in terms of attracting the sales folks that you want. Are you still getting the pick of the litter? And then any territories you are seeing particular strength or penetration in that maybe had not been bright spots in the past?

Yeah, Ben, this is Patrick. I would say that we have a very clear hiring algorithm, and it is going exactly as one would expect. I would tell you, when we say things like we are the preferred destination, it is our subtle desire to send the message that people are coming our way. And so, 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 want to sell it.

Thank you very, very much for taking the questions.

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

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