Alphatec Holdings, Inc. Aktie

Good afternoon, everyone, and welcome to the webcast of Alphatec's third quarter financial results. We would like to remind everyone that this 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 U.S. GAAP can be found in the supplemental financial tables included in today's press release, which identify and quantify all actual items and provide management's view of why this information is useful to investors. 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 queue. Leading today's call will be Alphatec's Chairman and CEO, Patrick Miles, and CFO, Todd Koning. Now, I'll turn the call over to Patrick Miles.

Thanks, I appreciate it. Welcome to our Q3 '26 financial results call. You will see some forward-looking statements, so please review at your leisure. In the third quarter, we delivered solid growth in profitability. Revenue reached $221 million, up 13%, with surgical revenue increasing 14% and surgical hardware increasing 17%. While revenue fell short of expectations, demand for our surgical solutions remained strong. Surgical volumes grew approximately 20%, while new surgeon growth increased approximately 25%. We attracted more new surgeons to Alphatec this past quarter than ever before. The leading indicators reinforce our confidence in the foundation we have built in the future growth of our platform. Hardware revenue grew approximately $26 million, while biologics declined year-over-year, creating an overall drag on surgical revenue growth. Biologic performance was a primary constraint on growth, and to a lesser extent, we saw slower TLIF lumbar procedure volumes that we believe reflect broader market trends. Be assured, we are not satisfied with our biologics performance and are taking action to drive greater focus and disciplined execution. EOS came in at $20 million for the quarter. EOS is emerging as an entry point with real value, allowing us to account for using EOS Insight to bring us deeper into the clinical workflow and use more of our procedures. The quarter also demonstrated the resilience and leverage of our operating model, with adjusted EBITDA of $38 million, up $12 million year-over-year, marking a 17% adjusted EBITDA margin and once again delivering positive free cash flow. Even with revenue deceleration, the scale we have built allows growth to translate into strong margins and higher earnings.

Todd is going to take you through the numbers, and then I'll discuss the drivers of our business in greater detail. Todd, thank you. In the third quarter, we delivered solid revenue growth, expanded both our gross margin and adjusted EBITDA margin year-over-year, and generated positive free cash flow. Those results reflect how we are investing in growth, improving our productivity, and controlling the cost structure as volume scales. Our focus is what allows us to translate growth into higher margins, durable profitability, and free cash flow. Strong surgeon adoption and increased procedure volume remained the engine of our growth this quarter in our core surgical hardware business. Total revenue was $221 million, up 13% year-over-year, with surgical revenue of $202 million, growing 14%, a $25 million increase over the prior year period. Behind that growth are two elements of our model that continue to deliver: approximately 25% growth in surgeon adoption and 20% growth in procedural volume. That pace has held throughout the year, reflecting consistent, repeated surgeon choice for our procedural solutions. As Pat mentioned, we did see lower procedure volumes than expected, specifically in the TLIF lumbar category, and we believe this reflects some overall market softness, which we are following closely as we go into the fourth quarter. The strength in our cervical procedure volumes partially offset this dynamic, resulting in 20% overall procedure volume growth. Revenue per case declined 5% year-over-year, primarily due to a lower biologics attachment rate. In Q3, total biologics revenue declined about $1 million year-over-year, meaning our surgical hardware business drove all of our surgical growth for the quarter. Surgical hardware growth has been consistent for years, and we saw that again this quarter. Turning to EOS, revenue was $20 million in the quarter, up from $17 million in Q2, and essentially flat year-over-year. EOS Insight remains an important part of how EOS creates value for our surgeons and our business. We continued to see established Alphatec surgeon customers generate higher implant revenues after EOS Insight goes live. This reinforces our belief that EOS Insight is a meaningful contributor to procedural adoption and long-term growth, and we will continue to focus on bringing more accounts live. Turning to the P&L, gross margin for the quarter was 72%, up nearly 200 basis points year-over-year, as we continue to improve our inventory efficiency and reduce cost, while offsetting mix benefits from lower biologics attachment rates. Operating expenses grew approximately 8% year-over-year, while improving approximately 260 basis points as a percentage of revenue, reflecting the cost discipline in our model while we continue to fund targeted growth investments. The combination of strong gross margin expansion and disciplined execution drove adjusted EBITDA of $38 million, up approximately 46% year-over-year, and an adjusted EBITDA margin of 17%, expanding more than 400 basis points year-over-year. The pursuit of healthy margin and earnings growth has been resolute. Turning to the balance sheet, we ended the quarter with approximately $80 million in cash and $55 million of available borrowing capacity, providing roughly $135 million of total liquidity. We generated $34 million of operating cash flow during the quarter, while investing $29 million in inventory and instruments to meet the needs of our growing surgeon base as we head into the fourth quarter. As a result, we generated approximately $6 million of positive free cash flow, delivering positive trailing twelve-month free cash flow for the fifth consecutive quarter. During the quarter, we repaid the remaining balance of our 2026 convertible notes with cash on hand. This further simplified our capital structure, strengthened our balance sheet, and provided flexibility as we continue to grow and scale the business. Turning to guidance, we are lowering our full-year 2026 total company revenue expectations to approximately $862 million, representing growth of roughly 13% for the year. We now expect surgical revenue of approximately $789 million, representing growth of approximately 15%, and EOS revenue of approximately $73 million. This update reflects the lower biologics attachment rate, lower overall procedure volumes due to current market trends, and a temporary supply constraint in our international business, which we expect to impact international sales by about $3 million for the year. As a result, as we enter 2027, our outlook implies tightening surgical case volume growth and a 3% decline in revenue per case for the full-year 2026. This reflects $102 million of year-over-year surgical dollar growth, which implies 17% surgical hardware revenue growth and flat biologics revenue contribution year-over-year. Historically, biologics has contributed approximately $15 million to $25 million of annual growth, which we are not seeing this year but are working to address through improving salesforce discipline and expanded contract access. For the full-year 2026, we now expect adjusted EBITDA margins of 16%, or approximately $137 million, representing growth of approximately 47% year-over-year. We now expect free cash flow of $10 million for the full year, which implies approximately $15 million in the fourth quarter. The reduction in guidance for adjusted EBITDA and free cash flow is a direct result of the revenue declines. Even with this revised revenue outlook, we expect to deliver substantially robust growth and margin expansion, underscoring the leverage in our business. The infrastructure we have built, the gains in our gross margin, and the discipline of this team continue to drive increasing profitability and demonstrate earning power for the business. With that, I'll turn the call back.

Pat, thanks. Before I turn to our strategy, I want to be clear: our growth algorithm is built around a procedural thesis. That procedural thesis requires disciplined, convoy sales execution, bringing the full value of Alphatec to each surgeon and each account. A coordinated and deliberate selling of the entire procedure, inclusive of biologics and other technology. This quarter, our biologic performance fell well short of that standard, impacting overall performance. We're well aware of this dynamic and are actively working to increase focus and discipline here. My frustration is that we are undoubtedly earning the procedures with case volumes up 20%, but not playing through the entire procedure. Additionally, we have never attracted more new customers than we did in Q3 of this year. These are the leading indicators that reinforce our confidence in the three commitments that continue to guide the business: create clinical distinction, grow our surgeon base, and build a sales organization that scales. Our strategy begins with the procedure itself. We don't develop individual products in isolation; we build them into sophisticated, integrated procedures that make surgery better. Surgeons adopt procedures when it helps them deliver better outcomes for their patients, and that is what sits behind the pace of adoption we continue to see. Earning new surgeons is how we know the approach is working. Once an Alphatec procedure is adopted, and the surgeons trust our sales organization, it helps turn that initial adoption into broader utilization. The team supports surgeons and expands across indications and procedures, then repeats that process across accounts. In that way, clinical distinction creates demand, surgeon confidence deepens relationships, and disciplined commercial execution scales the business. What sets our growth apart is how we approach spine surgery. As I've said many times, we sell a complete procedure, not individual products. Clinical variables can undermine the success of spine surgery, and carefully designed procedures are how we mitigate these variables. We build each procedure from the ground up. As surgeons gain confidence in our procedural approach to surgery, the expanding indications they treat, they take on greater complexity within their practice. And that increase in complexity translates into increased utilization and subsequently increased revenue. Lateral continues to be a foundational entry point into Alphatec; it's where we built tremendous clinical know-how and where our distinction is most obvious. Benefits of lateral surgery for patients are well established. PTP fundamentally improved the approach to lumbar spine surgery, creating more options for the surgeon while minimizing morbidity for the patient. Our integrated approach—SafeOp, patient-specific retractors, implants, biologics, and now Valence—is designed to mitigate variability and increase simplicity and precision within PTP. Valence guides retractor placement, disc preparation, and implant placement, delivering greater precision and increasing confidence using less radiation intraoperatively. We pair that integrated experience with training on a complete approach, helping surgeons build the confidence to treat more patients and increasingly complex pathologies through lateral. This inevitably leads to them broadening the use of our other procedures. That, for us, is why new surgeon growth is such an important leading indicator. Every new relationship creates the potential for deeper procedural adoption over time. Beyond lateral, we're also seeing new surgeons begin adoption utilizing our cervical portfolio, gaining confidence in the clinical experience and looking to Alphatec for more of their practice. Additionally, we're also seeing our influence grow in complex adult and pediatric deformity. I'll share a little more on our progress in pediatric shortly, but what I want to emphasize is that we continue to see deformity as a longer-term opportunity, and realizing its full potential requires disciplined execution of the EOS capital sales model. This means placing systems in the right institutions, bringing EOS Insight into the workflow, and converting that strategic access into deeper procedure adoption. EOS remains a pivotal part of our strategy because it changes where and how we engage with surgeons. EOS Edge gives Alphatec a clinically relevant presence inside leading spine institutions, including accounts that were previously difficult or impossible for us to contractually access. Installation timing can vary by quarter, but once the system's operational, it creates a durable pathway to introduce EOS Insight. This deepens procedural engagement and builds relationships with institutions training the next generation of spine surgeons. EOS Edge is now in more than 70% of academic institutions with fellowship programs, enabling us to influence a younger cohort of surgeons who are learning alignment-based, data-driven surgery from the very start of their careers. And as these surgeons graduate from fellowships and evaluate where to build their practice, they're increasingly asking prospective institutions to acquire EOS as part of their employment. These younger surgeons typically start with less complex procedures, which creates a headwind in revenue per procedure initially, but they're a foundational element of our long-term growth profile. From this academic exposure, EOS is shaping future adoption. The strategic value of EOS grows with every patient they get scanned. EOS Insight converts imaging into alignment measurement, bone mineral density assessment, predictive surgical planning, and patient-specific graphs, and follows the entire patient journey from diagnosis to follow-up. Each patient adds structured data to a dataset that becomes more useful over time and increasingly difficult for another company to replicate. The opportunity is not simply to accumulate data, but to make it intelligent, more valuable in clinical decision-making, and available to more surgeons. We recently brought together more than 70 leading KOLs for our inaugural EOS Insight Council, and the discussion reinforced both the value EOS Insight delivers today and the opportunity ahead. We are focused on ensuring that great surgeries, performed on the right patients, for the right indications, with the right plan, culminate with a very predictable result. Creating predictability and durability by mitigating the variables in spine care is a tremendous business opportunity and has the potential to create tangible economic value for institutions for more predictable workflows and fewer unnecessary costs, to stronger evidence around patient outcomes. Continued engagement from these thought leaders gives us the ability to accelerate Insight's evolution into a continuous, ever-learning intelligence platform, proliferating both clinical and operational data. We also saw our vision reaffirmed at SRS in Sydney, where we convened leading spine surgeons for a discussion on EOS Insight's current and future capability. Published research tells us it takes an average of 17 years for scientific discovery to reach routine clinical practice. We believe the smallest and most vulnerable patients shouldn't have to wait that long. As groundbreaking pediatric deformity classifications emerged through SRS, we're working directly with thought leaders from some of the world's most prestigious spine programs, including Columbia, UCSF, and BNI, to integrate that science into EOS Insight, helping translate discovery into clinical utility today. EOS is gaining momentum for a session, and after, we've seen unprecedented outreach from high-profile surgeons interested in our ecosystem. That is why our growing priority is expanding both what EOS Insight can do and who it can reach. Today, EOS is delivering clinical data for surgeons and sites that use it, and we see our opportunity to bring that value to far more surgeons and patients. This will scale well beyond where we are today, and as we expand its reach and utility, we believe EOS Insight can and will become a standard part of how spine care is planned and delivered. Turning to surgical execution, for years, spine companies competed on implants. Our investment in EOS, SafeOp, and Valence reflects our belief that the future of spine surgery belongs to those who can improve every dimension of a procedure, whether that is how a patient's diagnosed, how surgery is planned, how it's actually performed, or how outcomes are evaluated. For Valence, early surgeon feedback is confirming that the platform fits naturally into the procedure. The workflow is intuitive, integration is seamless, and expertise continues to improve with use. The elegant and small physical footprint is an absolute thing of beauty, and the in-field camera is unlike anything else on the market. In a way, it takes up such little real estate compared to bulky, capital-intensive competitive systems. I wish everyone could experience firsthand, like PTP, utilizing Valence to truly understand the differentiation of what we have built. With a strong foundation in place, our focus is shifting from validating experience to broadening utility across more procedures. That expansion is underway. We recently added at navigating TLIF to our indications, extending Valence beyond lateral into a posterior procedure many of our surgeons are performing today. Each new indication strengthens the platform as being the operating system through which more of the procedural experience can be orchestrated. SafeOp couples its preview by adding real-time information on neural location and health. Together, these pieces create a continuous loop around the surgical intervention. EOS Insight plans, Valence and SafeOp support informed intraoperative execution, and our procedural platform fully marries surgeon intent with action. The result is a more connected experience for the surgeon, one that is actually unmatched and provides a broader role for Alphatec before, during, and after the operation. As I've said in the past, we're aiming to be indispensable. We'll continue to add capabilities and leadership to capture that opportunity. This includes a recent addition to our leadership team. I'm thrilled to announce that in September, Tommy Carls joined Alphatec as Executive Vice President, Data Intelligence and Strategy. Tommy brings more than three decades of spine and medical technology experience with a strong track record of ecosystem integration and will lead our efforts across EOS Edge, EOS Insight, data, and analytics as we continue to build out our informatics strategy. As Pat outlined, we now expect full-year revenue to approximate $862 million, including approximately $789 million in surgical revenue and $73 million in EOS revenue. We expect adjusted EBITDA of approximately $137 million, or a 16% margin, and free cash flow of about $10 million. What matters is that we're sustaining strong earnings outlook even with lower revenue expectations. That reflects the leverage in the model, continued gross margin progress, and the discipline of the organization. Our focus is steadfast: to consistently improve performance across the portfolio and convert healthy procedural demand into revenue, profitability, and cash flow. Make no mistake, we're in this for the long haul. We're growing at a rate that no other spine company has at this size. Even though revenue didn't fully meet our expectation, we expanded earnings, generated cash, and continued investing in the opportunities ahead. That resilience gives us the capacity to keep building for the long term. Here at Alphatec, we're earning share in spine, driven by clinical innovation, exceptional people, and focused execution. That combination continues to attract the best surgeons and talent and gives us great confidence in the opportunities ahead. I'm profoundly inspired by what we're building together. Thank you to everyone on the call, especially to the Alphatec faithful. Our best days are yet ahead. With that, Operator, we'll take questions.

Thank you. As a reminder, analysts planning to ask a question must be registered to the dedicated analyst link included in today's materials. If you have not yet registered, please do so now to be included in the 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 for questions. In consideration of others, please limit yourself to one question. The first question comes from Young Li with Jefferies.

Hi. Thanks for taking my question. I want to get the background on the biologics attachment rate. I was wondering if you can go maybe a little bit more into that. Maybe we heard about the issue earlier this year. And you kind of talked about some of the plans and initiatives you are commenting on. I was wondering, does it get out across the board for your existing customers, or is it more something that impacts new or converted surgeons?

Yeah, let me, let me try to take a guess at the qualitative aspect.

Todd, jump in. How about a more of an overview? And, and like, we're more well-versed there. I mean, that the challenge is it is when we built the procedural strategy, what's required and what drives the ACV is the inclusion of as many products for procedures we can possibly assemble. So that when you get leakage in a biologic and it starts to then yet undermine that, the entire selling of the procedure. If you look at just the elements other than BMP, which is the least distinctive element of the procedure in the biologics. And so, when you look at us, you say, "Gosh, these guys are growing procedures at 20%, and they continue to grow procedures." Yeah, I put a big target on our back for all of these companies that just sell biologics. So tell me what you're seeing. What you're seeing is a bit of a lack of discipline on our selling front. And that reflects that leakage. And candidly, yeah, damn it, it is it a little tough when you're growing again, 20% procedure volume, growing your hardware 17%, and then you see leakage in a biologic that ultimately can undermine the revenue growth rate. And so, that foundation is what you're seeing. What we're driving is a response in terms of one, far greater sales discipline with both carrot and stick, and then two, you're making sure that those early adopters of our procedures have access. And so those are kind of the two headwinds that we're addressing with regard to biologics. But suffice it to say, it's irritating, right? It's like you spend all this effort to put together a sophisticated integrated procedure, you earn the procedure, and then you get picked a bit in the biologics. So that's fundamentally the dynamic. And, Young, I'm just adding a little bit to that. I think if you look at the history, we have typically seen $15 million to $25 million of our growth year-over-year attributed to biologics. And while we saw some growth in the first half, we went backwards year-over-year by $1 million here in Q3, now flat sequentially. And to Pat's point, we have made some of the changes that Pat outlined in the course of our third quarter, and so we did see some improvement as we're exiting the quarter. But our guidance implies really flat biologics revenue from Q3 to Q4.

Thank you.

Our next question comes from the line of Allen Gong with JP Morgan. Your line is open.

Hi, thanks for the question. And sorry if this was already answered, jumping around a bit. You know, we've now been hearing about potential softness in the orthopedic market. We've heard some softness on the spine side. And they call it ongoing right now, is kind of maybe some challenges on the hip and knee side. You know, generally speaking, orthopedic procedures were thought of as fairly elective, but do have to be performed eventually. So I guess help us to think about that challenge. How much of that is that reflected in your updated guidance, and how confident are you in the trajectory of that market dynamic going into 2027 and beyond?

Thanks, Allen. From the start, when we came into the year, our expectation was that market growth would be in the mid-single digits, and that's how we felt the market was performing in 2025 and earlier. And clearly, I think we have seen less volumes over the course of the year. And I think it really has demonstrated itself here in the third quarter, and it feels like it's a low single-digit growing market at this point in time. When we pull back the curtain, if you will, on our customers and we look at them, and we look at our most established customers, we definitely see a bit of a broader based softness in our TLIF lumbar volumes. And so, Pat had commented earlier that our overall procedural volume is growing 20%, and that was actually a little bit higher than what our guidance implied in the third quarter. And really what you saw was slower TLIF lumbar volumes offset by very strong cervical volumes. And of course, it's always a little bit difficult for us because we are growing in TLIF lumbar and cervical at multiples of the market, to exactly put your finger on how much market growth there is. But as we've looked at it, we definitely see a slower market contribution associated with the surgical volumes this quarter relative to how we thought about it. In the fourth quarter, we reflected that in our fourth quarter guide. I think if you look at our guide in totality, it's about $20 million year-over-year lower, about $4 million that came here in the third quarter, leaving about $16 million in the fourth quarter. Of that $16 million in the fourth quarter, we got about $12 million in total associated with surgical volume, $4 million in EOS. In the surgical volume, the majority of that is really associated with lower biologics expectation and lower procedural volumes, kind of evenly split. I'd guess about 50/50, $6 million and $6 million, yeah, more or less.

Okay. And then I guess, like, keying on the EOS side, how should we think about the slowdown there? And give up a little bit separate from biologics and even maybe separate from procedures. Of course, the two are linked, but are we starting to see challenges on the capital side of the equation as well? We've been hearing a lot that new order books are healthy, but maybe there's like a bit of an extended period between the orders are placed and then the hospital actually accepts the installation. Help us understand the EOS slowdown.

Yeah, I would, I would say it's all of the above. You know, it's, it's, it's some, it's not a lack of demand. And you know, we try to outline a little bit in terms of what the market's telling us and what the market's showing us. In my mind, it's more about lumpy capital dollar availability and an inconsistent installation dynamic. But as it relates to a fundamental demand on the pieces of information that's driving improved data and surgery and the EOS Edge unit being that core tool that's driving that, there is a healthy demand dynamic. And so, and again, it's frustrating to not deliver continued growth on that front, but that's going to be a lumpy one. We knew that one from the beginning. And I think the other point I'd say, Allen, is clearly 2026 hasn't gone as expected, relative to our total revenue growth or relative to the expectations that we set out for performance with investors. And so we're trying to be thoughtful about how we reset our 2026 guidance going into 2027.

Thank you.

Our next question comes from the line of Matt Blackman with TD Cowen.

Good afternoon, everyone. Logic there. Great. And not aggregate does not have a fair question to ask today given all the moving parts here in 2026, but you have a 2027 key target of a billion dollars in revenue, $189 million in adjusted EBITDA. Just your level of comfort with that, with those key targets here again, appreciating all the moving parts here. Any commentary on that would be helpful.

Matt, as you can imagine, we're in the middle of our planning process for next year, and we're not going to get into specific guidance for 2027. But I can share a little bit with how we think about it. First, we continue to see strong procedural growth, and I think that's encouraging. The underlying volume component of this business is strong. We're seeing strong surgeon adoption and really durable hardware growth, and so I think that that is an encouraging thing. EOS capital has had a challenging year, but what we do like are the positive signs in that business, which we're seeing, and I think that should put us in a better position next year. And we've been very pleased with the progress on Valence and EOS Insight, and see potential for continued growth in our international business as well. And now, of course, we have had challenges with our biologic performance, which we believe we have addressed, but the timing and the effectiveness of those measures is difficult to predict. And so I'd err on the side of caution until we get a little bit more clarity on that front. And consistent with last year, with, yeah, so I'd add consistent with, I think, the comment I made earlier on 2026 and our trying to be thoughtful for it. I do think the second half of 2026 is a representation of how we believe the current business is performing, and I think a pretty good jumping off point for how to think about next year.

Okay. If I can squeeze one more in here, and again, other strong surgeon adoption quarter, and just curious, and you've sort of talked about that in the past, if you didn't add a single surgeon from here on out, if you think about 2027, does the natural progression of those surgeon cohorts growing, do you sustain that or approximate that? Can you sustain sort of late teens procedure growth on even if you didn't add another surgeon, add to the armamentarium, so to speak? Is that the right way to think about it, or not?

I think conceptually, Matt, that's consistent with how we thought about it. I think to my earlier comment on the market dynamics, we're going to have to pay attention to those here in the fourth quarter and how we think those will shake out for next year. So I think that dynamic is a variable in your logic, but I think the logic that you laid out is consistent with how we think about it.

Thank you so much. Thank you.

Our next question comes from the line of Vik Chopra with BMO Capital Markets.

Thanks. Thanks for taking the questions. Pat, can you help us understand what "own it and address it" means in practice? You know, does that imply changes to the bag, pricing, team cleaning, or sales leadership? And then I have a follow-up, please.

Yeah, I think to make sure I understand exactly what you're asking, that, am I just asking about the changes that we'll make on the biologic front that'll influence what's going on, and that's, that's what you're intending? That the exacting a depressingly is that you know, what we're going on it on and addresses the the time and what that mean exactly. Yeah, I'm, "own it" means that I'm profoundly irritated by it, and it's a lack of discipline that we're going to respond to. And so, as I said, we're going to manage this with a carrot and stick across the sales force. And again, there's few things more maddening than making the investments that we've had in terms of the integrated procedural strategy. It has been so widely accepted and so enthusiastically received, and you feel like it didn't click a little bit based upon the most limited piece of the pie and the most undifferentiated piece of the pie. And so, when I said we're going to own it, we're going to respond to it in an aggressive way. You know, as you know, we're sitting at this precipice where a few years from now, or 2029, we're going to be the second company that likely will have a BMP, which is the only really distinct biologic on the market. It's unsettling when a lack of discipline in the short term, and where companies are targeting you based upon your growth in procedures, to insert themselves within what would have been a procedural case value. And so, you can imagine that we're making sure that there's discipline with regard to the exclusivity elements within our distributor agreement, and we're holding sales management completely accountable, and we're managing that financially with regard to carrot and stick. And so, I would say, we own it, we know what it is, we know exactly how you are influencing it, and we're gaining more access by the day contractually. And so, these are things that we know how to respond to.

Okay, great, thank you. And my second question was, what gives you confidence in the updated guidance for the year? I'm just trying to understand how much of that assumes that the revenue per case continues and how much of that assumes a biologic recovery. Thank you.

Thanks, Vik. The point on biologics is the right one. And so, what we saw in Q3 was essentially a sequentially flat biologics number. And as you can see from our reported revenue, our surgical revenue sequentially went up, and we're assuming that biologics contribution sequentially is flat from Q3 to Q4. And so we think that's the right place to put it. Overall, our surgical hardware guide assumes about $12 million of sequential growth. Last year, I think we did about $13 million or $14 million. So, just in context and just analytically, I think that gives you some comfort.

Thank you.

Our next question comes from the line of Tom Stephan with Stifel. Your line is now open.

Great. Hey guys, thanks for taking the questions. I wanted to go back to the TLIF lumbar. Pat, maybe for you, just be great if you can elaborate a bit more what's happening there with Alphatec and I guess it sounds like more at a market level. You know, regarding your market views, I guess is this potentially a somewhat more durable headwind? Does it feel like something that's maybe more isolated to this quarter and the fourth quarter? And then as it applies to Alphatec, are there any competitive dynamics at play here? And I have a follow-up.

Yeah, I'm not, not to be flippant, but you know, when you start to see slower volumes, these are with our gun customers with whom we've had relationships for years. And so what we're seeing is overall volume impacts to their practice. And so, as it relates to competitive dynamics, I will assure you that's not the case. The other dynamic is, I don't know if you saw it in the more prepared remarks, is there is a growing younger cohort of people who are engaging Alphatec, and oftentimes that cohort has less complex types of surgeries that they're initiating their practice in. And so, when you're growing at multiples of the market, you start to discern whether the headwind you start to look at things like, "Geez, what's our most tenured cohort doing, or is there a volume slowing in some way?" Yes. "What type of volume are we getting from the younger guys?" The younger guys are growing at a much faster rate, and you start to see that it doesn't speak to a competitive dynamic. And when you're growing procedures at 20%, you're adding surgeons at 25%, you know, again, zero hubris, but it gives you a level of confidence that the thesis is intact, and what we're seeing is just we could see, based upon the biologic thing, that really is, yeah, you see a little bit of bumpiness in terms of volumes. So...

Yeah, but I'll just add, on your question on the durability of the market softness, our assumption is that that continues and perpetuates into the fourth quarter. And we're going to pay close attention to it. And as I had said earlier, it's too early at this point to be giving 2027 guidance. I have made some comments on how to think about that, but it is a variable we'll have to pay attention to going into next year.

Got it. That's great, super helpful. And then just to pivot back to biologics, and Pat, maybe I'll stick with you. I guess what I'm curious on is, could this pressure be durable or even kind of structural at a market level, and that maybe extends beyond just a lapping dynamic? Can you talk about what's going on at the customer, at the hospital level? I guess I'm just curious if maybe this is more of a shift in biologics more broadly within spine that could be somewhat lasting. Thanks for taking my questions.

Yeah, it's really a good question. One of the things that we're seeing is clearly hospitals are doing their best to save money, and oftentimes will do a spine RFP and then they'll do a biologics RFP. And really, it provides a bit of a hunting license for some of the smaller companies who are willing to take a lesser price and pay higher points to distributors. And so, I would say that from a pure market dynamic perspective, that's one of the things that creates a challenge. The reality is, based upon our current access to hospitals and based upon our accessible market space, we're underperforming. And that's the piece that is frustrating, is independent of the dynamics of the marketplace, what I would call a lack of discipline is impacting that value. And so, we can't have a BMP soon enough, but in the meantime, what we have to do is get back to blocking and tackling and do the things that we know how to do to assure that our ACV is not impacted by this. Thanks.

Our next question comes from Lawrence Siegel with Wells Fargo.

Thanks for the question. So adjusted EBITDA only came down about $3 million. I guess the free cash flow guide was cut by $10 million after a strong Q3. The question is, what accounts for that gap? Is that time-shifted to 2027, or is there a step-down in the conversion rate which occurred for it?

So if you look at our adjusted EBITDA of $137 million, it's 16% of revenue, which is consistent with how we came out in the previous guide. It's about $3 million lower than our previous guide. Obviously, we overperformed for EBITDA performance in the third quarter. So really, it implies about a $5 million step down year-over-year, excuse me, versus our previous guide, implied in the fourth quarter, which is about a third of the revenue change that we've guided to. So I think the EBITDA reduction in the fourth quarter is in line and consistent with the reduction that we're projecting in revenue. So I think that's in line. We end up with an 18% EBITDA ratio implied in our fourth quarter guide, which we feel is good and strong. You know, I hear your comment and your question relative to the free cash flow part of that. Part of that is clearly the lower revenue and the lower collections you get. And I would just tell you that the conversion of EBITDA to cash flow has probably has more timing dynamics than you might expect. And so what we are doing as we continue to buy and receive towards the projected level of instruments and inventory to support the increasing volume of surgeons and our expectation for revenue growth. And so I think that's really the dynamic that's impacting our cash flow on this guidance. And we don't really think that there's a fundamental change in the relationship between cash flow conversion and EBITDA. We feel good about our ability to continue to grow profitability. I think we've demonstrated that significantly over the last number of quarters and our ability to translate that into cash flow, as we've projected, has also, I think, been demonstrated. So I feel like that's working as intended.

Okay, got it. And then maybe one on Valence. Just how is your relationship with Medtronic going in terms of kind of coexisting within the same channel? And I'd be curious to hear how many Valence cases to date have occurred and averages around what?

Yeah, I would say I have zero idea in terms of the Medtronic dynamic. What I do know is that what we're doing with Valence is unusually elegant. And someone who's been at this for 30 years, I would refrain from using that commentary unless it was an absolute. And so what we're doing with Valence is we're integrating it into the workflow of PTP. And so the utility of Valence in terms of the workflow of the front of the spine and the workflow in the back of the spine is something that Medtronic, Globus, or nobody else can do. And so I'm thrilled with regard to the early experience of it, as we, as we talked about, and it's, it's a, this is a place where we distinguish ourselves is in the clinical application of technology to ultimately create predictability in surgery. It's unmatched. And so I'm hugely bullish on our ability to translate Valence in the coming years. I love how we work in a disciplined way to ultimately make sure that it reflects the very intention of the clinical requirement. And so anyway, not going to give you numbers, I don't care about Medtronic, but I will tell you that what we're doing is highly distinguished.

Thank you.

Our next question comes from the line of David Saxon with Needham & Company. Your line is now open.

Great, thanks for taking my question. I'll ask a quick one there, just on the procedure mix that you're seeing in cervical and lumbar softness. Where's that showing up? Like, very curious to see how anterior lateral is holding up across PTP and ALIF or if that's kind of more in other approaches. Thanks so much.

Yeah, thanks for the question. It's fascinating. You know, it's like you look at the cohort of guys that we're attracting to as new users, and the clearest utility of our spine procedure and the clearest success isn't cervical. And so, we're going to see cervical start to run a little bit. And so, we're thrilled about that. And then, and then you start to look at, "Gosh, how is the lumbar thing doing?" And "What are we seeing from a lateral perspective?" Lateral, for us, is a proxy for success. And so, we continue to see strong demand on the lateral front. I would say that the place that's going to be the longer run is just our deformity strategy. And so, we're seeing that the volume of enthusiasm with regard to that is so abundantly clear, and it's maddening that you don't see the requisite EOS capital placement success at the time that we had hoped for it to reflect. But you know, the types of things that we're doing in deformity are just going to take time to ultimately be reflected. Great. The situation with regard to where we are with PTP, PTP continues to distinguish itself. It has been so much fun to watch and experience that technique proliferate. It'll continue to proliferate, same with regard to just lateral in general, level position, level surgery. But I would tell you that, you know, getting into the pediatric institutions, getting into some of the longer deformity cases, more adult deformity than we are current deformity. And so, I would say that's, that's the dynamic and that's the headwind.

And David, maybe think about it this way, you know, the 20% procedural volume growth was probably a tick higher than our guidance implied in the quarter. Yet we're talking about new lower market demand. That's really a function of we completely outperformed our cervical expectations. We've underperformed on TLIF. But to Pat's point, the historical strength of the business has always been in the anterior column. And so the relative contributions, I think, remain intact, but they're overall kind of all down a bit. And we attribute that fundamentally to market demand. And so I think that's kind of how you reconcile the dynamics numerically.

Yeah, I mean, we're still multiples of the market, even in the TLIF lumbar today. So I'd say down relative to expectations, but still significant share taking in the moment.

Yeah, okay, great. Thanks. Thank you.

Next question comes from the line of Ben On with Stephens. Your line is now open.

This is Ben On for Mason. You had, did you sell? Look, I would you be willing to provide some color on the average time it takes for an EOS order to be delivered? I'm, and is just what share of the Q4 EOS placements you already have in hand and then converting here?

Yeah, in the summary, from a placement timing perspective, it can vary. It's all over the board based upon the build-out in the room and all the other elements that drive placement acceptance. And so, I would hate to give you a number just because the number's not going to represent anything other than a mean when, you know, some of them deliver virtually immediately if they've already had an EOS, the other ones take longer. And so, you know, I guess the key point that I think is important to appreciate is the demand for the thing has never been greater. Then at our ability to place them in order is that rarely do we place the majority in the quarter that we get them ordered. It's lumpy based upon all of the things I've defined. So, I guess, hopefully that provides a little bit of color.

Yes, it does. Thanks. I'll just keep to one.

Our next question comes from the line of Keith Tene with Truist Securities. Your line is now open.

Hi, good evening. So, I want to ask you, the EBITDA margin is already new. The 18% you guided for next year, can you please speak to your expectations for the margin drop-through next year? And it's even putting way and it might be, you won't be able to stay in the 40% range you have hit almost every quarter in for the past two years.

Thanks for the question. And you know, I'm going to refrain from giving specific guidance on 2027, as I said earlier, so we're in the middle of that process. So, but here's a couple things I think you can consider. One, that we have consistently talked about a 35%, 30% drop-through year-over-year on the dollar growth to EBITDA.

To your point, we have outperformed that over the last couple of years. You know, certainly this year we've benefited from gross margin expansion. Now, some of that gross margin expansion has been very much a reflection of the work and the discipline and the execution of the team here in terms of driving costs down and improving overall asset efficiencies. But some of that margin improvement has also been associated with the mix benefit from having more surgical hardware volume and frankly, less bio and less EOS contribution. So, you know, I wouldn't want to count on that necessarily going into the new year from a drop-through standpoint. So all that to say, I think kind of a mid-30s percent drop-through is a good way to think about it going into next year. I think the other thing I'd say is if you kind of look back at our history, you know, the EBITDA ratio where we exit in the fourth quarter is a pretty good indicator of where we land in the next year on that basis to your comment. Our guidance implies about 18% EBITDA here in the fourth quarter. And so I think that kind of helps you understand how we might be thinking about next year.

Yes, got it. And just a small quick question. So this is a bit of a longer term one. So on OsteoAdapt, in the Q4 2025 deck, you put the TAM at around $2.5 billion, but noted that Medtronic is only doing around $600 million to $700 million in sales. So can you please speak as to why you think Medtronic's product has only around 30% of the market and whether you expect OsteoAdapt to increase that penetration rate meaningfully and if so, why?

Yes, it's a great question, and I'm going to do my best to describe the total addressable market. I think when you look at the biologics in total, it's inclusive of a lot of different synthetics, cells, all kinds of different products. And so it's a monstrously large market. Clearly, the only BMP player is Medtronic, and it's at $700 million or $800 million. I don't think they describe it exactly. But suffice it to say, when a surgeon has a patient with whom they're concerned about the prospective fusion, they use BMP. And so based upon the early understanding and the early kind of findings from the IDE and what we believe to be true, we think that there's some real clinical advantages associated with OsteoAdapt.

And so our expectation and our desire and why it's important for us to build a foundation of a biologic role within the marketplace is so we can go into this market sprinting, not jogging or walking. And so it's a large market. The biggest player, BMP by far. We think that OsteoAdapt has some features that are improvements to BMP. And so we see it as a significant opportunity. Got it. Thanks for the questions.

Thank you. Our next question comes from the line of Caitlin Roberts of Canaccord Genuity. Your line is now open.

Hi, thanks so much for taking the questions. Just maybe a little more color on the international supply challenge you called out earlier in your prepared remarks and what you guys are doing to remedy that.

Yes, first of all, I greatly appreciate the question. You know, it's one of the things that we've done is we've spent a lot of time to, in essence, lay a foundation for future success. That means spending a lot of time, money, and effort in terms of training surgeons and preparing them. We have gotten off to a great start with regard to both Australia, New Zealand, and Japan. And as you appreciate, it's a step-by-step walk, especially in Japan. Like the Japanese Spine Society, in essence, has to say, hey, this is safe. You know, let's go ahead and do a small cohort of surgeries and make sure it's reflective of what we had communicated.

They've done that. They've broadened it. And then, you know, we finally get like the real monetization tool in the marketplace, which they value the screws most, and then there's a sterilization issue with regard to the packaging. And so we provide screws there, sterile, our implants sterile, and saw a packaging defect. If ever you want to be proud of a company, what happens is the company jumps all over it in like an obscene way. And so rarely does the CEO talk about the quality department in a company, but can I tell you, if you want to be proud of a company and say there's a culture that's robust and killing it, the quality team jumped all over it and got everything back. There was nothing in market that they didn't get. And so we, we had a whole company jump in and check every single package. The ones that we had to re-sterilize and redo, we did.

It was all hands on deck. We replenished a lot of the implants that we had to take out of market. And so it affected us, you know, in terms of slowing down the adoption. So when Todd talks about the impact of Q4, it's real. But it's always one of those things where it's like, if ever you want to feel proud of a company, those are the things that transpired. And so. Gosh, there's one more thing I was going to tell you. Anyway, that's a dynamic. You know, the irony is there's some competitors out there that had the same issue, and I would welcome a comparison to the speed by which they responded to this issue.

Understood. Thanks so much. I'll leave it at that.

Thank you. Our next question comes from the line of Matthew O'Brien with Piper Sandler. Your line is now open.

Hi, this is Samantha on for Matt. Thanks so much for taking our question. Um, I guess just briefly touching on the hardware performance, it was really strong this quarter. Um, can you tell us what you're seeing from, um, like a pricing perspective and changes there, and how that could look as we move into 2027?

Hi, Sam. Your question on pricing is a good one. And I would tell you that I think the pricing dynamic in the market has been relatively stable, and I don't necessarily see a change here in Q3 relative to what we saw in the first half of the year, and I'm not implying a change in the fourth quarter relative to our guidance. So I think the pricing environment is stable.

Okay, perfect, thank you. And then if I could just think one more on biologics, I know you said that it was, you know, flat here in Q3, same expected for Q4. I guess, how do you envision 2027 in terms of, you know, expecting sequentially flat performance in biologics and what it would take for a potential rebound?

Yeah, I shared some comments on the call earlier about 2027 and how to think about that and how you might frame that up in totality. And I think my comment specific to the biologics is, you know, we have some challenges there. I think Pat has described those. We have addressed them very directly and believe that that will result in improvement over time. I believe the timing and the effectiveness of the measures we've taken are kind of difficult to predict. And so I would err on the side of caution until we just get a bit more clarity. So we'll be paying attention to that here in the fourth quarter.

And obviously when we do give formal guidance, we'll have some specificity around that.

Thank you. Our next question comes from the line of Ben Hainer with Lake Street Capital Markets. Your line is now open.

Good afternoon, gentlemen. Thanks for taking the questions. First off, I'll leave it at one and kind of step away from biologics and EOS here for a second. On Valence, just kind of curious on how you see that relationship rollout? Do you feel like you're kind of nailing the experience? And then on the angle of Valence as kind of an ASC tool, is that thesis kind of bearing out as you expect?

Hey, Ben, this is Pat. The answer is yes. You know, it's so comforting. You know, again, one of the things that I've historically described as a competency of the company is, you know, we acquired SafeOp years ago, and you look at what SafeOp is doing today in the neurophysiology device, and it's really unbelievable in terms of just the number of feature additions that we've made and the increased precision associated with delving into the evolution of it. You know, I always love the whole, you know, the investment starts after the acquisition. And I would say it's been the same with regard to Valence. It's like some of the core elements that were so key was, I don't love the duration it takes to sell capital equipment, nor do I love the real estate that it takes up in the operating room. And one of the elements of every navigation system and every robotic system is a camera that sits outside the sterile field that looks down and tries to search for the elements that enable you to navigate the tool. And so the great part about Valence is it's totally surgeon-controlled, and it's in the field.

And again, what the experience has shown us is that when you do both the front and the back of the spine, you need to move the camera. And if you're using something where the camera is outside the field, it takes a sales rep or a nurse or somebody else to move the camera to ultimately identify where the instrument is. And it's nonsense. You know, you think about the level of precision required. The long-winded answer is it's going great. It's built for utility. Like, you know, the intention was, hey, let's do this for PTP. It's hugely elegant for PTP. We've already gone on to TLIF, and it's doing exactly what we intended. And so, you know, again, I think it just speaks to the disciplined approach to clinical distinction.

And so, you know, hugely bullish on it. It'll be a tailwind for next year and just excited that we know exactly what it's going to do and what it's going to be and why it's an improvement to what's out there today.

Excellent. Great color on that and thanks for taking the question. Thank you.

Our last question comes from the line of Sean Lee with HC Wainwright. Your line is now open.

Good afternoon, guys, and thanks for taking my question. To move into the prone procedure field, and we're wondering what do you see that as a positive in expanding the overall market or are you starting to see some pushbacks on accounts, or do you expect some pressure on pricing on that?

Yes, thanks, Sean. I think it's awesome. And the reason I think it's awesome is because it brings more attention to something that we do unbelievably well and unbelievably better. And so when you think to yourself, gosh, you know, a good proxy for me is years ago, when we launched lateral surgery at another place, the largest company in the business came up and did their best to copy it. And candidly, whenever you copy something, you oftentimes get the last best effort of the inventor. And that's ultimately what our competitors are doing is getting our last best effort. And what we will do is continue to apply our learnings into evolving the technique. And so when you have a navigation system that is designed specifically for the utility within PTP, you have a neurophysiology system that's designed specifically for the utility within PTP.

When you have a retractor system specific for the utility, I hope what it tells you is that the person who oftentimes invents it and evolves it because they're better students of the requirements of the field oftentimes prosper. And so people who copy it don't understand it deeply enough to ultimately get it right. And so we love it that they're promoting a technique that we believe deeply in because we're the ones who invented it. And so couldn't be more excited about more people communicating the virtues of prone trans-soas surgery. But what they'll ultimately do is go to PTP because it is the lead and the one that is created by the inventor. Thank you for that.

I would now like to hand the call back over to CEO Patrick Miles for closing remarks.

Yes, thanks very much. You know, it's clearly a frustrating quarter. But, you know, one of the things we say, and we're not kidding when we say that our best days are yet ahead, and we're thrilled to be long players in this business and believe deeply in what we're doing. So thanks so much.

This concludes today's conference. Thank you for your participation. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

Thank you. I'm going to go ahead and start the engine. 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. [Operator Instructions] Leading today's call will be ATEC Chairman and CEO, Pat Miles, and CFO, Todd Koning. I'll now turn the call over to Pat Miles.

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. 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, and consistent with prior periods, our average revenue per case across individual core procedures remains strong. Lateral, ALIF, and cervical were all up year-over-year. Also, revenue per case improved sequentially by 1.5% in the quarter, reflecting increasing stability in the underlying business.

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, and we are seeing increasing evidence that these accounts become meaningful adopters of our procedural solutions following implementation. Among established EOS Insight accounts, implant revenue increased approximately 32% within 6 months of going 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 in 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 break-even, and delivered positive trailing 12-month free cash flow for the fourth consecutive quarter. We expect the third quarter to reach $4 million to $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, extended 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 8 years since we started the ATEC turnaround, we have 10x 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. A 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-based surgery, 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 a comprehensive procedure, have produced a compounding effect on growth. We train and convert a surgeon to perform lateral surgery safely and reproducibly. Once that surgeon becomes more confident, they begin to treat more and more of their patients laterally instead of using other approaches and also to use the lateral approach to address more complex pathologies. That is why our new surgeon growth metric is such an important leading indicator of future growth and why we know that we have just scratched the surface of our long-term potential. Once surgeons trust you in lateral, they expand their utilization across other procedures, such as cervical, TLIF, posterior fixation. That's how surgeon utilization compounds. More surgeon users applying multiple products within each procedure is how we drive convoy sales or products per case. It's what happens when you design procedures the right way from the ground up.

EOS continues to be a pivotal part of our strategy. Installation can be bumpy quarter-to-quarter, but the post-installation EOS experience is playing out as expected. EOS Edge is a foundationally necessary clinical tool that avails us access to many of the world's most prestigious institutions. These were hard, if not impossible, institutions for us to access previously. However, with a tool as clinically relevant as EOS, we gain access, which gives us a hunting license to drive and expand adoption of our surgical procedures. What's also becoming increasingly important is that many of these institutions are training the next generation of spine surgeons. By establishing ourselves with leading academic centers and fellowship programs, we are expanding our influence with a younger cohort of surgeons who are learning alignment-based, data-driven surgery from the outset.

From this access, EOS is shaping future adoption. When EOS becomes part of the clinical workflow from diagnosis, pre-surgical planning, intraoperative reconciliation, and follow-up, it starts driving case volume through insight, alignment, bone mineral density assessment, surgical planning, patient-specific rods. Over time, EOS builds something more valuable than 1 product. It generates a structured data set. That becomes the moat. We are already realizing the benefit to the tune of about a 32% revenue lift per surgeon after EOS Insight is adopted. This is still just the beginning of the advantage we expect to see EOS and Insight provide, but early returns are very encouraging. Turning to surgical execution, historically, spine companies competed around implants.

We think the future belongs to those who can meaningfully improve how surgery is diagnosed, planned, executed, and evaluated. That's exactly what we've invested in with EOS, Valence, and SafeOp. Intraoperatively, let me start with Valence. Across the initial clinical experience, we're seeing what we expected. Surgeons finding value in the technology, the workflow is elegant, and the procedural integration is working. The experience continues to improve with increased usage and feedback. We've been very deliberate with Valence.

Our near-term focus has been getting the experience right through expanded utilization. We've always thought of Valence as a foundation to bringing more technology into the OR. Milestones like our recent FDA clearance for IOA, or intraoperative alignment, and Contour 3D, our automated rod bender, expand our capability while strengthening the technology foundation we're building. We don't view Valence as another navigation platform. We believe it will become the operating system through which more of the procedural experience is orchestrated. SafeOp plays an equally important role. It continues to evolve and expand in its utility across more procedures.

It's a source of real-time, actionable intelligence around neural location and health, helping surgeons make better real-time decisions intraoperatively. When you combine improved surgeon decision-making through EOS Insight with intraoperative technology such as Valence and SafeOp with the procedural innovations we've introduced over the past several years, what emerges is an integrated ecosystem that deepens surgeon confidence and makes ATEC increasingly essential to surgical execution. Our aim is to be indispensable. EOS, Valence, and SafeOp move us meaningfully closer to that objective. Another area where we are seeing growing innovation influence is in deformity. These are some of the most demanding procedures in spine, and we're earning a seat at the table in partnering with leading KOLs. EOS imaging, alignment data, bone mineral density assessment, patient-specific planning, patient-specific rods, and a differentiated deformity portfolio all come together to help surgeons execute a myriad of complex cases with greater confidence.

What's encouraging is that many of these relationships started elsewhere in the portfolio and migrated to complex deformity based upon the trust through EOS, use of our lateral, cervical, and other procedures. International growth has proved our clinical distinction model translates globally. We've been deliberate in focusing our efforts in some of the most attractive spine markets in the world, Japan, Australia, and New Zealand. And we're seeing the model play out as intended. Clinical distinction drives surgeon confidence. Surgeon confidence expands utilization. Utilization drives growth. As we enter these new markets, we're going to be able to do more. We're exporting and replicating a proven model.

In every market where we successfully replicate, that model expands the long-term opportunity in front of us. Our international growth is a reflection of a clinical thesis that works. When you step back and look at our business today, what gives us great confidence is the ecosystem that we've built and are refining. We've talked throughout this call about the growth algorithm at ATEC. Clinical distinction compels surgeon adoption. Surgeon adoption expands utilization. Utilization compounds over time. The encouraging thing is that multiple catalysts are now reinforcing that algorithm simultaneously. We have procedural innovation driving the convoy sales effect.

Lateral continues to earn surgeon confidence and expand utilization. EOS and EOS Insight are creating access and building a differentiated informatics platform. We are growing our influence in deformity and pediatrics, commercializing Valence, integrating SafeOp more deeply into surgical execution, and successfully replicating our clinical model in attractive international markets. We continue to be a magnet for the best sales talent in spine. Each of these catalysts is an expression of the same strategy. Create clinical distinction, earn surgeon trust, and expand utilization. Scale the business with the best sales force in spine.

That's what we're doing. Let me leave you with this. I'm excited for the back half of the year. As we discussed, new surgeon growth in Q1 and Q2 exceeded 20%, which is a powerful leading indicator for future growth. Both EOS installations and orders rebounded nicely in Q2, reinforcing our confidence in the opportunity ahead. EOS is contributing as designed and will become a bigger part of our story over time. We have also continued to invest in instruments and inventory while attracting the right people to support the strong surgeon adoption we continue to see. We're in this for the long haul. We are building ATEC for decades and beyond.

This quarter showed we can continue to grow at multiples of the market and turn that growth into profitability and cash. We are the preferred destination in spine. Best surgeons, best talent, and best outcomes. It's a long game. I believe the long game belongs to us. Thanks to everyone on the call, and most especially the ATEC faithful. Our best days are yet ahead. With that, Operator, let's take some questions.

[Operator Instructions] The first question comes from Vik Chopra with BMO Capital Markets. Your line is now open.

Good afternoon and congrats on a nice quarter. Thanks for taking the questions. Pat or Todd, I guess, whoever wants to answer this one. With surgical volumes growing 20% in the quarter and surgeon users are up 24%, I guess where do you see the greatest remaining opportunities to drive sales force productivity and SG&A leverage as the business scales towards a billion-plus in revenues?

Yes, Vik, thanks for the question. I'll start. I think that the lateral piece is in its infancy. And I would love to see more TLIF turn into lateral. And as a 10% market shareholder, there is so much opportunity out there, it's kind of crazy. And so I see from a sales force efficiency perspective, of just picking up more of that business. Clearly, we'll talk about it, but disappointed in some of the biologics attachments. So there's opportunity to pick up just more biologics attachment to the volume of procedures that we're doing.

Totally bullish on the back half. We're in the infancy of the whole deformity thing. We've not yet reflected the type of footprint that we can create in deformity. It's in its infancy. I think EOS, the influence coming from EOS is in its infancy. So there's just tons of places I see as being opportune for us to continue to grow at an outpaced rate.

And Vik, I'd add just on the scaling and how that translates to the profitability of the business, like clearly you saw a strong profitability drop-through of about 45% here in the second quarter. We raised the guidance really on the strength of an improving gross margin profile in the second half of the year. And so, last year we dropped through about 40% of the revenue growth to profitability. Our guidance implies about the same 40%.

And so feel quite good about our ability to continue to grow the business and see that scale and improved profitability profile as we grow. Just as an add to that, I think the structure has been built. And I think when you start to think about the ecosystem from a product perspective and then just foundationally, just the buildings and the people and the like, we'll continue to grow people-wise, but it's going to be one of those things where we'll continue to build off the scale.

Can I just ask a quick follow-up? You mentioned the biologics attachment rate. I think you said in your prepared remarks that it stabilized during the quarter. Can you talk about what initiatives you have in place to drive improvement and when we should expect that headwind to become neutral or potentially a tailwind? Thank you.

Yes, I think the two things in the near term is more discipline from a selling perspective is clearly a key one. We're also going to continue to put the pedal to the metal on new products. And I think we have a number of new products coming forth that are going to enable us to continue to provide a meaningful distinction. I think it's one of the hardest places ever outside of BMP to create real product distinction. And that's why we did the Theradaptive deal.

It's one of those things where it's like, we realized that we'll be the second company to have BMP on the marketplace. Medtronic's doing $700 million in BMP. It's purely the most unique product in the space. It's the one that's gone through the IDE. We'll have gone through the IDE with Theradaptive. And so we're totally enthusiastic that we, in essence, got that done, just seeing as we need to distinguish ourselves in a space that's ultimately profoundly important to the field.

Our next question comes from Matthew Blackman of TD Cowen. Your line is now open.

Good afternoon, everybody. Can you hear me okay? Great. I've got one and a half questions. Let's start with the, and both for Todd, I guess the half question, any chance you'd be willing to break down the 20% worldwide surgical procedure growth into U.S. versus OUS? Just curious if we could get some geographic granularity on that, and then one follow-up.

Matt, we're not breaking that out at the moment. I think as we get more meaningfully sized outside the U.S., we'll begin to break that out. But it is a growing contribution, for sure.

Okay, and I guess the real question is, obviously you had talked about revenue per procedure for the full year when we spoke last quarter, being flattish, now you're talking about sort of being down low single digits. Can you just tell us what changed? Is it the biologics attachment rate? Is it still outsized cervical uptake or is deformity lagging? Just any help in understanding the change in the outlook for the revenue per procedure, and then I'll hop back in queue. Thank you.

Yes, absolutely, Matt. So I think, one, it's important to note, we grew volumes in the first half 20%, and our guidance implies high-teens volumes in the second half. So I think the underlying growth and health of the business is strong. Those volumes obviously being driven by both cervical and international, which is a mix headwind, and that may be a little bit more of a mix headwind than our guidance implied. But fundamentally, it's the fact that our biologics attach rate has stabilized rather than improved.

And so what we did was we include less improvement in the second half than we had had previously from an attach rate standpoint to ensure that we had essentially reflected the current level of performance in our attach rate in the second half. And then as we go into the fourth quarter, the revenue per procedure comps get just a bit easier. And so that's how we think about the second half revenue per procedure.

Okay, fair enough. I just wanted to make sure. It does sound like it's cervical mix, maybe slower ramp on biologics, but importantly not sort of lagging on the deformity side. I know 2Q isn't the biggest quarter, but 3Q certainly could be. I just wanted to make sure that opportunity is still sort of front and center.

Yes, you're right, Matt. I think the point is that when we looked at our revenue per procedure performance in the quarter, about three-quarters of, I'll call it the miss in terms of revenue per procedure of where we wanted it to be, was really a biologics phenomena more than anything.

Yes, I was going to pipe in that the deformity influence just continues to grow as expected. And so the EOS thing is playing out. And I can't be more enthusiastic about the foundational thesis of it and just how it's being reflected in the field.

And you also have more deformity sets out this quarter than you did, sorry, the third quarter than you did last year, right? That's also part of the incremental CapEx spend this year.

Yep.

Okay, fair enough. All right, thank you. I'll get back in the queue.

The next question comes from Allen Gong of J.P. Morgan. Your line is now open.

Hi, this is Henry on for Allen. I appreciate you taking the questions. Recently from some of the other ortho companies, we've heard indications of maybe some procedure volume slowdowns. Can you add any color on what you're seeing from your perspective and maybe more specifically, if there's been any material impact from the recent ACA changes, and then just a quick follow-up.

Yes, I'll let Todd speak to ACA change. But the dynamic is one of, our volume was robust. Our new surgeon additions, robust. I think that it's fascinating in terms of what's elective and what's not. And I think that neural pain is one of those things where there's an inevitability of an intervention. If you go under the knife to get a spine surgery, rarely is it elective. And so we're seeing, we're a proxy for nothing, just as a quick point. But we're seeing robust volumes and kind of a consistent marketplace. And so, Todd, you're up.

Yes, and just on the ACA piece, we've done some analysis. And I think our work would suggest that we're probably less than 5% exposed to ACA volume, so we really think it's a non-factor for us.

Thanks, and then turning to gross margins a little bit, it was obviously a great quarter from that perspective. Is there anything in particular you both would like to call out on the performance this quarter, and then looking forward, how sustainable can we expect results like this to be?

Thanks, Henry. I think the three things I called out in my prepared remarks were just inventory efficiency, and that's really just a function of the good work our operations team and our sales channel have done in terms of improving our, just really the, yes, just like turning our sets and being able to understand where our inventory is and controlling it within the field. And hence you get less write-off and less loss as a function of that. So it's really the chain of custody that we've improved there and through a lot of good focused work.

I think on the second point, is we've improved some cost reductions, so our standard margins are solid. And that's really a function of either new design work we've done or revised designs that we've done, or it's also the result of just volume efficiency with our supply chain partners. So I think, again, from an operations and engineering standpoint, good work is being rewarded from a gross margin standpoint there.

And then the third piece is the mix. And so we had less biologics and less EOS mix in the quarter, and so both of those things are a function of the sales dynamic. And so as you look in the second half, we obviously have a lot more EOS mix in the second half than we do in the first half, which is why our guidance would imply something closer to 71%, which is about 50 basis points better than what our previous guidance would have implied in the second half.

The next question comes from Tom Stephan of Stifel. Your line is now open.

Great. Hey, guys, thanks for taking the questions. First one, just on free cash flow, Todd, maybe for you, I think you mentioned $4 million to $6 million in 3Q. So hopefully my math here is right, but that implies $25 million or so in the fourth quarter to get to the $20 million plus, which is a pretty big step up sequentially and year-over-year. And I think in the second quarter free cash flow might have been down a bit year-over-year. So, Todd, talk to the drivers of that improvement notably as we kind of exit 2026. And where your level of confidence stands in achieving that $20 million plus free cash flow number for the full year. And then I'll have a follow-up.

Thanks, Tom. So we, as I noted on the call, we've invested $33 million this quarter. Frankly, we invested about the same amount in the first quarter. So if our range is 90 to 100 on the full year, we've done 66. So we've front-loaded that investment and clearly that's purposeful to take advantage of the growth opportunities we have in the second half. And so if you look at where we are today and if you take a drop-through of 36.5%, or excuse me, 36% year-over-year in the second half on revenue growth to EBITDA, you come to the conclusion that our Q3 to Q4 step up in EBITDA is about $10 million.

And so if we deliver $5 million as a midpoint on the free cash flow in Q3, you add $10 million to that to get to Q4. So now you're at $15 million. And knowing that you're going to spend less on sets and inventory in the fourth quarter than you do in the third quarter by the order of probably 10 to 15 or so. That really is that bridge that gets you from 5 to 25, Tom. So I know optically it's a big step up, but the components really are incremental EBITDA growth combined with the fact that you're investing less in sets and inventory in the fourth quarter than you are really in the first three quarters.

Got it. Super clear. Thanks for that, Todd. Appreciate it. And then maybe to shift gears a bit just to surgical, Pat or Todd, it'd be great if you could comment on surgical trends kind of throughout 2Q, exiting 2Q, and notably into 3Q. I guess when I look at the implied guide to hit surgical, which you maintained, I think it does require the 2-year CAGR in the back half to remain fairly consistent with the second quarter. So maybe if you can talk to surgical trends and what drives your confidence in sustaining kind of this 2Q performance through the back half.

Thanks, Tom. I think a couple things. When you looked at the year-over-year dollar adds in Q2, we were at $28 million, and that's compared to $26 million in the first quarter. So surgical dollar adds year-over-year accelerated Q1 to Q2. So that's good. The year-over-year growth at 17% stabilized from Q1. So I think that's another good measure. When you look at the year-over-year, 2-year CAGRs, to your point, it actually is a bit of an acceleration in Q2 over Q1, and the same holds for the dollar add rate in Q2 over Q1. So I think the trends all point to a stabilizing and improving environment as we've worked through the first half so far.

Then I really point to the fact that we've seen north of 20% surgeon adds. That's generated 20% surgical volume. That surgical volume growth at 20% is north of the high teens that's implied in the guide in the second half. And when we look at the pipeline, look at the opportunity, we've clearly forward-invested in the sets and inventory to take the most of the opportunity that we see in front of us. And so we think we're well-positioned from a sales force and a set addition standpoint. So we have the assets to drive the revenue. And I think the dynamics that have really gone on in the first half of the year all point to our confidence in the second half.

The next question comes from Patrick Wood of UBS.

I wanted to ask you about Valence and how the launch has been going. You called out in the prepared remarks that EOS placements have been notable across academic centers, so I was wondering if you've also seen outsized demand for Valence at those facilities or perhaps it's more the outpatient ASC settings since I'm sure the smaller footprint and lower ASP versus peers is a great value prop. So any color you could give on the facility mix of placements would be very helpful.

Yes, I wish I could provide great distinction because your question is totally relevant. And the interesting part is we're seeing academic institutions evaluate and kind of integrate the Valence piece, and the early experience from a utilization perspective has kind of been both. And it's gone kind of as we expected. The real virtue, in my mind, just becomes the elegant workflow of it. There's an in-field camera, which may seem like a small thing to you guys, but it's completely controllable by the surgeon.

And I think what's been the great reception is just the ability to, again, control all the variables within the procedure. Because of the cost of goods, one would presume this is a great ASC tool, which we believe it to be as well, but what we're seeing is kind of a mix in terms of both academic and community hospital and ASC-type utilities. So I wish I could provide you some great insight other than the fact that the utilization is going as planned, we're placing as many as we expected to, and most of them are going the way of earn-out type of dynamics. People aren't coming up with capital in the same way they did years ago.

Very helpful. Thank you, guys.

The next question comes from David Saxon of Needham & Company. Your line is now open.

Great. Good afternoon, Pat and Todd. Thanks for taking my question. I wanted to follow up on the case volume growth assumption, the high teens in the back half versus 20% in the first half. So I guess, directionally, a slowdown, what's driving that? From a case mix perspective, cervical starts to face tougher comps, I believe. Just your level of confidence in sustaining the lateral case volume growth, if you can, in fact, start to see that better case mix. Thanks so much.

Yes, I'll do the subjective and I'll let Todd do the quantitative, which is always harder. What we're seeing is really kind of new product acceptance on the lateral side. And so there's a lot of enthusiasm and momentum. PTP continues to show up big. And so as we see new users and the expectation of utilization and a ramping dynamic, I think that there's a lot of confidence here. Also, the whole deformity season is still forthcoming in the grand scheme of things. So our view that we're going to get, again, more thoracolumbar type of volume is there. Those are the general things that provide my confidence, and I think numerically, we're just trying to be as thoughtful as we possibly can in terms of being methodical. And so, Todd?

Yes, I think, David, your question is volumes were 20%, but we're guiding to high teens. Why the deceleration from a volume standpoint? And I would just point to the fact that we just reaffirmed our full-year guide. We beat the consensus a bit in the second quarter. And so ultimately, we're just trying to focus on execution. And I think that kind of is the result of keeping the full-year guide unchanged in the context of beating the consensus number in the second quarter.

Great, thanks so much.

The next question comes from Caitlin Roberts of Canaccord Genuity. Your line is now open.

Hey guys, it's Mikaela for Caitlin. Congrats on a solid quarter and thanks for taking the question. Last quarter you outlined some initiatives to improve your EOS execution. Can you maybe talk a little bit more about the progress you've made there and are there any additional investments you need to make? Maybe if you can talk more about what you're seeing so far in Q3 and how we should think about placement throughout the remainder of the year. Sorry, that was a long one.

No, it's a good one. Can I tell you, like, the EOS thing is one of the biggest differentiators that we have within the whole ecosystem, and it is a foundational tool. And as I said in my prepared remarks, I don't know of a more clinically relevant tool there is. And when you start to think about just the opportunity to effectuate improved surgery, the type of information that the surgeons are distilling, I think, is such a key piece.

And so, here's an example, and I'll get right to the answer to the questions. But when you start to think about three-dimensional reconstruction of the spine and you start to think about the Scoliosis Research Society providing a 3D classification, we can be the proxy of that classification. And so when you start to think about, hey, I'm going to do a surgery, I'm going to be able to immediately understand the classification. We should be able to create some predictive elements around that, how the patient's going to do within that classification and plan the case that way.

And so the types of institutions that are coming forth and buying into this thesis has been significant, both from an academic perspective. You know what's been interesting is we've seen placements in the community as well. Like there's an institution where I was speaking to somebody internally today, whereby these guys are generating a lot of revenue from an EOS unit in their clinic. And so the great part is it's a private group generating revenue in their clinic that ultimately effectuates better surgery. And so it's a very thesis that we've laid down in terms of just why we're doing what we're doing.

The other thing is you're seeing the translation of EOS Insight. And so I think we gave, if you're using EOS Insight, we're seeing a 32% increase in revenue in that institution. And so you start to see, gosh, these things are starting to take hold. And so from an infrastructure perspective, I would just say that we continue to get more sophisticated. I would say the early experience from our capital equipment, the process wasn't as robust as we probably could have been.

And so the type of sophistication that we've brought into the company that's guiding and leading those efforts is, it's a different day. And the sophistication is far better. And so I would just tell you that I see this thing becoming more and more predictable. I think the people internally that are driving that effort continue to elevate. And so I don't see us needing a significantly different group, but I would tell you that what we're doing is just getting better. And that's kind of how we've been throughout the entirety of the 8 years I've been here is we've integrated a technology, we've improved the technology, and we've gotten significantly better. And the same thing is taking place today right now.

Great, thanks so much.

The next question comes from Larry Biegelsen of Wells Fargo. Your line is now open.

Hey, thanks for taking our questions. Maybe another one on EOS. I believe in your prepared remarks, you said you feel like you have the right team now in place. How are you feeling about their productivity levels and what is the level of risk and ramp to hitting your guide? And then looking to next year, should we expect incremental rep investment?

Yes, I would say great confidence in our guide. I would tell you that, again, this is the weirdest system that I've ever been associated with. And I would tell you to channel check me. I've never met a surgeon who doesn't want an EOS. The challenge becomes in, really, as much as anything, it's even less price. It's more of, hey, do I have room for it? And it's some of the installation dynamics that ultimately create the challenge. And can I put it in a place where I'll get the volume required to ultimately offset the expense of it?

And so I feel great about where we are. We're going to continue to get better. But I will tell you, as it relates to our guide and what we look at to get to a billion in '27, I feel great about where we are. You know, we can't sell enough of these from my perspective. It's like, I'm never going to be satisfied with regard to where we are with the volume of these things. Because ultimately, they become foundational tools for which we can put EOS Insight in. And that's the piece that will ultimately pull the surgical field forward in terms of just the planning and the execution and the evaluation of what we're doing.

Probably a lot of subjective commentary there, but I would say I'm highly confident. We got the right team in place. We're going to continue to get better. And I like the setup.

Thank you. The next question comes from Mason Carrico with Stephens. Your line is now open.

Hey, guys. Thanks for taking the questions. On new surgeon users, have you seen any change in the composition of what new surgeons buy first? Historically, I know that lateral was the entry point, but is the larger share coming from, or I guess recent new surgeons, at least coming from surgeons starting in cervical or some other category?

You know what, it's been interesting, really. I would say the place that we're getting into sooner is in academic institutions. And I would say a younger guy who is less far along in his surgical career that may not want to take on lateral will ultimately go down the cervical road, just because I think it's the best thing that surgeons do from an outcome perspective. It's the most predictable intervention that surgeons have is ACDF. And so I think that our portfolio has really distinguished itself in terms of just the assembly of goods, kind of the same procedural thesis that we've applied from our original lateral.

And so the great part though is, you know what? They ultimately all get to lateral. And the beauty is, is they start to buy into the whole procedural thesis and that procedural thesis walks in there. I think when we started the turnaround of the company, we knew that the best place to distinguish ourselves was in the lateral realm. And so that was the place that everybody jumped in. And I would almost say that it was a more mature surgeon cohort. Younger guys I think are just, again, being very thoughtful and predictable. And I would suggest that some of those are doing what you say, which is they're coming on and jumping into the cervical realm.

Yes, and I think it's also reflective of the fact that we've recently launched some fairly distinguished cervical portfolios, products that really are attracting people in a way they haven't in the past.

Yes, I think in a great way. I can't say enough nice things about our product development team and our marketing team on the cervical side. They've done an outstanding job.

Got it. That's helpful. And then on the dynamic of EOS getting you in the door at some leading institutions and giving you a hunting license within them, could you just unpack the mechanics of that a little bit? How many months after an EOS installation do you get your first surgeon user coming online? Is it usually 1 surgeon or multiple surgeons at once? Any incremental detail you're willing to give there?

Yes, as you know, it becomes such a subjective walk and it's different in every place, be it academic or otherwise. But what would be typical is, we get the installation in. We've been very effective in terms of getting the image sharing agreement with the institutions as well, which ultimately is the foundation for the EOS Insight software. And so usually there's a few surgeons that are kind of driving that whole effort because they've either been here or they've experienced the utility of the software. Right.

And then we'll have a clinical account manager go out and spend time and ultimately familiarize them with the utility. But usually I would say it's 3 or 4 guys that ultimately engage into that effort. And then what we've seen is it ramp. And what's been fun is like seeing the patient-specific rods really start to take off and be the reflection of the utility of the EOS Insight software. And so get the system in there, familiarize the group with our clinical account manager, make sure that you're familiar with the system, make sure that the pass-off to the local rep is effective, continue to go and sit with the surgeon and review surgeries, which is a hunting license like no other, and then start to reflect in patient-specific rods, which has just been phenomenal.

And so we've seen a meteoric rise in that, we've seen great engagement, and that's why you're seeing the 32% increase in places where we've installed the software. And so it's not like, I think that initially people didn't understand why we were so enthusiastic with regard to the value that the EOS unit brings. We are in the infancy of it with regard to the alignment stuff, the case planning, the bone mineral density measures, like the volume of things that we can integrate through this effort is huge. And so we feel like we are in the early, early days of this. And that's why I think that there's so much bullishness in terms of the route forward.

Got it. Thank you, guys.

The next question comes from Keith Hinton of Freedom Capital Markets. Your line is now open.

Great, yes, just one on EOS Insight. Can you talk a little bit about where the penetration rate is for EOS Insight into the installed base, kind of what your goals are for the next, say, 12 to 24 months? And in terms of the new placements that you're getting, are you seeing EOS Insight sort of penetrating those accounts more quickly than the legacy accounts, or is it just sort of a matter of time across the board?

Yes, it's a great question. And I would say early, I'd say 15% to 20% on the EOS fleet. But the great part is it's happening in a hurry. The other thing I think is relevant is, EOS was such a foundational pediatric tool. Like, the whole low dose was the original attraction to a lot of the hospitals that acquired them. And one of the things that has been just so exciting is our ability to be relevant with regard to EOS Insight into these pediatric institutions by delivery of Insight, which becomes the software tool that enables them to help plan better.

And so I would tell you that the early experience has been more on the adult side. The enthusiasm has been all around reconstructive deformity surgery, mostly in adults. But what we're starting to see is more and more of the pediatric institutions totally appreciative of what's forthcoming with regard to the SRS classification that I made mention to. And so when you start to think about where we are in the phase of this, in its absolute infancy, like the volume of EOS units can continue to over the next 10 years and the type of insights and the type of data collection that we could do and the translation of the data collection ultimately moves the field forward.

And so we remain totally bullish. I would tell you that we're early in the experience if only 20% of the installed base has Insight, as you can appreciate. We have to get through the data sharing elements, but that's going much more expedient than we would have expected. And so I think once people start to appreciate the features of the tool, they are in love with it.

Great. And then if I could just sneak in on one quick one about the guide. You mentioned in terms of revenue per case, going from flattish to down low single digits, partially on the bio attach rate, but you're still expecting some improvement on bio attach rate in the back half. So, if you were to not see that improvement and just have bio attach be kind of flat versus the front half of the year, how much potential downside would that create on the revenue per case side?

Yes, not a ton, Keith. It's really only assumed in the fourth quarter.

Okay, great. Thank you.

The last question comes from Sean Lee of H.C. Wainwright. Your line is now open.

Hey, congrats on a great quarter, guys, and thanks for taking my questions. I was thinking more on the longer term. I noticed that the growth in new surgery users has remained strong and ahead of both revenue and the case growth. So I was wondering generally how long does it take for these surgeons to really become repeat users of Alphatec? And on a longer-term perspective, from value breadth more, increasing more surgeons or depth and more procedures per surgeon. Thanks.

Yes, I love the guys who adopt and then utilize. And I'm just partially kidding. It's a fascinating question. I think that when we talk about earning trust, like I think we really mean it. It's like, spine surgery is no game. And I think that the surgeons are anxious when they just start using a new company. And I think that once they hit a certain comfort level, and I think there's kind of consistent dynamics around the design and development of certain goods. And so what happens is there just becomes a familiarity of it. And I think it's kind of the hardest thing to turn people away.

And so if someone was trained on a certain company and they're halfway through their career, sometimes it's very hard to turn them just because of the lack of familiarity with some of the mechanisms and whatnot. But what's been interesting with the EOS thing is I would tell you that the cohort that we're attracting is a younger cohort and to me it makes me happy because I think we have a longer run and I think the type of impact that we've had on the academic institutions as of late especially based upon the foundational EOS thing has been really rewarding.

And so maybe we're not getting the big whale who we're turning from a different company at the same rate we're getting a new guy who's utilizing or has a less busy practice, but growing into a busy practice. And so I would tell you that it's tough to quantify specifically, but it's one of those things where we're seeing a great uptake with a younger cohort of surgeon that ultimately has a huge run ahead. I think that the kind of dynamic that inspires them to join us is the assembly of goods, which is the procedural thing, which they have seen and heard about from the lateral thing.

They'll try it in cervical, then they'll apply it to the lateral. But over time, I think the initial impetus for them joining us is the EOS and EOS Insight and that kind of predictive analytics route, if you will.

Yes. And the only thing I'd add to that, Sean, is every year in our fourth quarter call, we show how the different cohorts of surgeons grow in their utilization. And so, you can see a curve that's reasonably consistent over time. And after, excuse me, after maybe 4 or 5 years, that curve starts to bend a bit. But it's a pretty consistent experience over the first 3 to 4 years.

Great. That's very helpful. Much appreciated.

I would now like to turn the conference back over to CEO Pat Miles for closing remarks.

Yes, just a thank you to all those on the call, especially the ATEC faithful. Love what we're building, and thanks for your interest.

This concludes today's conference. Thank you for your participation. You may now disconnect.

Bank of America, really happy to introduce ATEC Spine. For our next presentation, we have CFO, Todd Koning.

Thanks, Adrian. Appreciate you guys having me, and thanks for coming. I'm Todd Koning, CFO here at ATEC. And I think there will probably be some forward-looking statements. So be aware. We'll talk about our growth algorithm, our -- how we continue to grow and some of the catalysts that we have in the business.

We clearly demonstrated the ability to leverage the growth that we've seen in the business implied in the way we've built the business, and we'll talk a bit about that, and we have the opportunity to strengthen our balance sheet as well.

But first, I want to talk about the overall market opportunity. And we sized the market to be about $10 billion in total. And given our size, we're just slightly under 10% penetrated. We think there is so much opportunity for us to continue to grow at outsized rates above the market growth.

The overall market, we feel is healthy, kind of a low to mid-single-digit growth rate, which really in the context of maybe the last 5 or 6 years seems to be like in recovery mode and feels good from our standpoint. When you look at that market in the terms of the $10 billion, I think what has been really the focus of the company for a fair amount of time has been the lateral market.

And we sized the lateral surgery market to be about $1 billion. We think it's one of the faster-growing segments of the market. And it's one of the faster-growing segments of the market because ultimately, it allows for lower blood loss, less morbid procedure and essentially like a faster recovery for patients.

So there's a lot of good reasons to do lateral surgery. And we think lateral surgery is a great alternative to address the traditional posterior approach surgery market, which we size is about $2 billion. So traditional posterior approach surgery can be addressed through a lateral surgery approach. And fundamentally, we think that ultimately gives better results and allows surgeons to do better surgery and patients to get better care in the long run.

And so we'll talk more about our lateral offering and how that ultimately addresses that market as well and continues to drive that growth and really our outsized growth in that space.

I think if you went back 6, 7 years. I've been with the company about 5 years now. But if you went back to the remake of the company in 2018 when Pat Miles, our CEO; and Luiz Pimenta, our CMO, came over to remake ATEC, they set out to really answer the question of why did lateral surgery only address about 1/3 of the total opportunity? Like what -- what got in the way of a broader adoption of that surgery if that surgery is so much better.

And so the 3 tenets of our strategy have not changed in that time. And the first thing is really to create clinical distinction. And what do we mean by that? We mean allowing surgeons to do better surgery. And when you do that, you ultimately compel their adoption. And there's no better way to have sticky share taking, if you will, than to compel somebody by virtue of the quality of what you provide them.

And so our approach has been to really attack the spine market through a procedural view. A surgeon doesn't see a patient and say, what screw, what pedicle screw am I going to use or what interbody will I use? They look at the patient, they then understand their pathology and then they say, what procedure am I going to apply to that pathology to treat the patient.

And in the context of that, you have all the components of a surgery. And so we've focused on the procedural adoption and the procedural approach to solving some of spine's greatest problems. And in the process, we've compelled surgeons to adopt our procedure. And when you do compel a surgeon to adopt your procedure, you get the attention of the best sales talent in that area to support that new surgeon adoption.

And I think that's been well demonstrated by the volume of surgeons that we've seen, which you can see here on the left-hand side of the screen, the consistent growth in surgeon adoption and the increased utilization in each one of the cohorts on an annualized basis.

And then here, you can see that on a quarterly basis going all the way back to 2024, we've seen approximately 20% growth each quarter in the number of surgeons who ultimately are utilizing our procedure. And I think that underpins the point of compelling surgeon adoption through clinical distinction.

So where it all started was really lateral surgery. And when we created PTP and our lateral approach, it was through a very deliberate view on how to tackle some of the hurdles of a broader lateral adoption. And so part of that was positioning. Part of that was the repeatability and the reproducibility of a lateral procedure.

And so you've seen us invest in things like a patient positioner, things like neural monitoring, which allows us to monitor the patient not just to avoid hitting a nerve when you create or when you place your retractor and create the surgical corridor, but also monitor the health of the nerve intraoperatively so that you can avoid the most common complication associated with lateral surgery.

And we're the only company who can do that. And then you look at all of the, I think, the procedural elements. And so when you create a procedure, oftentimes, you set the requirements and really set the rules for surgical engagement. And when you create a procedure and you set the rules, people oftentimes follow those rules. And so that's one of the things that allows us to ultimately architect a highly productive or highly reproducible and predictable experience from a lateral standpoint or procedural standpoint.

And also, it enables us to do -- to capture the lion's share of the revenue opportunity for that procedure, which is why you see our revenue per procedure at probably $12,000 on average over the past 12 months and because that represents our ability to ultimately capture a large portion of the revenue share in the procedural -- in the procedure that goes on.

And you can see on the slide a number of the different components of those procedures. And then what happens is as a surgeon adopts your procedure and you think about lateral surgery, they will apply that platform approach, the PTP approach or LTP approach to a broader set of pathologies, the more confident they get in utilizing the procedure.

And as they do that, they have greater adoption. And as they do get more and more confident with PTP and LTP, they ultimately expand their adoption to other parts of our portfolio like ALIF or cervical or increasingly deformity. So speaking of deformity, EOS is an imaging system that we bought in early 2021. And it was well established in many of the leading academic settings and since then has continued to be evident in our ability to access those academic settings.

So it is widely accepted as the standard, the best image for spine care. It's a standing full body weight-bearing biplanar, meaning you get a picture from the front and a picture from the side, low-dose radiation image. And what that image is, it's a standard image. And so we ultimately can create a structure -- a set of structured images through the EOS image that allows us to ultimately understand what is the image and what is the patient what are the pathologies they have, take that apply our AI algorithm to create the automated alignment measures.

We can compare those alignment measures to normative values. We can then create a plan for the surgeon, do all that in a very clinically integrated way. That will then generate a patient-specific rod to support the intervention. They can order that rod. We will deliver that rod for surgery and then they'll intervene on the patient based on the plan that they created.

Then after the operation, they can measure the patient again through EOS. And because it's a standard structured set of data from an image standpoint, we can now compare the patient's experience on a longitudinal basis through EOS images.

And that really then, as you think about more and more EOS imaging and that longitudinal data set becoming more and more prevalent across more and more sites and surgeons, we will have a very proprietary structured data set for us to really understand based on a pathology, based on patient demographics, what was the intervention, how did that intervention get reflected after the surgery and then how did the patient fare over time.

And then we can learn from that. And ultimately, that can then turn into some sort of predictive modeling as well. And so what we've seen in our early experience with EOS Insight and EOS Insight is the software application layer that does all of the work that I've just described outside the imaging, of course, that experience over the last 18 to 24 months has been very good for us. So you can see the graph on the right-hand side of the slide. It will tell you that after 6 months of implementing EOS Insight, the sites that we have that, their volumes have grown about 30% relative to the prior 6 months before EOS Insight was implemented.

And so we think that's a very promising signal and sign for the influence that information and data has on the surgical decision-making process. And we think that's obviously value-added. Otherwise, you wouldn't see the increase in the volume post implementation.

Here, we want to talk a little bit about Valence, and Valence is our navigation and surgical robot that we've just launched here in this past quarter. And Valence has been a like a navigation -- a surgical navigation platform that we have integrated into PTP. So whereas most spinal robots have been built to place pedicle screws, which is great for the placement of pedicle screws and it reduces some surgeon burden from a physical burden as well as a mental burden and really just gives confidence in terms of knowing where you're going to place the pedicle screw, whether that's through a navigation component or a surgical robotic placement.

And I think that becomes more and more prevalent over time. But what we've done is we have integrated our navigation and surgical robot platform into PTP to ultimately create a more predictable and reproducible experience in lateral surgery such that it can be made available to a wider set of surgeon skill sets. And so imagine that you can now place your retractor, you navigate the placement of your retractor. You can navigate your discectomy and your endplate preparation.

You can navigate your interbody placement. And all of that -- and then you can, of course, navigate and robotically place your pedicle screws. And so we think that ultimately gives a surgeon who may not have a great history or amount of lateral experience, give that surgeon more confidence that they can intervene a patient in a lateral way in a more precise and predictable manner.

Our international experience has been one of, I think, being narrow and deep has been our strategy. A couple of years ago, we entered Australia and New Zealand, and that has been a good experience for us, continue to grow. About a year or so ago, we entered Japan. In March, we did our first PTP in Japan.

We're very excited about the international experience. I think what our strategy internationally is, is to be in a narrow set of countries to go deep so that we can build a direct sales organization. We can reflect the clinical thesis of the company, which should allow us to get greater penetration and drive a higher profitability profile in those markets. And then speaking of profitability, you've seen the company deliver on its profitability commitments over the last number of years.

We've significantly improved our profitability profile largely because of the way we've built the company. And so we invested in infrastructure and scaling the business over the early part -- the early years of the company's build-out. And then you can see in 2023 and then into '24, our profitability went from negative to positive.

So we became positive adjusted EBITDA in '24. We're now positive cash flow here in exiting '25 and now here in 2026. And so the strong profitability growth you're seeing here, 44% growth is the implied growth in EBITDA on our 2026 guidance for adjusted EBITDA. Like ultimately, the way we've built the company, the leverage comes through the business because we've built a very scalable organization.

We've invested in the infrastructure. So the growth that is to come can drop through at a greater rate in the future. And so I think that gives us great confidence in our ability to continue to grow profitability at a meaningful rate here in the future. We also had the opportunity because of the increased profitability and cash flow of the business to refinance our term debt. We had about $200 million of term debt that we refinanced. I think we're super happy with that because we saved about 300 basis points of interest, which is about $6 million a year as well as I think it sends a strong message to have great partners like we did underwrite the quality of the business. And I think that speaks volumes from where we came.

And then finally, our overall guidance for the year, 15% top line growth at $882 million, $134 million EBITDA and $20 million of free cash flow on the year. And so I think we're pretty -- I think we're uniquely positioned to deliver outsized growth in excess of the market growth continue to drive profitability expansion, which ultimately, I think, leads us to greater and greater cash flows as we go.

And so I couldn't be more excited about what we're building, what we're doing for patients and surgeons and how that's translating into a financial outlook. So thank you very much.

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 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. [Operator Instructions]

Leading today's call will be the ATEC's 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 is scaling. We did $192 million in Q1. This was short of our internal expectation, primarily due to a shortfall in EOS sales performance. Surgical revenue was up 17%, mostly in line with consensus. But what matters most is what is fueling that growth. Case is up 21%, surgeon is up 23%. That's not only a utilization story, it's an adoption story. We are 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 mix impacts.

In the U.S., 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 EOSedge 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 EOSedge 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 mix benefit from lower-than-expected EOS and biologics sales and ongoing cost improvements and 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 disciplined 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 was primarily driven by improvements in our variable selling costs and slower depreciation growth.

As a result of the continued top line revenue growth and disciplined management of expenses, we continue 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 continue 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 JPMorgan and TD Cowen. This new bank facility, which replaces our previous term loan and asset-backed revolver simplifies our capital structure and 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 0. 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 are 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 convoyed 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 spine. 15 minutes in, disk height guide was restored and under an hour, the case was done with minimal blood loss and morbidity. That same case used to take 4 hours and it 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, TLIF, 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, EOSedge 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, presurgical 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 Insight 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 needed 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've 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% in spine. We've built real leadership in lateral. We're doing the same thing in deformity with EOS, and we 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 surgeon interest and adoption in more cases. That, in turn, attracts sales agents and build careers. And that's why ATEC is the preferred destination in spine. With that, we will take questions.

[Operator Instructions] Our first question comes from the line of Matthew Blackman with TD Cowen.

So I guess this is not really a fair question, but I do need to ask it. Just in the context of the LRP guide 2027, you feel confident, comfortable today reaffirming that $1 billion revenue number. Obviously, all the other pieces feel like they're in a good place. But the $1 billion top line, particularly in the context of -- 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.

Matt, can you hear us?

I can hear you now.

Could you repeat your question for us, please?

Sure. My one question was actually in regards to the 2027 LRP. Aside from all the margins sort of metrics, which are all tracking above plan, the revenue target of $1 billion, more so just looking at in the context of where consensus is, which is about 4% 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. Can you guys hear me?

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

Okay.

I'll 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 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, we believe that we are on track to accomplish the goals that we laid out in the context of our long-range plan.

Our next question comes from the line of Allen Gong with JPMorgan.

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

Yes, Allen, 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 this quarter, the decline this quarter was really a function of mix attributed to both strong cervical procedures because cervical procedures have a lower revenue per procedure contribution as well as the strong performance in our international business, which does currently have a lower revenue per procedure profile as well.

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

Yes. I think that's a good point, Pat. In the context of the prepared remarks, we said lateral grew 2% revenue per procedure, ALIF grew, I think, 4% and ultimately, cervical grew 8%. We've made significant investments in those areas.

Got it. And then I guess a question on your ability to reiterate adjusted EBITDA. It's definitely good to see you able to kind of keep costs under control, but it seems as though there are some areas where you potentially may need to increase investment such as what you had talked about for EOS Insight. So how should we think about balancing potential need for increased investment and driving revenue growth? How do you kind of balance those 2 things where are your priorities?

Yes. I think it's an interesting question. And one of the things that I feel great about is the infrastructure is in place. And what's interesting is when you grow 39% year-over-year in EOSedge base, just the opportunity for you to exploit that base is very, very evident. What's maddening about this business is the installation elements. And what happens is there's always a buildout with regard to installation. So it makes some of the installation choppy, which the revenue reflects the installation. And so I don't see it as an investment requirement for us to grow. We're growing 30% by surgeon in accounts that have EOS. The thesis is totally intact. And that's to me, I'm thrilled about the reflection of the demand profile 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.

Our next question comes from the line of Matt Miksic with Barclays.

Can you hear me okay?

We can hear you.

Call seems to be moving a little bit slow here with the audio, so I'll try to keep to one. Maybe just obviously, the numbers in surgical, putting aside for a second, came a little bit lighter than expected. We didn't hear or see anything in the quarter that would suggest there was kind of anything "wrong with spine or anything stripping up companies in spine." Can you maybe talk a little bit about if there was 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 there was storms. Many companies have said much about storms, but was that -- was there anything that you'd say, you know what, this a better quarter -- any kind of color and maybe confidence of sequential performance, either up sequentially, acceleration sequentially? Anything you can help us understand about the sequence from here to get to your new full year number?

Yes. Matt, I'll start with just a little bit of color and then let Todd jump in. But I would say the most comforting part is that the momentum reflected in the business where we most distinguished continues to be profoundly robust. And so that's the part that I think we find most comforting. And clearly, the surgeon 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 we're seeing strength right out of the gate in Q2. And so it's -- to me, this is quarter-by-quarter lumpiness.

And Matt, maybe just to put a little bit more finer point on that or add to that. I think your question about like the Q1 in total, I mean, clearly, there's been some -- there was some weather in kind of late January. I think FedEx was restrained for almost an entire week. I think the Northeast had 2 storms. Now there's weather every year. So how much of that is discrete impact here, probably some amount given the fact I think there was more weather this year than historically is normal. So I think there's that consideration. I think the question of really just at the end of the day, where we exited March was probably a bit softer than we had expected it to end. And 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 we 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 is 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 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 again, I think we take a step back and we look at the overall volume growth and the surgeon adoption, and that is really what gives us a level of confidence that 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 I think we ultimately hang our hat on the strong surgeon adoption and the volumetric components of the business.

Maybe just one -- I don't know if you can still hear me, but just -- I noticed that surgeon adoption was up year-over-year. I mean it was obviously up 22%, but it's faster than a year ago surgeon adoption growth. And anything you just understand that a question of like acceleration of trends or momentum? And is that -- how much of a leading indicator is that the fact that it's growing faster now? What would you attribute that to? And does that tell us anything about what to expect in the coming quarters as well, the fact that that's, I guess, accelerating instead of slowing?

Yes. My -- again, my general sense is the volume of people adopting our lateral portfolio is growing and it's growing at an expedient rate. And so the frustrating part is, I think to Todd's point, it's like you see the growth profile, you see the price per surgery with regard to the lateral contribution. And then 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 so -- 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 EOS stuff is working as planned, clearly distinguishing in 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 surgeon adoption story as well as a revenue contributor and a growing revenue contributor as we grow through the rest of the year.

Yes. And the beauty of that thing is it's completely reflective of the lateral thesis that the company has 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.

This is Anna on for Matt. I wanted to ask on sort of the cadence for the rest of the year. It sounds like the majority of work has been done here in terms of realigning the sales team for EOS, new reps coming on board, some investment in additional marketing resources. So I presume it will take some time for these new reps to ramp though. So just as we look at the cadence for the rest of the year, when would you anticipate things in the EOS franchise getting back on track for foreseeable future?

Yes, this is Todd. I think our expectation is that begins to contribute in a more 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.

Just to make sure that I appreciate the question, too, it's like the cadence of adding surgical sales rep has been totally consistent and they're coming from all players. And so what you're getting is just the consistency of the reflection of attracting more salespeople. So that's going on as it has in the same cadence and has not slowed at all. And so 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 got to continue to improve as a capital equipment provider. But when you miss by 3 units or whatever, whatever 5 units, in the grand scheme of things, what it doesn't do is impede the belief in being -- 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 you get in place.

Our next question comes from the line of David Saxon with Needham.

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 -- a follow-up on the revenue per case assumption in 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 no change to the biologics attachment rate, like kind of what's the risk to the flat revenue per case assumption?

Yes, 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. We saw about 38% biologics attachment rate. We would expect that to go up a couple of points. I think things that would make sense there or why we believe that is, one, 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, the -- that is how I constructed the revenue per procedure math for the balance of the year.

Our next question comes from the line of Caitlin Roberts with Canaccord Genuity.

Maybe just to turn back to EOS. 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?

Yes. Thanks for the question. I would say that the EOS thing bleeding into the Valence thing is really a nonstarter. 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 things 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 those things are somewhat challenging. They have nothing to do with Valence. And I always hate to suggest that we're a proxy for anything 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.

Our next question comes from the line of Tom Stephan with Stifel.

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%. Comps 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 decelerated again in 1Q and with guidance implying the stacks reaccelerate? Is it April? Are there incremental drivers that can continue to support growth?

Yes. This is Pat. It's like 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. Like 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 that what we were losing more is some conventional stuff. Q2 and Q3 are conventional stuff, 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 as well as seems 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 comments 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 or -- and/or rather patient positioners. And so 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 Q1 to Q2 and onwards is very much intact. And then I think just if you look at the total surgeon adoption, again, I think it's just a great leading indicator. It historically has been. And I think to have sales, you got to have customers, and the customers are growing at 20% plus.

Our next question comes from the line of Ross Osborn with Wells Fargo.

So maybe moving on to Valence. Would you discuss placements to date and what early pull-through numbers look like?

Yes. Not going to speak to the specific numbers. And I think what we -- or at least how we characterize 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 -- 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. 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.

Our next question comes from the line of Keith Hinton with Freedom Capital Markets.

This is Nakul on for Keith. We have 2 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 year-over-year 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?

Yes. So as I shared in my prepared remarks, you've got about clearly, a mix 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 U.S. They also have a lower revenue per procedure profile than our overall average. And so really, the 2 primary drivers there are mix related. And then the final driver is just lower biologics attachment rate. And so that had an impact. I would just tell you, though, is when you look at our anterior column, so think about lateral and ALIF, lateral's revenue per procedure grew 2%, ALIF's revenue per procedure grew 4% cervical's revenue per procedure grew 8%. And so I think the revenue per procedure growth or our ability to capture the revenue opportunity in a procedure continues to expand. And that's the important piece of 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 flat year-over-year. Where are you today in terms of penetration rate with active U.S. spine surgeons? And going forward, how should we think about the balance between increasing breadth and depth in terms of driving volume growth?

Yes. I mean we obviously saw strong -- another strong quarter of surgeon 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. And so 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 it averaged out at about 3%, and 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 from 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 kind of confidence in our overall guide.

Our next question comes from the line of Sean Lee with H.C. Wainwright.

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 the platform is a door knocker sort as well as a driver for surgeon pull-through, does that case still hold? And do you think it maybe makes sense to rethink some of the hardware monetization model as well?

Sean, it doesn't make me think -- it makes me so enthusiastic about what we're doing. Imagine from where we've come. It's Alphatec 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 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 transit 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 sets 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 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, ATEC Spine.

And so it's one of these things for us to translate this tool in 5 years, it's going to be the father son game. And so it's -- any inference that there is any blinking with regard to the thesis is misdirected. And so sorry for the diatribe, but I got to tell you, it's like this has to run the size of Texas. You have a team that's committed to the size of Texas and the miss on the construction on a few placements of EOS and people question it is a word I would choose not to use. So anyway, I appreciate the 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 ATEC 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 business. And so I just want to share my enthusiasm 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 8 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.

Thanks, and good morning, everybody. Thanks for joining us today. So we're very pleased to have with us again at our conference Alphatec, Todd Koning, Chief Financial Officer; Robert Judd, VP of Finance and Head of Investor Relations. So thanks again for joining us.

Thanks for having us.

You bet. All right. So maybe just to start to frame topics I want to go through and a lot of the questions that we get from investors is before we get into what's happened in the last few months and kind of where you're headed this year, is just to recognize the significant progress that you made last year and kind of turning in this time last year was questions around capital deployment, questions around financing, questions around EBITDA. And I think congrats on clearing all those questions, I think, during last year and kind of ending the year in a pretty strong place in terms of cash flows and EBITDA, and all those things, financing seem to be -- and can you keep growing at these rates.

So it's been a volatile Q1 for lots of stocks in our universe. Maybe a little bit more so for some of the SMID and small caps. So that's certainly you've been no different for Alphatec, I think, in that regard. But maybe talk a minute about the opportunity within Spine. It's a large market. You're a small player. There's some shifting around at the top in terms of market share that really just started to happen in a more significant way last year, which whatever the opportunity was a year ago, it seems like it's sort of loosened up and maybe becoming a bigger opportunity now. Maybe just talk about your position in the market and ability to keep growing, and then we'll get into some other questions.

Yes. Well, thank you, Matt, and certainly agree really, I think, by and large, on the whole, very pleased with the progress that we've made over the course of 2025 in terms of growth and profitability and cash flow and all of that. And operationally, the things we've done and the improvements we've made, I think, give us a level of confidence that we can continue to do those things that we need to do to be successful from a numerical standpoint. I think you take a step back and to answer your question on the broader market, I think if you just think about spine surgery, I think spine surgery is still a ton of opportunity for improvement.

And if you really want to understand like where does share move, I think share moves to the players that ultimately can bring clarity and help surgeons do better surgery and ultimately, our view has been if you can help surgeons do better surgery, and we call that clinical distinction, you'll ultimately compel them to adopt your procedural solutions. And once you've compel them, you'll attract the right sales talent. And so if you look at the state of spine, spine revision rates are still unacceptably high. You compare revision rates in spine surgery to hips and knees, and I think you'd find them to be very disappointing. And if you look at the literature, the literature would tell you that's because of really a lack of global and segmental alignment. And ultimately, that's why we think EOS is such a powerful product, and we can talk more about that.

But our view has been, we believe that we've got the technology that helps you understand what the alignment is, what it needs to be and how to get there through EOS and EOS Insight. We've been very focused on a procedural approach to the spine. Surgeons they look at the pathology in a patient, they don't ask themselves what screw I'm going to use. They ask themselves what approach, am I going to use to treat the patient. And that approach is the procedural approach. And so that's why we look at procedures and design and develop procedures from an integrated standpoint. We think that's been helpful for surgeons. And I think ultimately, have been a part of our ability to drive share and so -- then you kind of look at the broader market itself and you look at some of the disruption in the --

I would call it, the mid majors. You look at Stryker leaving spine, selling to private equity. Well, before that, Zimmer had done the same. J&J spinning out NuVasive obviously sold to Globus.

And so I think opportunity for us to continue to drive share I think is high because of, one, I think our view of how to make spine surgery better, and that's kind of -- that's the whole point. But then I think the environment for us to execute that, I think, is pretty right.

Okay. And talk to investors about spine, I'll just say it, it's not every investor's favorite end market for a variety of reasons. I think one is its pain. One is it seems, it's pretty intense anatomically and in terms of the implants and the sort of call it the surgical mechanism of action for treating pain. But it's a well-established market. It's -- you could say, it's not, I mean it is not difficult to diagnose, but there's a diagnosis involved. But the patients are typically like knee pain, for example, they're driven into their clinicians because of pain, because of the condition, and that either results in a bunch of things or ultimately with enough stability results in surgery.

The other point I'd make, just to say it, is in defense of spine, it is 1 of the 4 most cash-accretive procedures that hospitals do and so I always say, like if you ask any hospital, if they would like to do more spine surgery, I think the answer is always going to be sure, yes, we'd like to do more spine surgery. I think it's labor delivery, cardiac surgery, orthopedics and spine are kind of the big 4. And so those are good kind of, I think, pillars of support. And so then the question is, how do you drive share? And you talked a little bit about procedural approach. You also talked a bunch about which are helpful, some of the metrics that you measure and present to investors to kind of help folks understand the trajectory and the progress that you're making. So maybe run through those, and then I have a couple of quick follow-ups.

Well, just one of the things we talk a lot about is surgeon adoption, as Todd just talked about. And when you look at our material, we share -- usually shared every year, we shared it in our Q4 call is the adoption curve of surgeons. And if you look back at the new surgeon users over the last 8 quarters or so, it's been around 20%. It was 23% in Q4. But what we find is the last couple of years, the surgeons that we have on board exiting the year drive mid double-digit volume growth the following year. And so -- and if you look at those utilization charts, which we show for the past 7 years or so is they keep going in year 3, 4 and 5 as well.

And so our view is, we continue to convert new surgeons. The surgeons have a long tail of surgeon utilization improvement that gives -- I mean, Todd and I, as we look at the numbers, a lot of confidence that we can continue to grow at the rates we -- certainly in the dollar form share taking at those rates over the foreseeable future. And so go back to, are we converting surgeons, the surgeons use more of our stuff and that really is the growth algorithm. We get more case ASP as well. I think our guidance for the year is low single-digit case ASP. That's reflective of getting more of the procedure, which is also kind of a capturing of surgeons business, if you will, as well because we're getting more of their procedures over time, and they're doing more complex surgery with us as they get more experience with ATEC and with the procedures as well.

And one of those, I mean, the surgeon adoption and the utilization is pretty obviously important. But some of those metrics can also kind of move around, which I think can be a little bit confusing as we follow them, we've sort of been scratching it since wait a second, you beat numbers, but revenue procedure went down or you missed numbers, but revenue procedure went up. There was a quarter, I think, like that in 2024. And so like what, there's a mix element to this as well that kind of ties it with your adoption.

So you bring folks on, for example, maybe the -- you tell me maybe the beachhead or the point of entry is, is your lateral or prolateral procedure that gets them involved with Alphatec. But then they start doing more procedures that might, as a surgeon drive down their prolateral, lateral, some of the some of the biggest ASPs that they might do. So maybe talk a little bit about the ebbs and flows of that number on a just an average procedure basis and why it might be moving around and what that tells us.

Yes. So that's absolutely true. I think you look at Q4, overall total company case ASP was flat year-over-year. as you break that down, though, what's interesting is you look at just the lateral procedure or just the cervical procedure. And those had case ASPs that grew year-over-year by 6%. So to your point, there's -- and then so in the U.S., you look at those 2 elements. And so there's a healthy case ASP growth within 2 of those key procedures. And yet at a total U.S. level, case ASP is 1% or about 1.5% growth year-over-year. And that's because of the mix of cervical. We've made some progress in the cervical space over the past in 12 months, and we're getting more utilization from surgeons in cervical and it's hurting the case ASP growth a bit.

And then there's also a little bit of -- there's about 100 bps of impact from the U.S. business -- or sorry, from the OUS business. The case ASP right now, it's a nascent business for us, but it's got a lower case ASP. And so there's a little bit tightness there, and that's how you kind of get to the flat ASP in Q4. But I think we -- as we look out at the year, we know we're going to comp through some of the cervical stuff that we hit middle of last year as far as growth goes. And so we know the underlying growth is healthy and good. And so that's where -- as we look at the full year. And I think one of the things if you just step back from our business at your point, there's some -- we're taking a lot of share, and it doesn't happen in a -- we'd like it to happen in a perfect linear experience, but the reality is it's lumpy when you're volume growth is through taking share.

And so as you look at the year, I think we feel real confident about that case ASP and some of these metrics annually are just easier predictors, then quarter-to-quarter, you get some lumpiness in them. But I think the real measure is how do you do on over a series of quarters or over a year.

Right. And just to put some -- taking share shape some color around that growing 15, 20x the market growth rate, if I'm not mistaken, something like that. It's just you're growing way and way above.

Multiples of the market.

Yes, exactly. So all right. And that's helpful. One of the other things that's been a topic around the company has been reps. I think there's been time to land. There's maybe a lot of excitement, maybe too much excitement over too much focus on reps. Like are you hiring enough? Are you taking them from somebody else. But at a steady state, obviously, the way we've looked at it is and, correct me if I'm wrong, is that when you're a smaller spine company in the portion of a $10 billion, $15 billion market and you're taking share that equates to opening accounts and adding coverage for territories and hospitals and things like that, which means you need reps to grow just to need capital to outfit those new centers.

So maybe talk a little bit about what the growth in reps look like relative to your growth rate, where some of those reps are coming from? Just level set color on what's happening on that element of your growth model.

Yes. I think and again, I think the reps are there to support the surgeon adoption in the end. But when you look at the environment, and once you grab the attention of a surgeon, there's a pretty good chance that the rep who's livelihood is dependent upon that surgeon's business is going to figure out the kind of need to talk to us. And so that naturally happens. And there's all sorts of reasons why sometimes they come and sometimes they don't. I think the, I will call it, the changing environment in the industry relative to the transactions that have gone on disruption, if you want to call it that.

I think that's kind of lowered the friction and those are multiyear experiences any time a company spins out or gets acquired or something like that. It's a multiyear experience for when reps either want to be a part of or realize they're less interested and ready for a change in those types of things. And so I think, again, the environment from attracting the right talent to support the selling, the surgeon adoption is there. I think you're also right, much like when you invest in the instrumentation and the inventory required to grow a territory early in that investment period, the efficiency of those assets is relatively low.

And as you see the adoption curve grow, then you're going to see those assets turn and you're going to get a higher rate of return on those assets once you're kind of full utilization, it's the same way with sales reps and territories. And so I think the other reality is as you get bigger and as you have territories that of substance, the people who are there to essentially build the confidence and have the relationship with the surgeon and the clinical experience, being able to bring in newer people into the fold for surgical support, that model becomes more effective as well in terms of supporting the ongoing surgical requirements. And so I think the growth algorithm kind of works in both ways. You need competitive reps, but you're also adding new reps to fold, if you will.

Got it. And just not to dive back into the period of time of who's taking reps from whom. But if you were to look at where market share stacks, Medtronic Globus, Stryker, and so what's the selection of reps coming into the company look like relative to those players?

Yes. And by and large, it looks like the market. And so I wouldn't tell you that we're benefiting. We're over-indexed from one to the other. Again, I think kind of depends on geography and the attraction of surgeons. But by and large, it reflects the overall market share in the industry.

And then I do get the question, Stryker selling to VB Spine, does that open up a whole bunch of reps that are coming, and I have my view on that, but what's your -- how has that changed the type of conversations that you have, with the number of conversations that you have because of some of the either proposed strategic moves like J&J spinning DePuy Spine or Striker making that move. How has that changed? Is it a volume change? Or is it a quality change? How would you describe it? In terms of additional reps being available?

From those areas?

Yes.

Again, I think it just lowers the friction of change. And people are just like, hey, if I'm just like anybody, if your current environment is uncertain, if you think there's more certainty to the left or to the right, maybe you're more interested in looking to the left or to the right.

Sure. Yes. Like I was -- I feel more confident 6 or 9 months ago than I feel now something were to have that conversation. So the last and maybe one of the more important things that you've been investing in, and it's an important part of Spine and it's an important question, I think, for any innovative player that's gaining shares or enabling technology. So you have a number of enabling technology elements that are used already for prolateral, for lateral. You just need the table stakes, nerve avoidance and these are complex minimums procedures that have benefits, but they're little technically more challenging and the tech helps with that. What -- maybe let's talk a little bit about the role of your Valance robot the kind of goal and market strategy of that and maybe compare and contrast with what investors in the market has learned about, call it, the bigger platform robots that have come to market from, say, Medtronic and Globus.

Yes. So I think a couple of things. If you look at kind of large-format robots, the primary goal is to place pedicle screw. And clearly, placing pedicle screws is important. I think if you looked and understood the utilization of those robots, you'd find them reasonably low. I think at the end of the day, there are reasonably high price points. And so you have to place some institutions that, one, either have large capital budgets or to have enough volume to earn them out. And there's only a certain amount of those throughout the country.

So if I just go to price point to start, I think our price point being in kind of that $0.5 million range, prices at such that, one, you can still place in a large academic setting because it is a differentiated robot and navigation platform. I think, two, it's great for the community hospital setting and ASCs for those reasons. And so what is our offering? Our offering is a -- it's really a robotic and navigation platform, and we have developed it and are launching it to be integrated with PTP. And we did that because we think that the technology should address challenges of surgery. And so our view was how do you launch the Valence robot in such a way that it addresses some of the adoption hurdles of lateral.

If some of those adoption hurdles of lateral are the surgeon has a fair amount of fluoroscopy exposure, the navigation component, the robotic navigation component helps with that, especially in place of the retractor. And then, of course, placing the retractor itself, which is creating the surgical corridor for lateral surgery, is probably one of the most complicated parts of the procedure. And so being able to navigate that with a level of confidence and efficiency and predictability. I think that is also a hurdle to adoption. And so I think our view has been, let's integrate this in a procedurally and workflow friendly way so that it really adds value in the surgical experience. And so that's been the pitch.

Now the beauty of it is, it's still a platform. You can place the pedicle screws on in other surgeries, and you can use the freehand navigation component separate from that as well. And so it's a very flexible platform that gives you optionality to adopt it and use it in a variety of procedures. But again, our view is to launch a procedurally integrated workflow.

Got it. And I think there is a sense of the sort of larger players, that larger robot players that hospital makes a commitment to a large platform robot. The benefit to the manufacturer is that typically comes with some expected or contracted level of screw utilization and commitment. In this case, breaking down the friction around adoption and then driving efficiency and adoption without having to commit an commit to the hospital to another platform.

I know it takes a little bit of getting our [ mind ] programmed fun around robots to be this one. This one is better than that one. So this -- it's an interesting and different approach to robotics -- kind of we're winding down, but maybe just talk a second about what was a hot topic last year which was turning the corner on EBITDA, cash generation, cash deployment and kind of what gives you the confidence that you've hit the right balance of supporting new accounts with inventory and sets but also continuing to drive more cash flow out of the business.

Yes. I think as we set up our -- really our cash flow goals for the year and the level of profitability that we have, I think on the profitability side, we delivered about 41% drop through to get to about 12% adjusted EBITDA last year. We exited the year at about 35% drop-through in the fourth quarter as we comped out of some of the cost rationalization actions we took the previous year. Our guide this year assumes about 32% drop through. I feel like that's kind of a floor. And given the fact that we exited a 35% rate, we feel pretty good about going into the year this year.

And you think about the cash flow, probably the biggest component to that is really the deployment of sets and inventory and kind of getting back to this $0.75 on a gross dollar basis. And really, as you think about how we've set up the investment we really do understand, hey, what's our revenue goals by procedural flavor, what assets do we have in the field today? What's the efficiency of those assets? How do those -- how much -- how many assets do we need to add to that to support the growth and that ultimately yields what we have. And so I think that's how we look at it. I think the ability to manage that effectively. I think last year, I think it should be a pretty good validation of our ability to manage through that and understand what is required to grow and feel good about our opportunity to do that this year.

Great. Well, thanks so much for taking the time again.

Thanks, Matt. Thanks for the time.

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.

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. Clearly, some very good things are going on at ATEC, and we're doing some special things. I would call that uniquely positioned. And I'd say, uniquely positioned in a market that remains disrupted. I think we're benefiting significantly from 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 in reeking havoc, meaning it's providing information. We've built an infrastructure for a long run. And I would tell you that we have a durable and profitable sales growth for as far as I can see. And so 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. 3% new surgeons, $33 million in adjusted EBITDA and $8 million in free cash flow. So 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 [ Fasol ], which is 25% total revenue growth which gave us an adjusted EBITDA of $93 million, which is 12% of revenue, and we had free cash flow of $3 million, improving significantly, I should 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 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 in a number of different biologics. So I would say a productive year.

And with that, I'll have Todd with you some of the financial metrics.

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 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 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 and 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 6 months of adoption of EOS Insight grow at almost double our average growth rate. The U.S. Insight opportunity is significant as it is currently installed on only a small percentage of the EOS Edge installed base.

As we continue to -- all of this comes together when you see the accelerating momentum in surgeon user growth. The last 2 quarters of 2025 show the highest level of surgeon growth in the last 2 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 revenue. 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. And 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...

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.

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% and 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 $0.5 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. 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 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. 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'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% and 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.

Now 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 to $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 the 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 preannouncement. 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 2016 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 on 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 detects the steady ramping utilization that each of our new surgeon cohorts as demonstrated over time.

We compel surgeons through 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 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 -- 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 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.

Thanks so much, Todd, and Tod just reviewed the reflection of our work, and so it gives me the opportunity to share with you guys how we're 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 a 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 pathologists, 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 Safe 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 Valent. Valence will continue to serve as a centerpiece of our interoperative 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 where required. It is part -- it is part of the design 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. 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 a little in an untapped market. So we think that we can extend lateral surgery through PTP not only in what was traditionally a $1 billion market space but also across TLIF and PLS, 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, you can to review 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 the 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 has 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 later, 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 to -- 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 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 ATEC. It clearly elevates the field. It's information that should be availed 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 data set through the modeling of these images to provide predictive analytics that better inform surgical plans. We will then 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 scanning 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 interoperatively, I sure we can have best-in-class implants and instruments to facilitate the correction and then use safe op to assure if there is no neural issues.

Most companies only make implants. When 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 EOScan. 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 informatic 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 [indiscernible]. Our current knowledge suggests that we will have the next BNP on the spine market. BNP 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 BNP in existence. It will be easy to use. It will have familiar handling. It will have 2x to 3x faster bone formation than the gold standard, 325% higher mower Osteoinductivity than the current alternative and projected to have the highest safety margin of any BNP on the market. So we can't be more excited about our relationship with adaptive 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 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. So from a financial outlook, it's been reviewed $890 million commitment for 2026 in revenue, $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 0 ways about it. And so I would also say that we are the preferred destination in spine. We're executing on the long game with discipline and conviction where the preferred destination for both surgeons and sales talent. Our growth is sustainable because of our innovation and execution is aligned. And so with that, we will take questions.

[Operator Instructions]. The first question comes from Matthew Blackman with TD Cowen.

Good afternoon, everybody. Can you hear me okay?

Yes, we got you loud and clear, Matt.

And I apologize, I'm going to ask two questions. I'm sorry for breaking the rules at the gate. But the first one, if you'll just indulge me, just the shares are trading off after the market. And I just want to make sure I'm not missing something. So just to recap, 4Q, you had already preannounced the revenues came in, in line. EBITDA was a new input and that came in about 10% higher than consensus. And then 26, you had already preannounced the revenue guidance of $890 million in that same release in January, but you've now taken up the EBITDA guidance for 2026. I just want to make sure I'm capturing all the moving parts and not missing something.

That's all correct, Matt.

Okay. All right. So I appreciate that. Maybe, Todd, if you could, you did mention in your prepared remarks that, that complex contribution may be changing the seasonal patterns. I was hoping you could help us with the cadence for 2016. Maybe even just starting with the first quarter, I think consensus is about $202 million in revenues, $90 million EBITDA. Is that the right spot to be? And any commentary on how the rest of the year should play out? And I'll leave it at that as we.

Yes. I think if you look at the full year growth of 17%, and I think as we think about the seasonality of our revenue and I think you look at the increased seasonality in Q2 and Q3. I'm 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 in about 25.5% in Q3. And so I think those are kind of the starting point that we're thinking about, just with respect to seasonality that we saw on the basis of the guidance that we have.

Okay. And the EBITDA pattern should be similar as well?

Yes, 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 kind of get you to the 32% overall.

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

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. And then any territories you're seeing particular strength or penetration on that maybe had not been bright spots in the past?

Yes. 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 desire to send a 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.

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

Yes. 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.

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

Thanks, everyone, for joining today. My name is Allen Gong. I'm here on the medical supplies and devices team at JPMorgan. It's my pleasure to introduce the management team of Alphatec for prepared remarks. We'll be starting off with Pat Miles, and then Todd will be joining us for the Q&A. But yes, Pat, do you want to start us off?

Hello. My name is Pat Miles. I am the Chairman and CEO of Alphatec Spine. Would love to talk to you today a little bit about delivering long-term differentiated growth. And so it's kind of our story. You will get some forward-looking statements. So read that at your leisure.

Really kind of 3 things we'd love to discuss today is really a little bit about the track record of execution. It's been very strong. I want to go into a little bit about. There's still a ton of growth opportunity within this space and within what we're building as well as talk a little bit about the foundation from which we're building from an infrastructure perspective. And then as stated, Todd and I will happily take questions, and we'll try to spend the majority of time on that.

I would tell you, I've been at this at Alphatec for 8 years, and I think there's been great consistency in terms of what the reflected track record is. I think that this is a great time to be in spine. I think that ATEC is uniquely well positioned. There's great virtue in being 100% committed to something. Our ability to compel surgeon adoption through creating clinical distinction is very evident. One of the things that we've done extraordinarily well in my mind is we have proceduralized -- there's a lot of variables in spine. A lot of companies are out there selling individual parts. We think that the assembly of goods is important. When surgeons ultimately diagnose a patient, they think procedurally, what we want to do is fulfill that perspective.

Deformity is an opportunity for us to walk into. We've made significant investment in that space with regard to EOS. We'll go into a little bit of that, but there's also a software tool, EOS Insight, that I'll describe to you. But it really has a PTP-like run in it for us. It will be kind of a great grower as the years come forth. Additionally, we built a significant infrastructure from which we can build. And so we've built a portfolio of goods from an ecosystem perspective, and we built a distribution center and a foundation, again, from which we can continue to leverage.

Additionally, as we look forward, it's going to be a durable profitable sales growth walk. And so a little bit about the highlights, finished 2025 at $764 million, which was 25% revenue growth. $91 million is really kind of the floor of our adjusted EBITDA expectation. So 12% of revenue, and we will flow cash. And so this year, we became the third largest U.S. market shareholder. And really, that's been the kind of the focus of our efforts.

Kind of back to the whole consistency of execution, when we did our LRP back in 2024, it was just off of finishing '23 with $482 million of revenue. We had a negative adjusted EBITDA and clearly went through some cash. That year, we committed to in '27 to be a $1 billion revenue company, $180 million of adjusted EBITDA, 18% and $65 million in free cash flow. So that was the commitment.

And I think if you look at what we're doing, we're well on our way. And back to the whole $764 million, $91 million and 12% with positive cash flow, I think it creates just a reflected consistency of word indeed, which is clearly what we've been trying to accomplish. So as we look forward, we're looking at a '26 of $890 million in revenue, which would be a 17% grower, powerful leverage in $130 million of adjusted EBITDA, which would be a 15% margin and $20 million of free cash flow.

And so I think it's important contextually to look at just this company and look at the asset that we're building. And I think if you look across the landscape of med tech and you say how many companies are growing at well north of double digits, doing it profitably, there's going to be a few number of companies doing that. And clearly, we're one of them, and we're growing aggressively. And so I think there's a contextual opportunity to look at the company.

If nothing else, we are profoundly consistent. I would tell you that strategically, we have been -- this has kind of been the motto from the beginning. It's like if you want to start attracting surgeons to what you're doing, what you do is you create clinical distinction. If you create clinical distinction, you compel adoption. If you compel adoption, what happens is you get the sales guys who want to jump on the team. And so we've been very consistent with regard to how we do that and how deeply we do that, and it's fared quite well.

I would tell you, just from a surgeon adoption perspective, a surgeon growth, north of 20% this year of surgeon growth. What's important is once they come over, do they utilize your bag. And I think all the way back to 2018, it's been up and to the right. And so we feel great about where we are from a volume perspective in terms of their utility as well as a utilization perspective. And so we continue to grow the business in a very aggressive way and continue to see a number of catalysts that will continue to help perpetuate that. And so we feel like there's a deep bench of growth catalysts. We feel like we're still very, very early in the story.

If you look at orthopedics in general, and you wonder, I think people misunderstand the spine business. And if you compare the revision rates in orthopedics, spine stands out, and they stand out in not so good a way. And so when you look at revision rates of total knee in 5 years, it's 3%, total hips in 10 years, it's around 5%. And then you look at spine 1 to 3 years in short segment surgery or degenerative surgery, it's 10% to 15%. And in adult deformity, it's much higher. And so historically, the company response to that has been optimization of implants. And we feel like that there's so much more of an opportunity to bring things like InformatiX into the fold.

And you can tell the volume of decision factors has grown over the years just with regard to the number of things that ultimately drive the variables in spine surgery. And so where everybody is kind of focused on implants, we feel like it's a bit of a failed currency. And so we feel like the requirement is transformation, not optimization. And that's what our thesis has really been. And that's why we were rewarded by being focused on the field and assembling a unique know-how that understands the clinical requirements of the field.

And when you say, gosh, what's the business? The business really is, hey, how do we ultimately architect spine procedures. And so if you were to say what really makes us different? I would tell you today, it's spine procedures. We've done a reasonably good job in terms of assembling the goods in an elegant way that ultimately creates a sophisticated procedure. But it's not enough. And so what we believe that will be the driver of the long-term reflection is really the InformatiX play. Surgeons need more information to make better decisions. And that's all the way through the care continuum. And so I'll go into a little bit of that.

But when I talk about proceduralization, if you look at the reflection of how we built the company, I would tell you that today's run rate is all about how well we proceduralize. And really, the area of most familiarity is the lateral approach. And so A bunch of us were at a company that had purple in it years ago. And so we created this thing called XLIF. The same people have recreated lateral surgery in a way that you could do it in multiple ways. PTP is kind of the moniker, but we've really recreated it. What we found is that we're able to grow the business, and we've done so in a very aggressive way. The beauty is we've seen surgeons really start with the utility of this procedure in degenerative short segment surgery and then continue to apply it to more complex pathologies.

Again, the real opportunity here is to continue to evolve the InformatiX piece. And today, one of the core InformatiX elements that we have is called SafeOp. And what it tells you, if you think about what's between the skin and the spine from an anatomic perspective, if you go in laterally, it's nerves. And so what you absolutely have to have is an understanding of where the nerves are and what the health of the nerves are. And so that's an InformatiX piece that's interoperative that ultimately drives our lateral portfolio. The other 2 pieces that are coming forth, and I'll speak to a little bit is EOS and Valence, and those are other InformatiX pieces that will continue to drive a very rich environment for surgeons to continue to have more information as we roll forward.

We ultimately realize that there's a dearth, meaning there's like next to no data that drives decision-making in spine. There's so much of it that's driven by gestalt. And so what we want to do is we want to capture data through automated means that ultimately continues to enrich the decision tree associated with what we're doing. So one of the things that we love is we love procedures and we love procedural workflow. And we don't believe there's such a thing as robotic surgery or endoscopic surgery. We think surgery is an assembly of goods that ultimately fulfills decompression, stabilization and alignment, which are the goals of spine surgery.

And so we have a product called Valence and what it is, is a navigation and robotic tool that we've integrated into the workflow of surgery. It will launch this year. We're waiting on FDA clearance on the navigation front, but it's most importantly, procedurally integrated. And so it's reflective of the same kind of thesis from which we've built the company. It's got an optimized OR footprint. It's very small. And so the cost of goods is such that what we can do is place a lot of these very quickly. We want to minimize the volume of the whole capital cycle. And we feel like it will be a valuable piece in democratizing the lateral approach. If you think about the anatomy laterally, there's not a lot of bony landmarks. So when people navigate from an imaging perspective, it gets a little bit tough. And so we think that this is going to be a tool that ultimately helps in democratizing the technique.

SafeOp is something that we've had for a number of years, but what we've done is continue to improve on it. If you want to appreciate a tool that is profoundly important lateral surgery, SafeOp is it. As I said, if you think about the anatomy between the skin and the spine, there's a big neural bundle within the so muscle. And so to understand where the nerves are and understand what the health of the nerves are is very, very important. When you think about the size of a somatic sensory, evoke potential is a very small signal.

Spine is a very -- or surgery is a very noisy place from an electrical perspective, the ability to capture that signal and characterize it and communicate in a space is very, very valuable. It's a core competency of ours. We've done, I think, a great job in terms of design and development in that space. We've also evolved the tool to ultimately capture motor evoke potentials. That's relevant in cervical surgery. It's relevant in deformity surgery. And so the utility of this tool will continue to verticalize in terms of application. And so we think that as we roll forward especially the lateral front, the ability to navigate early and navigate from a bony perspective really continues to open up opportunity with regard to lateral utility.

We've clearly prospered from the procedural approach. We have done the same with regard to cervical surgery. Cervical surgery is a bit of a proxy of great surgery for surgeons. We've been under-indexed in the space. What we've done is assembled a great retractor, great implants, neurophysiology piece and different applications to ultimately continue to raise our exposure in this area. I would tell you, 2025 has been a great year from a cervical perspective. And you've -- as you continue to see the demographics of our business, you see it continue to run a bit.

Here's a piece that I can't be more bullish about in terms of just an InformatiX that drives improvement. And so we acquired EOS in 2021. And what it is for those of you who are not familiar, it's a full body standard end-to-end imaging system. You're standing, so you're in an active position. It's a biplanar view. There's no stitching. There's less radiation and reduced exam time. And so it's funny when we bought EOS, I think the people at EOS thought that they were an imaging company, and we thought that they're an InformatiX company. And we thought that what we can do is really inform surgery in a much more effective way. And so what we really did is kind of created a proprietary foundation for InformatiX in spine.

Historically, spine data has all been surveyed. And so what we want to do is make sure that what we did is transform much of the automation. So in 2024, we came out with automated alignment. So through artificial intelligence, you'll get an alignment measure and literally, it will pick out all of the angulation. If you remember previously, I talked about the goals of surgery being decompression, stabilization and alignment. You want an objective measure of alignment because it's completely consistent with the durability of an intervention. And when you start to think about revision surgery and you start to think about durability, what you want to do is be able to inform alignment.

And so we have automated alignment measures that we get to capture. We ultimately create a 3D reconstruction of normative values in terms of saying, hey, where should you be in space and then deliver that to the surgeon. As of late, we recently got a bone mineral density view as well from the exact same scan as you would just the EOS image. And so just the type of InformatiX that we can deliver to the surgeon and the surgical plan with regard to not only alignment measures, but also the bone mineral density.

And so our view is as we collect this data, our ability to continue to provide relative information or relevant information as it relates to how high the surgeon should go with regard to his construct or what the construct should be as well as integrate into the implants themselves. And so we feel like it's an end-to-end ecosystem that ultimately is going to accelerate our deformity influence. And so we're very excited about it. It really provides us the ability to assess. We can simulate what the construct is going to look like. We can absolutely make sure that from a correction perspective, it's an objective reflection of exactly where you want to be in space and then to be able to confirm that through longitudinal data.

And so as I said, there's been a dearth of data in spine and our ability to work with these institutions to collect this data is something that's of significant interest to us. Here's just an example. in an idiopathic application, you have a patient that gets less radiation based upon the EOS scan. You have a complete understanding as it relates to where she stands in space. On the 3D surgical planning with axial rotation, the third dimension is an understanding of a rotational deformity. And so understanding exactly where that patient is in space and how much needs to be derogated is valuable.

One of the things that we've learned through the prone transpsoas experience is that patient positioning is very, very valuable. And so we've integrated patient positioning into the algorithm of tools that we provide for these applications. And just feel good also from an interoperative perspective, understand exactly what type of correction you've got on the table and then what further correction needs to be done in the operating room. So again, to create the objective measures so when you leave the operating room, you know that you got what you intended.

And so clearly, the implants are what we sell into the space and the providing of neurophysiology, especially NEPs becomes important because when you derotate the spine, you want to make sure that you don't interrupt anything neurologically. And so I would tell you that from an engine behind the growth, it's the proceduralization piece. We think that the InformatiX element ultimately is the driver of long-term value. And again, super excited about what that looks like.

Our view is that the information is going to drive what procedures and when to do them. And so we have been very deliberate with regard to where we focused our efforts. The U.S. market has been really kind of key to how we've engaged. We're still less than a 10% market shareholder. So we got a big run in front of us. We're greater than 30% in well-covered territories. So when you start to look at places where we've been successful, we have a big market share. And so what that does is at least creates confidence in us that we've got a great run ahead. And so if you look at the top 10 U.S. markets, I would tell you we're still less than 10% market share across the board. So it just speaks to the relevant opportunity.

And so same-store sales is going to be in the 26% range. So we do sell internationally. It's another place of, I'd say, momentum in the business. The 2 places are places that don't have a high regulatory burden. They pay for things in a timely manner and regulatory, they're reasonable. And so really, we've concentrated on Australia and New Zealand, which is the first country that we've been in. We're approximately $10 million of revenue out of Australia and New Zealand. We've done over 1,000 PTPs. So there's an acceptance of the surgical thesis that we put forth. So that's exciting.

Japan, big market. We're just getting into it, less than $5 million. And really, we'll get a lateral launch in '26. I think to some degree, and maybe we all feel like this, but I think we're a little bit of a misunderstood bunch. We made a bunch of financial commitments very early in the effort. What we want to do is build the infrastructure from which to scale. And we've done that. And so when I think when you look at this slide, I'm not going to go through each of the different elements. But what we've done is we view this as a long-term opportunity. We've committed to the long term back when we acquired EOS, and we see the ecosystem as something for which we want to invest and build over the long haul. And each of the elements ultimately affirms or communicates with the next.

So our ability to take EOS element and an MRI and take a synthetic CT and inform the operating room is very evident to us and then to inform an assessment is very evident to us. And so our ability to have each of these speak to one another is very, very important. And these things don't happen overnight, and they're big ecosystems, and we feel like we have something from which to continue to scale. And so the core investments in this technology have been acquired, and we will perpetually build off of those.

And so as you look kind of what the walk has been, it's been really foundational investments from '18 to '20 and really kind of building the foundation of the company. The first InformatiX that we got is SafeOp, which was 2018, and these things take a little bit of time to build. We ended up acquiring EOS and Valence between '21 and '23, we built our state-of-the-art headquarters. We have a beautiful headquarters that clearly attracts a lot of surgeons. We distribute out of Memphis, which is very, very important. And we have built scalable internal systems that are ultimately very, very valuable.

And so as we look forward and we look at the growth profile forward, we see these infrastructure investments leveraging in a way that we continue to grow profitably. And so our commitment is to continue profitable growth. And when you start to see this leverage forward and this build forward, we're thrilled in that what we also want to be is just a data source and the reflective institutions are institutions from which have data sharing agreements that are of note. And so everybody from Duke to Northwestern to Yale to HSS and NYU and others are partners.

And so in conclusion, the financial outlook is bright. As we said, $890 million is the guide, $130 million on the adjusted EBITDA, $20 million on the cash flow. We talked about our 100% spine focus, the lateral importance, deformity infrastructure and so on. So I guess with that, we would go ahead and take questions as you see fit, Allen. Thank you.

Okay. Thanks for that, Pat. If anyone has any questions in the audience, I think we have a mic that we're passing around. If you -- or we can just repeat the question as well. But just to kick it off, as you mentioned, you preannounced results today, you had a strong year of around mid-20s growth. When we look at the fourth quarter, what were the main drivers between the surgery and the EOS Insight side of the business? And then when we look forward to the guide, what does that contemplate for that going forward?

Yes. I think when you look at the fourth quarter, Allen, and clearly, I think we saw about 20% growth in the quarter. When you look at the surgical business, I think you saw a growth profile driven by volume, which I think is encouraging. The overall surgeon adoption number very, very strong. Our same-store sales very strong. So I think the core metrics that we've talked about in our business that give us confidence for future growth and continued momentum, I think all very, very much intact, and we feel good about that.

I think when you look at how sequentially that revenue went from Q3 to Q4, I think clearly, that sequential step-up was a little bit lower than our historical norm. And I think some of that is attributed to the influence of deformity, especially the adolescent idiopathic deformity we saw in the third quarter, which is kind of normal Q2, Q3, you see that in the adolescent space given the summertime, and that's kind of a seasonality.

Now that's a very nascent spot or a section of the market for us to participate in. And so that's a bit new and contributed revenue this year. And so I think there's beginning to be a bit of a seasonality effect that we hadn't seen historically, which speaks to maybe some of the different dynamic going from Q3 to Q4.

The second part of your question was how do we think about 2026 and clearly, we laid out a revenue growth of about $126 million year-over-year. It's about 17% total growth. And so I think the -- it's about $118 million of surgical growth and about $8 million of EOS growth. And so the surgical growth is going to again be primarily driven by the volumetric component of the business. I think underpinning that is strong surgeon adoption numbers that we've seen thus far, continued utilization.

I think we see the continued utilization of our surgeon cohorts, which gives us a lot of confidence in that. And then from an EOS standpoint, I think we continue to see strong interest and strong pipeline of interest in EOS. And so I feel good about continuing to walk that business up to our goal of $100 million in 2027 for EOS.

Got it. And then I guess just to dive into $126 million. I think you've talked about that as being where you want to start the range even before this quarter, you talked about 2023, 2024, how that was the sequential dollar growth that you were able to achieve in those years. Obviously, 2025, you did quite a bit better than that. So why is it appropriate to start off on what could be a more conservative tone? What are you leaving as upside relative to that versus what is factored into the number itself?

Yes. I think as we entered 2025, we guided to about $120 million of absolute dollar growth. And to your point, we delivered about $30 million north of that over the course of the year. And so I think clearly, our perspective historically has been and continues to be to put numbers out there that we believe we can achieve and have a reasonable opportunity to exceed. So we want to put thoughtful guidance out there in that context. And we think we're doing that based on the volume component of our surgical business.

And I think opportunities for upside to that number are really the continued surgeon adoption. So I think that's going to be on the volumetric component of our business. As you think about the components of growth that's driven our business, historically, it's been lateral, and that's going to continue to be a significant contributor. You think about the more recent contributors, which has been cervical, and we've talked about how we proceduralized our cervical offering, and that's been a real benefit to the overall growth of the business that we've seen. And then deformity, we continue to expect that to be a contributor to growth, both on the adolescent side, which has more seasonality, but then the adult as well.

So on the point of seasonality, when we look at next year, is it appropriate to look at 2025 as being the right model for seasonality where because you have a growing presence in pediatric deformity that, yes, it might be a little bit of a difficult comp in third quarter just because you had a really strong opening out of the gate. But should we expect seasonality to kind of, all else equal, look more like 2025 versus what we generally associate with orthopedics and spine, where you have a strong fourth quarter, like a really strong fourth quarter?

Yes. I mean I think that is going to be the more norm. I think if you look at us historically, our sequentials have been kind of in the mid-teens or around $20 million of growth plus Q3 to Q4. Clearly, we saw a stronger Q3 this year, so the dollar step-up and consequently, the percentage sequential step-up was not as big, but it was off a larger starting point. And so I do think that, that will become a bit more of our normal seasonality. And certainly, I think as we go through the year, we'll definitely, I think, talk more about that.

Q4, Q1 looks more similar though as well?

I think the seasonality that's really new has really been more the Q2, Q3 given the pediatric Q3, Q4 -- or excuse me, Q4 to Q1 should be more kind of market seasonality.

Got it. Yes. The reason I'm asking on that is because I think there's definitely been some kind of murmuring around the conference that maybe there's some softness in volumes that showed up in December and people are worried about the outlook for the first quarter. So I guess, is that something that you're seeing in the spine market more broadly? Is that something you're seeing in your own business that we should call out for the first part of the year just to keep an eye on?

Well, clearly, we're early into the Q1. I think you looked at our volumes. And I think on a year-over-year basis on probably what was one of the toughest comps we had all year, our Q4 grew 20%, and we felt pretty good about that performance. And so I think the market felt reasonably good to us. Clearly, Q1 is always a bit of a slow one. And I think I talked to this last year as we were thinking about Q1, I think the same commentary in terms of market softness concerns in Q1 was last year.

Where all of the holidays kind of fall towards the end of Q1 at the beginning of Q2 and then where vacations happen, I think it's tough to dissect quarter-by-quarter what is actual market softness. I think you look at the first half of last year, and you feel like the market was pretty good, and that continued into the second half of '25. And I don't see that there's a ton of signals to think that would be different this year.

Days of the weeks matter.

Days of the weeks matter as well.

Got it. I think one of the more interesting dynamics that have played out in the spine, and it kind of blends credit to your own strategy of being very spine-focused is that -- we've seen a lot of spine companies being spun off of long-standing multinational diversified med tech companies where we had Zimmer Biomet, we then Stryker, and now we also have J&J talking about spinning off the orthopedic business. So how much of a benefit or headwind has that been to your business where you have companies that maybe there's a little bit of disruption as they're working through the separation, through the divestiture. But now similar to you at face value, they're now a pure play with totally focused on spine. Is that something that was a headwind, a tailwind for you in 2025? And how should we think about it in 2026 with J&J contemplating their own?

Yes. From my perspective, I love disruption. I hope there's more. I think it's advantageous for us. I think that what we've done as it relates to the long play in a marketplace that others haven't played long is going to serve us. And I want them to make the same investments that we've had to make. And it's going to take time. And it's going to take time to develop the expertise that we've developed over the last 8 years. And so I kind of love our position. And so I think from a sales force build perspective, it avails more people within the funnel to ultimately run toward a company that ultimately has a portfolio of goods that's coveted and new. And so I think all of those are tailwinds.

I can't point to the specific contribution that they've made in 2025. But I think that we've always talked about these things being -- when we talked about the Globus NuVasive thing, we said it's at least a 3-year phenomenon. It's not like it's not over. And so just the ability to continue to garner the type of salespeople who want to come over and join us has been good.

So no kind of like onetime benefit that we should expect to come out kind of consistent. Got it.

And I think if you look at who we were maybe 3 or 4 years ago, we're a different company today in terms of the quality of the portfolio and essentially all of the InformatiX that surround our procedural approach. And so I think we're a destination of choice on a stand-alone basis. And then clearly, when there's disruption, I think that makes it a little bit easier.

Okay. And then continuing on the competition front, lateral has been your bread and butter. You've really led the market with PTP. Like a lot of things in orthopedics and spine, success tends to breed people like fast followers. So I guess when we think about competitor offerings that are looking to capitalize on you building the market for PTP and the prone position, how should we think about those products competing against your own? How does that affect your ability to continue to rapidly take share and even convert the market going forward?

Yes. Again, like this is not arrogant. It's it's a deep appreciation for the requirements to ultimately build these tools to ultimately integrate into a lateral surgery. And so I would tell you, nobody has committed the type of dollars and sophistication that we have to neurophysiology. And so to automate the elements that ultimately tell a surgeon information about the health of a nerve is not done in any automated way that ultimately creates real-time information.

And so our ability to have these tools in a mature way has been of great value, and we continue to evolve them through AI and the characterization of the waveforms and things of that nature. I would tell you that if we have a foundational sophistication, I would tell you, it's in neurophysiology, it's in mechanical design and development. Candidly, it's also in navigation. But as it relates to the lateral approach, I think people will absolutely see that there's been momentum created in the space. They'll do their own patient positioner, they'll do their own retractor, they'll do their own implant, but it's just not enough.

At some point, the surgeon requires more than that. And that's where we feel like the integration of the navigation piece with the neurophysiology element just is another barrier to entry. And so the opportunity to continue sophistication will avail it to more surgeons who are uncomfortable in this space. And so we feel like that it's the assembly of goods, it's the opportunity and then what will inform what procedure to do is the next run. So our enthusiasm is that we're well ahead on the places that are extraordinarily difficult to design and develop into and to garner sophistication. So we've got a good head start.

Got it. And then the InformatiX piece, right? You're in a limited launch of Valence this year. You've been building out your enabling technology suite with SafeOp, with EOS Insight. So when I think about adding those on to the portfolio, ramping those up, how much of the market was previously inaccessible, if you will, to you before because you just didn't have a robotic offering. Was that holding you back at all? And how should we think about your ability to -- like the role of Valence, I suppose, in the growth strategy going forward?

Yes. I think if you look at the near term, I don't think that we've been impeded by not having a robot. An irritant of mine is that I think people think that there's robotic surgery, and there's not. Robots in spine surgery point a cannula in an angle that ultimately enables a screw to be placed down it. That's not surgery. That's placing a screw. Again, we go over the goals of surgery being decompression, stabilization and alignment, it's part of stabilization. And so we haven't been impeded. We've been the growth driver in this space. And so I wouldn't say that we've been impeded by not having a robot.

I think the opportunity, I think, is to continue to avail technology in a way that improves surgical workflow. And that's where I think that the whole navigation piece and if somebody wants to use a robot, we have a great robot, you can place screws through the cannula. It's going to be awesome. But ultimately, the things that ultimately is going to drive it is the assembly of goods to create safety and predictability and reproducibility. Those are the things that ultimately are going to drive a business bigger.

And Allen, when we talk about the lateral market, we talk a lot about that $1 billion market and our ability to kind of penetrate that. But really, the opportunity is to grow that market from the $2 billion of traditional posterior approach PLIF and TLIF business out there. And I think what Pat's described is one of the key things that will help us continue to penetrate that and really accelerate that adoption into lateral because there are so many people out there who don't do lateral surgery because, well, maybe they don't like all the fluoroscopy, but it's a confidence level of being able to operate in the retroperitoneal space and do lateral surgery. And the integration of navigation robotics into our PTP is a great way to address that and get more predictability and ultimately, broader adoption of our lateral procedure.

With the last few minutes I had left, I do want to touch on the profitability side of things, right? You were able to reach free cash flow profitability this year. You're targeting continued adjusted EBITDA expansion next year and continued free cash flow profitability. I think a big part of your strategy really was forward investing in previous years to really enable you to get to this point of profitability. But as we work through some of that forward investment, as you maybe have to step on the pedal again for CapEx to really start supporting the growth that you have another year of at least hopefully, high teens growth. How should we think about your ability to drive continued free cash flow growth and also leverage down the P&L while supporting high teens and plus growth?

Yes. So maybe we speak to the confidence of our investment profile to drive the growth of the business in the long run. Our priorities are R&D and the selling channel. And so as we constructed our walk to profitability to that 18% in 2027, investment in R&D and investment in the sales channel have been priorities in that. We're clearly getting the leverage from the business that we've expected and from where we've expected it to come. And so we feel good about that. And that gives us confidence in our ability to continue to see leverage and meet our commitments because to your point, the growing profitability profile is a key component of our ability to deliver on the cash flow commitments that we have next year and the year after.

And so if you think about the profitability of $130 million, there's about $20 million of noncash E&O in there. So that gives you $150 million of kind of cash EBITDA. We paid $20 million of that into interest. So now you're back to $130 million. And if you take our $0.75 ratio into play, you're going to spend $90 million to $100 million of cash on sets and inventory. And that kind of leaves you with about $30 million or so relative to our $20 million commitment on free cash. And so it's obviously a little bit more complicated than that, but those are the big moving pieces. And I think that gives us a level of confidence that we can continue to grow the top line that you need to, to see the profitability drop through, which ultimately allows you enough cash profitability to invest back into the business.

Great. That's perfect. Unfortunately, we are out of time. Thank you so much for the details today.

Good afternoon, everyone, and welcome to the webcast of ATEC's Third 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. 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.

Thanks very much, Lacie. Appreciate it. Welcome to the Q3 ATEC financial results conference call. As usual, there will be some forward-looking statements, so please read that at your leisure. I want to take a moment and put into context what we are building here at ATEC. I will tell you, it's a very small number of public medtech companies, I believe, less than 10 that are over $500 million in revenue, meaningfully profitable and growing over 10%. Our results and guidance suggests that we are not only in that club, we are leading that club with top line growth of 30% while approaching a run rate of $800 million in revenue.

My point is, is that we are becoming the company that we intended. And what I want to do is make sure that these things don't happen by happenstance, and they happen by a bunch of committed people. And so I wanted to thank those who supported and have been part of the mission and also remind everybody that we're just getting going. And so there is much to do. And so now I want to speak to why we are so uniquely positioned for a very long run.

And I think the key is we're 100% spine focused. And we make decisions every day purely on spine. We are leading through proceduralization, which means that we're advancing lateral, which is reflected in convoyed sales, and we're applying that thesis across the board. From a deformity perspective, we're in the very infancy of our role or influence on that market space, really driven by EOS and EOS Insight. We have previously built an infrastructure that's going to last us a very long run. I look forward to describing more about that. And from this point forward, what you'll see is durable, profitable sales growth. And so just to share a couple of statistics from Q3, we grew at 30%. We had an adjusted EBITDA of $26 million, which is 13% of revenue. We improved by 840 basis points and turned in a free cash flow of $5 million.

And so from a total perspective, that means that the total revenue was $197 million. The surgical revenue growth was 31%. Something that I'm totally excited about is the same-store sales, so revenue growth in established territories was 30%. It just tells you that there's demand in what we're doing. New surgeon users was 26% [Audio Gap] cash flow. We have plenty of access to cash and cash at $216 million. Our trailing 12 months adjusted EBITDA is $81 million, and we are flowing cash on a trailing 12-month basis, which feels great. And so what I'll do is I'll turn the detail over to Todd and be back with you after his comments.

Well, thank you, Pat, and good afternoon, everyone. I'll begin today with the third quarter 2025 P&L highlights. Total revenue was $197 million, up $46 million and 30% compared to the prior year period and up $11 million sequentially from the second quarter of this year. The $197 million in revenue was comprised of $177 million in surgical revenue and $20 million of EOS revenue. Third quarter surgical revenue of $177 million grew 31% compared to the prior year period and was up sequentially by 5%. That represents $41 million in year-over-year growth. Procedural volume growth of 28% was driven by strong surgeon adoption, where we increased our net new surgeon users in the third quarter by 26%.

Procedural volume growth reflects both an increased number of surgeons as well as earning a greater share of an existing surgeon's business. We see this happening as our procedures are used across the broader set of pathologies and as surgeons adopt more of our portfolio offerings like cervical or corpectomy. Since we first began reporting on new surgeon users in 2022, we have consistently added at least 19% net new surgeon users each quarter over the past 3 years. This surgeon adoption reflects both the attractiveness of our portfolio and the coordinated investments we're making in sales talent to meet that demand.

Average revenue per procedure grew 2%, which was consistent with our expectations. Procedurally, we saw strong revenue contributions from our lateral and cervical solutions, and we are beginning to see measurable influence from our deformity offering. Same-store sales in the U.S. or sales that come from sales agents that have been in territory for a year or more grew 30% year-over-year, which demonstrates that we continue to grow significantly in the markets where we are already established. Our strong surgeon adoption, increased utilization and same-store sales growth results are testament to the durability and consistency of our revenue growth algorithm.

EOS revenue increased to $20 million in the third quarter, up 29% compared to the prior year period. Demand in the U.S. market where we have a strong presence with our implant sales force continues to be strong and the biggest driver of growth in both deliveries and new orders. This in conjunction with a growing number of surgeons using EOS Insight positions us to see the benefit of the accompanying implant pull-through in the coming years.

Turning to the remainder of the P&L. Third quarter non-GAAP gross margin was 70%, flat sequentially and up 80 basis points compared to the previous year, primarily driven by product mix and volume leverage. Non-GAAP R&D was $15 million in the third quarter. R&D investment was up year-over-year by more than $2 million and was up sequentially by $1 million. Non-GAAP R&D expense was approximately 8% of sales in the quarter, with top line growth driving 90 basis points of leverage year-over-year. The R&D is an area where we continue to see opportunities to invest in innovation that will drive future growth. Given the scale of our business, we can make these increased investments and generate EBITDA leverage without sacrificing the growth opportunities. Non-GAAP SG&A of $112 million was approximately 57% of sales in the third quarter compared to 67% of sales in the prior year period.

SG&A grew by 11% year-over-year compared to our 30% increase in revenue, which drove 980 basis points of improvement. We continue to leverage the company's foundational infrastructure investments, improve our variable selling expenses and be very deliberate in new headcount additions. The combination of these factors accounts for about 2/3 of the improvement. We reported total non-GAAP operating expense of $127 million, which was approximately 65% of sales. Our operating expense investment reflects 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. We continue to improve as an organization and the disciplined prioritization of these investments, along with our durable top line growth drove over 1,100 basis points of expansion in our operating margin year-over-year. I'll turn next to adjusted EBITDA, which was a record quarter for us at $26 million or 13% of sales in the third quarter, delivering 840 basis points of improvement compared to the prior year period. This quarter also marks our fourth consecutive period with over 40% drop-through on a year-over-year revenue growth to adjusted EBITDA. The discipline in how we look at headcount additions, the other types of investments we make has served us well and will continue to be foundational in how we drive profitable sales growth.

You can see from the chart on this slide that the profit margin expansion that we are executing has been both significant and consistent. Our trailing 12 months of adjusted EBITDA now sits at $81 million and 11% of revenue. We are driving meaningful margin expansion that aligns with the priorities outlined in our long-range plan and as a result of disciplined execution. These deliberate results give us confidence in our ability to continue to deliver on our financial commitments and translate revenue growth into profit and cash flow. We are committed to driving profitable sales growth.

Now turning to the balance sheet. We ended the third quarter with $156 million in cash on hand. Additionally, we had access to $60 million of available borrowing on our revolving credit line, which was undrawn at the quarter end, making our total cash and available cash $216 million. Our positive free cash flow of $5 million was again at the favorable end of the $1 million to $5 million range that we previously communicated. We generated $14 million in cash from operating activities, while we continue to invest in surgical instruments.

Going into 2025, we had forward invested in instruments and inventory, the revenue-generating assets of the company. This year, you've seen how our revenue has grown and how we've become more asset efficient. We are growing more in absolute dollars than we ever have in our history, and we are doing it more efficiently. This efficiency is the result of the relentless execution of the plans we put in place by multiple teams across our company. The evidence of the company's inflection to cash flow generation is undeniable with our trailing 12 months of free cash flow turning positive for the first time in company history.

The third quarter also marks our second consecutive quarter with positive free cash flow. Looking back at the past 4 quarters, we've now delivered positive free cash flow in 3 of the 4. With our consistent profitable growth and cash generation and a strong balance sheet, our financial position has never been better, and we foresee opportunities to begin to delevering our balance sheet in 2026. Given the momentum in the U.S. surgical business in the third quarter and healthy underlying spine market, we are raising our full year revenue guidance by $18 million to $760 million.

Our revenue outlook for the full year 2025 expects adoption of our unique procedural approach to drive surgical revenue of approximately $684 million, and we expect EOS revenue of approximately $76 million. Our surgical revenue guidance raise is a result of overperformance in case volume, which we now expect to grow in the low 20% range year-over-year. We expect -- we continue to expect case ASP to grow in the low single digits year-over-year. As it relates to free cash flow, our third quarter and trailing 12-month performance further reinforces our confidence in delivering positive free cash flow for the full year 2025. We expect fourth quarter free cash flow to range from positive $6 million to positive $8 million.

Turning to the outlook for the full year 2025 adjusted EBITDA. We expect sales growth to continue to leverage the infrastructure we have built, contributing to an adjusted EBITDA of $91 million, an $8 million increase versus our prior guidance of $83 million. Notably, our trailing 12 months of adjusted EBITDA of $81 million as of the third quarter speaks to our ability to deliver on our full year commitment of $91 million.

As a reminder, our adjusted EBITDA guidance includes us absorbing the impact of expected tariffs in the second half of the year, and we continue to estimate the impact of tariffs on our cost of goods sold to be in the low single-digit millions of dollars for the full year. The chart on the 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 $91 million will generate an adjusted EBITDA margin of 12% for the full year. Notably, our current guide implies a 200 basis point improvement compared to the 10% adjusted EBITDA margin we guided to at the beginning of this year. Given the profitable revenue growth we've generated this year, we can now self-fund the investment in instruments and inventory to support our future revenue growth.

We are well positioned to meet or exceed our 2027 financial commitments of $1 billion in revenue, 18% adjusted EBITDA and $65 million of free cash flow. The third quarter financial results are another step towards delivering on our commitments. We are delivering durable revenue growth, strong profitability improvement and seeing all of that translate into free cash flow. This team has made meaningful improvements in how we operate the business. You can see that clearly from the financial results. Most importantly, we are helping surgeons perform better surgery, and that is where we will remain laser-focused because it is the foundation for creating lasting value.

With that, I'll turn the call back over to Pat.

Well said, Todd. So I would tell you that our execution has been absolutely consistent across the strategy, and our strategy hasn't changed. It remains steadfast. We are creating value through creating clinical distinction, which compels surgeon adoption, and we continue to just get better from a field perspective. And so hugely exciting. So we like to say around here that the spine market needs ATEC. And I've never been a bigger believer in that view since I've started. And you got to realize the spine field is highly complex. And the type of revision rates or extensions of previous surgery is unacceptably high, which creates nothing but opportunity.

And so the volume of variables that need to be addressed to drive success in spine has significantly increased due to a deeper understanding of the field. Historically speaking, investment has been overtly focused on flawed implant only, which is the currency of the business versus focusing on the requirements that ultimately drive outcome improvement. And so our view is that the industry needs a focal leader obsessed with mitigating variables in spine, and we are it. And so we've started down that road clearly through lateral. A key to variable mitigation is the architecture of spine procedures. That's what we call proceduralization. I think lateral surgery is a great example of that demonstrated success.

However, the one thing to realize is we are absolutely in our infancy in terms of our footprint with lateral. There are multiple catalysts ahead. And so the first thing to talk about is just -- and Todd hit on it is the expanding of indications, which oftentimes is synonymous with new products. And so we have multiple new products forthcoming, including a mechanized arm. We have IdentiTi II. We just launched corpectomy. So not only expanding indications, but also increasing complexity, which oftentimes means more levels. And so we are able to address more pathology, and we just continue to be getting better in lateral.

Another place that is a catalyst is the integration of technology that ultimately makes for more users. So it democratizes the technique to a wider audience. If you start to think about our informatic platform, EOS gives you the objective alignment measure and bone quality, Valence provides you where you are in space. So that's our navigation and robotic piece.

And then SafeOp tells you not only the nerve location, but the nerve health. Having been at this for a long time, I would tell you, there is no one close to the level of sophistication in the most coveted element of the spine market, which is lateral. And so our next foray is into more data-driven decisions, and I will look forward to the day that we are informing the field of the best procedure for the respective pathology. And so there's still a lot to do on this front. Historically, whenever we talked about proceduralization, it was related to lateral. We have recently applied that same effort to our surgical portfolio with significant success. We used to always talk about the halo effect, meaning that we would create confidence with our lateral portfolio and people would ultimately use the least differentiated part of our portfolio in cervical. That is no longer the case.

I will tell you that our cervical portfolio now stands on its own merit. Through the proceduralization effort, there is little we can't do in the cervical spine from elegant segmental surgery with our best-in-class access in IdentiTi II product through the most complex things such as corpectomy and revision surgery from the back. And so lastly, I'd hate to not shout out SafeOp. The type of information that it avails from an automated SSEP and MEP perspective and cervical spine has expanded the application of that product in this space.

So our momentum really has just begun, and it's a very big deal. I would tell you another place that we are in our absolute infancy is accelerating deformity, our deformity inserts through the EOS integration. Much like lateral and cervical, our progress in deformity is just starting. So thanks to the influence through our EOS integration, we've launched AI-driven alignment for pre-op assessment. We're simulating surgery through our planning platform and providing patient-specific implants to correct deformity. Then the opportunity to confirm the plan postoperatively, meaning did I achieve what I intended to achieve. You have to realize the literature is abundantly clear.

Surgeons are more likely to reflect the intended goals if they preplan. Our preplanning software is best-in-class, and the reflection of that is also best-in-class. So the EOS deformity opportunity literally creates another PTP like run just ahead. So I wanted to share a couple of things. Here's a great example of how our integrated product effort is advancing deformity. If you start on the top left picture and you look at the imaging, literally, we have the most coveted imaging. It is a biplanar low-dose standing image. It is what the surgeons want. Then we automate all the alignment measures and then create a 3-dimensional model.

For a surgeon to have a 3-dimensional model in an idiopathic scoliosis is highly valuable for them to understand the rotational elements, and you'll see the top right photo is the blue, which shows the exact rotational deformity that the surgeon has to deal with and then to utilize our patient positioning efforts and straightening the spine prior to cutting or prior to the intervention is highly valuable. You can see the curve correction measured interoperatively, and you'll see it going from [ 40 to 6 ] using our best-in-class fixation. And so this is just an example of the type of sophistication that's assembled together to ultimately advance the field, and that's what we're doing with deformity.

Another key catalyst forthcoming is Valence, which we expect to unlock further adoption. This truly democratizes the techniques and what we like to say is in the hands of the many. Valence is simple and most importantly, it's accessible and integrated. We don't look at technology as something unto itself. We look at how it ultimately influences the requirements of a spine procedure. And so procedurally integrated is such a key part of this. And so it's purpose-built for spine and compatible with all the 3D imaging systems out in the market. The footprint is very small. We're not taking a ton of room up in the operating room. It's not something that you spend millions of dollars on and wheel in. It has a very small footprint, which is highly valuable.

And it's been demonstrated to be efficient. And so the first utility you will see with the Valence system will be in our proprietary PTP procedure and super excited for a Q4 for that to occur and expect its real influence in '26. And so I think what's so often kind of either underestimated or misunderstood about ATEC's ecosystem for which we previously invested is it is built for the long run. I genuinely believe there is currently a lack of will competitively to make such investments. That is why we love the prospects of the long run. It is the only end-to-end fully contemplated, fully integrated ecosystem. We fundamentally believe that spine surgery will be made better through data-driven decision-making, and that's what this avails to us.

So as I look back over 8 years here, I would characterize our evolution into 3 distinct chapters. I would say the foundational investment years were 2018 to 2020. The infrastructure build was '21 to '23 and the profitable sales growth is '24 onward. And I just -- I remember back years ago when we assembled really the unbelievable team that exists here today and that we continue to grow. The portfolio was completely overhauled. We acquired SafeOp and evolved it, which is such a key to the type of informatic foundation that we are enjoying today, and we started to evolve our distribution. We got a bit of a hard time in the early days of our infrastructure build. So we acquired EOS and Valence, and those are key components of what we're doing today. We built a state-of-the-art headquarters to maximize the surgeon and sales training. We expanded our distribution footprint in Memphis.

Something key that, again, I think that most people don't understand is we built scalable internal systems. We invested in valuable internal systems, and we made a focal international investment.

What you're seeing today is a result of those efforts. And so we're levering the infrastructure investments. We're integrating data and informatic -- and our informatic platform into our surgical experience, expanding and elevating our procedural approach, and our international market is winning. And so what I thought I would do is end where we started, which is what makes us uniquely positioned is our 100% spine focus. Everything we think about every day is spine. And so we love it, and we're prospering in the space. We're leading in advancing proceduralization, which starts with lateral, but as I said, includes cervical and deformity.

Our deformity leadership is in its infancy. EOS is huge. The people who are working on EOS are crushing it. We built an infrastructure for a very long run, and so can't be more excited about our capacity to scale off of that in a profitable way. So what you're going to see [ forth ] is durable, profitable sales growth, and that's what makes us the preferred destination.

And so with that, I will turn it over for questions.

[Operator Instructions] The first question comes from Vik Chopra with WF.

Congrats on a nice quarter. A couple of questions for me. Maybe just first starting off on the cash flow. Just talk about how you see next year playing out from a cash flow perspective given the strength over the last 2 quarters? And then I had a follow-up, please.

Yes. Thanks for your question, Vik. No, I think as we look at our long-range plan commitments, I think our cash flow expectations for next year are probably in that $20 million range on free cash flow. So on our path to $65 million of free cash flow next year. I think when you look at the amount of revenue growth that you might generate from a guidance standpoint and the drop-through on EBITDA, I think that gets you in that $20 million range. We're not at the point here where we're giving guidance, but I think as a construct, that's a good spot to be thinking about.

Great. And then just on the -- your comments around LRP, Todd, or maybe even for Pat here. I mean, just given kind of how you performed this year, can we expect an update to your LRP next year given that you're tracking well ahead of your plan?

Yes, Vik, I think as we're thinking about it, we're trying to contemplate when the right time to do that is. And we do think towards the end of next year would be a good time to do that as we enter 2027 and get 2026 mostly under our belt. And so we're thinking towards the end of next year, we'd come forward with an update to the long-range plan.

Your next question comes from the line of Matt Miksic with Barclays.

Congrats on a really strong quarter. Wanted to get your thoughts on maybe the competitive landscape. And obviously, the changes -- the recent changes, and there's been a bunch have sort of, I'd say, consolidated. It looks like consolidated the major scale players in spine down to, I guess, 3, I want to say. So how do you expect that to potentially play in your favor? And perhaps like what other opportunities do you see for consolidation -- implications of consolidation, that sort of thing? And I have one follow-up.

Yes. I'll jump on the first part. One of the things that is fascinating is that, first of all, we love market disruption. So if there's anything that you know that we could do to further that, let me know. And I'm kidding. The -- but the reality is these are multiyear dynamics. And it's like they never happen overnight. And so I even think J&J, the announcement was it's going to happen over a 2-year period. And so it's one of those things where it's like our focus is on just being us. We have so many catalysts that we need to focus on. We'll be opportunistic with regard to sales hires and the like, but it's just more disruption that candidly, we welcome.

That's great, Pat. And then just one on the lateral space and the role of Valence. I think you mentioned you're in the early innings. It seems like there's an opportunity, if you have 2 players kind of chasing this new approach, one of the potential differentiators and benefits to clinicians is to make that approach smoother and easier. And I don't know I've been hopping between calls here, so you may have already touched on this. But if you could talk a little bit about what kinds of benefits Valence could bring to that in terms of efficiency for surgeons already good at this and doing it regularly and what folks might benefit from and how this would benefit the expansion and adoption of [ prone lateral ] over time?

Yes. The -- it's fascinating. It's like the whole PTP thing, I think, is so ripe for being a driver of procedures at 4, 5 and above. So anything at 4, 5 and above, just the ability to approach the spine and enjoy the benefits. And so the challenge always is how do you democratize it. There's always a bell curve of skill sets. And so the question always becomes is it's great to get a few doing the types of surgery that ultimately benefit a number of patients. But until you can democratize it, it's just -- it almost doesn't matter. And I think that when you look at navigation over the years and you look at even robotics, these things have been unidimensional.

And so they've not been properly integrated into the workflow of a spine procedure. And so what's frustrating to us is what we want to do is apply all of the type of information that's going to drive greater precision to an experience in a methodical way. And so what we see as the opportunity for Valence is to architect just that.

And I would tell you, on the team in Colorado and in San Diego, the Valence team has integrated this thing in a way that ultimately reflects the workflow that's desirous. And so my view is that these technological elements contribute to the predictability associated with the procedure. I will also say that it already -- we are leading in a huge way. Like SafeOp compared to anything else on the market is the father-son game. Our neurophysiology piece, the ability to ultimately identify where the nerve is, understand if it's degrading from a health perspective and then discern it with a motor evoked potential that's facilitated is not done by anyone. And so our retractor, our mechanized arm, it's -- again, I deem it to be a real competency of the company in just an absurd way.

And so what we will continue to do is apply our learnings to things like the Patient Positioner where people don't have the will to invest, and we will continue to make things better. And so I just -- I think that the Valence element, I love it. It's one piece of it. It's one piece of the workflow of what we're building. And so anyway, clearly, I adore these things and have been at it a long time, but it's a great addition to the puzzle.

And Matt, I think all the things that Pat said, I think, bring a level of efficiency to the experienced user, but also makes it more predictable and accessible to a broader set of users who might not be doing lateral but be doing something more traditional from a posterior approach. And so I think that's what gives us a level of excitement about what all this does in terms of expanding the lateral market.

Your next question comes from the line of Young Li with Jefferies.

Congrats on a very strong quarter. So it looks like you had the biggest beat versus consensus in 3 years. It's also a seasonally slow quarter. Can you maybe just talk a little bit about what you're seeing in the market, the health of the spine market as well as some of the competitive dynamics? If you can comment on who you're taking excess share from during the quarter, that would be helpful.

I'll start and provide Todd the ability to clean up what I mess up. The -- I think what's going on is a reflection of the foundation that we've built over the last several years. And I think you're starting to see some of the market disruption come through. I think the spine market is what it is. There's not a ton of change to that is my presumption. We're not seeing anything unique per se. I think the volume of surgeon users just continues to increase, and it's a proxy for a future business. And so when you start to see the volume of new surgeons added, you start to see the same-store sales, we so value the people who have been at this for a long time and watching them continue to be successful in their marketplace is a very big deal.

And so I think more than anything, it's like, I think we're taking share from a lot of different companies. But I think what you're seeing is just kind of the -- we always say that there's an 18- to 24-month lag in this business. And so you're seeing kind of decisions that we made 18 to 24 months ago being reflected today. And I think in 18 to 24 months, you'll see decisions we made today reflect in the marketplace. And so I'll defer to Todd.

Yes. I think the only thing I'd add there, Young, is from a market standpoint, I think the market has been healthy and has felt healthy. And so I think that's a good thing. I think that's a good thing for us. And we feel that when you look at our growth and you look at our size, clearly, I think you're taking share from all the major players. And I think when I look at the demographics of that and the locations and the surgeons, I think that holds true. And so you don't grow $40-plus million year-over-year without kind of touching all the competitors.

Okay. Can I ask a follow-up just on the balancing profitability versus growth. There's a bunch of companies been disrupted in spine. So you can theoretically grow them faster if you want to, but probably might have some -- some margins. You did mention durable profitable growth going forward. So can you maybe expand on that point a little bit more? How do you balance growth versus profitability?

And then on that point, your average rep per case is much higher than the competition. Can you maybe talk about how you're able to achieve that, sustain that going forward? And how can that impact profitability and efficiency for your reps and instrument sets?

That's far more than I could answer, so I'm going to turn it over to Todd. However, the one thing I did want to hit on is I'm not sure everybody appreciates the whole convoyed sales. When we talk about proceduralization, what happens is there's multiple products used. And candidly, they've been designed to work together to ultimately reflect in the predictability of a procedure. And so our enthusiasm is all about has the surgeon accepted our thesis surgically. And so if they do, then the likelihood for us to have a high ASP based upon the convoyed elements that ultimately get reflected within a spine procedure is high. And so that's why we're zealous to track products per surgery. We're zealots on the ASP front just because it's one of those things that's reflective of buying the thesis that we're putting forth.

Yes. And I think I'd add in terms of how we balance and think about growth and profitability, obviously, we've got our landmark of the long-range plan out there in terms of what we've committed to from a profitability and a growth perspective. And so we have a plan to get there, and I think we've been executing to that plan. When we talk about priorities, our priorities are to grow and to invest in the innovation that will perpetuate future growth. And so that investment in growth is a combination of our investment in sets and inventory, which are the revenue-generating assets of the company.

And I think we've got a solid construct in terms of how to think about that in terms of investing $0.75 on the growth dollar. And I made some comments in my prepared remarks about the size of our adjusted EBITDA now being able to be big enough that we can self-fund that growth. And so we feel confident that we've got the right amount of profitability dropping through so that we can continue to invest in the sets and the inventory of the business to perpetuate the future growth.

And in combination with that, as we think about the leverage of the business, we are leveraging the overhead. And so we're certainly getting some improvement in our [ real berets ] as we've expected and as we planned. But fundamentally, we're seeing a lot of interest from surgeons to adopt the procedures. And as we grow, we can continue to drop profitability based on the fact that we've invested in the infrastructure of the business.

Your next question comes from the line of Matthew O'Brien with Piper Sandler.

This is Anna on for Matt. I guess I wanted to ask another one on Valence. I mean you're getting pretty close to the full launch that's supposed to come later this year. And just wondering if you have any sense of what the funnel of orders looks like currently? And maybe if you could also provide some more context around the size of the ASC opportunity?

Yes. The -- I was going to be a smart alec and give you a precise number. I'm kidding. What I would expect out of Valence is for us to end this year with a decent experience. As you know, the robotics side has been in Alpha for several months now. We're waiting on the navigation side to kick in. And so when that kicks in, we'll get an experience. We have a high degree of confidence in terms of what's going on there. But we don't expect any significant impact really until '26. And so clearly, there is demand for it out of the gate, which we're excited about.

But my enthusiasm around the Valence system is the impact it will have on the democratization of surgery. And so we see these things as integrated tools for surgery. And so not as a big capital opportunity, capital sales opportunity, but our enthusiasm is clearly on the surgical side, which we think it will drive volume.

And Anna, the only thing I'd add to that is I think we're clearly going to be deliberate about how we roll this out over the course of 2026, ensure we're getting good experiences and setting ourselves up for success for '26 and beyond.

Great. And then if I can just squeeze in one last one on international. I appreciate you're taking sort of a narrow and deep approach to your expansion there. And it looks like you're ahead of schedule against the LRP target. So I was just wondering what your outlook is on international, if that's changed, there's any upside there? Yes, just what are your thoughts?

Yes. Thanks, Anna. I think you may be looking at the international breakout in our Q, which would also include EOS. And so when we built our long-range plan, we really talked about a global EOS, a surgical international and a surgical U.S. breakout of revenue. And so what I would tell you is I think we're kind of on plan in terms of our progress towards the long-range plan commitments that we had. So if you remember, $1 billion in 2027 was about $100 million of EOS revenue, $870 million of U.S. surgical and $30 million of international surgical revenue. So that was how that broke out, and I feel like we're on track towards that.

Your next question comes from the line of Allen Gong with JPMorgan.

Team, congrats on the good quarter. I just wanted to touch on the guidance and kind of build off of a question that was asked earlier. You had a really strong third quarter, kind of grew right through the normal seasonality we expect to see in the summer months. And when I look at your implied guide for the year, you still have a step-up into fourth quarter, but it's definitely a touch smaller than what we've seen in the past and what we've kind of expect from orthopedics more broadly. So I guess, why was this the right range to basically establish for fourth quarter?

And then just to slip in my follow-up as well, when I think about the outlook for 2026, is that kind of the right run rate that we should be using the fourth quarter number as a run rate for 2026 as well?

Yes. Fair question, Allen. And I think as we looked about it, we kind of thought that an $18 million lift off of the previous -- previous guidance was just a good place to be. I think it was a strong place. We clearly dropped the beat and raised and felt like that was appropriate. When you look, it implies a 20% year-over-year growth in our surgical revenue, about $30 million of year-over-year growth.

To your point, it does imply a slower or less of a lift from Q3 to Q4. I think that's factually true. But ultimately, our guidance philosophy has kind of remained unchanged. We're going to put numbers out there that we believe we can achieve and have a reasonable opportunity to exceed. And so on the balance, we felt like it was just a prudent place to land. I think as you contemplate next year, and clearly, we're contemplating next year, that won't be a surprise to anybody. And your question is how should you think about it? And what I would tell you is we came into this year, we guided towards about $120 million of absolute growth.

If you look at where we are today relative to $1 billion in 2027, that would be $120 million this year -- next year and $120 million of growth in 2027. Now then you'd also say in 2023 and in 2024, we grew $130 million each year in absolute revenue. And so I think as you contemplate it for us to kind of come out into 2026 and when we do give guidance, I think those are probably good data points to reference. The thing I'd point to in terms of what makes me optimistic about our future is you look at the growth that we've generated, especially in our surgical business. And you come to realize that when surgeons adopt our procedures, they use more in year 2 than they did in year 1, and they use more in year 3 than they did in year 2 and so on and so forth.

And so the adoption continues. When you look at the dollar growth that we've generated here in 2025 in surgical revenue, the preponderance of that revenue growth has been driven by people who adopted the procedures before 2025. And so when you look at the amount of surgeon adoption we've seen thus far this year, it gives me optimism for the years to come. And so probably not giving you the exact answer you were looking for, but that time will come here in probably the next time we get on a phone call. So I appreciate the question.

Your next question comes from the line of David Saxon with Needham.

Congrats on another really strong quarter. I just had a quick follow-up on, Todd, your commentary to that prior question. So you were talking about $120 million worth of annual growth. It sounds like that could be conservative. But the question is that's kind of right around where consensus is. So it sounds like you guys are feeling pretty conservative. Is that the right takeaway?

I think you're saying consensus today versus our current guide. Consensus -- [ 2026 ] consensus versus our current [indiscernible]?

Yes. Yes. Yes. Sorry.

That would be the math. That is correct. So I feel like that's -- I think of the 2 data points I laid out there, $120 million and $130 million like that feels like that would be on the low end of that range.

All right. And then the real question I wanted to ask was just around deformity and that part of the portfolio. Would love to hear some of the traction you're seeing there. I guess, is that part of the portfolio and that offering at critical mass at this point? Or do you still have some product launches to go through before it gets there?

Yes. I'll go ahead and take that one, David. We are in the absolute infancy of our influence of deformity. And I think that we've gone into it really with a -- trying to garner a better understanding through the EOS experience. And the volume of opportunity to create predictability in the deformity space is significant would be an understatement. And so from the different types of deformity being adult deformity, idiopathic and early onset, the focus is going to be idiopathic and adult for the most part. But we have several products that we're currently enjoying solid adoption on.

We have multiple products in the design phase of that -- for that market space. And so I think we are as poised as we can be with regard to having influence based upon the foundation built around the EOS platform. And the EOS platform will be having an end-to-end solution that's been fully contemplated, it will be fully integrated in due time. Again, our opportunity to have a significant impact on that market space is very apparent. So anyway, I guess that's all I can comment on.

Congrats again on the quarter.

Your next question comes from the line of Caitlin Roberts with Canaccord Genuity.

Congrats on a great quarter. You noted some discipline with sales team additions. If you could maybe provide some color on how you are being disciplined in those hires? And then also, do you plan to add to the capital sales team for the upcoming Valence launch?

Yes. I'll go ahead and start, and I'll let, again, Todd to clean up what I mess up. The -- so the first part was the -- just the discipline around the sales hiring. I think we have a very good algorithm in place just in terms of minimizing the volume of time from hire to them being effectual. As you appreciate, as we talk about disruption taking time, these guys oftentimes have noncompetes and other issues that preclude the immediacy of our impact in a specific market. And we still have a number of marketplaces where we are an absolute nobody. And so it's nice that what we'll see is we'll see access granted first. We'll hire sales heads to initiate a utility. And then by the time the people are offered noncompete, their influence just becomes significantly greater.

And so I would tell you that our access to hospitals is tremendous and are continuing to expand. And so I have several markets in mind that we are in our infancy and just kind of just getting going. And I would say a lot of them in the Northeast. And so that's kind of the thinking on the sales hires. Again, very -- trying to be as methodically and as thoughtful as we possibly can based upon, as Todd talked about, just a lag in terms of the influence. He talked about the surgeon engagement. And then 2025 is ultimately reflecting what we're doing or previous years are ultimately reflecting in what we're doing today.

It's the same impact from a salesperson's perspective, clearly. From a Valence perspective, we're going to add some capital heads, not a ton of them. What we want to do is integrate the thing procedurally. It's -- this system is very simple, and it's simple enough to where our guys can run it who are on the ground. Making sure that we have proficient salespeople that ultimately can run the entire case is of significant importance to us. And so -- again, we'll have them where we do sell capital, we will have people in place to ultimately help facilitate that process, but our expectation from an execution perspective is the people in the room.

Your next question comes from the line of Tom Stephan with Stifel.

I wanted to follow up on deformity. Todd, I believe you mentioned in the prepared remarks that being an early revenue driver. And Pat, I appreciate your comments on the portfolio kind of road map to an earlier question. But Pat or Todd, how should we be thinking about kind of the timing of when that opportunity really starts to take hold sort of as we think about, I guess, contributions to revenue growth?

Let me start on the subjective, and I'll let Todd provide any objective he'd like to comment on. When the foundation of your strategy is based upon EOS and EOS Insight, what we want to see is the expansion of units and the expansion of availability of EOS and EOS Insight. And so where we have EOS units, we have a marked increase in market share. And so that's because of deformity. And so what we're seeing is just the opportunity to continue to further that expansion and that market share in places where we have systems placed. And so a big part of our effort and interest is to continue to push that.

And so I would tell you that as I think about it, a big proxy for significant influence becomes the information that drives improved care. And so that's the whole clinical distinction element that we love to communicate about. And so there are product additions over the next 24 to 36 months that will continue to elevate the sophistication of not only the preoperative elements, but the interoperative elements and then the ability to assess and the ability to automate -- collect automated data. And so we think that those things will drive an outsized footprint of our influence on the deformity field.

And Tom, the only thing I'd add to that is I think that feels like a reasonably linear experience over the next couple of years. Like as we continue to do the product innovations and deliver on the promise from an EOS Insight standpoint that Pat discussed, I think when you look at the hardware stuff, you think about adult deformity, much of what you -- what we have today is utilized very effectively there. The addition of EOS makes that all the much more available, sticky and higher demand.

I think when you look at pediatric deformity, that's where we've really started to add like a hardware solution or a proceduralized solution is really the answer to that. And that's probably something that's really only, I'd say, started to be felt by us in the last, say, 6 months or so. And so I think we're at the very early stages of that. And I think there's more proceduralization there to come.

And again, take this for what it's worth. I think what thrills us is we have a foundation of lateral. We see cervical starting to take off based upon its own merits. And then there's a deformity long-run opportunity, as Todd said, that's going to be linear, but it's going to -- again, just -- it provides catalysts for continued future growth. And as we look at the business over a long period of time, we've made foundational investments that will continue to evolve that ultimately reflect in a unique element of our portfolio. So it looks like it's an exciting time.

And then a quick follow-up just on surgeon adoption. New surgeon adoption growth really strong, has been for many years now. Can you just talk about, I guess, kind of the durability here moving forward, just as you look at where this growth has been coming from? And then maybe more importantly, kind of where the growth will come from moving forward?

Yes, I'll go subjective and objective again. The -- I would tell you that I love the whole new surgeon adoption. It's not the same contributor in the immediate term that same-store sales is. And so the great part is, is all that does is provide a proxy for future engagement. And that's where it's like the enthusiasm from us is seeing the same-store sales continue to grow so that we're not completely reliant upon adding sales heads for growth. And so what you're seeing is you're seeing a very robust business within the context of established areas and just the proxy for future bullishness based upon the new surgeons.

Yes. And maybe to add or to expand upon that, we've got many territories where we're established today. We can both get penetration of an existing surgeon's business in terms of more procedures and/or more case revenue within the procedure. And we are adding surgeons within that existing footprint. And we've seen that significantly here over the last probably 18 months. And -- but then to Pat's point as well, there are also areas where we have just entered, if you will, and we'll begin to see more surgeon adoption because we're -- just now essentially have proper representation. And so all that to be said, the opportunity is significant to continue to add surgeons because at the end of the day, we're a high single-digit market share player, which tells you that there's a lot of surgeons we don't do business with.

Your final question comes from the line of Sean Lee with H.C. Wainwright.

Guys, congrats on the great quarter. I just want to touch up on the EOS a bit since I see the great revenues you guys had in third quarter, which is typically a slower quarter for hardware sales. I was wondering what are the primary drivers behind this? And do you think this will carry over into the next quarter or 2 as well? And maybe thinking a little bit on the longer-term outlook as well. I know that for the EOS, you guys were initially primarily focused on academic centers. Has that changed so far? Or are you moving on towards broadening the potential targets as well?

Yes. Those are good questions, Sean. It's fascinating, right? It's one of those things where I would tell you that the thing that has, I think, inspired EOS sales is what's going on from an EOS Insight perspective. I think we were at the Scoliosis Research Society meeting, and it was a standing room dynamic. And it's a who's who that ultimately, I think, pushes forward a full body biplanar low-dose scan, which we're the only guys who have that. And so for us to be able to create informatics around that is really the driving force behind people's interest in what we're doing.

And I would tell you it's both -- it's both an academic and candidly, a private interest. I think it probably has -- the initial interest is mostly around deformity. And I think it's going to extend way past there because there's a joke in the spine business that all surgeons are deformity surgeons. They either create them or fix them. And so even in short segment surgery, the value of EOS is highly valuable. And so what we're seeing right now is probably a predominance of academics, which, again, we love because now we're getting into being more relevant within the academic sector.

We're seeing some privates. And then we're seeing some upgrades from previous pediatric institutions that start to see the software value that we're creating with EOS Insight. And so it is -- I would still say in the very early phase of the whole EOS experience, and I expect it will just get more robust.

This concludes today's question-and-answer session. I would now like to turn the call back over to Pat for closing remarks.

Thanks, Lacie. Just more than anything, I want to thank the team for their work. It's -- what a great quarter. I appreciate everybody's support in what we're doing. We have a long run ahead of us, but the foundation has been laid for future prosperity. So anyway, I appreciate everybody's work, and thanks for your interest.

This concludes today's conference call. You may disconnect.