Q3 2025 Alphatec Holdings Inc Earnings Call

Good afternoon, everyone, and welcome to the webcast of 8X'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 referred to non-GAAP or adjusted measures.

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 atex chairman and CEO Pat Miles and CFO Todd coning. Now I will turn the call over to Pat Miles.

Thanks very much Lacey, appreciate it. Uh, welcome to the Q3 at Tech financial results conference call.

Um, as usual, there will be some forward-looking statements. So please read that at your leisure. Um,

I want to take a moment and put in the context what we are building here at a tech. Um, 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%.

Um, our results and guidance suggests that we are not only in that club. We are leading that club with Topline growth of 30%, while approaching a run rate of uh 800 million dollars in Revenue.

My point is, is that, we are becoming the company that we intended.

And uh, what I what I want to do is make sure that uh uh these things don't happen by happenstance and they happen by a, a bunch of committed people. And so I wanted to thank those who supported and have been part of the mission and also, um, remind everybody that we're just getting going, and so, there is a, 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 is we're 100% 100% spine focused and uh uh we make decisions every day. Purely on spine, we are leading through proceduralized which means that that we're advancing lateral which is uh reflected in Convoy sales and and we're applying that thesis across the board.

Um, from a deformity perspective, we're in the very infancy of our of our uh, role or influence on that market, space really, um, driven by EOS and EOS Insight. Um, we had previously built a, uh, infrastructure that's going to last us, a very long run. I look forward to describing more about that. And, uh, from this point forward, what you'll see is durable profitable sales growth and so, um, just to share a couple of Statistics from Q3, um, we grew at 30%. Um, uh, we had an adjusted ebata of 26 million dollars, which is 13% of Revenue. We improved by 840 basis points and uh, and turned in a free cash flow of of 5 million dollars. And so, from a total perspective, um, that means that the total revenue was 197 million, um, uh, the surgical Revenue growth was 31%. Um, something that I'm totally excited about is the same store sales. Uh, so Revenue growth in the

Established territories was 30%. It just tells you that there's there's a there's demand in what we're doing. Um new surgeon uh users was 26%.

Cash flow. We have plenty of access to cash and cash at 216 million, uh our trailing 12 months adjusted, Eva is 81 million and uh we are flowing cash on a trailing 12-month basis uh which uh 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 pnl 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 1977 million in Revenue was comprised of 177 million in surgical revenue and 20 million dollars 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.

Procedure of volume. Growth of 28% was driven by strong surge in adoption where we increase our net new surge in 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 compati.

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.

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 US 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, continues to be strong and is 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 a million dollars.

Non-gaap R&D expense was approximately 8% of sales in the quarter with Topline growth driving 90 basis points of Leverage year-over-year.

Now, 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. In generate, I leverage without sacrificing the growth opportunities.

Non-gaap sgna of 112 million was approximately 57% of sales in the third quarter, compared to 67% of sales in the prior year, period sgna 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 improvements.

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 Salesforce buildout, 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, Topline growth drove over 1,100 basis points of expansion in our operating margin year-over-year.

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 adjust to Deepa.

The discipline and how we look at headcount additions and 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 debit done. 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 trans

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 millions of available borrowing on a revolving credit line.

which was undone at the quarter end, making our total cash and available cash 260 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.

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 the company's 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 to 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 de-levering our balance sheet in 2026.

Given the momentum in the U.S. surgical business in the third quarter, and a 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 60084 million. And we expect EOS revenue of approximately 76 million. Our surgical Revenue, guidance raised is a result of over performance in case volume, which we now expect to grow in the low 20% range year-over-year.

We expect to continue to see case ASP 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 information 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 is $81 million as of the third quarter, which 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 for the full year.

The chart on the slide depicts the consistency of the profitability progress we are making in the tremendous power of our business model to drive future profitability.

All right, just a diva dog 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 sell funds, 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 say that our execution has been absolutely consistent across the strategy in our strategy hasn't changed. Yeah it remains steadfast

Um, we are creating value through, uh, creating uh, clinical distinction, uh, which compels surgeon adoption, and we continue to just get better from a field perspective and so, um, uh, hugely exciting. So we like to say around here that the spine Market needs a tech and uh, I've never, uh, been a bigger believer in that view, uh, since I've started and and you got to realize the spine field is highly complex. And you know, the the type of revision rates or extensions. The 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.

Mitigation is the architecture of spine procedures, that's what we call proceduralized. I think the lateral surgery is a great example of that demonstrated success.

However, the 1 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 that that to talk about is just and, and Todd hit on, it is the expanding of indications, which often times is synonymous with, with new products. And so we have multiple new products forthcoming, including a, uh, a mechanized arm. We have a identity too. Uh, we just launched corpectomy uh, so not only um, expanding indications, but also increasing complexity, which often times means more levels. And so we are able to address um, uh, more pathology and, uh, and we just continue to be a a uh, getting better and lateral. Uh, another place that is a, is a catalyst, is the integration of technology that ultimately makes for a more users. So a democratizes a technique to a wider audience. Um, if you start to think about our informatic platform, EOS gives you the objective alignment measure

And Bone quality, veilance provide you where you are in space. So that's our navigation and robotic piece, and then save up tells you. Uh, not only, uh, the nerve location, but the nerve Health, um, having been at this for a long time I would tell you, there's no 1 close to the level of sophistication in the most coveted element of the Spy Market which is what

Lateral. And so our, our next uh, foray is into uh, more data driven decisions. And uh um, I will look forward to the day that we uh are informing the field of the best procedure for the respective pathology and so um there's a there's still a lot to do on this front.

Um, yeah, historically whenever we talked about proceduralized related to lateral, um, we have recently applied that same effort to our surgical portfolio with significant success.

Um, we used to always talk about the halo effect, meaning that we would create confidence with our lateral portfolio and people would would ultimately use the least differentiated part of our portfolio in cervical.

That is no longer the case. Uh, I will tell you that our cervical portfolio. Now stands on its own merits. Um,

Um, through the proceduralized effort, there is little, we can't do in the cervical spine. Uh, from elegant segmental surgery with our best-in-class access in identity 2 product, um, through the most complex things such as corpectomy and and revision surgery from the back. And so, um, last we had, I'd hate to not uh shout out safe up. Um the type of information that it avails from an automated sscp and MEP perspective in cervical, spine has expanded the application of that product in this space. So our momentum really has just begun and it's a it's a it's a very big deal.

Um, I would tell you another place that we are in our absolute infancy is accelerating. Deformity our deformity inserts through the EOC integration much like lateral and cervical, our progress in deformity is, is just starting. So, thanks to the influence, uh, 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. Uh, then the opportunity to confirm the, the plan uh, post-operatively meaning that I achieve, what I intend to do achieve. Um,

You have to realize that literature is abundantly clear: surgeons are more likely to reflect the intended goals. If they pre-plan, our pre-planning 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 uh, the Imaging, literally, we have the most coveted Imaging. It is a bip, planer 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 um and you'll see the the the top, right?

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 the with the deformity.

Another key Catalyst forthcoming is valence which we expect to unlock further, adoption This truly democratizes a techniques. In 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 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 uh uh the 3D imaging systems out on the market. The footprint is very small. We're not taking a ton of room up in the in the operating room. It's not something that you you spend millions of dollars on and wheel in it has a very small footprint which is which is highly valuable and it's been demonstrated to be efficient. And so the first utility you will see with the valence uh system will be in our uh, proprietary PTP procedure and and super excited for a Q4 for that to to our and expect. It's it's really

Influencing 26. And so, um, I think what's so often kind of either underestimated or misunderstood about atex ecosystem, um, for which we previously invested is, it is built for the long run. Um, I genuinely believe there is currently a lack of will competitively to make such Investments. That is why we love the the, the prospects of the long run. It is the only end-to-end fully contemplated, fully integrated ecosystem. We fundamentally believe that spines surgery will be made better through data driven decision making and that's what this avails to us. So,

um, as I, as I look back over 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 bill 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. Um, the portfolio is a completely overhauled. We acquired safe up and evolved it, which is such a key to the type of informatic Foundation that we are enjoying today and we started to uh evolve our distribution. Um

We got a bit of a hard time in the early days of our infrastructure build. So, uh, we acquired EOS and Valance and those are key components of what we're doing. Today. We built a state-of-the-art headquarters, uh, to maximize the, this the surgeon and sales training. We expanded our distribution footprint in Memphis. Um, 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. Um, what you're seeing today is a result of those efforts and so we're Levering the infrastructure Investments or integrating data and informatic in our informatic platform, uh, into our surgical experience, expanding and elevating our procedural approach and our, uh, International Market is, uh, um, is winning. And so, um, what I thought I would do is is end where we started, which is, uh, what makes us uniquely positioned is our 100% spine Focus. Everything we think about every day is fine,

and so we love it and we're, we're prospering in the space. Um, uh, we're leading in advancing proceduralized, but as I said includes, uh, cervical and deformity, um, our deformity leadership is in its infancy. EOS is huge. Uh, the people who are working on EOS are are are crushing it. Um, we built an infrastructure for a very long run and so it can't be more excited about our capacity to scale off of that. Uh, uh, in a in a

Profitable way. So um, what you're going to see forth is durable, profitable sales growth, and that that's what makes us the preferred destination. And so with that, I will uh, turn it over for questions.

We will now open the floor up for questions in consideration of others. Please limit yourselves to 1 question.

The first question comes from Big Chopra with WF. You may go ahead.

Hey, good afternoon. Thanks for taking the question and congrats on, uh, nice quarter. Uh, a couple of questions for me, um, maybe just for starting off on. Um, you know, the on the cash flow. Just talk about how you see next year, playing off from a cash flow perspective, given the strength over the last 2 quarters and then I had a follow-up, please.

Vic know, I think, as we as we look at our long-range plan, commitments, you know, I think our our, our cash flow expectations for next year are probably in that 20 million, uh, range on on free cash flow. So on our path to 65 million of free cash flow. Next year, I think, when you, when you look at the amount of of Revenue growth that, uh, you might generate um, from a guidance standpoint in the in the uh the um the drop through on, on ebitda. You know, I think, uh, that gets you in that 20 million dollar range. Uh, we're, we're not at the point here, where we're giving guidance, but I think, as a construct that's a good spot to, to be thinking about,

Great, that's super helpful. Um, and they just on the, uh, your comments are on lrp tide or or maybe, or maybe even for a path here. I mean, just giving kind of how you performed this year. Can we expect an update to your lrp next year? Given that you're tracking uh, well ahead of your plan. Thank you.

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

Thank you.

Your next question comes from the line of Matt. Mix with Barkley's, you may go ahead.

Hi, thanks so much for taking the question, and congrats on a really strong quarter. Um,

You know, I wanted to get your thoughts on maybe the competitive landscape, and, um, obviously, the recent changes. There have been a bunch of...

I think Consolidated it looks like consolidated the the major, you know, scale players and spying down to. I guess 3, I want to say. So, um, you know, how how do you expect that to, uh, to potentially play in your vent in in your favor? Um, you know, and and, and perhaps like, what other opportunities do you see for consolidation implicit implications of consolidation, that sort of thing? And then I have 1 follow-up.

Yeah, I'll I'll jump on the first part, you know, um, 1 of the things that is fascinating is is that um, 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. Um, and I'm kidding, um, the, uh, but, but the reality is, these are multi-year dynamics. And it's like, um, uh, they never happen overnight. And so, yeah, I even think J&J, the, the, um, announcement was it's going to happen over a 2-year period.

Period. And so it's it's 1 of those things where it's like uh our our focus is on just being us. We we have so many catalysts that we need to focus on. Um, we'll be opportunistic with regard to sales hires and the like, but um, but you know it's uh, it's just more disruption that that candidly we welcome.

yeah, that's a

that's great. Pat.

And then just one on, um,

You know, the lateral space and the role of of balance. Um you mentioned your nearly innings

Um, it seems like, you know, there's an opportunity, you know, if you have, you have 2 players kind of chasing this new, this new approach, um, you know, 1 of the potential, you know, differentiators and and benefits to, to clinicians is to is to make that approach smooth or and easier and, um, I don't know. I've been hopping between calls here, so you may have already touched on this. But you could, if you could talk a little bit about, uh, what kinds of benefits balance could bring to that, in terms of efficiency, for surgeons is already already good at at this and doing it regularly. And and, uh, and what folks might, um,

you know benefit from uh, in ter and how this would benefit the the, um,

The expansion and Adoption of of prall over time. Thanks.

yeah, you know, you know the the um, um,

Joy is, is how do you democratize it? There there's there's always a a bell curve of skill sets. And so the question always becomes is it's great to get a few doing the, the types of surgery that ultimately benefit, uh, 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 at navigation, over the years and you look at, you know, even robotics these things have been unit dimensional and so they've not been properly integrated into the workflow of a spine procedure. And so what's frustrating to us is, is you know, 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 a valance is to architect just that and I I would tell you on the team in Colorado and in and in San Diego, um, the valence team has integrated this thing in a way that ultimately uh, reflects the workflow that's that's desirous. And so um uh

My view is that these technological um elements uh contribute to the predictability associated with the procedure. I will also say that it it, it already it we are leading in a huge way like, uh, safe up compared to anything else on the market is the father-son game. Our Nerf physiology piece, the ability to ultimately identify where the nerve is understand. Um, if it's degrading from a health perspective and then uh, uh, discern it with a motor of both potential. Um,

Uh, this facilitated is not done by anyone and so, um, our retractor our mechanized arm, you know, it's again, I I, I, I deem it to be a, 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 you know I think that the the valence element I love it. It's 1 of its 1 of what we're building. And so anyway, clearly I I I Adore these things and have been added a long time but it's it's a it's a it's a it's a great addition to the to the puzzle and and Matt I think you know, all the things that Pat said, I think bring a level of efficiency to the experienced user. Uh but also makes it more predictable and accessible to a broader set of users who 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.

That's great. Thanks so much, guys.

You're next question comes from the line of young Lee with Jeffrey. You may go ahead.

All right, great. Thanks for taking our questions and, um, congrats on a really strong quarter. Um, so it looks like, you know, you had the biggest speed versus consensus in 3 years. Um, it's also a seasonally slow quarter. Um, can you maybe just, um, talk a little bit about, you know, what you're seeing in the market, the health of the spine Market as well as some of the competitive Dynamics. Um, if you can comment on um, you know who you're taking uh, excess share from during the quarter, that'll be helpful.

Um, the um, yeah, I I think what's going on is is is uh a reflection of the foundation that we built over the last several years. And I I think you're starting to see some of the market disruption come through. Um, I think the spine Market is what it is. Um, there's not a, a ton of change to that is is my presumption. Uh, we're not seeing, you know, anything unique per se. Um, I think the, 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, you know, the volume of new surgeons added, you start to see the same store sales. We we, we, 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, you know, I think we're taking share from from a lot of different companies, uh, but I, 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 and so, um, 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

Our growth and you look at our size, clearly. I think you you're taking share from from all the, all the major players and, you know, I think when I look at the demographics of that and the, the locations and, and the surgeons, I think that uh, that holds true. And so, uh, you you don't grow 40, plus million dollars year-over-year without kind of touching all the competitors.

Okay, great, that's pretty helpful. Um, can I ask a follow-up? Um, just, um, that, you know, balance and profitability versus growth. Um, you know, there's bunch of companies been disrupted in the spine, so you can theoretically grow than faster if you want to, but probably not for those margins. You did mention, um, you know, durable profitable growth going forward, so can you, maybe expand on that point a little bit more? Um, you know, how do you balance growth versus profitability and then, you know, on that point your average rep per case is much higher than the competition. Can you maybe talk about, you know, how you're able to achieve that sustain that going forward and, um, you know, how can that impact a profitability and efficiency for your reps and, uh, instrument sets.

That's far more than I could answer. So I'm going to turn it over to Todd. However, um, the 1 thing I did want to hit on is is um I'm not sure. Everybody appreciates the the whole Convoy sales. When we talk about proceduralized, what happens is is there's multiple products used in candidly. They've been designed to work together to ultimately, reflect in the predictability of a procedure. And so, our enthusiasm is, is, is all about has 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 Convoy, uh, elements that ultimately get reflected within a spine, procedure is high. And so um that's why we're zealous to you know, track products per surgery, where zealots on the ASP front? Just because it's 1 of those things that's reflective of a of buying the thesis that we're putting forth. Yeah. And and I think I'd add in terms of how we balance and think about growth and profitability. You know, obviously we've we've got our, um, you know, our landmark of the long range plan out there.

In terms of what we've committed to from a profitability and and a growth perspective. And so, uh, we, 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 and so that, that investment and growth is a combination of our investment and sets and inventory which are the revenue generating assets of the company. Um, and

I think we've got a solid construct in terms of how to think about that in terms of investing 75 cents on the growth dollar. And and I made some comments in my prepared remarks, about the size of our adjusted Eva. 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. Um, and in combination with that, as we think about the leverage of the business, um, we are leveraging, the overhead. And so, we're certainly getting some improvement in our railroad rates, as we've expected and as we've planned. Um, but fundamentally we're seeing um, a lot of interest from surgeons to adopt the the procedures and and as we grow, we can continue to drop profitability based on the fact that we've invested in the infrastructure of the business

All right, great. Very helpful. Thank you.

you're next question comes from the

Local Piper Sandler. You may go ahead.

I'm sorry, Pat Todd. This is Anna on for Matt. Uh, thanks for taking our questions. I guess I wanted to ask another 1 on Valence. I mean, you're getting pretty close to the full launch. Uh, that's supposed to come later this year and just wondering if you had 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.

Degree of confidence, in terms of what's going on there.

Um, but we don't expect any significant impact really until 26. And so, um, clearly there is demand for it out of the gate which we're excited about. But, um, my enthusiasm around the, um, valence system is the impact it'll have on the democratization of of surgery. And so, um, we see these things as integrated tools for surgery and so not as a as a big Capital opportunity, Capital sales opportunity, um, but uh, our enthusiasm is, is clearly on the, on the surgical side which we think it will drive um, volume.

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

Great, super helpful. And then if I can just squeeze in 1, last 1 on International, um, I appreciate your taking sort of the narrow and deep approach to your expansion there, and it looks like you're ahead of schedule against the lrp target. Um, so I was just wondering what your outlook is on International, if that's changed, there's any upside there. Um,

Yeah, just what are your thoughts? Yeah, um,

Thanks. And I think you may be looking at the international breakout, in our, our queue which would also include EO. And so when we built our long range plan, we really talked about a global EOS, uh, a surgical International and a surgical us um, uh, 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, uh, the long range plan commitments that we had. So, if you remember a billion dollars in 2027 was about a hundred million dollars of EOS Revenue, 870 million of us Surgical and 30 million dollars of international surgical Revenue. So that was how that broke out. And I feel like we're we're uh, we're on track towards that.

Your next question comes from the line of Alan gong with JP Morgan. You may go ahead.

Hey team, congrats on the good quarter, and thanks for the question. 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 cruising 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 come to expect from Orthopedics more broadly. So I guess why was this the the right range to

Basically, establish for Q4 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 that Q4 number as the run rate for 2026 as well? Thank you.

Yeah, fair fair question Alan. And, you know, I think as we looked about it, we kind of thought that, uh, an 18 million lift off of the previous, um, previous guidance was was a, uh, just a good place to be. I think it was a strong place. We clearly dropped the beat and raised and, and felt like that was appropriate. When you look, it implies a 20% year-over-year, growth in our surgical Revenue, uh, about 30 million dollars of year-over-year growth, um, to your point. Uh, it does imply a slower or or less of a Lyft from Q3 to Q4. Uh, I think that's, you know, factually, true. Um, but you know, ultimately I our our guidance philosophy is is kind of remained unchanged. Uh, 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, uh, uh, just a prudent place to to land. Um, you know, I think as you as you contemplate next year and, you know,

The thing I'd point to in terms of what makes me, uh, 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, uh, in year two than they did in year one, and they use more in year three than they did in year two, and so on and so forth. And so the adoption continues. Um, when you look at the dollar growth that we've generated here in 2025 in surgical revenue, uh, 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, um, you know, probably not giving you the exact, uh, answer you were looking for, but um, uh, that time will come here and probably the next time we get on a phone call. So I appreciate the question.

Your next question.

You may go ahead.

Oh great. Uh thanks so much and and congrats on a another really strong quarter. Um I I just had a quick follow up on um Todd your your commentary um to that prior question so you were talking about 120 million dollars worth of annual growth. Um you it sounds like that, could be conservative but the question is um 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, uh, consensus. Uh, today versus our current guide consensus 2026 consensus. First is our current 760. Yes, yeah, yeah. I feel like, yeah. Sorry. That would, that would be the math that is correct. So I feel like that's, uh, you know, I think of the 2, the 2 data points that laid out there, 120 and 130, like that feels like that would be on the low end of that range.

Okay, great. All right. And then the, 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. Um, I guess, is that part of the portfolio and that offering at at critical critical mass at this point or, you know, do you still have um, some some product launches to go through, um, uh, before it, it gets there. Thanks so much.

Yeah, I'll go ahead and take that 1. David the the

You know, we are in the absolute incident.

Um, influence of deformity and I think that we've gone into it. Um, really with a trying to Garner a, a better understanding through the EOS experience and, um, the volume of opportunity to create predictability in the deformity space is, is

Significant would be an understatement and so, um, you know, from, uh, from the different types of deformity being adult, deformity idiopathic and and, and early onset. Um, the focus is going to be idiopathic and and, um,

And, uh, an adult for the most part. But, um, uh, we have several products that we're currently enjoying, uh, uh, solid adoption on. We have multiple products in the design phase of, uh, uh, of that, for that market space. And so, um, I think we are as poised as we can be with regard to having influence, based upon the foundation built around the, the EOS platform, and the EOS platform will be uh, you know, having having an end to end Solution. That's been fully, contemplated full, it'll be fully integrated in, in due time. Um, again, our opportunity to have a significant impact on that market space is very apparent. So anyways, I guess that's all I can comment on.

No, that that's great. Thanks so much Pat and through craft scan on the quarter.

Appreciate that.

Your next question comes.

From the line of Caitlin Roberts with canaccord genuity. You may go ahead.

Hi, congrats on a great quarter and thanks for taking the questions. Um, you know, you noted, some discipline with sales team editions, if you could maybe provide some color on how you are being disciplined in those, uh, those hires. And then also, do you plan to add to the capital sales team for the upcoming valence launch?

Immediacy of our impact in a specific market and we still have a number of of marketplaces where we are an absolute. Nobody. And, um, and so it's nice that what we'll see is, we'll see. Um, access granted first. Um, we'll we'll, uh, higher sales, heads to initiate a utility and then, uh, by the time, the, the people are off their non-compete, their influence just becomes, uh, significantly greater. And and so, um, I would say that that our, um, access, uh, um, to hospitals is, is tremendous and, um, our continuing to to expand. And so I have several markets in mind that we are in, in, in our infancy and, uh, and just, uh, kind of, uh, um, just getting going. And, uh, I would say, a lot of them in the Northeast. Um, and so, um, that's kind of the, the, the thinking, on the, on the sales hires again, very trying to be is as methodically and as thoughtful as we possibly

Can based upon, as Todd talked about, you know, um, the just the lag in, in terms of the influence, he talked about the surgeon engagement and then, you know, 20 25 is ultimately reflecting what we're doing or or uh uh previous years our ultimate reflecting in what we're doing today. It's the same impact from a sales person's perspective. Clearly. Um, from a, from a valance perspective, we're going to add some Capital heads, um, you know, not a ton of them. What we want to do is integrate the thing procedurally? It's this.

Uh system is is very simple and it's simple enough to where our guys can run it, who are on the ground, um, making sure that we have proficient salespeople that ultimately can run the entire case is of significant importance to us. And so we'll again, we'll have them where we do sell Capital. Um, 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.

I think so much.

Thanks. Thanks Kayla.

You're next question comes from the line of Tom Stephan with stifel. You may go ahead.

Great. Hey guys, thanks for taking the questions. Um, wanted to follow up on deformity. Uh, Todd. I believe you mentioned in the prepared remarks that being an early Revenue driver and and Pat, appreciate your comments on the portfolio. Kind of roadmap to an earlier question. But patter Todd. Like, how should we be thinking about kind of the timing of, when that opportunity really starts to take hold, um, sort of as we think about, I guess, contributions to, to revenue growth.

let let me start out on the on the subjective and I'll let Todd provide any objective he'd like to comment on

You know, um, when when, when the foundation of your strategy is based upon uh, EOS and EOS Insight. You know what we want to see is is um, uh, the expansion of, uh, units in the expansion of availability of eosio insight. And so, um, where we have EOS units, we have a market 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, um, expansion in that, uh, market share in places where we have systems, um, um, placed. And so, you know, a big part of our effort and interest is to continue to, uh, push that. And um, and so I would tell you that, you know, as I think about it a, a, a big proxy for significant influence becomes the, the information that drives improved care. And so that's the whole clinical distinction element that we love to communicate about. And so,

um,

there are product additions over the next 24 to 36 months, that will continue to elevate the sophistication of not only the pre-operative elements, but the interoperability of elements. And then the ability to assess and the ability to automated uh collect automated data. And so we think that those things will drive a outsized footprint of our influence on the deformity field.

Solution is really the answer to that. Uh, and that's probably something, that's really only. I'd say started to be, um, felt by us in the last page, 6, 6 months, or so? And so, I think, you know, we're at the very early early stages of that. Uh, and I think there's more, uh, proceduralized to to come

Yeah.

Foundation of lateral. Uh, we see cervical, uh, starting to take off based upon its own merits and then there's a there's a 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 Catalyst for continued future growth. And as we look at the the business, over a long period of time, we've made foundational Investments, that will continue to evolve that ultimately will reflect in a unique, uh, element to of our portfolio. So it it looks like it's an exciting time.

Super helpful. Um and then a quick follow-up, just on surgeon adoption. Uh, new surgeon adoption growth. Really strong has been for many years now. Um, 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 uh, maybe more importantly

Kind of where uh, where the growth will come from. Moving forward, thanks for the questions.

Yeah, I I'll go, I'll go subjective and objective again. The the, uh, I I I would tell you that that, um, uh, I, I love the whole new surgeon adoption. Um, it's not the same contributor in the immediate term that same store sales is. And so, the great part is, is is all that does, is provide a proxy for future, uh, engagement and that's where it's like, um, the enthusiasm from us is is uh, seeing the same store sales continue to grow. So that we're not, um, completely Reliant upon, adding sales heads for growth and. And so what you're seeing is you're seeing a very robust business within the context of established areas and just, uh, the proxy for future, uh, bullishness based upon the new surgeons. Yeah, and and and maybe to add or to to expand upon that. We've got many territories where we're established today. Uh, we can both get penetration of an existing surgeon's business, in terms of more procedures, Andor uh more case Revenue within the procedure,

Uh, and we are adding surgeons within that existing footprint. And and we've, we've seen that significantly here over the last, probably 18 months. And, uh, but then to Pat's Point as well, there are also areas where, uh, we have just entered if you will. And, and will begin to see more surgeon adoption because we're just now, um, essentially have have have proper representation.

Presentation. And so, um, all that to be said, the, the opportunity, uh, is, is significant to continue to add surgeons because at the end of the day, you know, 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

That's great. Thanks again.

Your final question comes from the line of Shaun Lee with HC Wayne. Right? You may go ahead.

Hey, uh, Hey guys, congrats on the great quarter and thanks for taking my questions. Uh, I just want to touch up on the yields a bit, since I see the uh, great revenues. You guys had in third quarter, which is typically a slower quarter for Hardware Sales. I was wondering, you know, what are the primary drivers behind this and, uh, do you think this will carry over into the next, uh, quarter or 2 as well? And, and, uh, maybe I think in a little bit on the longer term Outlook as well. I know that, uh, for the EOS, you guys were initially primarily focused on, um, academic centers has that changed, uh, so far or are you moving on towards, uh, broadening the, uh, potential targets as well?

I think it's going to extend way past there because, you know, there's a joke in the spine businesses that all surgeons are deformity surgeons. They either create a more fix them. And um, and so even in short, segments surgery, the value of EOS is, is highly valuable. And so, what we're seeing right now is probably a predominance of of academics, which, again, we love because now we're getting into be more relevant within the academic sector, we're seeing some private and then we're seeing some, um, upgrades, uh, from uh, previous pediatric institutions that start to see the software of value that we're creating with, with EOS insight. And so, um, it is a, I would still say the, the very early phase of the whole EOS experience. Um, uh, and I I expect it will just get more robust.

Uh, great, that's very helpful. Thanks again for taking my question.

Thanks, Sean.

This concludes today's question and answer session, I would now like to turn the call back over to Pat, for closing or marks,

Thanks Lacey. Just uh, uh, more than anything when I um, thank the team for their work. It's uh, what a great quarter, uh, appreciate everybody's support. And what we're doing, we have a long run ahead of us, but the foundation's been laid for uh for future Prosperity. So anyway, appreciate everybody's work and uh, thanks for your interest.

this concludes today's conference call, you may disconnect

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