Q2 2026 Alphatec Holdings Inc Earnings Call

August 4, 2026

Operator: Good afternoon, everyone, Welcome to the Webcast of ATEC's Q2 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 US 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. Sell-side analysts planning to ask a question must be registered through the dedicated analyst link included in today's materials.

Speaker #1: 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.

Speaker #1: During this call, you may hear the company refer to non-GAAP or adjusted measures. Reconciliations of these measures to US 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.

Speaker #1: Sell-side 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 Q&A queue.

Operator: If you have not yet registered, please do so now to be included in the Q&A queue. Leading today's call will be ATEC's Chairman and CEO, Pat Miles, and CFO, Todd Koning. Now I'll turn the call over to Pat Miles.

Speaker #1: Leading today's call will be ATEX Chairman and CEO, Pat Miles, and CFO, Todd Koning. Now, I'll turn the call over to Pat Miles.

Speaker #2: Thank you so much, I appreciate it. Welcome to our Q2 2026 financial results call. There will be some forward-looking statements, so please review them at your leisure.

Pat Miles: Thanks much. Appreciate it. Welcome to our Q2 2026 financial results call. There will be some forward-looking statements, 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, 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, now it's dropping to the bottom line, creating profitable growth.

Speaker #2: 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%.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: Eos came in at 17 million dollars for the quarter. Fundamentally, Eos affords us The business is access. And as importantly, accelerated hardware usage from Eos Insight when it goes live.

Pat Miles: EOS came in at $17 million for the quarter. Fundamentally, EOS affords us access, 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, 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.

Speaker #2: 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.

Speaker #2: We are just getting started. Over to you, Todd.

Speaker #3: Thank you, Pat. The second quarter results reflect the continued strength and consistency of the company we are building. We delivered strong revenue growth, significant profitability expansion, and positive free cash flow, extending our track record of converting top-line performance into meaningful financial results through disciplined execution and scale.

Todd Koning: Thank you, Pat. The Q2 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.

Speaker #3: 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.

Speaker #3: Consistent with recent quarters, we continue to see robust surges in adoption and procedural volume growth—clear indicators of long-term demand for our procedural solutions.

Speaker #3: Total revenue was 214 million dollars, up 15% year over year. With surgical revenue of 196 million dollars, growing 17%. A 28 million dollar increase over the prior year period.

Speaker #3: 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 ads and case volume both at or above 20% again this quarter, speaks to the ongoing momentum and durability in our surgical business.

Todd Koning: 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 remained 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.

Speaker #3: 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.

Speaker #3: Improving biologics attachment remains an area of focused execution. Encouragingly, and consistent with prior periods, our average revenue per case across individual core procedures remained strong.

Speaker #3: 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.

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

Speaker #3: 17 million dollars in the quarter, up from 14 million dollars in Q1, and essentially flat year over year. With demand for systems remaining strong.

Speaker #3: EOS Insight adoption continues to grow, and we are seeing increasing evidence that these accounts become meaningful adopters of our procedural solutions following implementation. Turning to EOS, revenue was...

Speaker #3: Among established Eos Insight accounts, implant revenue increased approximately 32% within six months of go-live. These results reinforce the strategic value of Eos and Eos Insight as important drivers of surgeon engagement, procedural adoption, and long-term growth.

Speaker #3: 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.

Speaker #3: 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.

Todd Koning: 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.

Speaker #3: The combination of strong revenue growth, gross margin expansion, and disciplined execution drove adjusted EBITDA of 36 million dollars, up approximately 53% year over year.

Speaker #3: Adjusted EBITDA margin expanded 420 basis points to 17%, providing further proof of the increasing scalability of our operating model and our ability to deliver expanding profitability.

Speaker #3: Turning to the balance sheet, we ended the quarter with approximately 119 million dollars in cash and 85 million dollars of available borrowing capacity. Providing roughly 204 million dollars of total liquidity.

Speaker #3: We generated 34 million dollars of operating cash flow during the quarter while investing approximately 33 million dollars of inventory and instrument sets to support continued surgeon adoption growth of more than 20% and position the business for the expected revenue ramp in the second half of 2026.

Todd Koning: We generated $34 million of operating cash flow during the quarter, while investing approximately $33 million of inventory and instrument sets to support continued surgeon adoption growth of more than 20% and position the business for the expected revenue ramp in H2 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 Q3 to reach $4 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, extends our maturities to 2031, and is expected to reduce annual interest expense by more than $6 million.

Speaker #3: 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.

Speaker #3: We expect a third quarter to reach 4 million to 6 million dollars of free cash flow. During the quarter, as we announced previously, we completed our new term loan A and revolving credit facility with JP Morgan and TD Callan.

Speaker #3: 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 dollars.

Speaker #3: 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.

Todd Koning: 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 H2 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 H2 and exit the year. This implies that H2 surgical revenue growth will accelerate to 18% from 17% in H1 of the year.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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 dollars, representing a 16% margin up from our prior outlook of 134 million dollars, we continue to expect at least 20 million dollars of free cash flow for the full year.

Todd Koning: 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.

Speaker #3: 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.

Speaker #3: With that, I'll turn the call back to Pat.

Speaker #2: Thanks, Todd. Our strategy is unchanged because it is working. If we go back eight years since we started the ATEC turnaround, we have 10x the quarterly revenue.

Pat Miles: Thanks, Todd. Our strategy is unchanged because it is working. If we go back 8 years since we started the ATEC turnaround, we have 10Xed the quarterly revenue. I don't say this because it reflects a destination, but more to reinforce that we are doing things differently. For us, it is more of a starting point. We are generating results because we remain committed to creating clinical distinction, earning surgeon adoption, and building an aligned sales machine that scales. That's been our model for years. Serve spine surgery uniquely well, earn surgeon trust, and evolve the sales model. Creating clinical distinction is the root of everything we do. We don't focus on designing individual products. We integrate them into procedures that make for better surgical intervention. Adoption and growth come because the surgeons whose trust we've earned make the clinical decision to keep expanding what they do with us.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: We integrate them into procedures that make for better surgical interventions. Adoption and growth come because the surgeons whose trust we've earned make the clinical decision to keep expanding what they do with us.

Speaker #2: We know that philosophy is working because surgeon demand remains very high. But clinical distinction only compounds if you have the sales machine to carry it into the field.

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

Speaker #2: An 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.

Speaker #2: Do something Our disciplined, 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.

Speaker #2: 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.

Speaker #2: 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.

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

Speaker #2: I was reminded of this recently while watching a lateral case. What used to be a long surgery with a myriad of variables is now a reproducible, efficient, and confidence-building surgeon experience.

Speaker #2: The benefits of lateral surgery for patients have been apparent for decades. The challenge has been enabling more surgeons to feel confident that they can predictably perform the procedure safely and reproducibly.

Speaker #2: The advancements we've introduced to lateral surgery, including SAFEOM, Valence, patient positioners, retractors, and implants—all designed to function as an entire comprehensive procedure—have produced a compounding effect on growth.

Speaker #2: 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.

Pat Miles: 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 convoyed 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.

Speaker #2: 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.

Speaker #2: Once surgeons trust you in lateral, they expand their utilization across other procedures, such as cervical, TLIF, and posterior fixation. That's how surgeon utilization compounds. More surgeon users applying multiple products within each procedure is how we drive convoyed sales.

Speaker #2: 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.

Speaker #2: 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.

Pat Miles: EOSedge 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.

Speaker #2: 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.

Speaker #2: 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 surgeon who are learning alignment-based, data-driven surgery from the outset.

Speaker #2: 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 marrow density assessment, surgical planning, and patient-specific rods.

Speaker #2: Over time, Eos builds something more valuable than one product. It generates a structured data set. That becomes the moat. We are already realizing the benefit to the tune of about 32% revenue live per surgeon after Eos insight is adopted.

Pat Miles: Over time, EOS builds something more valuable than one product. It generates a structured data set. That becomes the moat. We are already realizing the benefit to the tune of about 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.

Speaker #2: This is still just the beginning and insight provide, but early returns are very encouraging. Turning to surgical execution. Historically, spine companies competed around implants.

Speaker #2: 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 SAFEOM.

Speaker #2: Interoperably, 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.

Speaker #2: 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.

Pat Miles: We've been very deliberate with Valence. Our near-term focus has been getting the experience right through expanded utilization. We've always thought 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 are 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.

Speaker #2: We've always thought of Valence as a foundation for 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 capabilities while strengthening the technology foundation we're building.

Speaker #2: We don't view Valence as another navigation platform. We believe it will become the operating system to which more of the procedural experiences orchestrated. SAFEOM plays an equally important role.

Speaker #2: It continues to evolve and expand in its utility across more procedures. It's a source of real-time, actionable intelligence around neurolocation and health, helping surgeons make better real-time decisions intraoperatively.

Speaker #2: When you combine improved surgeon decision-making through Eos insight with interoperative technology such as Valence and SAFEOM with a 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.

Pat Miles: 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 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.

Speaker #2: Our aim is to be indispensable. EOS, Valence, and SAFEOM move us meaningfully closer to that objective. Another area where we are seeing growing influence is in deformity.

Speaker #2: 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 marrow 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.

Speaker #2: 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.

Pat Miles: 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 is proof 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 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.

Speaker #2: International growth is proof that our Clinical Distinction model translates globally. We've been deliberate in focusing our efforts on some of the most attractive spine markets in the world: Japan, Australia, and New Zealand.

Speaker #2: And we're seeing the model play out as intended: clinical distinction drives surgeon confidence, surgeon confidence expands utilization, and utilization drives growth. As we enter these new markets, we're exporting and replicating a proven model.

Speaker #2: And 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.

Speaker #2: 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.

Pat Miles: 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 convoyed 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.

Speaker #2: Clinical distinction compels surgeon adoption, surgeon adoption expands utilization, utilization compounds over time. The encouraging thing is that multiple casts are now reinforcing that algorithm simultaneously.

Speaker #2: We have procedural innovation driving the convoyed sales effect. Lateral continues to earn surgeon confidence and expand utilization. Eos and Eos insight are creating access and building a differentiated informatics platform.

Speaker #2: 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.

Speaker #2: 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.

Pat Miles: 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 H2. 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 rebound nicely in Q2, reinforcing our confidence in the opportunity ahead. International 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.

Speaker #2: 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.

Speaker #2: 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 and the opportunity ahead.

Speaker #2: International 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.

Speaker #2: 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 multiple of the market and turn that growth into profitability and cash.

Pat Miles: 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. We 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.

Speaker #2: We are the preferred destination in spine: best surgeons, best talent, and best outcomes. It's a long game, and we believe the long game belongs to us.

Speaker #2: 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.

Speaker #1: As a reminder, sell site analyst 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 Q&A queue.

Operator: As a reminder, sell-side 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 Q&A queue. If you would like to ask a question, please press star one one to raise your hand. To withdraw your question, please press star one 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 Vik Chopra with BMO Capital Markets. Your line is now open.

Speaker #1: If you would like to ask a question, please press star one-one to raise your hand. To one-one again. We will now open the floor for questions.

Speaker #1: And consideration of others, please limit yourself to one question. The first question comes from Vic Chopra with BMO Capital Markets. Your line is now open.

Speaker #3: 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?

Vik Chopra: 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?

Speaker #4: Yeah. Vic, 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, they're just there is so much opportunity out there.

Pat Miles: Yeah. Vik, thanks for the question. I'll start. I think that the lateral piece is in its infancy. I would love to see more TLIF turn into lateral and, as a 10% market share holder, there is so much opportunity out there. It's kind of crazy. I see from a sales force efficiency perspective, just picking up more of that business. Clearly, we'll talk about it, but disappointed in some of the biologic attachments, so there's opportunity to pick up just more biologic attachment to the volume of procedures that we're doing. Totally bullish on the H2. 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. We're in its infancy. I think EOS, the influence coming from EOS is in its infancy.

Speaker #4: It's kind of crazy. And so I see from a sales force efficiency perspective, just picking up more of that business. Clearly, we'll talk about it, but disappointed in some of the biologic attachments.

Speaker #4: So there's opportunity to pick up just more biologic attachment to the volume of procedures that we're doing. And so, totally bullish on the back half.

Speaker #4: 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. We're in its infancy.

Speaker #4: I think Eos, the influence on 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.

Pat Miles: There's just tons of places I see as being opportune for us to continue to grow at an outpaced rate.

Speaker #5: And Vic, I'd add just on the scaling and how that translates to the profitability of the business. Clearly, you saw strong profitability drop through—about 45% here in the second quarter.

Todd Koning: Vik, I'd add just on the scaling and how that translates to the profitability of the business. Clearly, you saw a strong profitability drop through about 45% here in the Q2. We raised the guidance really on the strength of an improving gross margin profile in the H2 of the year. Last year, we dropped through about 40% of the revenue growth to profitability. Our guidance implies about the same 40%. Feel quite good about our ability to continue to grow the business and see that scale and improved profitability profile as we grow.

Speaker #5: 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.

Speaker #5: Our guidance implies about the same 40%. And so I feel quite good about our ability to continue to grow the business and see that scale and improved profitability profile as we grow.

Speaker #4: 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.

Pat Miles: Just as an add to that, I think, the structure's been built.

Todd Koning: Correct.

Pat Miles: I think, when you start to think about the ecosystem from a product perspective, 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 out the scale.

Speaker #5: Correct.

Todd Koning: Correct.

Speaker #3: Can I just ask a quick follow-up? Pat, you mentioned the biologic attachment rate. I think you said in your prepared remarks that it stabilized during the quarter.

Vik Chopra: Can I just ask a quick follow-up, Pat? 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.

Speaker #3: 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?

Speaker #3: Thank you.

Speaker #4: Yeah, I think the two things in the near term are more discipline from a selling perspective—which is clearly a key one—and we're also going to continue to put the pedal to the metal on new products.

Pat Miles: Yeah. 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, 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 outside of BMP to create real product distinction. That's why we did the Theradaptive Inc. deal.

Speaker #4: 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.

Speaker #4: I think it's one of the hardest places outside of BMP to create real product distinction, and that's why we did the third adaptive deal.

Todd Koning: Yep.

Pat Miles: It's one of those things where it's like, we realize 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 this space. It's the one that's gone through the IDE. We'll have gone through the IDE with Theradaptive Inc.. 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.

Speaker #4: 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 is doing $700 million in BMP.

Speaker #4: 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 their adaptive.

Speaker #4: 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.

Speaker #1: Thank you. Our next question comes from Matthew Blackman. Your line is now open.

Operator: Thank you. Our next question comes from Mathew Blackman of TD Cowen. Your line is now open.

Speaker #6: Good afternoon, everybody. Can you hear me okay?

Mathew Blackman: Good afternoon, everybody. Can you hear me okay?

Speaker #5: Loud and clear.

Todd Koning: Loud and clear.

Pat Miles: Yes.

Mathew Blackman: Great, guys. I've got one and a half questions. Both for Todd. I guess the half question, any chance you would be willing to break down the 20% worldwide surgical procedure growth into US versus OUS? Just curious if we could get some geographic granularity on that, and then one follow-up.

Speaker #6: Great, guys. So I've got one and a half questions. Let's start with—and both are 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?

Speaker #6: Just curious if we could get some geographic granularity on that and then one follow-up.

Speaker #5: Matt, we're not breaking that out at the moment. I think as we get more meaningfully sized outside the US, we'll begin to break that out.

Todd Koning: Matt, we are not breaking that out at the moment. I think as we get more meaningfully sized outside the US, we will begin to break that out. It is a growing contribution, for sure.

Speaker #5: But it is a growing contribution. For sure.

Speaker #6: Okay. And I guess the real question is, obviously, you had talked about revenue for procedure for the full year. When we spoke last quarter, being flattish, now you're talking about sort of being down low single digits.

Mathew Blackman: Okay. 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 are talking about sort of being down low single digits. Can you just tell us what changed? Is it that the biologics attachment rate, is it still outsized cervical uptake or is deformity lagging? Just any help into understanding the change in the outlook for the revenue per procedure, and then I will hop back in queue. Thank you.

Speaker #6: Can you just tell us what changed? Is it the biologics attachment rate? Is it still outsized in cervical uptake, or is deformity lagging? Any help in understanding the change and the outlook for revenue per procedure would be appreciated.

Speaker #6: And then I'll hop back to you. Thank you.

Speaker #5: Yeah, 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.

Todd Koning: Absolutely, Matt. I think, one, it is important to note, we grew volumes in the H1 20%, and our guidance implies high teens volumes in the H2. 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 mixed headwind, and that may be a little bit more of a mixed headwind than our guidance implied. Fundamentally, it is the fact that our biologics attach rate has stabilized rather than improved. What we did was we include less improvement in the H2 than we 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 H2.

Speaker #5: 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 mixed headwind.

Speaker #5: And that may be a little bit more of a mixed headwind than our guidance implied. But fundamentally, it's the fact that our biologics attach rate has stabilized rather than improved.

Speaker #5: And so what we did was we include less improvement in the second half than we 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.

Speaker #5: 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.

Todd Koning: As we go into Q4, the revenue per procedure comps get just a bit easier. That's how we think about the H2 revenue per procedure.

Speaker #6: Okay, fair enough. I just wanted to make sure—it does sound like it's cervical mix, maybe a slower ramp on biologics, but importantly not sort of lagging on the deformity side.

Mathew Blackman: 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 Q2 isn't the biggest quarter, but Q3 certainly could be. I just wanted to make sure-

Speaker #6: I know Q2 isn't the biggest quarter, but Q3 certainly could be. I just wanted to make sure that opportunity is still sort of front and center.

Todd Koning: Sure

Mathew Blackman: That opportunity's still sort of front and center.

Speaker #5: Yeah, you're right, Matt. I think the point is that when we looked at our revenue for procedure performance in the quarter, about three quarters of, I'll call it the miss in terms of rubber procedure of where we wanted it to be, was really a biologics phenomenon.

Todd Koning: Yeah, 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 phenomenon more than anything.

Speaker #5: More than anything.

Speaker #4: Yeah, I was going to bite in. Yeah. I was going to bite in that. Yeah, just the deformity influence just continues to grow as expected.

Mathew Blackman: Okay. Thank you.

Pat Miles: Yeah. I was going to pipe in.

Mathew Blackman: Go ahead, Pat.

Pat Miles: Yeah. Just the deformity influence just continues to grow as expected. 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.

Speaker #4: 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.

Speaker #6: 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.

Mathew Blackman: You also have more deformity sets out the Q3 than you did last year, right? That's also part of the incremental CapEx spend this year?

Speaker #4: Yep.

Pat Miles: Yep.

Speaker #6: Okay, fair enough. All right, thank you. I'll get back in the queue.

Mathew Blackman: Okay. Fair enough. All right. Thank you. I'll get back in the queue.

Operator: The next question comes from Allen Gong of JPMorgan. Your line is now open.

Speaker #1: The next question comes from Alan Gong of JPM. Your line is now open.

[Analyst] (JPMorgan): 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? Just a quick follow-up.

Speaker #7: Hi, this is Henry on for Alan. I appreciate you taking the questions. Recently, from some of the other ortho companies, we've heard indications of maybe some procedure volume slowdowns.

Speaker #7: 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.

Speaker #4: Yeah. I'll let Todd speak to the ACA change, but the dynamic is one where our volume was robust. Our new surgeon additions were robust. I think it's fascinating in terms of what's elective and what's not.

Pat Miles: Yeah. I'll let Todd speak to Affordable Care Act change. The dynamic is one of our volume was robust, our new surgeon additions were robust. I think that it's fascinating in terms of what's elective and what's not. 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. We're a proxy for nothing, just as a quick point. We're seeing robust volumes and kind of a consistent marketplace. Todd, you-

Speaker #4: 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.

Speaker #4: 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.

Speaker #4: And so Todd.

Todd Koning: Yeah. Just on the Affordable Care Act piece, we've done some analysis, and I think our work would suggest that we're probably less than 5% exposed to Affordable Care Act volumes. We really think it's a non-factor for us.

Speaker #5: Yeah. 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 volumes.

Speaker #5: So, we really think it's a non-factor for us.

[Analyst] (JPMorgan): Thanks. Turning to gross margins a little bit, it was obviously a great quarter from that perspective. Is there anything in particular you'd both like to call out on the performance this quarter, and then looking forward, how sustainable can we expect results like this to be?

Speaker #7: 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’d like to call out on the performance this quarter?

Speaker #7: And And then looking forward, how sustainable can we expect results like this to be?

Speaker #5: 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 —

Todd Koning: Thanks, Henry. I think the three things I called out in my prepared remarks were just inventory efficiency, that's really just a function of the good work our operations team and our sales channel have done in terms of improving our.

Pat Miles: Accept any one

Speaker #4: Accept terms one.

Todd Koning: Yeah, just 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. 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. It's also the work of or the result of just volume efficiency with our supply chain partners. I think, again, from an operations and engineering standpoint, good work is being rewarded from a gross margin standpoint there. The third piece is the mix.

Speaker #5: Yeah, just 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.

Speaker #5: 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, we've improved some cost reduction.

Speaker #5: 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. So or it's also the work of or the result of just volume efficiency with our supply chain partners.

Speaker #5: So, I think, again, from an operations and an engineering standpoint, good work is being rewarded from a gross margin standpoint there. And then the third piece is the mix.

Speaker #5: And so, we had less biologics and less EOS mix in the quarter. Both of those things are a function of the sales dynamic.

Todd Koning: We had less biologics and less EOS mix in the quarter, and so both of those things are a function of the sales dynamic. As you look in H2, we obviously have a lot more EOS mix in H2 than we do in H1, which is why our guidance would imply something closer to 71%, which is about 50 basis points better than what our previous guidance would've implied in H2.

Speaker #5: 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.

Operator: The next question comes from Thomas Stephan of Stifel. Your line is now open.

Speaker #1: The next question comes from Tom Steven of Stifel. Your line is now open.

Thomas Stephan: 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 Q3. Hopefully my math here is right, but that implies $25 million or so in Q4 to get to the $20 million plus, which is a pretty big step up sequentially in year-over-year. I think in Q2, free cash flow might've been down a bit year-over-year. Todd, talk to the, I guess, drivers of that improvement, notably as we exit 2026, and where your level of confidence stands in achieving that $20 million-plus free cash flow number for the full year. I'll have a follow-up.

Tom Stephan: 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 Q3. Hopefully my math here is right, but that implies $25 million or so in Q4 to get to the $20 million plus, which is a pretty big step up sequentially in year-over-year. I think in Q2, free cash flow might've been down a bit year-over-year. Todd, talk to the, I guess, drivers of that improvement, notably as we exit 2026, and where your level of confidence stands in achieving that $20 million-plus free cash flow number for the full year. I'll have a follow-up.

Speaker #2: Great. Hey guys, thanks for taking the questions. First one, just on free cash flow. Todd, maybe for you, I think you mentioned four to six million in 3Q.

Speaker #2: 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.

Speaker #2: And I think in the second quarter, free cash flow might have been down a bit year over year. So Todd, talk to the, I guess, drivers of that improvement notably as we kind of exit 2026.

Speaker #2: 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.

Speaker #5: Thanks, Tom. So we, as I noted on my call, we've invested 33 million dollars this quarter frankly, we invested about the same amount in the first quarter.

Todd Koning: Thanks, Tom. We, as I noted on the call, we've invested $33 million this quarter. Frankly, we invested about the same amount in Q1. If our range is $90 million to $100 million on the full year, we've done $66 million. We've front-loaded that investment, and clearly that's purposeful to take advantage of the growth opportunities we have in H2. 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 H2 on revenue growth to EBITDA, you come to the conclusion that our Q3 to Q4 step-up in EBITDA is about $10 million. If we deliver $5 million as a midpoint on the free cash flow in Q3, you add $10 million of it to that to get to Q4, now you're at $15 million.

Speaker #5: So, if our range is 90 to 100 for 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.

Speaker #5: And so if you look at where we are today and if you take a drop through of 36 and a half percent 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.

Speaker #5: And so if we deliver $5 million as a midpoint on the free cash flow in Q3, you add $10 million of it to that to get to Q4.

Speaker #5: 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.

Todd Koning: Knowing that you're going to spend less on sets and inventory in Q4 than you do in Q3 by the order of probably 10 to 15 or so, that really is that bridge that gets you from $5 million to $25 million, Tom. 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 Q4 than you are really in the first three quarters.

Speaker #5: 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.

Speaker #2: 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.

Thomas Stephan: Got it. Super clear. Thanks for that, Todd. Appreciate it. Maybe to shift gears a bit just to surgical. Pat or Todd, it'd be great if you could comment on surgical trends throughout Q2, exiting Q2 and notably into Q3. 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 Q2. Maybe if you can talk to surgical trends, and what drives your confidence in sustaining this Q2 performance through the back half. Thanks, guys.

Tom Stephan: Got it. Super clear. Thanks for that, Todd. Appreciate it. Maybe to shift gears a bit just to surgical. Pat or Todd, it'd be great if you could comment on surgical trends throughout Q2, exiting Q2 and notably into Q3. 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 Q2. Maybe if you can talk to surgical trends, and what drives your confidence in sustaining this Q2 performance through the back half. Thanks, guys.

Speaker #2: I guess when I look at the implied guide to hit surgical, which you maintained, I think it does require the two-year CAGR and the back half to remain fairly consistent with the second quarter.

Speaker #2: 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.

Speaker #2: Thanks, guys.

Speaker #5: Yeah. Yeah, thanks, Tom. I think a things. When you looked at the couple Q2, we were at 28 million dollars. And that's compared to 26 million dollars in the first quarter.

Todd Koning: Yeah. Thanks, Tom. I think a couple things. When you looked at the year-over-year dollar adds in Q2, we were at $28 million. That's compared to $26 million in Q1. Surgical dollar adds year-over-year accelerated Q1 to Q2, that's good. The year-over-year growth at 17% stabilized from Q1, I think that's another good measure. When you look at the year-over-year two-year CAGRs to your point, it actually is a bit of an acceleration in Q2 over Q1, the same holds for the dollar add rate in Q2 over Q1. I think the trends, I think, all point to a stabilizing and improving environment as we've worked through the H1 so far. I really point to the fact that we've seen north of 20% surgeon adds. That's generated 20% surgical volume.

Speaker #5: So surgical dollar adds year-over-year accelerated Q1 to Q2. So that's good. The year-over-year growth at 17% stabilized from the Q1. So that's another good measure.

Speaker #5: When you look at the year-over-year, two-year CAGRs to your point, it actually is a bit of an acceleration in Q2 over Q1. And in the same holds for the dollar add rate, in Q2 over Q1.

Speaker #5: So I think the trends, I think, 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% surge in ads.

Speaker #5: That's generated 20% surgical volume. That surgical volume growth at 20% is north of the high teams. That's implied in the guide in the second half.

Todd Koning: That surgical volume growth at 20% is north of the high teens that's implied in the guide in the H2. 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. We think we're well-positioned from a sales force and a set addition standpoint, we have the assets to drive the revenue. I think the dynamics that have really gone on in the H1 of the year all point to our confidence in the H2.

Speaker #5: 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.

Speaker #5: And so we think we're well positioned from a 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.

Speaker #2: Fantastic. Thanks again.

Thomas Stephan: Fantastic. Thanks again.

Tom Stephan: Fantastic. Thanks again.

Speaker #1: The next question comes from Patrick Wood of UBS. Your line is now open.

Operator: The next question comes from Patrick Wood of UBS. Your line is now open.

[Analyst] (UBS): Team, you've got Daniella on for Patrick. Appreciate you taking my question. 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. I was wondering if you've also seen outsized demand for Valence at those facilities, or perhaps it's more the outpatient ASC setting, since I'm sure the smaller footprint and lower ASP versus peers is a great value prop. Any color you could give on the facility mix of placements would be very helpful.

Speaker #3: Hi, team. You've got Daniela on for Patrick. Appreciate you taking my question. I wanted to ask you about valence and how the launch has been going.

Speaker #3: 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 outside 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.

Speaker #3: So any color you could give on the facility mix of placements would be very helpful.

Speaker #4: Yeah. 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 is kind of been both.

Pat Miles: Yeah. I wish I could provide great distinction because your question is totally relevant. 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. It's gone kind of as we expected. The real virtue, in my mind, just becomes the elegant workflow of it. There's an infield camera, which may seem like a small thing to you guys, but it's completely controllable by the surgeon. 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. What we're seeing is kind of a mix in terms of both academic and community hospital and ASC-type utility.

Speaker #4: And it's gone kind of as we expected. The real virtue in my mind, just becomes the elegant workflow of it. There's a in-field camera, which may seem like a small thing to you guys, but it's completely controllable by the surgeon.

Speaker #4: And I think what's been the great reception is just the ability to, again, control all the variables within the procedure. Because the cost of goods, one would presume this is a great ASC tool, which we believe it to be as well.

Speaker #4: But what we're seeing is kind of a mix in terms of both academic and community hospital and ASC type utility. So I wish I could provide you some great insight other than the fact that the utilization is going as planned.

Pat Miles: I wish I could provide you some great insight other than the fact that the utilization's going as planned. We're placing as many as we had 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.

Speaker #4: We're placing as many as we expected to. And most of them are going the way of earn-out type of dynamics. It's people aren't coming up with capital in the same way they did years ago.

Speaker #3: Very helpful. Thank you, guys.

[Analyst] (UBS): Very helpful. Thank you, guys.

Speaker #1: The next question comes from David Saxon of Needham and Company. Your line is now open.

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

David Saxon: 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 H2 versus 20% in the H1. I guess directionally, slow down. What's driving that? On the case mix perspective, cervical starts to face tougher comps, I believe. Just your level of confidence in sustaining the lateral case volume growth so you can in fact start to see that better case mix. Thanks so much.

Speaker #5: Great. Good afternoon, Pat and Todd. Thanks for taking my question. I wanted to follow up on the case volume growth assumption. The high teams and the back half versus 20% in the first half.

Speaker #5: So I guess, directionally, things are slowing down. What's driving that? And then, on the case mix perspective, cervical starts to face tougher comps, I believe. So just your level of confidence in sustaining lateral case volume growth.

Speaker #5: So you can, in fact, start to see that better case mix. Thanks so much.

Speaker #4: Yeah, I'll do the subjective, and I'll let Todd do the quantitative, which is always harder. But what we're seeing is really kind of new product acceptance on the lateral side.

Pat Miles: Yeah. 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, there's a lot of enthusiasm and momentum. PTP continues to show up big. 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, 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. I think numerically, we're just trying to be as thoughtful as we possibly can in terms of being methodical.

Speaker #4: 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 there.

Speaker #4: 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.

Speaker #4: But 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.

Speaker #4: And so.

Speaker #5: Yeah. I think David, your question is a 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're just reaffirmed our full-year guide.

Todd Koning: Yeah, I think, David, your question is, hey, volumes were 20%, but we're guiding to high teens. Why the deceleration from a volume standpoint? I would just point to the fact that we just reaffirmed our full-year guide. We beat the consensus a bit in the Q2. 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 Q2.

Speaker #5: We beat the consensus a bit in the first or 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.

Speaker #2: Great. Thanks so much.

David Saxon: Great. Thanks so much.

Speaker #1: The next question comes from Caitlin Roberts of Canaccord Genuity. Your line is now open.

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

Speaker #6: Hey, guys. It's Michaela for Caitlin. Congrats on a solid quarter. And thanks for taking the question. Last quarter, you outlined some initiatives to improve your EOS execution.

[Analyst] (Canaccord Genuity): Hey, guys. It's Mikaela on 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? Are there any additional investments you need to make? Maybe if you can talk more about what you're seeing so far into Q3 and how we should think about placements throughout the remainder of the year. Sorry, that was a long one.

Speaker #6: 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 the Q3 and how we should think about placements throughout the remainder of the year.

Speaker #6: Sorry, that was a long one.

Speaker #4: No. It's a good one. Can I tell you the EOS thing is one of the biggest differentiators that we have within the whole ecosystem.

Pat Miles: No, it's a good one. Can I tell you, the EOS thing is one of the biggest differentiators that we have within the whole ecosystem, and it is a foundational tool. As I said in my prepared remarks, I don't know of a more clinically relevant tool there is. 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. Here's an example. I'll get right to the answer to the questions. 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. When you start to think about, Hey, I'm going to do a surgery.

Speaker #4: 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.

Speaker #4: 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.

Speaker #4: 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.

Speaker #4: 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.

Pat Miles: 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. 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. 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. The great part is, it's a private group generating revenue in their clinic that ultimately effectuates better surgery. It's the very thesis that we've laid down in terms of just why we're doing what we're doing.

Speaker #4: 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.

Speaker #4: And so the types of institutions that are coming forth and buying into this thesis has been significant, both from an academic perspective what's been interesting is we've seen placements in the community as well.

Speaker #4: 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.

Speaker #4: 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.

Speaker #4: 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.

Pat Miles: The other thing is you're seeing the translation of EOS Insight. I think we gave, if you're using EOS Insight, we're seeing a 32% increase in revenue in that institution. You start to see, gosh, these things are starting to take hold. 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. The type of sophistication that we've brought into the company that's guiding and leading those efforts, it's a different day, and the sophistication is far better. 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.

Speaker #4: 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.

Speaker #4: 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.

Speaker #4: 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.

Speaker #4: 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 eight years I've been here, as we've integrated a technology.

Pat Miles: I don't see us needing a significantly different group, but I would tell you that what we're doing is just getting better. That's kind of how we've been throughout the entirety of the eight years I've been here, is we've integrated the technology, we've improved the technology, and we've gotten significantly better. The same thing is taking place today, right now.

Speaker #4: We've improved the technology, and we've gotten significantly better. And the same thing is taking place today, right now.

Speaker #6: Great. Thanks so much.

[Analyst] (Canaccord Genuity): Great. Thanks so much.

Speaker #1: The next question. Comes from Lawrence Beagleson of Wells Fargo. Your line is now open.

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

Speaker #5: Hey. Thanks for

Larry Biegelsen: 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 in ramp to hitting your guide? Looking to next year, should we expect incremental rep investment?

Lawrence Biegelsen: 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 in ramp to hitting your guide? Looking to next year, should we expect incremental rep investment?

Speaker #2: 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.

Speaker #2: 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?

Speaker #6: Yeah. I would say

Pat Miles: Yeah. 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. 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? It's some of the installation dynamics that ultimately create the challenge. Can I put it in a place where I'll get the volume required to ultimately offset the expense of it? I feel great about where we are. We're going to continue to get better. I will tell you, as it relates to our guide and what we look at to get to a billion in 2027, I feel great about where we are.

Speaker #4: a 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.

Speaker #4: I've never met a surgeon who doesn't want an EOS. The challenge becomes, really, as much as anything—it's even less price. It's more of, hey, do I have room for it?

Speaker #4: 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?

Speaker #4: And so I feel great about where we are. We're going to continue to get better. And 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.

Pat Miles: 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. 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.

Speaker #4: 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.

Speaker #4: 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.

Speaker #4: And so probably a lot of subjective commentary there, but I would tell you, I'm highly confident. We got the right team in place. We're going to continue to get better.

Speaker #4: And I like the setup.

Speaker #2: Thank you.

Larry Biegelsen: Thank you.

Lawrence Biegelsen: Thank you.

Speaker #1: The next question comes from Mason Carico with Stevens. Your line is now open.

Operator: The next question comes from Mason Carrico with Stephens. Your line is now open.

Speaker #5: 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?

Mason Carrico: 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 adds at least coming from surgeons starting in cervical or some other category?

Speaker #5: I know that lateral was the entry point, but is a larger share coming from or I guess recent new ads at least coming from surgeons starting in cervical or some other category?

Speaker #4: 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.

Pat Miles: You know what? It's been interesting, really. I would say the place that we're getting into sooner is in academic institutions. 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. 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. The great part though is, you know what? They ultimately all get to lateral, and the beauty is they start to buy into the whole procedural thesis, and that procedural thesis walks them there.

Speaker #4: It's the most predictable intervention that surgeons have as 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.

Speaker #4: And so the great part, though, is you know what? They ultimately all get to lateral. And the beauty is they start to buy into the whole procedural thesis and that procedural thesis walks them there.

Speaker #4: 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.

Pat Miles: I think when we started the turnaround of the company, we knew that the best place to distinguish ourselves was in the lateral realm. That was the place that everybody jumped in, and I would almost say that it was a more mature surgeon cohort. These 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.

Speaker #4: And I would almost say that it was a more mature surgeon cohort. And so these younger guys, I think, are just again, being very thoughtful and predictable.

Speaker #4: 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.

Speaker #5: Well, and I think it's also reflective of the fact that we've recently launched some fairly distinguished cervical portfolios.

Todd Koning: Well, I think it's also reflective of the fact that we've recently launched some fairly distinguished cervical portfolios.

Speaker #4: Products.

Pat Miles: Products

Speaker #5: Products that really are attracting people in a way they haven't in the past.

Todd Koning: products that really are attracting people the way they haven't in the past.

Speaker #4: Yeah, 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.

Pat Miles: Yeah. 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 a outstanding job.

Speaker #4: They've done an outstanding job.

Speaker #2: Got it. That's helpful. And then on the dynamic of EOS getting you in the door, it's some leading institutions and giving you a hunting license within them.

Mason Carrico: Got it. That's helpful. 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 one surgeon or multiple surgeons at once? Any incremental detail you're willing to give there?

Speaker #2: 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?

Speaker #2: Is it usually one surgeon or multiple surgeons at once? Any incremental detail you're willing to give there?

Speaker #4: Yeah. 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.

Pat Miles: Yeah. As you know, it becomes such a subjective walk and it's different in every place, be it academic or otherwise. 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. 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. Then we'll have a clinical account manager go out and spend time and ultimately familiarize them with the utility. Usually, I would say it's three or four guys that ultimately engage into that effort. Then what we've seen is it ramp.

Speaker #4: 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.

Speaker #4: And so, usually there's a few surgeons that are kind of driving that whole effort because they've been here, or they've experienced the utility of the software.

Speaker #4: 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 three or four guys that ultimately engage into that effort.

Speaker #4: And then what we've seen is it ramp. And what's been fun is seeing the patient-specific rods really start to take off and be the reflection of the utility of the EOS Insight software.

Pat Miles: What's been fun is seeing the patient-specific rods really start to take off and be the reflection of the utility of the EOS Insight software. Get the system in there, familiarize the group with our clinical account manager, 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, then start to reflect in patient-specific rods, which has just been phenomenal. 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. I think that initially people didn't understand why we were so enthusiastic with regard to the value that the EOS unit brings.

Speaker #4: And so get the system in there, familiarize the group, with our clinical account manager, 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.

Speaker #4: And then start to reflect in patient-specific rods, which is just been phenomenal. And so we've seen a meteoric rise in that. We've seen great engagement.

Speaker #4: And that's why you're seeing the 32% increase in places where we've installed the software. And so, it's not—I think that initially, people didn't understand why we were so enthusiastic with regard to the value that the EOS unit brings.

Speaker #4: We are in the infancy of it with regard to the alignment stuff, the case planning, the bone mineral density measures. The volume of things that we could integrate through this effort is huge.

Pat Miles: We are in the infancy of it with regard to the alignment stuff, the case planning, the bone mineral density measures. The volume of things that we can integrate through this effort is huge. We feel like we are in the early days of this, and that's why I think that there's so much bullishness in terms of the route forward.

Speaker #4: And so we feel like we are in the early, early days of this, and that's why I think there's so much bullishness in terms of the route forward.

Speaker #2: Got it. Thank you, guys.

Mason Carrico: Got it. Thank you, guys.

Speaker #4: Thanks.

Pat Miles: Thanks.

Speaker #1: The next question comes from Keith Hinton of Freedom Capital Markets. Your line is now open.

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

Speaker #5: Great. Yeah. 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?

Keith Hinton: Great. Yeah, just one on EOS Insight. Can you talk a little bit about where the penetration rate is for EOS Insight into the installed base, what your goals are for the next, say, 12 to 24 months? 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?

Speaker #5: 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?

Speaker #5: Or is it just sort of a matter of time across the board?

Speaker #4: Yeah. It's a great question. And I would say early I'd say 15 to 20 percent on the EOS fleet. But the great part is it's happening in a it's happening in a hurry.

Pat Miles: Yeah. It's a great question, I would say early, I'd say 15% to 20% on the EOS fleet. The great part is it's happening in a hurry. The other thing that 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. 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. 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 on adults.

Speaker #4: The other thing that I think is relevant is EOS was such a foundational pediatric tool. The whole low dose was the original attraction to a lot of the hospitals that acquired them.

Speaker #4: 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.

Speaker #4: 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.

Speaker #4: 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.

Pat Miles: 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. When you start to think about where we are in the phase of this, we are in its absolute infancy. Like, the volume of EOS units can continue to multiply over the next 10 years, and the type of insights and the type of data collection that we could do and the translation of that data collection ultimately moves the field forward. We remain totally bullish. I would tell you that we're early in the experience if only 20% of the installed base has EOS Insight. As you can appreciate, we have to get through the data-sharing elements, but that's going much more expedient than we would've expected.

Speaker #4: And so when you start to think about where we are in the phase of this, we are in its absolute infancy. The volume of EOS units can continue to multiply over the next 10 years.

Speaker #4: 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.

Speaker #4: 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.

Speaker #4: 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.

Pat Miles: I think once people start to appreciate the features of the tool, they are in love with it.

Keith Hinton: Great, if I could just sneak in 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 that you're still expecting some improvement on bio-attach rate in the H2. If you were to not see that improvement and just have bio-attach be kind of flat versus the H1 of the year, how much potential downside would that create on the revenue per case side?

Speaker #5: Great. And then if I could just sneak in 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 that you're still expecting some improvement on bio attach rate in the back half.

Speaker #5: 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?

Speaker #4: Yeah. Not a ton, Keith. It's really only assumed in the fourth quarter.

Todd Koning: Yeah. Not a ton, Keith. It's really only assumed in the Q4.

Speaker #5: Okay. Great. Thank you.

Keith Hinton: Okay, great. Thank you.

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

Speaker #1: The last question comes from Sean Lee of HC Wainwright. Your line is now open.

Sean Lee: 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 surgeon users has remained strong and ahead of both the revenue and the case growth. I was wondering, generally, how long, how many quarters does it take for these surgeons to really become repeat users of Alphatec? On a longer-term perspective, from you, do we value breadth more in terms of more surgeons or depth in more procedures per surgeon? Thanks.

Speaker #6: Hey. Congrats on a great quarter, guys. And thanks for taking my questions. So I was thinking more on the longer term. I noticed that the growth in new surgeon users has remained strong and ahead of both revenue and the case growth.

Speaker #6: So I was wondering, generally, how long how many quarters does it take for these surgeons to really become repeat users of AlphaTech? And on a longer-term perspective, from your view, do value breadth more?

Speaker #6: And I think more surgeons or depth and more procedures per surgeon? Thanks.

Speaker #4: Yeah. 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, I think we really mean it.

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

Speaker #4: 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 get a certain comfort level and they I think there's kind of consistent dynamics around the design and development of certain goods.

Speaker #4: 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.

Speaker #4: 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 kind of the lack of familiarity with some of kind of the mechanisms and whatnot.

Speaker #4: But what's been interesting with the EOS thing is, I would tell you that the cohort we're attracting is a younger cohort. And, to me, it makes me happy because I think we have a longer run.

Pat Miles: What's been interesting with the EOS is I would tell you that the cohort that we're attracting is a younger cohort. To me, it makes me happy because I think we have a longer run. I think the type of impact that we've had on the academic institutions as of late, especially based upon the foundational EOS, has been really rewarding. Maybe we're not getting the big whale who we're turning from a different company, at the same rate we're getting the new guy who's utilizing or has a less busy practice, but growing into a busy practice. 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.

Speaker #4: 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.

Speaker #4: 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 the new guy who's utilizing or has a less busy practice.

Speaker #4: 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.

Speaker #4: 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.

Pat Miles: I think that the kind of dynamic that inspires them to join us is the assembly of goods, which is the procedural, which they have seen and heard about from the lateral. They'll try it in cervical, then they'll apply it to the lateral. 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.

Speaker #4: They'll try it in cervical, and 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.

Todd Koning: Yeah. The only thing I'd add to that, Sean, is every year in our Q4 call, we show how the different cohorts of surgeons grow in their utilization. So you can see a curve that's reasonably consistent over time. After maybe four or five years, that curve starts to bend a bit. But it's a pretty consistent experience over the first three to four years.

Speaker #5: Yeah. 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.

Speaker #5: And so you can see a curve that's reasonably consistent over time. And after, excuse me, after maybe four or five years, that curve starts to bend a bit.

Speaker #5: But it's a pretty consistent experience over the first three to four years.

Sean Lee: Great. That's very helpful. Much appreciated.

Speaker #6: Great. That's very helpful. Much appreciated.

Speaker #1: Thank you. I would now like to turn the conference back over to CEO Pat Miles for closing remarks.

Operator: Thank you. I would now like to turn the conference back over to CEO, Pat Miles, for closing remarks.

Speaker #4: Yeah. Just a thank you to all those on the call, especially the ATEC Faithful. Love what we're building. And thanks for your interest.

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

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

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