Alphatec Holdings, Inc. Q3 FY2026 earnings call

• Surgical Growth Drivers: Procedural volumes grew approximately 20%, with cervical volumes performing strongly to offset slower thoracolumbar trends. Surgeon adoption increased by approximately 25%, attracting more new surgeons than ever before.
• Biologics Challenges: Biologics revenue declined slightly year-over-year, creating drag on growth. Management attributes this to a lack of sales discipline and competitive pressure on pricing, rather than product efficacy. Actions are being taken to enforce stricter sales execution and contract access.
• EOS Strategy: EOS Insight is viewed as a critical entry point for deeper clinical workflow integration. While capital placements have been lumpy due to hospital budget cycles, demand remains strong. EOS Edge is present in over 70% of academic institutions with fellowship programs, influencing the next generation of spine surgeons.
• Valence Platform: Early feedback for the Valence platform is positive, with seamless integration into the PTP procedure. New indications, such as Navigated T-Lift, are expanding its utility beyond lateral approaches.
• International Expansion: A temporary supply constraint in Japan related to packaging/sterilization impacted international sales, but management praised the quality team's rapid response and remediation efforts.

Total revenue reached $221 million, up 13% year-over-year. Surgical revenue was $202 million (up 14%, contributing ~91% of total revenue), driven by a 17% increase in surgical hardware and a slight decline in biologics. EOS revenue was $20 million (up from $17 million in Q2, essentially flat year-over-year, contributing ~9% of total revenue). Adjusted EBITDA was $38 million, representing a 17% margin.

• Full-year 2026 Total Revenue: Lowered to approximately $862 million (previously implied higher growth), representing roughly 13% growth.
• Surgical Revenue: Expected at approximately $789 million (~15% growth).
• EOS Revenue: Expected at approximately $73 million.
• Adjusted EBITDA: Lowered to approximately $137 million (16% margin), up ~47% year-over-year.
• Free Cash Flow: Lowered to $10 million for the full year, implying ~$6 million in Q3 and ~$4 million in Q4 (Note: Transcript states $6M generated in Q3, implies remaining $4M for rest of year to hit $10M total, though CFO mentions $15M implication for Q4 earlier which seems contradictory to final $10M total; final guidance text says $10M total FY).
• Key Headwinds: Guidance reflects lower biologics attachment rates, market softness in thoracolumbar volumes, and a $3 million impact from international supply constraints.

• Biologics Leakage: Significant risk of revenue leakage in biologics due to competitive pricing pressures and internal sales discipline issues, undermining procedural value.
• Market Softness: Slower-than-expected growth in thoracolumbar procedure volumes, reflecting broader market headwinds.
• Capital Installation Lumpsiness: EOS revenue growth is constrained by inconsistent hospital capital availability and installation timelines, leading to unpredictable quarterly performance.
• International Supply Chain: Temporary sterilization/packaging defects in Japan caused disruptions, though resolved quickly.

Q: Analyst asked about the nature of biologics leakage—whether it is systemic or specific to certain customer segments. / A: CEO Pat Miles explained that leakage occurs because competitors target ATEC’s growing procedure volume by undercutting on the least differentiated element: biologics. He described it as a "lack of discipline" in sales execution where hospitals use separate RFPs for biologics to drive down costs. Management is responding with stricter sales accountability ('carrot and stick') and improved contractual access to protect procedural value.

Q: Analyst inquired about the durability of the market softness in thoracolumbar volumes and whether it signals a structural shift. / A: CFO Todd Koning and CEO Pat Miles clarified that while overall procedural volume grew 20%, thoracolumbar specifically slowed due to broader market dynamics, not competition. They noted that younger surgeons are adopting procedures faster but starting with less complex cases, creating a temporary mix effect. The softness is expected to persist into Q4, but ATEC continues to outperform the market multiples.

Q: Analyst questioned the gap between adjusted EBITDA guidance and free cash flow guidance, asking if the conversion rate had deteriorated. / A: CFO Todd Koning attributed the FCF reduction primarily to timing differences in working capital, specifically inventory builds for instruments to support growing surgeon volumes. He emphasized that there is no fundamental change in the EBITDA-to-cash conversion ratio, noting that the Q4 implied EBITDA margin of 18% remains strong and consistent with historical trends.

Q: Analyst asked about the rollout of the Valence platform and its potential as an ASC tool. / A: CEO Pat Miles expressed high confidence in Valence, describing its in-field camera technology as superior to competitors’ external cameras, allowing for greater precision and surgeon control. He confirmed that early experience is excellent, with successful expansion into posterior procedures (T-Lift), viewing it as a major tailwind for future growth rather than just an ASC-specific tool.

Q: Analyst asked about the impact of competitors moving into home procedure fields and pricing pressure. / A: CEO Pat Miles welcomed competitor activity, arguing that it validates the prone trans-psoas (PTP) technique they invented. He stated that copycats often fail to understand the deep clinical nuances required for success, whereas ATEC’s integrated ecosystem (navigation, neurophysiology, retractors) ensures they remain the preferred choice for providers seeking predictable outcomes.