Alphatec Q2 2026 Earnings Call Transcript

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Provided by Quartr
August 4, 2026

Key Takeaways

  • Positive Sentiment: Q2 revenue rose 15% to $214 million, with surgical revenue up 17%, cases up approximately 20%, and net new surgeons up 24%, indicating continued adoption and utilization momentum.
  • Positive Sentiment: Profitability improved significantly, with adjusted EBITDA up 53% year over year to $36 million and margin expanding to 17%; the company raised full-year adjusted EBITDA guidance to approximately $140 million from $134 million.
  • Positive Sentiment: ATEC generated positive free cash flow for the quarter and expects $4 million-$6 million in Q3, while its refinanced credit facilities extend maturities to 2031 and are expected to reduce annual interest expense by more than $6 million.
  • Neutral Sentiment: Full-year revenue guidance remains unchanged at approximately $882 million, with high-teens surgical case growth expected in the second half; however, revenue per case is now expected to decline by low single digits, primarily because biologics attachment has stabilized below prior-year levels.
  • Positive Sentiment: Management highlighted EOS, EOS Insight, Valence, and SafeOp as key growth catalysts, citing approximately 32% implant-revenue growth within six months of EOS Insight adoption and growing access to leading academic and deformity-focused institutions.
AI Generated. May Contain Errors.
Earnings Conference Call
Alphatec Q2 2026
00:00 / 00:00

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Operator

Good afternoon, everyone, welcome to the webcast of ATEC's second quarter financial results. We would like to remind everyone that participants on the call will make forward-looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to differ materially. These uncertainties are detailed in documents filed regularly with the SEC. During this call, you may hear the company refer to non-GAAP or adjusted measures. Reconciliations of these measures to U.S. GAAP can be found in the supplemental financial tables included in today's press release, which identify and quantify all excluded items and provide management's view of why this information is useful to investors. 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

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.

Pat Miles
Chairman and CEO at ATEC

Thanks much. Appreciate it. Welcome to our Q2 2026 financial results call. There will be some forward-looking statements, so please review at your leisure. This quarter reflects a solid performance in both growth and profitability. We did $214 million in Q2, up 15%, with surgical up 17%. Cases were up about 20% and surgeons about 24%. Those are the leading indicators that affirm that this is both a utilization story and an adoption story. We're adding surgeons. They are doing more with us. The business is working, and we are scaling. The quarter also showed strong leverage. We generated $36 million of adjusted EBITDA, up $15 million sequentially at a 17% margin while producing positive cash flow. When you step back, this is exactly the compounding engine we've been building. More surgeons, more cases, more platform pull-through, and now it's dropping to the bottom line, creating profitable growth.

Pat Miles
Chairman and CEO at ATEC

EOS came in at $17 million for the quarter. Fundamentally, EOS affords us access, and as importantly, accelerated hardware usage from EOS Insight when it goes live. I'll come back to that later. Todd's going to take you through the numbers, and then I'll walk you through the catalysts that give us more enthusiasm today than ever before. We are just getting started. Over to you, Todd.

Todd Koning
CFO at ATEC

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. 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.

Todd Koning
CFO at ATEC

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, 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. Revenue per case improved sequentially by 1.5% in the quarter, reflecting increasing stability in the underlying business.

Todd Koning
CFO at ATEC

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, 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.

Todd Koning
CFO at ATEC

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.

Todd Koning
CFO at ATEC

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 the second half of 2026. As a result, we generated approximately $1 million of positive free cash flow, exceeding our expectation of roughly breakeven, and delivered positive trailing 12-month free cash flow for the fourth consecutive quarter. We expect the third quarter to reach $4 million-$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.

Todd Koning
CFO at ATEC

Together, these actions further strengthen our balance sheet, lower our cost of capital, and provide additional flexibility as we continue to grow and scale the business. Turning to the revenue outlook, we are maintaining our full year revenue guidance of approximately $882 million, representing growth of roughly 15% for the year. This includes surgical revenue of approximately $805 million, unchanged from our prior outlook and representing growth of approximately 17%, and EOS revenue of approximately $77 million. We expect high teens surgical case volume growth in the second half of the year. Average revenue per case is expected to decline in the low single digits for the full year, with the year-over-year impact continuing to moderate as we move through the second half and exit the year. This implies that the second half surgical revenue growth will accelerate to 18% from 17% in the first half of the year.

Todd Koning
CFO at ATEC

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.

Pat Miles
Chairman and CEO at ATEC

Thanks, Todd. Our strategy is unchanged because it is working. If we go back eight 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.

Pat Miles
Chairman and CEO at ATEC

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

Pat Miles
Chairman and CEO at ATEC

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.

Pat Miles
Chairman and CEO at ATEC

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.

Pat Miles
Chairman and CEO at ATEC

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.

Pat Miles
Chairman and CEO at ATEC

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, 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.

Pat Miles
Chairman and CEO at ATEC

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 to 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.

Pat Miles
Chairman and CEO at ATEC

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, 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.

Pat Miles
Chairman and CEO at ATEC

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, 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.

Pat Miles
Chairman and CEO at ATEC

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.

Pat Miles
Chairman and CEO at ATEC

Each of these catalysts is an expression of the same strategy, create clinical distinction, earn surgeon trust, and expand utilization. Scale the business with the best sales force in spine. That's what we're doing. Let me leave you with this. I'm excited for the back half of the year. As we discussed, new surgeon growth in Q1 and Q2 exceeded 20%, which is a powerful leading indicator for future growth. Both EOS installations and orders rebounded nicely in Q2, reinforcing our confidence in the opportunity ahead. 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 are in this for the long haul. We are building ATEC for decades and beyond.

Pat Miles
Chairman and CEO at ATEC

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.

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 11 to raise your hand. To withdraw your question, please press star 11 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.

Vik Chopra
Vik Chopra
Analyst at BMO Capital Markets

Good afternoon, and congrats on a nice quarter, and 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?

Pat Miles
Chairman and CEO at ATEC

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. 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. There's opportunity to pick up just more biologic attachment to the volume of procedures that we're doing. Totally bullish on the back half. We're in the infancy of the whole deformity thing. We've not yet reflected the type of footprint that we can create in deformity. We're in its infancy. I think the influence coming from EOS is in its infancy.

Pat Miles
Chairman and CEO at ATEC

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

Todd Koning
CFO at ATEC

Vik, 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. We raised the guidance really on the strength of an improving gross margin profile in the second half 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.

Pat Miles
Chairman and CEO at ATEC

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

Todd Koning
CFO at ATEC

Correct.

Pat Miles
Chairman and CEO at ATEC

I think, when you start to think about the ecosystem from a product perspective.

Todd Koning
CFO at ATEC

Yeah

Pat Miles
Chairman and CEO at ATEC

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 up the scale.

Todd Koning
CFO at ATEC

Correct.

Vik Chopra
Vik Chopra
Analyst at BMO Capital Markets

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.

Pat Miles
Chairman and CEO at ATEC

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, and I think we have a number of new products coming forth that are going to enable us to continue to provide a meaningful distinction. I think it's one of the hardest places outside of BMP to create real product distinction.

Pat Miles
Chairman and CEO at ATEC

That's why we did the TheraCell deal.

Todd Koning
CFO at ATEC

Yep.

Pat Miles
Chairman and CEO at ATEC

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 TheraCell. 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.

Operator

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

Mathew Blackman
Mathew Blackman
Analyst at TD Cowen

Good afternoon, everybody. Can you hear me okay?

Todd Koning
CFO at ATEC

Loud and clear.

Pat Miles
Chairman and CEO at ATEC

Yes.

Mathew Blackman
Mathew Blackman
Analyst at TD Cowen

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

Todd Koning
CFO at ATEC

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

Mathew Blackman
Mathew Blackman
Analyst at TD Cowen

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

Todd Koning
CFO at ATEC

Yeah, absolutely, Matt. 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. 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's the fact that our biologics attach rate has stabilized rather than improved. 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.

Todd Koning
CFO at ATEC

As we go into the fourth quarter, the revenue per procedure comps get just a bit easier. That's how we think about the second half revenue per procedure.

Mathew Blackman
Mathew Blackman
Analyst at TD Cowen

Okay. Fair enough. I just wanted to make sure. It does sound like it's cervical mix, maybe slower ramp on biologics, 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-

Todd Koning
CFO at ATEC

Sure

Mathew Blackman
Mathew Blackman
Analyst at TD Cowen

that opportunity is still sort of front and center.

Todd Koning
CFO at ATEC

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 procedure and where we wanted it to be, was really a biologics phenomena more than anything.

Mathew Blackman
Mathew Blackman
Analyst at TD Cowen

Okay. Thank you. Got it.

Pat Miles
Chairman and CEO at ATEC

Yeah. I'm just going to pipe in.

Mathew Blackman
Mathew Blackman
Analyst at TD Cowen

Go ahead, Pat.

Pat Miles
Chairman and CEO at ATEC

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.

Mathew Blackman
Mathew Blackman
Analyst at TD Cowen

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?

Pat Miles
Chairman and CEO at ATEC

Yep.

Mathew Blackman
Mathew Blackman
Analyst at TD Cowen

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

Operator

The next question comes from Allen Gong of JPM. Your line is now open.

Analyst at JPM

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.

Pat Miles
Chairman and CEO at ATEC

Yeah. I'll let Todd speak to ACA change. The dynamic is one of our volume was robust, our new surgeon additions, robust. I think that it's fascinating in terms of what's elective and what's not. 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, yeah.

Todd Koning
CFO at ATEC

Yeah. 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. We really think it's a non-factor for us.

Analyst at JPM

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, looking forward, how sustainable can we expect results like this to be?

Todd Koning
CFO at ATEC

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
Chairman and CEO at ATEC

Set turns one

Todd Koning
CFO at ATEC

yeah, just turning our sets being able to understand where our inventory is controlling it within the field, 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 through a lot of good focused work. I think on the second point is we've improved some cost reductions, our standard margins are solid, 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.

Todd Koning
CFO at ATEC

We had less biologics and less EOS mix in the quarter, both of those things are a function of the sales dynamic. 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've implied in the second half.

Operator

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

Thomas Stephan
Thomas Stephan
Analyst at Stifel

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 the fourth quarter to get to the $20 million+, which is a pretty big step up sequentially in year-over-year. I think in the second quarter, free cash flow might have been down a bit year-over-year. Todd, talk to the, I guess, drivers of that improvement, notably as we kind of exit 2026, and where your level of confidence stands in achieving that $20 million+ free cash flow number for the full year. Then I'll have a follow-up.

Todd Koning
CFO at ATEC

Thanks, Tom. We, as I noted on the call, we've invested $33 million this quarter. Frankly, we invested about the same amount in the first quarter. 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 the second half. If you look at where we are today, if you take a drop-through of 36.5%, or excuse me, 36% year-over-year in the second half on revenue growth to EBITDA, you come to the conclusion that our Q3 to Q4 step-up in EBITDA is about $10 million. 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.

Todd Koning
CFO at ATEC

Now you're at $15 million, 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 million-$15 million 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 the fourth quarter than you are really in the first three quarters.

Thomas Stephan
Thomas Stephan
Analyst at Stifel

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 2Q, exiting 2Q, and notably into 3Q. I guess when I look at the implied guide to hit surgical, which you maintained, I think it does require the two-year CAGR in the back half to remain fairly consistent with the second quarter. Maybe if you can talk to surgical trends, and what drives your confidence in sustaining this 2Q performance through the back half. Thanks, guys.

Todd Koning
CFO at ATEC

Yeah. Thanks, Tom. I think a couple things. When you looked at the year-over-year dollar adds in 2Q, we were at $28 million, and that's compared to $26 million in the first quarter. Surgical dollar adds year-over-year accelerated Q1 to 2Q, so that's good. The year-over-year growth at 17% stabilized from the Q1, so that, I think, is 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 2Q over Q1, and the same holds for the dollar add rate in 2Q over Q1. I think the trends all point to a stabilizing and improving environment as we've worked through the first half so far. I really point to the fact that we've seen north of 20% surgeon adds. That's generated 20% surgical volume.

Todd Koning
CFO at ATEC

That surgical volume growth at 20% is north of the high teens that's implied in the guide in the second half. 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 first half of the year all point to our confidence in the second half.

Thomas Stephan
Thomas Stephan
Analyst at Stifel

Fantastic. Thanks again.

Operator

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

Analyst at 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. 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.

Pat Miles
Chairman and CEO at ATEC

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 integrate the VALENCE piece, and the early experience from a utilization perspective has kind of been both. It's gone 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.

Pat Miles
Chairman and CEO at ATEC

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.

Analyst at UBS

Very helpful. Thank you, guys.

Operator

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

David Saxon
David Saxon
Analyst at Needham

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

Pat Miles
Chairman and CEO at ATEC

Yeah. I'll do the subjective. I'll let Todd do the quantitative, which is always harder. What we're seeing is really new product acceptance on the lateral side, and so there's a lot of enthusiasm and momentum. PTP continues to show up big. As we see new users and the expectation of utilization in 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.

Todd Koning
CFO at ATEC

Yeah. I think, David, your question is, "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're just reaffirmed our full-year guide. We beat the consensus a bit in the second quarter. Ultimately, we're just trying to focus on execution, and I think that is the result of keeping the full-year guide unchanged in the context of beating the consensus number in the second quarter.

David Saxon
David Saxon
Analyst at Needham

Great. Thanks so much.

Operator

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

Analyst at 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.

Pat Miles
Chairman and CEO at ATEC

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, and 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.

Pat Miles
Chairman and CEO at ATEC

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.

Pat Miles
Chairman and CEO at ATEC

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.

Pat Miles
Chairman and CEO at ATEC

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, and the same thing is taking place today right now.

Analyst at Canaccord Genuity

Great. Thanks so much.

Operator

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

Lawrence Biegelsen
Lawrence Biegelsen
Analyst at Wells Fargo

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

Pat Miles
Chairman and CEO at ATEC

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 $1 billion in 2027, I feel great about where we are.

Pat Miles
Chairman and CEO at ATEC

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.

Lawrence Biegelsen
Lawrence Biegelsen
Analyst at Wells Fargo

Thank you.

Operator

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

Mason Carrico
Mason Carrico
Analyst at Stephens

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, is a larger share coming from, or I guess recent new adds at least coming from surgeons starting in cervical or some other category?

Pat Miles
Chairman and CEO at ATEC

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.

Pat Miles
Chairman and CEO at ATEC

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.

Todd Koning
CFO at ATEC

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

Pat Miles
Chairman and CEO at ATEC

Products

Todd Koning
CFO at ATEC

products that really are attracting people in a way they haven't in the past.

Pat Miles
Chairman and CEO at ATEC

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 an outstanding job.

Mason Carrico
Mason Carrico
Analyst at Stephens

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?

Pat Miles
Chairman and CEO at ATEC

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. 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.

Pat Miles
Chairman and CEO at ATEC

What's been fun is like seeing the patient specific rods really start to take off and be the reflection of the utility of the EOS Insight software. 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.

Pat Miles
Chairman and CEO at ATEC

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.

Mason Carrico
Mason Carrico
Analyst at Stephens

Got it. Thank you, guys.

Pat Miles
Chairman and CEO at ATEC

Thanks.

Operator

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

Keith Hinton
Analyst at Freedom Capital Markets

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? 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?

Pat Miles
Chairman and CEO at ATEC

Yeah. It's a great question. I would say early, I'd say 15%-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 in adults.

Pat Miles
Chairman and CEO at ATEC

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 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.

Pat Miles
Chairman and CEO at ATEC

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

Keith Hinton
Analyst at Freedom Capital Markets

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 back half. 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?

Todd Koning
CFO at ATEC

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

Keith Hinton
Analyst at Freedom Capital Markets

Okay, great. Thank you.

Operator

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

Sean Lee
Sean Lee
Analyst at H.C. Wainwright

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 many quarters does it take for these surgeons to really become repeat users of Alphatec? On a longer-term perspective, do you value breadth more in terms of more surgeons or depth and more procedures per surgeon? Thanks.

Pat Miles
Chairman and CEO at ATEC

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. 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 the mechanisms and whatnot.

Pat Miles
Chairman and CEO at ATEC

What's been interesting with the EOS thing 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 thing, 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 a 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.

Pat Miles
Chairman and CEO at ATEC

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

Todd Koning
CFO at ATEC

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. You can see a curve that's reasonably consistent over time. After, excuse me, after maybe four or five years, that curve starts to bend a bit. It's a pretty consistent experience over the first three to four years.

Sean Lee
Sean Lee
Analyst at H.C. Wainwright

Great. That's very helpful. Much appreciated.

Operator

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

Pat Miles
Chairman and CEO at ATEC

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

Operator

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

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