Alphatec's Q3 2025 Earnings Call: Mixed Signals on Sales Growth, EOS Expansion, and Cash Flow Projections

Date of Call: None provided

Financials Results

• Revenue: $197M, up $46M (30% YOY), up $11M sequentially
• Gross Margin: 70% non-GAAP, flat sequentially and up 80 basis points YOY
• Operating Margin: ~5% non-GAAP (70% gross margin minus ~65% operating expense), expanded ~1,100 basis points YOY

Guidance:

• Full-year 2025 revenue raised to $760M (up $18M); surgical ~$684M, EOS ~$76M.
• Surgical case volume expected to grow in the low-20% range YOY; case ASP growth low single-digits YOY.
• Full-year adjusted EBITDA expected $91M (12% margin), up $8M vs prior guide; includes low-single-digit-million tariff impact.
• Full-year positive free cash flow; Q4 FCF expected $6M–$8M.
• Expect to begin deleveraging the balance sheet in 2026; long-range plan targets remain intact.

Business Commentary:

* Revenue Growth and Strategic Focus: - Alphatec reported $197 million in total revenue for Q3, up 30% year-over-year. - The growth is attributed to the company's strategic focus on proceduralization and expansion in the spinal market, with 100% of their portfolio dedicated to spine-related products.

• Operational Efficiency and Margin Improvement:
• The company achieved an adjusted EBITDA of $26 million, which is 13% of revenue, demonstrating an improvement of 840 basis points.

• This improvement is driven by disciplined headcount additions, leveraging foundational infrastructure, and strategic investments in sales and procedural solutions.

• EOS Revenue and Market Expansion:

• Alphatec's EOS revenue increased to $20 million, up 29% year-over-year.

• The growth is due to strong demand in the U.S. market, where Alphatec has a strong implant sales force, and the growing adoption of EOS Insight by surgeons.

• Surgeon Adoption and Same-Store Sales:

• Alphatec's same-store sales in the U.S. grew 30% year-over-year, and the company added 26% new surgeon users.
• The growth in both new surgeon adoption and same-store sales reflects increased demand for Alphatec's procedural solutions and expanding market penetration.

Sentiment Analysis:

Overall Tone: Positive

• Pat: "top-line growth of 30%... approaching a run rate of $800 million"; Todd: "record quarter adjusted EBITDA of $26 million, 13% of sales"; management: "raising full-year revenue guidance by $18 million to $760 million" and "expect adjusted EBITDA of $91 million".

Q&A:

• Question from Vik Chopra (Wells Fargo): Can you talk about how you see next year playing out from a cash flow perspective given strength over the last two quarters? And given how you performed this year, can we expect an update to your long-range plan next year?
  Response: Management: Thinks 2026 free cash flow constructually around ~$20M (not formal guidance) and plans to update the long-range plan toward the end of next year as 2026 is mostly in the rearview.

• Question from Matt Miksic (Barclays): How do you expect recent industry consolidation to play in your favor and what opportunities do you see? Also, what benefits will Valence bring for efficiency and adoption of lateral (for experienced users and for expanding the technique)?
  Response: Pat/Todd: Welcome disruption but remain focused on execution; Valence is designed to integrate into workflow, democratize lateral by improving predictability and accessibility, and should expand adoption across skill levels.

• Question from Xuyang Li (Jefferies): Can you comment on the health of the spine market and who you’re taking share from this quarter? And how do you balance growth versus profitability given your higher rep per case metric?
  Response: Pat/Todd: Market appears healthy; growth reflects taking share broadly across competitors via new-surgeon adds and same-store sales; balance achieved by following the long-range plan, self-funding growth from improving EBITDA, and investing deliberately in sets/inventory to drive future revenue.

• Question from Matthew O'Brien/Anna (Piper Sandler): Where does the Valence order funnel stand ahead of launch and what is the ASC opportunity? Also, any update on international—are you ahead of schedule vs LRP?
  Response: Pat/Todd: Early demand for Valence with meaningful impact expected in 2026 and a deliberate rollout in 2026; Valence seen as volume driver not big capital push; international is tracking to prior LRP breakouts (EOS global, US surgical growth) and on plan toward 2027 targets.

• Question from Alan Gong (J.P. Morgan): Why did you set Q4 guidance range that implies a smaller sequential step-up than historical seasonality, and should Q4 be used as a run rate for 2026?
  Response: Todd: The $18M raise to $760M was a prudent place to land; Q4 implies a smaller sequential lift and management is not yet providing a 2026 guide, suggesting historical absolute growth ( ~$120–130M/year ) are useful reference points.

• Question from David Saxon (Needham): Is the ~$120M annual growth cadence conservative relative to consensus? Also, what traction are you seeing in deformity and is more product rollout needed?
  Response: Todd/Pat: $120M would be on the low end of plausible outcomes; deformity is in its infancy but showing early EOS-driven traction with products already adopted and more launches planned to scale influence.

• Question from Caitlin Cronin (Canaccord Genuity): How are you being disciplined with sales hires, and will you add to the capital sales team for the Valence launch?
  Response: Pat/Todd: Hiring is methodical to minimize time-to-productivity and prioritize markets with access; will add a limited number of capital sales roles for Valence but rely primarily on field reps since the system is designed to be simple and procedural.

• Question from Tom Stephen (Stifel): When will deformity materially contribute to revenue and how durable is surgeon adoption going forward?
  Response: Pat/Todd: Deformity contribution should grow linearly over the next 24–36 months as EOS Insight and product innovations expand availability; surgeon adoption is durable—growth comes from both new-surgeon adds and increased penetration/usage in established territories.

• Question from Sean Lee (H.C. Wainwright): What drove the stronger-than-typical EOS hardware revenue in a seasonally slow quarter, and are you still focused primarily on academic centers or broadening targets?
  Response: Pat: EOS strength driven by EOS Insight and demand for full-body low-dose biplanar imaging and analytics; initial demand skewed to academic centers but adoption is broadening to private hospitals and upgrades, with deformity as primary initial use case and broader applicability thereafter.

Contradiction Point 1

Sales Growth Expectations

It directly impacts expectations regarding the company's sales growth trajectory, which is a critical metric for investors.

Can you outline next year's cash flow outlook based on the last two quarters' strength? Will there be an LRP update next year, since you're ahead of your plan? - Vik Chopra(Wells Fargo)

2025Q3: We expect cash flow expectations for next year in the $20 million range on free cash flow. - Todd Koning(CFO)

What are the key factors to consider for Q3 and the remainder of the year related to the 20% organic growth guidance? - Vikramjeet Singh Chopra(Wells Fargo Securities)

2025Q2: We expect revenue growth of approximately 15% to 16%. - Todd Koning(CFO)

Contradiction Point 2

EOS Sales Drivers and Market Expansion

It involves differing explanations of what is driving strong sales of EOS, which could impact strategic focus and market positioning.

What are the drivers behind strong Q3 EOS sales, and how long is this outlook expected to last? - Sean Lee(H.C. Wainwright)

2025Q3: EOS growth is driven by EOS Insight's informatics, benefiting both academics and private centers. - Pat Miles(CEO)

Can you explain the geographic strategy involving EOS and how concentration drives adoption? - Benjamin Charles Haynor(Lake Street Capital Markets)

2025Q2: EOS is acquiring relevance, especially in academic centers where we're making inroads. And it's really beginning to inform how patients are selected for our therapies. - Pat Miles(CEO)

Contradiction Point 3

Deformity Product Opportunity and Growth Trajectory

It involves differing expectations regarding the growth trajectory and market influence of deformity products, which are a key strategic focus for Alphatec.

Is there any progress on deformity and has it reached critical mass? Are there upcoming product launches? - David Saxon (Needham)

2025Q3: We are in the early stages of deformity influence. Our products are adopted well, and we have many in design phase. EOS provides a strong foundation for future growth. - Pat Miles(CEO)

What is ATEC's strategy for expansion into international markets? - Eric Anderson (TD Cowen)

2025Q1: ATEC is focused on narrow and deep market penetration, with a strong presence in Australia, New Zealand, and Japan. The strategy emphasizes commitment to established markets, focusing on lateral and EOS adoption rather than broad international infrastructure. - Pat Miles(CEO)

Contradiction Point 4

EOS Growth and Market Adoption

It involves differing perspectives on the growth and market adoption of EOS, which is a critical product for Alphatec's strategic positioning and financial performance.

What is driving the strong EOS sales in the third quarter, and how long is this outlook expected to last? - Sean Lee(H.C. Wainwright)

2025Q3: EOS growth is driven by EOS Insight's informatics, benefiting both academics and private centers. Interest extends beyond deformity due to EOS's comprehensive value. - Pat Miles(CEO)

Which parts of the EOS and informatics system are most utilized, and where is future growth anticipated? - Sean Lee(H.C. Wainwright)

2025Q1: EOS and SafeOp are in early stages of maturation. SafeOp is more established, with EOS seeing rapid adoption. The focus is on neural health and procedural precision. Both technologies have significant runway for growth. - Pat Miles(CEO)

Contradiction Point 5

Cash Flow Projections and Long-Range Plan (LRP)

This contradiction relates to the company's expectations for cash flow in the following year and the timing of an update to the Long-Range Plan.

What are your cash flow expectations for next year given the strong performance over the last two quarters? Will there be an LRP update next year considering your current progress exceeds the plan? - Vik Chopra(Wells Fargo)

2025Q3: For long-range plan commitments, we expect cash flow expectations for next year in the $20 million range on free cash flow. - Todd Koning(CFO)

How far along are the PTP and LTP launches, and how do they compare to their full potential? - Eric Anderson(TD Cowen)

2024Q4: We are focused on turning the assets we've put into place into cash this year and next year. We're getting our run rate expense down by more than $50 million. - J. Koning(CFO)