Alphatec (NasdaqGS:ATEC) Q4 2025 Earnings call February 24, 2026 04:30 PM ET Company ParticipantsBen Haynor - Managing Director of Medical Technology ResearchPat Miles - CEOTodd Koning - CFOConference Call ParticipantsMatthew Blackman - Research AnalystOperatorGood afternoon, everyone, and welcome to the webcast of ATEC's fourth quarter and full year 2025 financial results. We would like to remind everyone that participants on the call will make forward-looking statements. These statements are based on curr ...

Summary of Alphatec Conference Call Company Overview - **Company**: Alphatec Spine - **Industry**: Medical Supplies and Devices, specifically focused on spinal surgery Key Points and Arguments Growth and Financial Performance - Alphatec aims for long-term differentiated growth, with a strong track record of execution and significant growth opportunities in the spine market [2][3] - The company finished 2025 with $764 million in revenue, reflecting a 25% growth, and expects to reach $890 million in revenue by 2026, representing a 17% growth [4][6] - Adjusted EBITDA for 2025 was projected at $91 million (12% of revenue), with expectations of $130 million (15% margin) by 2026 [4][6] - The company has committed to becoming a $1 billion revenue company by 2027, with $180 million in Adjusted EBITDA [5] Market Position and Strategy - Alphatec is now the third largest U.S. market share holder in the spine market, with less than 10% market share across the top 10 U.S. markets, indicating significant growth potential [5][24] - The company has focused on creating clinical distinction to compel surgeon adoption, achieving over 20% growth in surgeon adoption this year [7][8] - The strategy includes proceduralization, which emphasizes the assembly of goods for spine surgery rather than selling individual parts [3][11] Innovations and Technology - Alphatec has made significant investments in informatics and procedural tools, including the acquisition of EOS, a full-body imaging system, and the development of SafeOp, a neurophysiology tool [19][13] - The company is focused on integrating informatics into surgical workflows to improve decision-making and outcomes, with plans to launch Valence, a navigation and robotic tool, in 2026 [14][15][19] - The informatics play is seen as a key driver of long-term value, with a focus on capturing data to enhance surgical decision-making [24][20] Market Dynamics and Competition - The company views recent disruptions in the spine market, such as spin-offs from larger med tech companies, as potential tailwinds for growth [40][41] - Alphatec believes its commitment to neurophysiology and sophisticated surgical tools provides a competitive advantage over fast-following competitors [44][46] Future Outlook - The company anticipates continued strong growth driven by surgical volume and adoption, with a target of $100 million in EOS revenue by 2027 [32][25] - Seasonality effects are expected to influence revenue patterns, particularly with the growing presence in pediatric deformity [31][35] - Alphatec is focused on maintaining profitability while investing in R&D and sales channels to support growth [50][51] Conclusion - The financial outlook for Alphatec is positive, with a commitment to achieving $890 million in revenue and $130 million in Adjusted EBITDA by 2026, alongside a focus on innovation and market expansion [29][50]

Summary of Conference Call Company and Industry - **Company**: Alphatec - **Industry**: Medical Technology, specifically Spine Surgery Key Points and Arguments Lateral Performance and Market Opportunity - Alphatec's lateral performance in Q3 is described as outstanding, indicating strong execution in this segment of the spine market [3][4] - The company believes it is in the early stages of lateral market penetration, with significant opportunities for improvement and clinical experience enhancement [3][5] - The lateral market is estimated to be around $1 billion, with an additional $2 billion potential from traditional posterior approach surgeries that could adopt lateral techniques [6] Technological Integration and Innovation - The integration of navigation robotics and 3D-printed implants is expected to enhance procedural precision and reduce radiation exposure, which is a concern for surgeons [4][5][29] - Alphatec is focusing on improving the clinical experience through better technology integration, which is seen as a catalyst for growth [4][11] Growth Metrics and Projections - The company has been growing at a rate of 8-9 times the market growth, with a projected growth of approximately $130 million in 2023 and nearly $150 million in 2024 [13][16] - A net growth rate of 20% in new surgeons has been reported, indicating strong adoption of Alphatec's procedures [14][15] Market Dynamics and Competitive Landscape - The company is benefiting from disruptions in the market, particularly from competitors like GMED, NuVasive, and Stryker, which may be losing focus [18][22] - Alphatec's sales force is currently one of the smaller ones in the industry, indicating room for growth and expansion [24][26] Future Growth Strategies - The company plans to expand its sales force and enhance its product offerings, particularly in deformity surgery and cervical procedures [24][39] - The integration of informatics tools is expected to provide surgeons with better decision-making capabilities, which is seen as a significant opportunity for growth [40][41] Financial Management and Investment - Alphatec is focused on self-funding its growth through profitability, with a long-term plan that includes a ratio of $0.75 investment in sets and inventory for every dollar of revenue growth [37][38] - The company is confident in its capital allocation strategy, which aims to balance investment in growth with maintaining healthy margins [36] Challenges and Considerations - There is a recognition that the market may eventually slow down, and the company is preparing for this by ensuring it has a robust operational strategy [10][16] - The need for continuous innovation and adaptation to market demands is emphasized, particularly in the context of evolving surgical techniques and technologies [40][42] Other Important Content - The discussion highlights the importance of alignment and bone mineral density in spine surgery, with Alphatec's recent clearance for BMD assessment by level being a unique offering [41][42] - The company is in the early stages of expanding its presence in key geographic markets, with a focus on long-term commitments to growth [21][22]

Financial Data and Key Metrics Changes - Total revenue for the third quarter was $197 million, representing a 30% increase year-over-year and a sequential increase of $11 million from the previous quarter [5][14] - Adjusted EBITDA reached $26 million, or 13% of revenue, marking an improvement of 840 basis points compared to the prior year [4][11] - Free cash flow was reported at $5 million, with total cash and available cash amounting to $260 million [12][14] Business Line Data and Key Metrics Changes - Surgical revenue was $177 million, up 31% year-over-year and 5% sequentially, driven by a procedural volume growth of 28% [5][8] - EOS revenue increased to $20 million, a 29% rise compared to the prior year, with strong demand in the U.S. market [8][9] - Same-store sales in the U.S. grew 30% year-over-year, indicating strong performance in established territories [8][9] Market Data and Key Metrics Changes - The company reported a 30% growth in same-store sales, reflecting strong demand in existing markets [8] - The increase in new surgeon users by 26% in the third quarter indicates a growing adoption of the company's products [5][6] Company Strategy and Development Direction - The company remains 100% spine-focused, emphasizing proceduralization and expanding its product offerings in lateral, cervical, and deformity markets [3][19] - The strategic focus includes leveraging technology integration to enhance surgical outcomes and democratize surgical techniques [20][25] - The company is positioned to meet its long-range plan commitments, aiming for $1 billion in revenue by 2027 [17][29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to deliver durable revenue growth and strong profitability improvements [11][17] - The company anticipates raising its full-year revenue guidance by $18 million to $760 million, driven by overperformance in case volume [14][15] - Management highlighted the importance of surgeon adoption and the long-term potential of the spine market, indicating a positive outlook for future growth [18][67] Other Important Information - The company has seen a significant improvement in its operating margin, with a 1,100 basis points expansion year-over-year [10][11] - The trailing 12-month adjusted EBITDA now stands at $81 million, reflecting the company's ability to generate cash flow [11][12] Q&A Session Summary Question: Cash flow expectations for next year - Management expects free cash flow for next year to be around $20 million, aligning with revenue growth and EBITDA drop-through [32][33] Question: Update on long-range plan - An update to the long-range plan is anticipated towards the end of next year as the company progresses through 2026 [34] Question: Competitive landscape and consolidation - The company welcomes market disruption and believes it can capitalize on the current dynamics in the spine market [37][39] Question: Role of Valence in lateral space - Valence is expected to enhance efficiency and democratize surgical techniques, benefiting both experienced and new users [40][44] Question: Health of the spine market and competitive dynamics - The spine market remains healthy, with the company taking share from multiple competitors, reflecting decisions made 18 to 24 months ago [48][50] Question: Balancing growth and profitability - The company aims to balance growth and profitability by investing in innovation while leveraging existing infrastructure [52][54] Question: Timing for deformity portfolio contributions - The company is in the early stages of influencing the deformity market, with several products in the design phase and a focus on expanding EOS availability [73][75]

Financial Performance & Growth - ATEC experienced a sector-leading revenue Compound Annual Growth Rate (CAGR) of approximately 40% over 5 years, driven by market share expansion[4] - Total revenue for 2023 reached $482 million, representing a 37% year-over-year increase[7] - Surgical revenue in 2023 was $423 million, a 39% increase year-over-year[7] - EOS revenue for 2023 amounted to $59 million, reflecting a 24% year-over-year growth[7] - The company projects 2024 revenue to be $595 million, indicating a 24% growth[8] Market Position & Strategy - ATEC is focused on an $8 billion spine market[4] - The company's strategy involves meeting unmet needs in spine surgery through clinical distinction[19] - ATEC is a 100% spine-focused company, differentiating it from larger, less focused competitors[17, 20] - ATEC aims to achieve cash flow break-even in 2025, supporting self-funded future growth[4] Innovation & Technology - ATEC is integrating unprecedented information into spine care with enabling technology[19] - The company is advancing deformity treatment with procedural sophistication[19] - ATEC is developing the EOS Catalyst, expected in mid-2024, to automate alignment reports and surgical planning[72, 73]

Financial Performance & Guidance - Preliminary Q3 2023 surgical revenue is expected to be between $103.3 million and $103.9 million, representing a year-over-year (YoY) increase of 31% to 32%[4] - Preliminary Q3 2023 EOS revenue is expected to be between $14.3 million and $14.5 million, a YoY increase of 27% to 29%[4] - Total revenue for Q3 2023 is projected to be between $117.7 million and $118.5 million, reflecting a YoY growth of 31% to 32%[4] - Full-year 2023 surgical revenue guidance has been updated to $414 million, a 33% YoY increase[5] - Full-year 2023 EOS revenue guidance remains at $58 million, a 21% YoY increase[5] - Total revenue guidance for FY2023 has been increased by $10 million to $472 million, representing a 32% YoY increase[5] Strategic Focus & Innovation - ATEC is uniquely 100% spine focused, driving innovation from the operating room, not the board room[7, 9, 10] - ATEC aims to improve precision, predictability, and durability in spine surgery, addressing the 25-30% of surgeries that require revision[11, 12] - ATEC's innovation addresses the goals of spine surgery: decompression, stabilization, and alignment, strongly correlated to successful clinical outcomes[19, 25] - ATEC is positioning to capitalize on industry disruptions, adding 30 sales professionals from disrupted companies[32] Technology & Solutions - EOS imaging objectively answers essential clinical questions, providing full-body, standing, functional global alignment assessment with less radiation[52, 65] - The Catalyst system, expected to launch in 2024, will provide automated alignment reports, surgical planning, and patient-specific rods[68] - ATEC's lateral approach, including PTP (Prone Transpsoas) and LTP (Lateral Transpsoas), aims to address the hurdles of first-generation lateral surgery, with LTP designed for single-position surgery for L3 to S1[98, 122] - Valence, ATEC's navigation and robotics platform, is designed to be practical, economical, and ASC (Ambulatory Surgery Center) suitable[151]

Financial Data and Key Metrics Changes - The company reported a revenue of $169 million for Q1 2025, representing a 22% increase compared to the prior year [8][12] - Adjusted EBITDA for the quarter was $11 million, equating to a 6% margin, which is an improvement of over 800 basis points year over year [12][20] - Non-GAAP gross margin was 70%, down 50 basis points year over year but up 70 basis points sequentially [10][11] - Free cash use was $15 million, reflecting a $55 million improvement compared to Q1 2024 [14][15] Business Line Data and Key Metrics Changes - Surgical revenue was $152 million, growing 24% year over year, while EOS revenue was $17 million, up 8% [8][10] - Procedural volume growth was 17%, driven by an 18% increase in the number of surgeons utilizing ATEC procedures [9][10] - Average revenue per procedure grew by 6%, indicating effective capture of procedural revenue opportunities [9] Market Data and Key Metrics Changes - Same store sales grew 23% year over year, demonstrating significant growth in established markets [10][11] - The company experienced record order growth for EOS, with a 28% year over year increase in the order book [10] Company Strategy and Development Direction - The company is focused on creating clinical distinction through innovative procedural solutions that improve patient outcomes [22][24] - ATEC aims to minimize surgical variables through technology, expanding its sales force and enhancing field operations [24][26] - The strategy includes a strong commitment to informatics and automated alignment planning to improve surgical predictability [26][36] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving cash flow positivity for the full year 2025, with expectations of continued strong revenue growth [15][18] - The company anticipates revenue growth of 20% for the full year 2025, with surgical revenue growth of 21% [18][20] - Management noted that the current economic environment has not negatively impacted demand, with a robust backlog of procedures [100][101] Other Important Information - The company successfully refinanced its 2026 convertible note, extending maturity and maintaining a low coupon rate [15] - The company is committed to maintaining disciplined cost management while investing in growth drivers [11][12] Q&A Session Summary Question: Market size and competitive dynamics for the new Corpectomy system - Management indicated that they are the only company offering this procedure in the prone position, which provides unique advantages [39][40] Question: Tariff exposure in 2025 - The company expects low single-digit million impacts on cost of goods sold due to tariffs, primarily affecting EOS equipment [50][51] Question: Update on robot launch plan - The robot is in the alpha phase, with plans for an end-of-year launch, and integration with navigation systems is ongoing [55][92] Question: Trends in cash outlay and cash use - The company achieved cash use at the low end of the expected range and anticipates positive cash flow in the latter half of 2025 [61][63] Question: Competitive dynamics in the spine market - Management noted that the company is positioned as the largest pure play spine company, with a strong focus on improving the ecosystem for spine surgery [66][69] Question: Salesforce productivity and performance - The company reported a 23% growth in same store sales, indicating effective performance from newly recruited sales representatives [78][79] Question: EOS placements and portfolio pull-through - Most EOS placements are in new accounts, with significant growth expected in complex procedures [84][86] Question: Overall market volumes and ASC growth - The market is healthy, with good volume trends, and the company sees potential for growth in Ambulatory Surgery Centers (ASCs) over time [88][90] Question: International market expansion - The company remains bullish on international markets like Australia and Japan, focusing on profitable growth without a large infrastructure [105][107]

Financial Data and Key Metrics Changes - Total revenue for Q4 2024 was $177 million, representing a 28% increase year-over-year and a 17% sequential increase [13] - Full year 2024 total revenue reached $612 million, up 27% compared to the prior year [24] - Adjusted EBITDA for Q4 was $21 million, equating to a 12% margin, with over 1,000 basis points of improvement year-over-year [20] - Non-GAAP gross margin was 70%, flat compared to the previous year [16] - Free cash flow generated in Q4 was $9 million, marking the first cash flow since the transformation [23] Business Line Data and Key Metrics Changes - Surgical revenue for Q4 was $157 million, up 28% year-over-year, with procedural volume growth of 19% and average revenue per procedure growth of 7% [13][14] - EOS revenue for Q4 was $20 million, up 32% year-over-year, driven by robust demand and record order volume [15] - Surgical revenue for the full year was $545 million, a 29% increase compared to 2023 [24] Market Data and Key Metrics Changes - The company holds an 8% market share in the spine market, indicating significant growth potential [6] - Surgeon adoption grew by 19% on a five-year CAGR, with procedural volume growth at 25% [7] Company Strategy and Development Direction - The company aims to revolutionize spine surgery by improving procedural durability and predictability through informatics [40][41] - The focus is on leveraging unique technologies and clinical distinctions to capture market share in a disrupted environment [56][58] - Plans for 2025 include a revenue growth target of approximately $732 million, with surgical revenue growth of 21% [28] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to deliver on financial commitments and translate revenue growth into profit and cash flow [21][34] - The company is optimistic about the growth potential in Japan, having conducted its first surgeries there [11][125] - Management highlighted the importance of operational discipline and efficiency improvements in driving profitability [19][78] Other Important Information - The company is positioned as the largest pure-play spine company, focusing exclusively on spine-related products and technologies [45] - The introduction of EOS Insight software is expected to enhance growth and adoption rates [102][106] Q&A Session Summary Question: Assurance on spending in 2025 amidst industry disruption - Management indicated that previous investments have been made and there are no plans for outsized expenses that could undermine financial goals [50] Question: Potential benefits from a competitor's sale of its spinal implants business - Management sees disruption as an opportunity and believes their informatics platform positions them favorably to attract talent from competitors [56][58] Question: International plans for 2025, particularly in Japan - Management emphasized a disciplined approach to entering the Japanese market, focusing on long-term growth rather than immediate gains [62] Question: Growth potential of PTP and LTP offerings - Management believes they are in the early stages of growth for PTP and LTP, with significant market opportunities ahead [70][72] Question: Efficiencies targeted in SG&A - Management discussed deliberate organizational reductions and improved operational efficiency, which are expected to continue benefiting the bottom line in 2025 [76][78] Question: Strategy for share capture and regional field team upgrades - Management noted ongoing improvements in sales force effectiveness and the need for further expansion in underrepresented geographies [83][86] Question: Competitive positioning with upcoming robotic technology - Management views robotics as part of a broader solution to surgical challenges, emphasizing the importance of systemic variables in surgical outcomes [91][92] Question: Opportunities in pediatric surgery - Management acknowledged being underpenetrated in pediatric surgery but sees potential for growth leveraging existing EOS technology [100][118] Question: Growth expectations for EOS - Management anticipates continued growth for EOS, with expectations for increased adoption and monetization through implant pull-through [102][106]