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On Tuesday, 11 March 2025, Alphatec Holdings Inc (NASDAQ: ATEC) presented at the Barclays 27th Annual Global Healthcare Conference. The company outlined its strategic initiatives, focusing on refinancing efforts and growth in the lateral spine market. While celebrating revenue growth and operational advancements, Alphatec acknowledged seasonal cash flow challenges.
Key Takeaways
- Alphatec successfully refinanced $360 million in notes, extending maturity to 2030.
- Projected revenue for 2025 is $732 million, a 20% increase year-over-year.
- The company aims for positive cash flow in 2025, despite a planned cash use in Q1.
- Expansion in the lateral spine market and new product launches are key growth drivers.
- Alphatec plans to launch the Valence Robot and expand its EOS Insight product.
Financial Results
- Refinancing:
- Alphatec refinanced $360 million of 2026 notes, extending maturity to 2030 with a 0.75% coupon rate.
- A $40 million capped call was purchased for dilution protection up to $23.5.
- The company retains $80 million on the balance sheet to manage $63 million of convertible notes.
- Revenue Growth:
- 2025 revenue is projected at $732 million, up 20% from the previous year.
- Surgical revenue is expected to grow slightly above 20%, with EOS contributing $75 million.
- Q4 witnessed a $34 million year-over-year increase in surgical revenue, marking a record.
- Cash Flow:
- Alphatec generated $9 million in free cash flow during Q4.
- The company is committed to achieving positive cash flow for the full year 2025.
- Anticipated cash use in Q1 is $15-20 million due to seasonal factors.
- Instrument and inventory deployment will decrease to $50 million in 2025 from $140 million in 2024.
- EBITDA:
- The company targets a 10% EBITDA for 2025.
Operational Updates
- Lateral Market Expansion:
- Alphatec is focusing on the $1 billion lateral spine market, growing at high single digits.
- Holding a 15-16% market share, the company aims to expand the market to $3 billion by addressing traditional surgeries.
- The lateral franchise has seen a 20% increase in surgeon adoption year-over-year.
- Sales and Marketing:
- A variable selling expense structure incentivizes growth through commission plans.
- Existing infrastructure is leveraged to drive margin expansion.
- Additional sales reps are being added to support product adoption.
- Product Development:
- The Valence Robot launch is planned for later this year, with revenue impact expected from 2026.
- The EOS Insight rollout is in early stages, with expected revenue contributions in 2026 and 2027.
- The first surgical case in Japan was completed, marking a future growth catalyst.
Future Outlook
- Growth Strategy:
- Expansion in the deformity space is planned, leveraging the EOS footprint.
- Development of products for pediatric and adult deformity surgeries is underway.
- SafeOp nerve monitoring will be integrated into deformity procedures.
- Focus on expanding the OUS surgical business, particularly in Japan.
- Revenue Guidance:
- The existing asset base supports the potential to exceed guided revenue numbers.
Q&A Highlights
- Competition:
- Alphatec’s PTP technology and SafeOp nerve monitoring provide a competitive edge in the lateral market.
Readers are encouraged to refer to the full transcript for a detailed understanding of Alphatec’s strategic initiatives and financial performance.
Full transcript - Barclays 27th Annual Global Healthcare Conference:
Matt, Analyst: Thanks so much for joining everybody today. We’ve got AlphaTek Holdings here again with us this year. We’ve got both the CFO, Todd Koenig and we have the VP of Finance with us as well. So, wanted to jump into something that we don’t usually lead with. I think a lot of small cap med tech companies do convertible raises and everyone sort of looks at them and goes, well, I don’t know about that.
I’m not sure if I love it. Would much rather have another mode of financing or something like that. But in this case, you completed a financing recently that we thought was a great crossing an important thing off the list. I just wanted to give you an opportunity to sort of just run through what does it mean in terms of like the way you’re looking at risks between last year, this year and the end of this year? And what does it mean to the P and L and your ability to continue to operate and execute on your plan that you laid out long term last year and new guidance just recently?
Todd Koenig, CFO, AlphaTek Holdings: Yes. Thanks, Matt. And thanks for having us here. A pleasure to be here with you. We just completed the refinancing.
So I think the important note here is the transaction we did is a refinancing. And the point of the refinancing was we had some twenty twenty six notes that were due in August and so we wanted to refinance them before they got current. So that really meant we need to do a refinancing before the summer of this year. And so coming into 2025, we thought it’s important to look at the windows of opportunity that we had to do that refinancing. We did that and we looked at post our Q4 earnings, so kind of the March show window and then we saw a potential window post Q1 earnings, which would be kind of the May, June window.
We thought that to the extent that the equity is in the right spot, we thought sooner is better than later. Just didn’t really want to accept any incremental market risk to the extent extent that we waited. So we ultimately chose to do one in just I guess a week ago now. And to your point, I think really happy with the execution. So we raised $4.00 $5,000,000 to refinance $360,000,000 worth of twenty twenty six outstanding notes.
The existing notes, the old notes had a 0.75% coupon attached to them. We also raised capital again here at a 0.75% coupon, which we thought was a great outcome. And so the way we used the proceeds was we bought back about 80% of the existing notes, which is kind of the creeping tender rules or essentially what the lawyers would allow us to buy back, believing it’s about a 63,000,000 stub. We used about $40,000,000 to buy a capped call, so dilution protection all the way up to about $23.5 And then the remit and we paid some fees of course to the bankers as you do. And then that leaves us just about $80,000,000 on the balance sheet to address $63,000,000 worth of remaining convertible notes.
And so we probably got a little bit of a positive carry here and so we take care of the existing notes. But feel good about where we’re at and what the transaction allowed us to do, which is really take a near term maturity and push it out to 02/1930. And so we think it clears the data on the balance sheet from our perspective. Sure.
Matt, Analyst: No, I agree. And it’s kind of like it allows you to sort of get right back to focusing execution. And execution looks like continued strong growth and outperforming in Q4 and cash flows and lining up sort of 10% EBITDA for 2025%. Maybe talk a little bit about what some of the drivers are, first on the growth side that kind of enable you to kind of maintain this high level of growth?
Todd Koenig, CFO, AlphaTek Holdings: Yes. So as we looked at our $732,000,000 of 2025 revenue, that is a 20% grower as you said. That’s comprised of both surgical revenue growing just a little bit north of 20% and our EOS contribution was $75,000,000 in 2025. And so our surgical revenue growth of 20 plus percent is underpinned by mid teens procedural volume growth and kind of mid single digit revenue per procedure growth. And so I think as we exited last year, I think we saw procedural volume growth kind of north of 20% or about 20% in the fourth quarter and showing strong growth obviously.
And so we feel pretty good about where we are. In the fourth quarter, we grew about $34,000,000 of year over year absolute dollars in surgical revenue, which was really a record for us in terms of absolute dollar growth exiting the year. So I think kind of coming into this year feeling good about the setup and where we are relative to executing to the plan.
Matt, Analyst: Okay. And I think one of the questions I get often is this is a company that does not yet have a robot in the market, but is delivering kind of best in class spine growth in a spine market that might be growing low to mid single digits at best, probably closer to low. The question is how what kind of runway do you have to continue to grow at this kind of pace without this perception that at some point you’re going to need a robot. You have one that’s kind of coming broader market release during this year, but maybe talk a little bit about understanding that you have mid teens volume growth and sort of mid single digit revenue per procedure growth. But where is that coming from?
Yes.
Todd Koenig, CFO, AlphaTek Holdings: So I think you take a step back and you realize we’re an 8% player in The U. S. Market. And I think that tells you alone there’s a ton of opportunity to go. Like we’d tell you 92% to go.
So I think the opportunity to grow is clear. And where we have seen growth and where we have excelled is in our lateral franchise. And so if you look at the existing lateral market, we’ve sized that to be about $1,000,000,000 and it’s probably growing high single digits itself. And so we’re probably in that 15%, sixteen % market share of that $1,000,000,000 lateral business. And there’s about $2,000,000,000 of incremental traditional posterior approach surgery that we think can ultimately be addressed with better outcomes through a lateral adoption.
And so we think that that lateral market can grow significantly from $1,000,000,000 to $3,000,000,000 And so we think that that is like the crown jewel of the kind of the spine market where we excel and where our surgeon adoption is really being driven from. And when you look at 20% surgeon adoption year over year, I think that is a strong signal that what we’re doing truly does help surgeons do better surgery, which is what ultimately drives them to adopt the procedural approaches that we’ve developed. And so when you see that you get great adoption and I think really sticky adoption in our lateral franchise, you begin to see what we kind of call the halo effect and they begin to use other procedures. And so I think on the backs of our lateral sophistication has really been where we’ve grown and where I think we’re going to continue to grow. And of course, we’ve got other opportunities as well.
But that’s been that has been the history.
Unidentified speaker, VP of Finance, AlphaTek Holdings: Got it. Matt? Just maybe on the three opportunities, I mean, it’s not maybe not just three, but three big ones. If you think about what’s not in the revenue number today, I mean, Todd’s talking about the opportunity in The U. S, largely in The U.
S. Surgical business, which is obviously the biggest chunk of our business. But you think about Valence and the impact of the robot being launched later this year from a revenue impact standpoint that’s in 2026 and beyond. We think about the impact of EOS Insight and that was just launched this last year. We’re in the early innings of rolling that out.
Maybe we’ll talk more about that. But that from the pull through perspective that revenue is probably out in 2016 and in 2017. And then you think about the ramp in our OUS business, our surgical OUS business and we’re just getting started there. We talked about in Q4 doing our first case in Japan. And so I think that will be a growth catalyst in the next couple of years as we turn that business on.
Matt, Analyst: Okay. And just to put that sort of lateral market and lateral market expansion into perspective, I guess. Lateral market has been around for a while now, invasive sort of cut its teeth more or less sort of really created that market. But what is interesting, I think, around AlphaTek is that there was a a there’s a segment of growth that you mentioned. We also like to operate on patients from the posterior not really wild about having to flip them around during the procedure from lateral to prone.
That opportunity is really is being led by Alpatek and it’s really only got one other competitor at the moment kind of following. Right. And so, one way to look at this would be like, well, the lateral market is growing high single digits. How can you be growing in the 20s? But the reality is the lateral expansion to include these posterior patients is growing quite a bit faster and you’re kind of leading that.
Is that a fair way to look at it? Yes.
Todd Koenig, CFO, AlphaTek Holdings: I think the expansion into lateral is definitely favoring us. It’s accruing to us more than anybody because of I think PTP is a big piece of that. And keep in mind, to do lateral surgery, you have to have a neuro monitoring device so that when you place your refractor, you don’t run into a nerve. So we have that technology as does now Globus, formerly invasive has that technology. What they don’t have is the ability to monitor the health of those nerves intraoperatively, which allows you to avoid the most common complication associated with lateral surgery.
And so I think our ability to monitor those nerves intraoperatively has been one of the reasons why our share take has been so sticky and why also the expansion of that market has really accrued to us more than anyone else.
Matt, Analyst: Okay. So that’s sort of top line maybe kind of understanding a little bit about the sort of middle of the P and L. Where are you seeing leverage? What’s enabling you to kind of turn the corner here, double digit EBITDA, positive cash flow in the fourth quarter. Like what are the levers in 2025 and 2026 that enable you to keep driving towards positive cash flow?
Todd Koenig, CFO, AlphaTek Holdings: Yes. So we really have two primary levers of margin expansion. And one is the improving variable expense cost or the variable selling expense cost, which is really a function of how we build sales agent commission plans, if you will. And so we’ve structured them with a component for what we kind of call base sales. So for whatever you sold last year, that’s your base sales for this year.
So you get an industry competitive kind of low 20s percent rate and then we’ll pay extra points for growth. And so that incends people to grow. But as the growth ratio as a percentage of total gets smaller as they get bigger that average is down plus the base rate kind of walks down over time. And so that’s kind of a contractually understood process that we’ve set up which gives us confidence in our ability to deliver on the variable outselling expense. And then the other thing we’ve done and this may be a little bit less appreciated by folks as they look through our history, but we’ve built a significant infrastructure early in the build of the company, so that we could ultimately get to a meaningful scale in the marketplace to be relevant.
And we’ve clearly hit that point where we’re relevant. And what we’re seeing today and what we’ve been seeing for a while now is the benefit of leveraging the scale of the infrastructure of the business. So I kind of speak of our distribution footprint in Memphis, the facility we have in Carlsbad and really the support functions whether it be finance and accounting or regulatory or our quality system. Those are functions, sales training and surgeon training, those are functions that have been built out. And as we grow revenue, we don’t have to grow those functions at the same rate of sales, much less lower in fact.
And so we’re able to get a lot of leverage off of the infrastructure of the business we’ve built. And so you’re seeing the margin expansion a function of revenue growth drop into the bottom line and an improved selling expense ratio.
Matt, Analyst: Okay. And maybe in terms of leverage, growing rapidly now. Not to take too much from the history of NuVasive, but one of the challenges there was they were growing rapidly, did not build out the portfolio or bag of products as widely and as quickly maybe as they should have. Well, maybe just struggles because the focus was always on lateral. I’m not sure.
But what kinds of opportunities are you creating to kind of pull through more? You mentioned like the halo effect using other products. When did those become a more important part of your pipeline?
Todd Koenig, CFO, AlphaTek Holdings: Yes. Do you want to talk a little bit about the portfolio and how we approach that?
Unidentified speaker, VP of Finance, AlphaTek Holdings: Yes. So some of the history and I think you’re alluding to it, Matt, is you think back to the NuVasive experience and NuVasive launched lateral 02/2004, ’2 thousand and ’5. But it wasn’t really until 2015 that they had a relevant really competitive posterior fixation system. And so one of the things that Pat did early on in the ATEC experience was we actually had very competitive we’ve top of the line fixation system in Invictus that we launched in 2019. And so and we launched PTP in 2020.
And so when we launched PTP, we had the system ready because you want to pull through the whole procedure. And that’s one of the things that Nuvent never did a great job doing. We speak from living that. It didn’t pull it through the way we could have. And so I think we tried to address that with having a fixation system, having the T lymph and PLIF as an example, doing a PTP you may still want to do the L5 S1 fusion from a T lymph approach because you can’t go over the iliac crest in a PTP approach.
And so having the right TLIF expandable cage to do that is important. And so I think having those products and the portfolio ready to do that is something we’ve been able to capitalize on and pull through in our lateral procedures. Okay. So for
Matt, Analyst: folks who are looking at this maybe without having spent as much time in spine, you have the interbody part of the procedure that opens up the vertebrae and positions the two bones to grow together and you have fixation from posterior. And both of those kind of important parts really of the construct. And if we think of, I don’t know, the average implant revenue per case or something in the low teens, a big chunk of that revenue per case opportunity comes in the form of the superior screws and rods and things that they always call the fixation. So obviously, not half of the business was a bit of a weak spot in the original invasive strategy, which you like makes a lot of sense. You’ve had that from the beginning.
In addition to that, I mean, what other opportunities do you have to sort of grow into and I’m not thinking today or tomorrow, because you’ve got a lot in front of you just in lateral and prone lateral. But where and when do we start to see, I don’t know, cervical or other things becoming more of a priority just because once you have the relationship with the doc and once they like your this system, they’re more willing to if you have a decent bad system, they’re going to want to use that as well.
Unidentified speaker, VP of Finance, AlphaTek Holdings: I think one of the opportunities that we see is deformity. And you think about the EOS footprint when we bought that asset was in pediatric and academic institutions where they’re doing deformity, everything from pediatric to adult deformity. And having the products that fit there, I think and we think we can take that procedural approach to that like we did with lateral. And so bringing the EosInsight tool to preoperatively plan post or intraop reconcile and then postoperatively monitor is a big part of that. But also an AIS positioner and a small stature system and having all those things bring them together.
Todd talked about SafeOp earlier and integrating SafeOp into the deformity. There’s a big need for monitoring motors during a scoliosis fix. And so like bringing those things together in a way we did with LTP or PTP into a procedure, it seems like a big opportunity for us and want to kind of try and run that play
Matt, Analyst: in that deformity space. Okay. That’s great. One of the things that caught a lot of attention last year was the deployment of cash and capital. I’m sure that was a big topic of conversations throughout most of the year.
And I guess two things happened in the back half. You executed really well on the top line and also executed really well in terms of your commitment to cash deployment. Where are we now as you kind of turn the corner? Are we beginning to annualize what was a big outlay in the first quarter of last year? Maybe talk a little bit about how Q1 this year should be different and kind of where we go from here in terms of cash and capital outlay deployment?
Todd Koenig, CFO, AlphaTek Holdings: Yes, absolutely. So I mean, you’re right. I think we finished the year in a real positive note, generated $9,000,000 of free cash flow. That was fantastic, great to see and I think a validation of what ultimately we knew that we could do. So felt very good about that.
I think that’s a good signal for things to come. And I think as we set 2025 up, it’s truly an inflection to positive cash flow experience on the full year. You look at or when we came out of the third quarter, we messaged breakeven cash flow for the year. And I think what we heard was people would do a little bit of a bell curve and say zero is in the middle and equal weight they’re worse and equal weight they’re better. And so what we messaged really coming in around the fourth quarter here was cash flow breakeven or zero is our floor.
And so that’s why we’re saying cash flow positive is the commitment on 2025. And so clearly the seasonality would tell you that Q1 will be a cash use quarter. So we expect anywhere from $15,000,000 to $20,000,000 of cash use in the first quarter, but then cash flowing thereafter. And so I think as we continue to refine our cash flow modeling and our forecasting, I think we feel increasingly confident in our ability to have visibility to that to I think create the kind of cadence and the experience that’s necessary for success.
Matt, Analyst: Okay. And a couple of and just for context that’s down like over 50% from last year? Yes.
Todd Koenig, CFO, AlphaTek Holdings: I think on the full year we’re at 128% last year. And so going from a negative 128% to a 0% or plus one but that’s a significant improvement. I think where that is seen in the cash flow statement is we deployed $140,000,000 of instruments and inventory, so shows PP and E and inventory. This year, we’re going to deploy about $50,000,000 of instruments and inventory. And so a significant improvement in that because we’re essentially utilizing the deployment of those assets this year and getting revenue off of that investment.
And so I think I’d tell you finally there the investment in sets of inventory that we had made over the last two years should set us up for a very strong ability to hit our revenue commitments. And in fact, it probably supports or does support a revenue number that exceeds what we’ve guided to. So I think we can clearly grow into our asset base and would reflect a number that’s better than the guidance from that standpoint. Excellent.
Matt, Analyst: And then another thing that’s happened, I guess, you absorbed a certain number of reps last year that sort of changed the nature and sort of like tone of case delivery and revenue per case delivery during the year. There’s always, I guess, some ebbs and flows around our transition to new sales reps. So you’re annualizing that. So at this point, you need new reps to grow obviously if you’re growing as high above the market as you are. You have to have new reps to grow.
Are we back to kind of a steady state adding of reps? Do you feel like maybe you’ll see some stabilization of the reps this year compared to what we went through last year? Yes.
Todd Koenig, CFO, AlphaTek Holdings: I think the investments we made last year and kind of exiting 2023, the people that we brought on in geographies really being kind of greenfield spaces. Those investments and so they’re having outsized impact in their territories and some of those guys are coming off their non competes this year and so or as we turn to the year. So all of that I think should be to our top line growth benefit. I think to your point though, we’ll continue to add sales reps to support the surge in adoption that we’re experiencing. And I think we’ll continue to add those in areas that exist today as we kind of build upon the investments we’ve made in the past.
Matt, Analyst: Okay. Well, with that we’re at time, so we should probably call it. But we appreciate you coming again this year.
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