Alphatec Holdings, Inc. Q3 FY2024 earnings call

Revenue Growth

• Third quarter total revenue reached $151 million, a 27% year-over-year increase. Surgical revenue was $135 million, up 30% YOY with 20% procedural volume growth and 9% revenue per procedure growth. EOS Insight was launched with record year-to-date orders.

Profitability

• Adjusted EBITDA was $7.4 million, with greater than 50% sequential reduction in cash burn. The company is on track to generate cash in Q4 2024.

Organizational Focus

• The organization is focused on streamlining operations, efficiently using people, sets, and inventory. There was 19% growth in new surgeon users and over 200 surgeon training engagements.

Long-Term Goals

• Aim to achieve $1 billion in revenue by 2027 with adjusted EBITDA of $180 million, 18% margin, and $65 million free cash flow. 2024 full-year adjusted EBITDA guidance was raised to ~$27 million, and cash used for 2024 is expected to be between $125M and $135M.

Third quarter total revenue was $151 million, up 27% year-over-year. Surgical revenue was $135 million (30% growth YOY), comprising 89.4% of total revenue. EOS revenue was $15 million (7% growth YOY), making up 9.9% of total revenue. Adjusted EBITDA was $7.4 million. Cash burn was reduced by over 50% sequentially, and the company is on track to generate cash in Q4 2024. Term loan capacity was increased by $50 million.

2024 Outlook

• Total revenue expected to grow 25% to ~$605M (surgical revenue ~$540M, EOS ~$65M). Full-year adjusted EBITDA guidance raised to ~$27M. Cash used for 2024 projected between $125M and $135M.

2025 Outlook

• Expect cash flow breakeven in 2025. Adjusted EBITDA expected $70M, with $50M investment in inventory and $25M in interest/working capital.

• Execution risk: Cash generation is crucial for rebuilding shareholder value, and execution on this is a key risk. - Market/mix risk: Product mix and geographic distribution (e.g., international distributor sales) can impact gross margins.

Q: Investors concerned about outspending resources.

A: Pat and Todd reassure about flat operating expenses, adjusted EBITDA above expectations, and streamlining organization to self-fund growth.

Q: Impact of hurricanes and IV shortages.

A: No material impact from hurricanes in Q3; no impact from IV shortages on spine surgery.

Q: New rep/distributor productivity.

A: Ramping of new reps is a process, with inventory available, and same-store sales ramping while new areas start to contribute.

Q: Robot and imaging integration.

A: Focus on information-driven decision making with EOS as the foundation, integrating robotics and navigation into an ecosystem for better spine care.

Q: CapEx productivity and top-line growth.

A: Historical CapEx productivity ~$0.75 on dollar of growth; investments in '22-'23 support future revenue growth, with asset base enabling higher revenue in 2025.

Q: Surgeon training conversion rate.

A: Varied conversion rates as surgeons have different algorithms for engaging with techniques, but high engagement with peer-to-peer experiences.

Q: EOS orders and Q4 revenue.

A: Strong enthusiasm for EOS Insight, with new orders from institutions, and Q4 EOS revenue expected to step up from prior quarters.

Q: Valence feedback and launch cadence.

A: Early feedback positive, focusing on refining Valence through mid-2025 for potential launch.

Q: EOS and implant growth.

A: EOS lays foundation for implant growth by integrating implants into surgical planning, leveraging AI-driven alignment measures.

Q: Gross margin softness.

A: Lower margins from international distributor sales and biologic portfolio with lower margin profile; expected Q4 gross margin ~69.5% and full-year ~70%.