Alphatec Holdings, Inc. (ATEC)·Q1 2024 Earnings Summary

Executive Summary

• Q1 2024 delivered $138.5M total revenue (+27% y/y; flat q/q), with surgical revenue $123M (+30% y/y) and EOS $16M (+5% y/y). Non-GAAP gross margin was 70.9% (+50 bps y/y), adjusted EBITDA was -$3.0M (-2.2% margin) with continued operating leverage from SG&A and R&D .
• Management raised FY24 outlook: revenue to $601M (from $595M), surgical to $536M (from $530M), and adjusted EBITDA to ~$23M (from ~$22M). EOS held at $65M. Drivers include low‑20% surgical volume growth and mid‑single‑digit revenue per surgery growth for 2024 .
• Execution drivers: 23% procedural volume growth, +6% avg revenue per case, 150 surgeon trainings (+21% adoption), 28% same‑store growth in established territories; $60M deployed in revenue‑generating assets to support sales expansion .
• Stock catalysts: guidance raise, clear path to H2 profitability ramp and 2025 cash breakeven; tangible progress on EOS Insight (Q2’24 launch timing) and Valence robotics integration into lateral workflows .

What Went Well and What Went Wrong

• What Went Well

  • Strong surgical growth: +30% y/y on 23% procedure growth and +6% revenue per case; lateral remained largest contributor with broad portfolio strength .
  • Operating leverage: Non‑GAAP Opex ~83% of sales (down ~200 bps y/y); EBITDA margin improved ~450 bps y/y on SG&A, R&D, and gross margin leverage .
  • Strategic momentum: 150 surgeon trainings drove +21% adoption; established territories up 28%; EOS Insight on track; continued Valence progress and early screw placement .

• What Went Wrong

  • Profitability still negative in Q1: adjusted EBITDA -$3.0M (-2.2% margin); GAAP net loss $(48.5)M amid higher depreciation from revenue‑generating assets and interest expense .
  • Cash burn elevated: Q1 free cash use ~$70M with ~$60M deliberately invested into sets/inventory; FY24 cash use expected at ~$100M (front‑loaded) .
  • EOS revenue guide unchanged at $65M despite a solid Q1; management cited capital cycle lags and conservatism in equipment markets pending Insight commercialization .

Financial Results

• Consolidated results (oldest → newest)

Note: ATEC updated non‑GAAP definitions in Q4’23 to include E&O in COGS; Q3’23 non‑GAAP metrics reflect prior definition, impacting comparability .

• Segment breakdown

• KPIs

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We are establishing a foundation to deliver profitable long-term growth…$138 million in total revenue, which is a 27% revenue growth; 450 basis points of adjusted EBITDA expansion” — Patrick Miles, CEO .
• “First quarter revenue was $138 million…comprised of $123 million in surgical revenue and $16 million of EOS revenue…procedural volume growth of 23%…Average revenue per case grew 6%” — J. Todd Koning, CFO .
• “We now expect full year 2024 adjusted EBITDA of approximately $23 million…570 basis points of margin expansion…cash flow breakeven in 2025” — CFO .
• “EOS Insight launch…Q2 ’24 has come into fruition…interoperative reconciliation…expect FDA clearance by the end of Q2” — CEO .

Q&A Highlights

• Deformity opportunity and EOS Insight: Management emphasized EOS as the “most coveted tool” in deformity with predictive analytics across pre/intra/post‑op; intra‑op reconciliation is nascent with FDA clearance targeted by end Q2’24 .
• Competitive hiring and territory coverage: Robust influx from all major players; impact varies by geography; 64 selling days in Q1; cadence aligns with planned seasonality .
• Demand cadence and profitability ramp: Q1 trends solid; raised surgical revenue guidance reflecting exit velocity; expect adjusted EBITDA breakeven roughly in 1H aggregate with majority of FY profit in H2 .
• EOS guidance conservatism: Kept at $65M due to capital equipment cycle timing; Insight expected to drive orders with a lag (12‑month selling cycle) .
• International: Japan entry deliberate; LTP first with gradual PTP expansion, broader launch expected ~2026 .

Estimates Context

• Wall Street consensus from S&P Global (EPS/revenue) for Q1 2024 was unavailable at time of preparation due to S&P Global API rate limits; as a result, we cannot quantify beats/misses versus consensus for this quarter. Management indicated the team “overachieved relative to our expectations” and raised FY guidance, suggesting internal outperformance .

Key Takeaways for Investors

• FY24 guidance raised on both revenue and EBITDA; execution confidence supported by durable procedure growth (+23% in Q1) and mix/complexity tailwinds — a constructive setup for estimate revisions and sentiment .
• Operating leverage is tracking plan (gross margin +50 bps y/y; SG&A and R&D leverage), underpinning H2 profitability ramp and 2025 cash breakeven despite front‑loaded cash deployment into assets .
• Procedural ecosystem advantage (lateral + SafeOp + EOS Insight + Valence) remains ATEC’s differentiator; near‑term milestones include EOS Insight commercialization and intra‑op reconciliation FDA clearance by end Q2’24 .
• Conservative EOS guide maintains upside optionality as Insight awareness builds; watch order momentum into 2H given 12‑month capital cycle .
• Geographic expansion and rep hiring continue to broaden the footprint; established territories’ same‑store strength (+28%) indicates durable underlying demand and potential for continued share gains .
• Risk monitor: ongoing GAAP losses and cash use while investing heavily in revenue‑generating assets; interest expense and depreciation weigh on GAAP P&L near term .
• Medium‑term thesis: pathway to $1B+ revenue and self‑funded growth predicated on lateral leadership, informatics‑driven deformity opportunity, and enabling tech integration; execution on Insight/Valence timelines is key .