ATEC Q2 2024: Confirms $125M-$135M Cash Burn, Targets 2025 Break-Even
- Innovative Technology with EOS Insight: The EOS Insight launch integrates AI and automated alignment measures into spine surgery planning, positioning ATEC as a leader by providing a first-of-its-kind software solution that enhances surgical predictability and opens opportunities in deformity surgery.
- Strong Surgeon Adoption and Engagement: ATEC recorded robust surgeon engagement with 244 training events and a 20% growth in surgeon users, indicating high clinical validation and strong market demand for its innovative procedures.
- Effective Sales Force and Territory Upgrades: The strategic upgrade of territories and aggressive recruitment of new sales agents are driving a shift toward higher-margin procedures, supporting sequential revenue growth and improved profitability.
- Elevated Cash Burn and Working Capital Concerns: The company now expects $125–135 million of cash use in 2024, driven by higher-than-anticipated day sales outstanding and inventory inefficiencies. This heightened cash burn leaves less margin for error if revenue growth slows, raising liquidity risks.
- Operational Disruption from Sales Force and Territory Transitions: Transitions related to territory upgrades and the winding down of incumbent sales agents have resulted in dislocated volume growth, which could lead to execution risks. The faster-than-expected ramp-down of existing business segments compared to the incoming higher-priced cases introduces uncertainty in sustaining consistent volume growth.
- Dependence on Continued Top-Line Growth to Offset Inefficiencies: The company’s path to cash flow break-even in 2025 is heavily reliant on robust revenue expansion and surgeon adoption. If top-line growth doesn't materialize as expected, the unresolved elevated DSOs and inventory challenges could considerably strain profitability and cash flow.
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Cash Burn Outlook
Q: Confirm $125–$135M cash burn for 2024?
A: Management confirmed expected cash burn of $125–$135M for 2024 due to higher DSOs and inventory inefficiencies, with expectations of Q3–Q4 improvement supporting liquidity. -
Capital & Break‑Even
Q: Will you raise cash before 2025 break‑even?
A: Management explained that strong top‑line growth should generate about $70M in adjusted EBITDA next year, eliminating the need for additional cash raises before achieving cash flow break‑even. -
DSO & Working Capital
Q: What factors are driving higher DSOs and inventory?
A: Executives noted that DSOs increased from delayed payments influenced by cybersecurity issues and that rapid sales growth has led to inventory inefficiencies, with expectations that these pressures will persist in the near term. -
Supply Constraints Impact
Q: How much revenue was impacted by supply constraints?
A: Management indicated that supply constraints in biologics and expandable implants cost roughly $2M sequentially, a temporary issue that has since been resolved. -
Volume Growth Dynamics
Q: Why was volume growth lower and will it recover?
A: Management described a faster-than-expected wind-down of established territories during upgrades, resulting in mid‑teens volume growth this quarter, with a rebound to high‑teens expected in the second half alongside increased average revenue per procedure. -
Japan Market Timing
Q: When will you debut in Japan?
A: Management expressed strong enthusiasm for the Japan market, targeting their first surgery in Q4 2024, bolstered by improving regulatory clarity. -
EOS Insight Launch
Q: How does EOS Insight impact deformity surgery?
A: Management highlighted EOS Insight as a transformative, end‑to‑end solution that enhances surgical planning and outcomes, positioning it to drive growth in deformity surgery with further enhancements planned for early 2025. -
Competitive Rep Hiring
Q: How is competitive rep hiring progressing?
A: Management stated that hiring is robust and geographically targeted to support their sales expansion, aligning with efforts to grow the sales force toward the revenue drive needed for a path to $1B revenue, although specific quarterly figures were not disclosed.
Research analysts covering Alphatec Holdings.