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Alphatec Holdings, Inc. (ATEC)·Q2 2024 Earnings Summary

Executive Summary

  • Delivered strong top-line growth and first positive adjusted EBITDA: total revenue $145.6M (+24.5% YoY; +5.1% QoQ) and adjusted EBITDA $5.6M (3.8% margin), aided by 27% surgical revenue growth and 10% YoY increase in revenue per case .
  • Raised FY24 guidance: total revenue to $602M (from $601M), surgical to $537M (from $536M), and adjusted EBITDA to ~$25.5M (from $23.0M); EOS revenue maintained at $65M .
  • Near-term headwinds: higher 2024 cash use now $125–$135M (vs $100–$110M prior) on elevated DSOs and inventory inefficiencies; Q3 cash use ~$25–$30M, Q4 cash generation $5–$15M expected .
  • Strategic catalysts: commercial launch of EOS Insight (AI-enabled end-to-end spine platform) and record 244 surgeon training engagements; management emphasized continued share gains and territory upgrades despite short-term volume lumpiness .

What Went Well and What Went Wrong

  • What Went Well
    • Achieved profitability inflection on an adjusted EBITDA basis: $5.6M with 650 bps YoY margin expansion; CFO cited 30% drop-through on YoY revenue dollar growth driven by SG&A, R&D, and gross margin leverage .
    • EOS Insight launched on time; management framed it as integrating standardized EOS imaging and AI across pre/intra/post-op workflow to improve predictability and outcomes: “EOS Insight… replaces archaic clinical practices to improve patient outcomes” .
    • Commercial momentum: surgical revenue +27% YoY, 20% growth in new surgeon adoption, and a record 244 surgeon training engagements underscoring demand .
  • What Went Wrong
    • Working capital pressure increased: 2024 cash use revised to $125–$135M (from $100–$110M) due to 5 extra DSO days ($10M) and inventory inefficiencies (~$15M) .
    • Temporary supply constraints (one biologics offering and one expandable implant) limited upside; constraints now resolved heading into Q3 .
    • Territory upgrades created near-term lumpiness: case volumes +15% YoY (vs +23% in Q1) as incumbents wound down faster than expected; mix skewed to higher-ASP lateral driving +10% ARPP growth .

Financial Results

MetricQ2 2023Q1 2024Q2 2024YoY ChangeQoQ ChangeVs. Estimates
Total Revenue ($M)$116.9 $138.5 $145.6 +24.5% +5.1% n/a (SPGI consensus unavailable)
GAAP Gross Margin (%)55.2% 70.3% 70.5% +15.3 pp +0.2 pp n/a
Non-GAAP Gross Margin (%)69.3% 70.9% 71.2% +1.9 pp +0.3 pp n/a
GAAP Net Loss ($M)$(51.4) $(48.5) $(40.7) +$10.7M +$7.8M n/a
GAAP Diluted EPS ($)$(0.43) $(0.34) $(0.29) +$0.14 +$0.05 n/a
Adjusted EBITDA ($M)$(3.1) $(3.0) $5.6 +$8.7M +$8.6M n/a
Adjusted EBITDA Margin (%)(2.7%) (2.2%) 3.8% +6.5 pp +6.0 pp n/a

Segment Revenues

SegmentQ1 2024Q2 2024
Surgical Revenue ($M)$123.0 $130.0
EOS Revenue ($M)$16.0 $15.5

KPIs and Operating Metrics

KPIQ1 2024Q2 2024
Procedural Volume Growth (YoY)23% 15%
Avg Revenue per Procedure Growth (YoY)6% 10%
New Surgeon Adoption Growth (YoY)21% 20%
Surgeon Training Engagements (#)150 244 (record)
Adjusted EBITDA ($M)$(3.0) $5.6
Adjusted EBITDA Margin (%)(2%) 4%
Ending Cash Balance ($M)$144 $100
Free Cash Use ($M)$70 $45
Debt at Carrying Value ($M)$527 $531

Notes: Press release rounded figures (e.g., total revenue $146M, adjusted EBITDA margin 4%) reconcile to detailed statements .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Revenue ($M)FY 2024$601 $602 Raised
Surgical Revenue ($M)FY 2024$536 $537 Raised
EOS Revenue ($M)FY 2024$65 $65 Maintained
Adjusted EBITDA ($M)FY 2024$23.0 $25.5 Raised
Free Cash Use ($M)FY 2024$(100)–$(110) $(125)–$(135) Raised cash burn
Q3 Cash Use ($M)Q3 2024n/a$(25)–$(30) New
Q4 Cash Generation ($M)Q4 2024n/a$5–$15 New
Surgical Volume GrowthFY 2024Low 20% (prior view) High teens Lowered
Revenue per Surgery GrowthFY 2024Mid-single digit High single digit Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’23 and Q1’24)Current Period (Q2’24)Trend
AI/Technology initiatives (EOS Insight)Q1: EOS Insight launch targeted Q2’24; intra-op reconciliation pursuing FDA clearance; positioned to automate alignment and planning .EOS Insight launched; first cases completed; integrated pre/intra/post-op with AI-driven alignment, 3D planning, patient-specific rods, analytics .Accelerating deployment and surgeon enthusiasm.
Supply chain/InventoryQ4: broader portfolio launches, no specific constraints . Q1: building instrument sets; heavy investment drove cash use .Temporary shortages in biologics and an expandable implant constrained revenue; resolved heading into Q3 .Short-term resolved; monitoring.
Macro/utilizationQ1: trends normal, supported guidance raise .Management sees typical utilization; ATEC’s 6% share limits read-through .Stable.
Territory upgrades/salesforceQ1: aggressive hiring, deliberate geographic expansion; 28% growth in established territories .Upgrades caused volume lumpiness (existing reps wound down faster); mix shift to higher-ASP lateral; long-term uplift expected .Near-term noisy; constructive LT.
Product performanceQ1: strength in lateral and expandables .Continued lateral and expandable strength; biologics a growing contributor; supply constraints resolved .Positive mix.
Regulatory/Valence (robotic nav)Q1: progressing; initial pedicle screw placements; integration with lateral workflow targeted .Continued development; no major update in Q2 call .In development.
International (Japan)Q1: pacing toward launch (PTP later); methodical path .Target first surgery in Japan in Q4’24; long-term opportunity .Nearing first cases.
Working capital/cashQ1: 2024 cash use previously ~$100M; breakeven 2025 .2024 cash use now $125–$135M on DSOs and inventory; Q4 inflects to cash generation; breakeven 2025 reiterated .More conservative near-term; path intact.

Management Commentary

  • “We inflected to profitability with an adjusted EBITDA of $5.6 million… The launch of EOS Insight… enabling the translation of EOS images into unparalleled informatics that advance every step of the clinical experience.” – Pat Miles, CEO .
  • “Drop through of the year-over-year growth in revenue dollars to adjusted EBITDA was strong at 30%… profitability will continue to expand in future quarters and fuels self-funded growth.” – J. Todd Koning, CFO .
  • On territory upgrades: “Case volume growth was not as strong, while average revenue per procedure growth exceeded recent trends… adjusting for this dynamic… volume growth would have been about 300 bps higher at 18%.” – CFO .
  • On EOS Insight: “EOS Insight is truly the most comprehensive spine innovation I’ve witnessed in my 35-year clinical tenure.” – Dr. David Schwartz (press release quote) .

Q&A Highlights

  • Liquidity and cash burn: FY24 cash use guided to $125–$135M (vs prior $100–$110M) driven by 5 DSO day increase ($10M) and inventory inefficiencies (~$15M); Q3 cash use $(25)–$(30)M; Q4 cash generation $5–$15M; 2025 cash flow breakeven still expected .
  • Territory upgrades: Temporary volume softness as incumbents exited faster than expected; higher-ASP lateral cases offset via ARPP; modeling high-teens volume growth in H2 with revenue per surgery high single-digits in Q3 and mid-single-digits in Q4 .
  • Supply constraints: Outgrew supply in one biologics and one expandable implant; both resolved; sequential surgical revenue expected to increase from $130M to $132M in Q3 .
  • EOS Insight adoption: Software upgrades currently installed on-site (remote push forthcoming); strong early surgeon enthusiasm; capital cycle implies benefits build over time .
  • International: First Japan surgery targeted Q4’24; gradual, methodical build expected .

Estimates Context

  • S&P Global consensus estimates were not retrievable at the time of analysis due to request limits; therefore, comparisons to Street estimates are unavailable. Where estimates would typically appear (e.g., vs estimates column), values are listed as n/a (SPGI consensus unavailable).

Key Takeaways for Investors

  • Sustained growth with profitability inflection: 25% revenue growth and positive adjusted EBITDA reinforce the operating leverage thesis; management guided to further margin expansion in H2 .
  • Guidance raised: FY24 revenue nudged to $602M and adjusted EBITDA to ~$25.5M; surgical revenue raised despite territory transitions; EOS held at $65M .
  • Working capital is the swing factor: Elevated DSOs and inventory drive higher 2024 cash use; watch Q3–Q4 cash cadence and DSO/DOH to validate the path to 2025 breakeven .
  • Mix and execution narrative: Territory upgrades temporarily suppress volume but increase ARPP via lateral; supply constraints are resolved—a setup for sequential surgical revenue growth .
  • Strategic moat with EOS Insight: First-to-market AI-enabled, standardized imaging informatics across the surgical workflow; potential long-term share and pricing power driver, particularly in deformity .
  • Near-term trading lens: Positive catalysts (profitability inflection, guidance raise, EOS Insight launch) offset by cash burn reset; stock likely reacts to evidence of H2 operating leverage and cash inflection .
  • Medium-term thesis: Continued share gains in lateral, expanding informatics platform (EOS Insight), and international ramps (Japan) support the $1B 2027 roadmap if working capital discipline improves as profitability scales .