Alphatec Holdings, Inc. (NASDAQ:ATEC) is a medical technology company focused on the design, development, and advancement of technology for the better surgical treatment of spinal disorders. The company, headquartered in Carlsbad, California, markets its products in the United States and internationally via a network of independent sales agents and direct sales representatives.

Business Overview

Alphatec has established a strong foundation to deliver profitable long-term growth. In the first quarter of 2024, the company reported total revenue of $138.5 million, representing a 27% increase compared to the prior year period. This growth was driven by a 30% increase in surgical revenue to $123 million and a 5% increase in EOS revenue to $16 million. The surgical revenue growth was fueled by a 23% increase in procedural volume and a 6% increase in average revenue per case.

Financials

The company's non-GAAP gross margin for the quarter was 71%, up 50 basis points year-over-year. This improvement was primarily driven by enhanced EOS gross margins, which benefited from pricing initiatives, a growing U.S. mix, and improved service operations. Additionally, strong volumes enabled leverage of the company's Memphis distribution facility.

Non-GAAP research and development expenses were $14 million, or 10% of sales, compared to $12 million, or 11% of sales, in the prior year period. The increase was driven by continued investments in organic innovation and the development of the Valence robotic navigation platform acquired in April 2023.

Non-GAAP selling, general, and administrative (SG&A) expenses were $101 million, or 73% of sales, compared to $81 million, or 74% of sales, in the prior year period. The increase was primarily due to higher compensation-related costs and variable selling expenses associated with the revenue growth, as well as continued investment in building the company's strategic distribution channel.

Total non-GAAP operating expenses were $115 million, or 83% of sales, compared to $93 million, or 85% of sales, in the prior year period, demonstrating 200 basis points of operating leverage. Adjusted EBITDA was a loss of $3 million, or 2% of sales, compared to a loss of $7 million, or 7% of sales, in the prior year period, a 450 basis point improvement.

The company ended the first quarter of 2024 with $144 million in cash. Debt at carrying value was $527 million. Free cash use totaled $70 million, with approximately $60 million deployed into inventory and instruments to support the expansion of the company's distribution footprint and new product launches.

Outlook

For the full year 2024, Alphatec expects total revenue growth of 25% to approximately $601 million, including 27% growth in surgical revenue to $536 million and $65 million in EOS revenue. Surgical volume growth is expected to increase at a low 20% rate for the full year, with revenue per surgery growth continuing at a mid-single digit percent rate.

The company now expects full year 2024 adjusted EBITDA of approximately $23 million, which equates to 570 basis points of margin expansion. This implies an approximate 27% drop-through on the year-over-year growth in revenue dollars, an acceleration compared to the 22% drop-through in 2023.

Recent Developments

Alphatec's growth story is underpinned by several key drivers. The company's lateral franchise, which it pioneered, continues to be a significant growth driver, with the lateral market growing faster than the overall spine market. Alphatec's expertise and innovation in this area, including its advanced neuromonitoring capabilities through the SafeOp platform, have positioned the company as a leader.

Additionally, the company is capitalizing on the unprecedented disruption in the spine market, with an estimated 35% of the market currently in flux. Alphatec's spine-focused approach and clinical distinction have enabled it to attract top talent and gain market share in key strategic regions.

The launch of the EOS Insight platform, which leverages the precision of the EOSedge imaging system and AI to deliver crucial information throughout the spine care continuum, is another significant growth driver. EOS Insight has the potential to transform spine surgery by improving alignment, surgical planning, and patient outcomes.

Alphatec's international expansion, particularly in attractive markets like Australia, New Zealand, and the anticipated launch in Japan, also represents a meaningful opportunity for the company. The methodical approach of entering these markets and building a strong foundation has proven successful, with the company already seeing traction in Australia and New Zealand.

Conclusion

The company's strong financial position, with a focus on driving profitability and cash flow, positions it well to continue investing in its growth initiatives. Alphatec's commitment to its long-term plan, which includes reaching $1 billion in revenue, $180 million in adjusted EBITDA, and $65 million in free cash flow by 2027, demonstrates its confidence in its ability to execute and create value for shareholders.

In conclusion, Alphatec Holdings, Inc. is well-positioned to capitalize on the significant opportunities in the spine market. The company's focus on clinical distinction, innovative technology, and strategic execution have driven consistent revenue growth and margin expansion. With a robust pipeline of growth drivers and a clear path to profitability, Alphatec is poised to solidify its position as the standard-bearer in spine surgery.