Executive Summary / Key Takeaways

• Alphatec Holdings has successfully transformed from a struggling entity into a high-growth, pure-play spine company, demonstrating industry-leading revenue expansion driven by a distinct procedural and informatics strategy.
• The company's differentiated technology platform, centered on SafeOp neural monitoring, the EOS imaging system, and the integrated InformatiX platform including EOS Insight, provides quantifiable clinical benefits aimed at improving surgical predictability and patient outcomes, particularly in complex procedures and deformity correction.
• ATEC has achieved a significant financial inflection point, demonstrating consistent adjusted EBITDA margin expansion over 12 consecutive quarters and reaching positive adjusted EBITDA ($11 million in Q1 2025) and free cash flow generation ($9 million in Q4 2024).
• Management forecasts continued strong growth and profitability, guiding to $734 million in revenue and $78 million in adjusted EBITDA for 2025, and is committed to achieving cash flow positive status for the full year 2025, supported by prior investments in assets.
• Leveraging market disruption and its clinical distinction, ATEC is actively expanding and elevating its sales force, driving strong penetration in established territories and positioning itself as a preferred destination for talent, while navigating risks like working capital fluctuations and potential tariffs.

The Transformation of ATEC: Building a Spine Juggernaut

Alphatec Holdings, Inc. (NASDAQ:ATEC) is a medical technology company singularly focused on revolutionizing the surgical treatment of spinal disorders. Embarking on a significant transformation journey in 2018, ATEC set out with the ambitious goal of becoming the "standard bearer in spine." This strategic pivot moved beyond conventional spinal implant offerings to concentrate on designing, developing, and advancing integrated procedural solutions and informatics aimed at improving surgical predictability and patient outcomes.

The spine market, estimated to be a multi-billion dollar global opportunity, presents unique challenges and opportunities. Unlike some other orthopedic procedures, spine surgery often faces high revision rates—ranging from 10%-15% in short segment surgery within three years to over 20%-25% in deformity cases. This underscores a critical need for improved predictability and durability, which ATEC believes can be addressed by mitigating intraoperative and systemic variables. This market dynamic forms the core of ATEC's strategic response and investment thesis.

ATEC operates within a competitive landscape dominated by larger, diversified medical device companies such as Medtronic (MDT), Stryker (SYK), Zimmer Biomet (ZBH), Globus Medical (GMED), and Johnson & Johnson (JNJ). While these competitors possess greater scale, broader portfolios, and more extensive global distribution networks, ATEC has strategically positioned itself as the largest pure-play spine company. Its focused approach allows for agility and deep specialization, enabling it to outpace market growth significantly. Recent market disruption, including strategic shifts and M&A activity among larger players, has created a favorable environment for ATEC to attract experienced sales talent and gain market share, which management views as a multi-year tailwind.

Technological Distinction: The Informatics-Driven Moat

Central to ATEC's strategy is its focus on creating clinical distinction through differentiated technology. The company's approach is built on architecting unparalleled procedural solutions that integrate advanced informatics to objectively inform surgery.

A foundational element of ATEC's technology suite is the SafeOp Neural InformatiX System. This technology provides automated neural monitoring capabilities during surgery, particularly critical for procedures like the lateral approach where navigating around nerves is paramount. SafeOp offers modalities such as auto EMG, auto SSEPs, and facilitated MEPs, providing surgeons with real-time information about nerve location and health. This information is designed to minimize the potential for neural complications, a significant variable in spine surgery, thereby enhancing predictability. Management points to the influence of SafeOp on the success of their lateral franchise as a proxy for how informatics can improve surgical outcomes.

Complementing SafeOp is the EOS imaging system, acquired in 2021. EOS provides low-dose, high-quality 2D/3D full-body and weight-bearing images, which are invaluable for assessing spinal alignment – a key determinant of long-term surgical success and durability. ATEC's innovation extends this imaging capability through its integrated InformatiX platform and the recently launched EOS Insight software. EOS Insight translates the EOS image into actionable information. It provides AI-automated alignment measures, generating precise computer-generated assessments that inform a 3D surgical plan. This plan simulates the surgical effect, contemplates optimal implant selection (including patient-specific implants), and targets normative age-related alignment restoration.

The benefits of this integrated approach are tangible and quantifiable. The automated nature of EOS Insight streamlines pre-operative planning, which is often onerous and imprecise with traditional methods. The system allows for intraoperative reconciliation against the surgical plan via the EOS Intraoperative Alignment (IOA) system, enabling surgeons to assess their progress in real-time. Post-operatively, the system facilitates objective comparison of outcomes against the plan. Furthermore, the automated data collection through EOS Insight is viewed as foundational for developing predictive analytics, offering insights that can inform future surgical decision-making and further mitigate variables.

ATEC is also investing in future technological advancements, including the Valence navigation robotic system, targeting a launch by the end of 2025. Valence is intended to integrate into the operative workflow to enhance precision, particularly in stabilization procedures. The company is also working on integrating bone quality measures via EOS, targeting a Q2 2025 capability.

For investors, this technological differentiation is critical. It forms a competitive moat, enabling ATEC to offer solutions that address unmet needs in spine surgery, particularly the high revision rates. This clinical distinction drives surgeon adoption and utilization, contributing to industry-leading revenue growth and higher average revenue per procedure through the "convoyed" sale of multiple technologies and implants within a procedural solution. The EOS platform, in particular, provides access to academic institutions and hospital systems, expanding ATEC's footprint and potential for future implant pull-through. While competitors like Medtronic and Stryker also offer navigation and robotics, ATEC's focus on an integrated, informatics-driven procedural ecosystem, starting with foundational imaging and planning, is a key differentiator.

Financial Performance and Inflection: Translating Growth into Profit and Cash

ATEC's strategic execution has translated into robust financial performance and a significant inflection towards profitability and cash generation. The company has demonstrated consistent, above-market revenue growth, achieving an approximately 40% CAGR since its transformation began in 2018 and delivering over $100 million in organic growth for three consecutive years.

In the first quarter of 2025, ATEC reported total revenue of $169.18 million, representing 22% year-over-year growth. Surgical revenue was particularly strong at $152 million, growing 24% year-over-year, significantly outpacing the estimated market growth rate. This surgical growth was fueled by a 17% increase in procedural volume and a 6% increase in average revenue per procedure, reflecting successful surgeon adoption and utilization of ATEC's comprehensive procedural solutions.

Same-store sales in established territories grew a robust 23%, indicating deep penetration where the sales force is established. EOS revenue contributed $17 million, growing 8% year-over-year, supported by a 28% increase in the order book.

Financially, ATEC has made deliberate progress towards profitability. The company achieved its fourth consecutive quarter of positive adjusted EBITDA in Q1 2025, delivering $11 million, equating to a 6% margin. This performance represents over 40% drop-through of year-over-year revenue growth to adjusted EBITDA, demonstrating increasing infrastructure scalability and an improving variable selling expense profile. This marks the 12th consecutive quarter of adjusted EBITDA margin expansion, a testament to disciplined cost management and operational improvements, particularly in managing inventory and instrument sets. While operating expenses increased in Q1 2025 due to higher compensation and selling costs tied to revenue growth and investments in distribution, R&D expenses decreased, and the increase in litigation expenses was primarily due to a settlement.

Liquidity has been a focus as the company scales. ATEC ended Q1 2025 with $153.2 million in cash and cash equivalents and $60 million available on its revolving credit facility. Recent financing activities have strengthened the balance balance sheet and provided flexibility. In March 2025, the company issued $405 million in 0.75% Convertible Senior Notes due 2030. Net proceeds of approximately $392.9 million were used to repurchase 80% of the existing 2026 Convertible Notes for $268.4 million and enter into capped call transactions for $42.5 million, effectively extending maturity and providing dilution protection. The remaining net proceeds provide flexibility to address the remaining $63.3 million of the 2026 Notes.

Crucially, ATEC has inflected to positive free cash flow, reporting $9 million in Q4 2024. While Q1 2025 saw a cash use of $15 million, this was at the low end of guidance and a significant $55 million improvement year-over-year. This cash use was impacted by transient working capital headwinds (higher DSOs and inventory inefficiencies), which management expects to improve.

Outlook and Future Trajectory: Sustaining Momentum

Management is confident in ATEC's ability to sustain its growth and profitability trajectory. For the full year 2025, the company raised its revenue outlook to approximately $734 million, representing 20% growth. This includes surgical revenue growth of 21% to $658 million, driven by mid-teens volume growth and mid-single-digit revenue per procedure growth, and EOS revenue of $76 million.

The full-year 2025 adjusted EBITDA outlook was also raised to $78 million, implying an 11% margin and a 39% drop-through rate, even while absorbing an estimated low single-digit million dollar impact from expected tariffs on imported EOS units in the second half of the year. This trajectory positions ATEC well to achieve its long-range plan target of an 18% adjusted EBITDA margin at $1 billion in revenue by 2027.

A key aspect of the 2025 outlook is the commitment to being cash flow positive for the full year. Management expects the cash flow cadence to improve from a cash use in Q1 ($15M) to near breakeven in Q2 ($0-$5M use) and positive generation in Q3 and Q4. This confidence is rooted in the expected increase in adjusted EBITDA and the fact that the significant investments made in instrument sets and inventory in 2024 have built an asset base capable of supporting 2025 revenue growth with a lower required capital investment ($50 million in sets/inventory expected in 2025 compared to higher levels in 2024), partially offset by an expected step-up in interest and other working capital needs ($25 million).

Future growth will be fueled by continued surgeon adoption and utilization, driven by the clinical distinction of ATEC's procedural solutions and the expanding sales force. The company is actively recruiting experienced talent, leveraging the favorable market environment. Expansion into more complex procedures, particularly deformity correction, is a significant opportunity where ATEC's integrated informatics platform (EOS, EOS Insight, SafeOp) is expected to be highly relevant. International expansion, such as the recent entry into Japan, is also viewed as a long-term growth driver. New product launches, including the PTP Corpectomy system and the anticipated Valence navigation robotic system, are expected to further enhance the portfolio and drive adoption.

While the outlook is positive, risks remain. These include the potential impact of tariffs, ongoing litigation, and the challenges of managing working capital efficiently during a period of rapid growth. The company experienced higher-than-expected DSOs and inventory inefficiencies in Q1 2025, although management is focused on improving these metrics and believes they are transient. Foreign currency fluctuations also pose a risk to international operations.

Conclusion

Alphatec Holdings has successfully navigated a multi-year transformation to emerge as a dynamic growth leader in the spine market. By focusing on clinical distinction through its integrated procedural and informatics platform, including SafeOp, EOS, and EOS Insight, ATEC offers differentiated solutions that address critical needs for improved predictability and durability in spine surgery. This technological edge, coupled with a focused sales force expansion strategy leveraging market disruption, is driving industry-leading revenue growth and compelling surgeon adoption.

The company has reached a pivotal financial inflection point, demonstrating consistent profitability expansion and achieving positive free cash flow. Management's guidance for 2025 reflects confidence in sustaining this momentum, projecting continued strong revenue growth, expanding adjusted EBITDA margins, and achieving full-year cash flow positive status. While challenges related to working capital management and external factors like tariffs exist, ATEC's clear strategy, differentiated technology, and demonstrated execution position it for continued progress towards its long-term financial targets, offering a compelling narrative for investors focused on growth and value creation in the spine sector.