Executive Summary / Key Takeaways

• Alphatec Holdings (ATEC) has successfully transformed into a profitable growth company, underpinned by its unwavering 100% spine-focused strategy and a differentiated InformatiX platform.
• The company delivered robust financial results in Q3 2025, with total revenue growing 30% year-over-year, an adjusted EBITDA margin of 13%, and positive free cash flow, signaling a clear inflection point in its financial trajectory.
• ATEC's technological leadership in proceduralization across lateral, cervical, and deformity segments, coupled with its advanced informatics solutions (EOS, SafeOp, Valence), is compelling significant surgeon adoption and expanding market share.
• Management has raised its full-year 2025 revenue and adjusted EBITDA guidance, demonstrating confidence in continued strong performance and a clear path toward its 2027 financial commitments of $1 billion in revenue and an 18% adjusted EBITDA margin.
• Investors should monitor the ongoing adoption of new technologies like Valence, the expansion of deformity solutions, and disciplined operational execution as key drivers for sustained market share gains and long-term value creation.

The Unsettled Spine Market and ATEC's Differentiated Approach

The landscape of spine surgery is inherently complex and, as management notes, "unsettled." Unlike total hip or knee replacements, which exhibit relatively low revision rates (around 3% to 5% over several years), spine surgeries, particularly short and long segment procedures, face unacceptably high revision rates ranging from 15% to 30% within a few years. This stark difference highlights a critical need for improved predictability and durability in spinal interventions, a challenge that Alphatec Holdings (ATEC) is singularly focused on addressing. The company's core mission is to revolutionize spine surgery by mitigating the myriad of intraoperative and systemic variables that undermine successful patient outcomes.

ATEC positions itself as a pure-play innovator in this specialized field, contrasting with larger, more diversified medical device companies like Medtronic (MDT), Stryker (SYK), Zimmer Biomet (ZBH), and Globus Medical (GMED), whose broader portfolios often dilute their focus on spine. ATEC's overarching strategy is built on three pillars: creating clinical distinction through unparalleled procedural solutions, compelling surgeon adoption through demonstrated value, and continuously expanding and elevating its sales force. This focused approach, coupled with a willingness to invest holistically in integrated technologies, has enabled ATEC to achieve industry-leading market share expansion, reflected in an approximately 40% revenue compound annual growth rate since its transformation commenced in 2018.

A Journey of Transformation: From Foundational Investments to Profitable Growth

ATEC's current success is the culmination of a deliberate, multi-year strategic evolution. The journey began in 2018 with the "foundational investment years" (2018-2020), during which the company overhauled its product portfolio, strategically acquired SafeOp Surgical, Inc. to enhance its neurophysiology capabilities, and initiated the development of its distribution network. This period laid the groundwork for a more sophisticated approach to spine care.

The subsequent "infrastructure build" phase (2021-2023) saw ATEC make pivotal acquisitions of EOS imaging S.A.S. and Valence, integrating these technologies as core components of its evolving InformatiX platform. During this time, the company also strengthened its capital structure through the issuance of 2026 Convertible Senior Notes and the establishment and expansion of a Revolving Credit Facility and the Braidwell Term Loan. Significant operational investments included building a state-of-the-art headquarters for surgeon and sales training, expanding its Memphis distribution footprint, and developing scalable internal systems, alongside a focused international expansion.

By 2024, ATEC transitioned into a phase of "profitable sales growth." This period was marked by the launch of its EOS Insight software, a record EOS order book, and initial surgical entries into the Japanese market. Operationally, ATEC achieved its first non-GAAP operating profit and generated positive free cash flow in Q4 2024, a significant milestone. The momentum continued into 2025 with the successful refinancing of its 2026 convertible notes through the issuance of 2030 Convertible Senior Notes, improving its debt maturity profile. The company also launched a fully integrated corpectomy system and is preparing for the first utility of its Valence navigation and robotics system in Q4 2025, with its full influence anticipated in 2026.

Technological Edge: The InformatiX Platform and Procedural Innovation

ATEC's competitive moat is deeply entrenched in its InformatiX product platform, an end-to-end integrated ecosystem designed to objectively inform surgery and achieve more predictable and reproducible outcomes. This platform comprises three core technologies: EOS, SafeOp, and Valence, each contributing uniquely to ATEC's strategy of variable mitigation.

EOS Imaging System: This technology provides full-body, weight-bearing, low-dose biplanar X-ray imaging. Its tangible benefits include automated alignment measures, the creation of detailed 3D models (crucial for understanding rotational deformity), and capabilities for pre-operative surgical planning and simulation. Post-operative scans at six and twelve weeks allow for precise assessment against the surgical plan, enabling "correlation," which is foundational for AI-driven predictive analytics. Management asserts that "Spine surgery needs automated alignment planning and predictive analytics, and we're bringing that to you with EOS," aiming to inform the field of the best procedure for specific pathologies and significantly reduce revision rates. The company observes a "marked increase in market share" where EOS units are present, particularly in deformity.

SafeOp Neural InformatiX System: SafeOp automates electromyographic (EMG), somatosensory evoked potential (SSEP), and motor evoked potential (MEP) monitoring. This system provides critical, real-time information about nerve location, health, and status during surgery. Its advanced capabilities, including facilitated MEPs for rotational deformity, are described as unparalleled in the market, offering a "level of neural precision and sophistication is not done anywhere." SafeOp is foundational for lateral and cervical spine procedures, where neural integrity is paramount, directly contributing to reducing surgical risks and increasing precision.

Valence Intra-operative System: Valence integrates navigation and robotics into spine procedures. Expected to see its first utility in ATEC's proprietary Prone TransPsoas (PTP) procedure by Q4 2025, with full influence in 2026, Valence is designed to democratize complex techniques. Its benefits include enhanced precision during implant placement, a small physical footprint in the operating room, and a seamless, integrated workflow. Valence is "purpose-built for spine and compatible with all 3D imaging systems," aiming to make advanced surgical approaches more accessible to a broader surgeon audience. Management views Valence primarily as a driver of surgical volume rather than a significant capital sales opportunity, by making procedures more predictable and easier to adopt.

ATEC's R&D initiatives extend beyond these core platforms, with recent launches including a fully integrated corpectomy system (featuring specialized implants and retractors, integrated with SafeOp 3 for motor function monitoring), a new cervical retractor system, unique segmental cervical plating, and IdentiTi II. These innovations are strategically designed to expand indications, increase procedural complexity, and address a wider range of pathologies, further solidifying ATEC's "proceduralization" thesis. The "so what" for investors is clear: these technological differentiators enable ATEC to command higher average revenue per procedure through "convoyed sales" (where multiple products are used together), build a robust competitive moat, and drive long-term growth by improving clinical outcomes and operational efficiency.

Financial Momentum and Operational Discipline

ATEC's financial performance in 2025 reflects a clear inflection point, demonstrating the efficacy of its strategic investments and operational discipline.
Profitability metrics show consistent improvement. The non-GAAP gross margin remained strong at 70% in Q3 2025, an 80 basis point improvement year-over-year, primarily due to product mix and volume leverage. Operating expenses are being managed effectively, with non-GAAP SG&A improving by 980 basis points year-over-year to 57% of sales, despite an 11% increase in absolute terms against a 30% revenue increase. Non-GAAP R&D, at 8% of sales, also showed 90 basis points of leverage. This disciplined approach led to a record adjusted EBITDA of $26 million (13% of sales) in Q3 2025, an 840 basis point improvement over the prior year. This marks the fourth consecutive quarter with over 40% drop-through on year-over-year revenue growth to adjusted EBITDA, and the trailing 12-month adjusted EBITDA now stands at $81 million, representing 11% of revenue. The company also achieved its first quarter of non-GAAP net income in Q2 2025, reporting $3 million.

For the third quarter of 2025, the company reported total revenue of $197 million, a substantial 30% increase year-over-year. Surgical revenue, the primary growth engine, surged 31% to $177 million, driven by a 28% increase in procedural volume and a 26% rise in net new surgeon users. Notably, same-store sales in the U.S. grew 30% year-over-year, indicating deep penetration and demand within established territories. EOS revenue also contributed significantly, growing 29% to $20 million.

A pivotal achievement has been the company's shift to positive free cash flow. ATEC reported positive free cash flow of $5 million in Q3 2025, marking the second consecutive quarter of positive free cash flow and positive for three of the last four quarters. This is a significant turnaround from a cash use of $128 million in full year 2024. The company's trailing 12-month free cash flow has turned positive for the first time in its history, driven by strong adjusted EBITDA and a transition beyond heavy investments in instruments and inventory. This operational efficiency means ATEC can now "self-fund the investment in instruments and inventory to support our future revenue growth."

Liquidity and Capital Structure

As of September 30, 2025, ATEC maintained a healthy liquidity position with $155.7 million in cash and cash equivalents. Including access to an undrawn $60 million revolving credit facility, the company's total cash and available cash stood at $216 million.

The company's debt structure includes a $200 million Braidwell Term Loan maturing in January 2028, a $15 million Revolving Credit Facility maturing in September 2027, and $63.3 million outstanding under the 2026 Notes (maturing August 2026). A significant financial maneuver in March 2025 involved the successful refinancing of the 2026 convertible notes through the issuance of $405 million in 0.75% Senior Convertible Notes due 2030. This transaction extended the maturity profile, provided dilution protection up to $23.46 per share, and allowed for the repurchase of 80% of the existing 2026 notes. The net proceeds of $82 million from this refinancing provide flexibility to address the remaining 2026 notes. ATEC also has an inventory purchase commitment of $6.2 million through December 2026. Management foresees opportunities to begin deleveraging its balance sheet in 2026, underscoring its improved financial health and commitment to sustainable growth.

Competitive Landscape and Strategic Positioning

ATEC operates in a highly competitive spine market, where it distinguishes itself as a specialized innovator against larger, more diversified players. While companies like Medtronic, Stryker, Zimmer Biomet, and Globus Medical possess greater scale, broader portfolios, and often more stable profitability, ATEC's 100% spine focus allows for unparalleled depth of expertise and rapid innovation in targeted areas.

ATEC's technological differentiators, such as the SafeOp Neural InformatiX System, are described as having "no one close to the level of sophistication" in the market, particularly in advanced neurophysiology. Its proprietary PTP procedure and integrated approach to lateral surgery position it as the "lateral maven," offering unique advantages over more conventional techniques. The EOS imaging system provides a "most coveted image in spine" and AI-driven insights that competitors lack, enabling ATEC to gain significant market share where these units are placed.

The company's growth strategy actively leverages market disruption. With recent competitive shifts, such as a large competitor's sale of its U.S. spinal implants business, ATEC sees "opportunity" to attract sales talent and expand its footprint. It is actively recruiting experienced sales professionals from rivals like Stryker, Medtronic, and Globus, who are drawn to ATEC's specialized focus and innovative ecosystem. ATEC's "convoyed sales" model, where its integrated procedural solutions drive higher average revenue per procedure, helps mitigate pricing pressures often faced in the broader medical device market. While ATEC is currently an "abject nobody in pediatric surgery," its foundational EOS presence in pediatric hospitals presents a significant long-term opportunity. The company's smaller scale, however, can lead to higher operating costs and potential supply chain dependencies compared to its larger rivals. Nevertheless, stringent regulatory barriers and high R&D requirements in the medical device industry serve to protect ATEC's specialized position and deter new entrants.

Outlook and Guidance: A Clear Path to Future Prosperity

ATEC's management has provided a confident outlook for 2025 and beyond, reflecting its strong momentum and disciplined execution. The company has raised its full-year 2025 revenue guidance by $18 million to $760 million. This includes surgical revenue of approximately $684 million and EOS revenue of approximately $76 million. Management anticipates case volume to grow in the low 20% range year-over-year, with average revenue per procedure growing in the low single digits.

Profitability is expected to continue its upward trajectory, with full-year 2025 adjusted EBITDA guidance raised to $91 million, an $8 million increase from prior guidance. This implies an adjusted EBITDA margin of 12% for the full year, a 200 basis point improvement from the initial guidance at the start of the year. The company projects positive free cash flow for the full year 2025, with Q4 free cash flow expected to range from positive $6 million to positive $8 million. Looking further ahead, ATEC is "well positioned to meet or exceed our 2027 financial commitments of $1 billion in revenue, 18% adjusted EBITDA and $65 million of free cash flow." For 2026, free cash flow expectations are around $20 million, with potential for absolute revenue growth in the $120 million to $130 million range.

These projections are based on several key assumptions: continued strong surgeon adoption and utilization (as existing surgeons tend to use more of ATEC's products over time), successful integration and adoption of new product innovations like Valence and deformity solutions, sustained operational discipline, and effective leverage of its established infrastructure. The company has factored in the impact of expected tariffs in the second half of 2025, estimating a low single-digit million dollar impact on cost of goods sold, primarily affecting EOS units imported from France. While litigation remains an inherent risk, management is not aware of any matter that would have a material adverse impact on the company's financial position.

Conclusion

Alphatec Holdings stands as a compelling investment thesis, having successfully navigated a multi-year transformation to emerge as a profitable growth company in the specialized spine market. Its unwavering 100% spine focus, coupled with a sophisticated InformatiX ecosystem encompassing EOS, SafeOp, and the upcoming Valence system, provides a unique and powerful competitive advantage. This technological leadership drives clinical distinction, compelling surgeon adoption, expanding market share, and ultimately, improving patient outcomes by mitigating surgical variables.

The company's robust financial performance, marked by consistent revenue growth, expanding profitability, and a clear inflection to positive free cash flow, underscores its operational effectiveness and disciplined capital allocation. With raised 2025 guidance and a clear roadmap to ambitious 2027 financial targets, ATEC is poised for sustained market share expansion. As the spine market continues to evolve, ATEC's commitment to data-driven care and procedural innovation positions it as a preferred destination for both surgeons and sales talent, promising durable, profitable growth and long-term value creation for investors.