Thanks so much for joining everybody today. We've got Alphatec Holdings here again with us this year. We've got both the CFO, Todd Koning, and we have the VP of Finance with us as well. I wanted to jump into something that we don't usually lead with. You know, I think a lot of small cabinet tech companies do convertible raises, and everyone sort of looks at them and goes, "Well, I don't know about that. I'm not sure if I love it." Would much rather have another vo mode of financing or something like that. In this case, you completed a financing recently that we thought was a great, you know, crossing, crossing an important thing off the list.
I just wanted to give you an opportunity to sort of just run through, you know, what does it mean, you know, in terms of, like, the way you were looking at risks between last year, this year, and the end of this year, and what does it mean to the P&L and your ability to continue to operate and execute on your plan that you laid out, you know, long-term last year and then, and new guidance this, just recently.
Yeah. Thanks, Matt. Thanks for having us here. A pleasure, pleasure to be here with you. You know, we just completed the refinancing. I think the important note here is, the transaction we did is a refinancing. The point of the refinancing was we had some 2026 notes that were due in August, and we wanted to refinance them before they got current. That really meant we needed to do a refinancing before the summer of this year. Coming into 2025, we thought it was important to look at the windows of opportunity that we had to do that refinancing.
We did that, and we looked at post our Q4 earnings, so kind of the March show window, and then we saw, you know, a potential window post Q1 earnings, which would be kind of the May, June window. You know, we thought that, to the extent that, the equity is in the right spot, we thought sooner is better than later. Just didn't really wanna accept any incremental market risk to the extent that, we waited. We ultimately chose to do one in, just, I guess a week ago now. To your point, I think really, really happy with the execution. We raised $405 million, to refinance $316 million worth of 2026 outstanding notes. The existing notes, or the old notes, had a 0.75% coupon attached to them.
We also raised capital again here at a 0.75% coupon, which we thought was a great outcome. The way we used the proceeds was we bought back about 80% of the existing notes, which is kind of the creeping tender rules or essentially what the lawyers would allow us to buy back, leaving us about a $63 million stub. We used about $40 million to buy a capped call, so dilution protection all the way up to about $23.5. We paid some fees, of course, to the bankers, as you do. That leaves us just about $80 million on the balance sheet to address $63 million worth of remaining convertible notes.
You know, we probably got a little bit of a positive carry here, and we take care of the existing notes, but feel good about where we're at and what the transaction allowed us to do, which was really take a near-term maturity and push it out to 2030. We think it clears the desk on the balance sheet from our perspective.
Sure. No, I agree. It is kind of like, it allows you to sort of get right back to focusing on execution. Execution looks like, you know, continued strong growth and, you know, outperforming in Q4 and cash flows and, you know, lining up, sort of 10% EBITDA for 2025. Maybe talk a little bit about, you know, what some of the drivers are, first on the growth side that kind of enable you to kind of maintain this high level of growth.
Yeah. As we looked at our $732 million of 2025 revenue, that is a 20% grower, as you said. That is comprised of both surgical revenue growing just a little bit north of 20% and our EOS, our EOS contribution of about $75 million in 2025. Our surgical revenue growth of 20 %+ is underpinned by mid-teens procedural volume growth and kind of mid-single-digit revenue per procedure growth. I think as we exited last year, I think we saw procedural volume growth, you know, kind of north of 20% or about 20% in the fourth quarter, showing strong growth, obviously. We feel pretty good about where we are.
In the fourth quarter, we grew about $34 million of year-over-year absolute dollars in surgical revenue, which was really a record for us in terms of absolute dollar growth exiting the year. You know, I think kind of coming into this year, feeling good about the setup and where we are relative to executing to the plan.
Okay. I think one of the questions I get often is, you know, this is a company that does not yet have a robot in the market, but is delivering kind of, you know, best-in-class, you know, spine growth in a spine market that might be growing low to low to mid-single digits at best, probably closer to low. You know, the question is how, you know, what kind of runway do you have to continue to grow at this kind of pace, without this perception that at some point you're gonna need a robot?
Mm-hmm.
You have one that's kind of coming on a broader market release during this year, but, you know, maybe talk a little bit about, you know, understanding that you have, you know, mid-teens volume growth and sort of mid-single-digit revenue per procedure growth. Where's that coming from?
Yeah. I think you take a step back and you realize, you know, we're an 8% player in the U.S. market, and I think that tells you alone there's a ton of opportunity to grow. Like, we'd tell you 92% to go. I think the opportunity to grow is clear. Where we have seen growth and where we have excelled is in our lateral franchise. If you look at the existing lateral market, we've sized that to be about $1 billion, and it's probably growing, you know, high single digits itself. We're probably in that 15%-16% market share of that billion-dollar lateral business.
There is about $2 billion of incremental traditional posterior approach surgery that we think can ultimately be addressed with better outcomes through a lateral adoption. We think that lateral market can grow significantly from $1 billion to $3 billion. You know, we think that is like the crown jewel of the spine market where we excel and where our surgeon adoption is really being driven from. When you look at 20% surgeon adoption year over year, I think that is a strong signal that what we are doing truly does help surgeons do better surgery, which is what ultimately drives them to adopt the procedural approaches that we have developed.
When you see that, you get great adoption and I think really sticky adoption in our lateral franchise, you begin to see what we kind of call the halo effect, and they begin to use other procedures. I think on the backs of, or on the back of our lateral sophistication has really been where we've grown and where I think we're gonna continue to grow. Of course, we've got other opportunities as well, but that's been, that has been the history.
Got it.
Just maybe on the, the three opportunities, I mean, it's not maybe not just three, but three big ones. If you think about what's not in the revenue number today, I mean, Todd's talking about the opportunity in the U.S., largely in the U.S. surgical business, which is obviously the biggest chunk of our business. But you think about, you think about Valence and the impact of, of the robot being launched later this year from a revenue impact standpoint, that's in, in 2026 and beyond. We think about the impact of EOS Insight, and that was just launched this last year. We're, we're in the early innings of rolling that out. Maybe we'll talk more about that. But that, that from the, from the pull-through perspective, that revenue's probably out in 2026 and in 2027.
You think about the ramp in our OUS business, our surgical OUS business, and we're just getting started there. We talked about in Q4 doing our first case in Japan. I think that will be a growth catalyst in the next couple of years as we turn that business on.
Okay. Just to put that sort of lateral market and lateral market expansion into perspective, I guess, lateral market's been around for a while now. NuVasive, sure, Pat cut his teeth more or less, sort of, really created that market.
What is interesting, I think, around Alphatec is that there was a, you know, there's a segment of growth, I think you mentioned, you know, docs who like to operate on patients from the posterior, not really, you know, not really wild about having to flip them around.
Yep.
During the procedure, from lateral to, to prone, that opportunity is really, you know, is being led by Alphatec, and it's really only got one other competitor at the moment kind of following.
Right.
You know, one way to look at this would be like, well, the lateral market is growing high single digits. You know, how can you be growing, you know, in the 20s? The reality is the lateral expansion to include these posterior patients is growing quite a bit faster, and you're kind of leading that. Is that a fair way to.
Yeah.
Look at it?
I think the expansion into lateral is definitely favoring us. It's accruing.
Yeah.
To us more than anybody because of, I think, PTP is a big piece of that. And keep in mind, you know, to do lateral surgery, you have to have a neuromonitoring device so that when you place your retractor, you do not run into a nerve. So we have that technology, as does, now Globus, formerly NuVasive, has that technology. What they do not have is the ability to monitor the health of those nerves intraoperatively, which allows you to avoid the most common complication associated with lateral surgery. I think our ability to monitor those nerves intraoperatively has been one of the reasons why our share take has been so sticky and why also the expansion of that market has really accrued to us more than anyone else.
Okay. That's sort of top line. Maybe, maybe kind of understanding a little bit about the sort of middle of the P&L. Where are you seeing leverage? What's enabling you to kind of, you know, turn the corner here, double-digit EBITDA, positive cash flow in the fourth quarter? Like, what are the levers in 2025 and 2026 that enable you to keep driving towards positive cash flow?
Yeah. We really have two primary levers of margin expansion. One is the improving variable expense cost of the sale, the variable selling expense cost, which is really a function of how we've built sales agent commission plans, if you will. We've structured them with a component for what we kind of call base sales. For whatever you sold last year, that's your base sales for this year. You get an industry competitive kind of low 20% rate, and then we'll pay extra points for growth. That incents people to grow. As the growth ratio, as a percentage of total, gets smaller as they get bigger, that averages down, plus the base rate kind of walks down over time.
That is kind of a contractually understood process that we have set up, which gives us confidence in our ability to deliver on the variable rate selling expense. Then the other thing we have done, and this may be a little bit less appreciated by folks as they look through our history, but we have built a significant infrastructure early in the build of the company so that we could ultimately get to a meaningful scale in the marketplace, to be relevant. We have clearly hit that point where we are relevant. What we are seeing today and what we have been seeing for a while now is the benefit of leveraging the scale of the infrastructure of the business.
I kind of speak of, you know, our distribution footprint in Memphis, the facility we have in Carlsbad, and really the support functions, whether it be finance and accounting or regulatory or our quality system, you know, those are functions, sales training and surgeon training. Those are functions that have been built out. As we grow revenue, we do not have to grow those functions at the same rate of sales, much, much less lower, in fact. We are able to get a lot of leverage off of the infrastructure of the business we have built. You are seeing the margin expansion, a function of revenue growth dropping to the bottom line and an improved selling, expense ratio.
Okay. Maybe in terms of, you know, leverage, you know, growing, you know, rapidly now, you know, not to take too much from the history of NuVasive, but one of the challenges there was they were growing rapidly, did not build out the portfolio or bag of products as widely and as quickly maybe as they should have.
Mm-hmm.
or maybe just struggles because the focus was always on lateral. I'm not sure, but, you know, what kinds of, what kinds of opportunities are you creating to kind of pull through more? You mentioned like the halo effect.
Mm-hmm.
You know, when did those become a more important part of your pipeline?
Yeah. Do you wanna talk a little bit about the portfolio and how we approach that?
Yeah. Some of the history, and I think you're alluding to it, Matt, is you think back to the NuVasive experience and NuVasive launched lateral 2004, 2005, but it wasn't really until 2015 that they had a relevant, you know, really competitive posterior fixation system. One of the things that Pat did early on in the ATEC experience was we actually had a very competitive, top-of-the-line fixation system in Invictus that we launched in 2019. We launched PTP in 2020. When we launched PTP, we had the system ready 'cause you want to pull through the whole procedure.
That's one of the things that NuVasive never did a great job doing was, I mean, we speak from, you know, living that, it didn't pull it through the way we could have. I think we've tried to address that with having a fixation system, having the TLIF and PLIF, you know, as an example, doing a PTP may still want to do the L5-S1 fusion from a TLIF approach 'cause you can't go over the iliac crest in a PTP approach. Having the right TLIF expandable cage to do that is important. I think having those products and the portfolio ready to do that is something we've been able to capitalize on and pull through in our lateral procedures.
Okay. For folks, you know, who are looking at this maybe without having spent as much time, it's fine. You know, you have the inner body part of the procedure that opens up the vertebra and positions the two bones to grow together, and you have fixation from posterior. And those are those kind of important parts.
Mm-hmm.
You know, really of the construct. And if we think of, I don't know, the average, you know, implant revenue per case or something in the low teens, a big chunk of that, you know, revenue per case opportunity comes in the form of the posterior screws and rods and things that it.
Totally.
Is called, fixation. Obviously not that half of the, of the business was a, was a bit of a weak spot in the original, the invasive strategy, which you've, you've, you've like, makes a lot of sense. You've, you've had that from the beginning. In addition to that, I mean, what other opportunities do you have to sort of grow into, you know, and I'm not thinking today or tomorrow because you've got a lot in front of you.
Mm-hmm.
Just in, in lateral and prone lateral. You know, where and when do we start to see, you know, I don't know, cervical or other things becoming more of a priority just because, you know, once you have that relationship with the doc and once they like your, this system, they're more willing to, you know, if you have a decent that system, they're gonna want to use that as well.
I think one of the opportunities that we see is deformity. You think about the EOS footprint when we bought that asset was in pediatric and academic institutions where they're doing deformity, everything from pediatric to adult deformity. Having the products that fit there, I think what we think we can take a procedural approach to that like we did with lateral. Bringing the EOS Insight tool to preoperatively plan, post or intraop reconcile, and then postoperatively monitor is a big part of that. Also, an AIS positioner and a small stature system and having all those things bring them together. Todd talked about SafeOp earlier and integrating SafeOp into deformity. There's a big need for monitoring motors during a scoliosis fix.
Like, bringing those things together in a way, we did with PTP into a procedure, it seems like a big opportunity for us and want to kind of try and run that play in that deformity space.
Okay. That's great. One of the things that caught a lot of attention last year was the deployment of cash and capital.
Yeah.
I'm sure that was a big topic of conversations throughout most of the year. You know, and I guess two things happened in the back half. You executed really well on the top line, and also, you know, executed really well in terms of your commitment to cash deployment. You know, where are we now as you, as you kind of turn the corner? Are we beginning to annualize? What was the big outlay in the.
Mm-hmm.
In the first quarter of last year, maybe talk a little bit about how Q1 this year should be different and kind of where we go from here in terms of cash and capital outlay and deployment.
Yeah, absolutely. I mean, you, you're right. I think we finished the year in a real positive note, generated $9 million of free cash flow. That was fantastic. Great to see. I think a validation of what, what, you know, ultimately we knew that we could, we could do. Felt very good about that. I think that's a good signal for things to come. I think as you, as we set 2025 up, it's truly an inflection to positive cash flow experience on the full year. You look at, or when we came out of the third quarter, we messaged break-even cash flow for the year. I think what we heard was people would do a little bit of a bell curve and say zero's in the middle and equal weight, they're worse and equal weight, they're better.
What we messaged really coming in or out of the fourth quarter here was, cash flow break-even or zero is our floor. That is why we're saying cash flow positive is the commitment on 2025. You know, clearly the seasonality would tell you that Q1 will be a cash use quarter. We expect anywhere from $15 million -$20 million of cash use in the first quarter, but then cash flowing thereafter. You know, I think as we continue to refine our cash flow modeling and our forecasting, I think we feel, you know, increasingly confident in our ability to have visibility to that, to create the kind of cadence and the experience that's necessary for success.
Okay. A couple of, and just for context, that's down like, over 50% from last year.
Yes. I think in the full year we're at 128 last year. And so, you know, going from a - 128 to a zero or plus one .
Sure.
I think that's, I think that's a significant improvement. I think, you know, where that is seen in the cash flow statement is we deployed $140 million of instruments and inventory. That shows in the PP&E and inventory. This year we're gonna deploy about $50 million of instruments and inventory. A significant improvement in that because we're essentially utilizing the deployment of those assets this year and getting revenue off of that investment. I think I'd tell you finally there, the investment in sets and inventory that we had made over the last two years should set us up for a very strong ability to hit our revenue commitment. In fact, it probably supports or does support a revenue number that exceeds what we've guided to.
I think, you know, we can clearly grow into our, our asset base and would reflect a number that's, that's better than the guidance from that standpoint.
Excellent. You know, another thing that's happened, I guess you've absorbed a certain number of reps last year, that sort of changed the nature and sort of like tone of case delivery.
Mm-hmm.
Revenue per case delivery during the year. There is always, I guess, some ebbs and flows around our transition to new sales reps. You are annualizing that. At this point, you need new reps to grow. Obviously, if you are growing as high above the market as you are.
Mm-hmm.
You just, you have to have new reps to grow. Are we back to kind of a steady state, you know, you know, adding of reps? Do you feel like that you'll, you'll see some, some stabilization of the reps this year compared to what we went through last year?
Yeah. I think the investments we made last year and kind of exiting 2023, the people that we brought on in geographies really being kind of greenfield spaces, those investments in. They are having outsized impact in their territories. Some of those guys are coming off their non-competes this year, or as we turned the year. All of that, I think, should be to our top line growth benefit. I think to your point though, we'll continue to add sales reps to support the surge in adoption that we're experiencing. I think we'll continue to add those in the areas that exist today as we kind of build upon the investments we've made in the past.
Okay. With that, we're at time. We should probably call it, but really appreciate you coming again this year.