Thanks, and good morning, everybody. Thanks for joining us today. Very pleased to have with us again, at our conference, Alphatec, Todd Koning, Chief Financial Officer, Robert Judd, VP of Finance and Head of Investor Relations. Thanks again for joining us.
Yeah, thanks for having us.
You bet. All right. Maybe just to start to frame the, you know, the topics I want to go through and a lot of the questions that we get from investors is before we get into what's happened in the last few months and kind of where you're headed this year, is just to recognize, you know, the significant progress that you made last year and kinda turning, I think this time last year was questions around capital deployment, you know, questions around financing, questions around EBITDA. I think, you know, congrats on clearing all those questions, I think, during last year, and kind of ending the year in a pretty strong place in terms of cash flows and EBITDA and all those things.
Can you keep growing at these rates? Been a volatile Q1 for lots and lots of stocks in our universe. You know, maybe a little bit more so for some of the SMID and small caps. That's certainly, you know, you've been no different for Alphatec, I think, in that regard. Maybe talk a minute about the opportunity within spine. You know, it's a large market. You're a small player. There's some shifting around at the top in terms of market share.
You know, really just started to happen in a more significant way last year, which whatever the opportunity was a year ago, it seems like it's sort of loosened up and maybe becoming a bigger opportunity now.
Maybe just talk about your position in the market and ability to keep growing, and then we'll get into some other questions.
Yeah. Well, thank you, Matt, and certainly agree, really, I think by and large on the whole, very pleased with the progress that we've made over the course of 2025 and in terms of growth and profitability and cash flow and all that. I you know, operationally, the things we've done and the improvements we've made, I think give us a level of confidence that we can continue to do those things that we need to do to be successful, from a numerical standpoint. You know, I think yeah, take a step back and to answer your question on the broader market, you know, I think if you just think about spine surgery, I think spine surgery is still a ton of opportunity for improvement.
If you really wanna understand, like, where does share move, I think share moves to the players that ultimately can bring clarity and help surgeons do better surgery. Ultimately, our view has been, excuse me, if you can help surgeons do better surgery, and we call that clinical distinction, you'll ultimately compel them to adopt your procedural solutions. Once you've compelled them, you'll attract the right sales talent. You know, if you look at the state of spine revision rates are still unacceptably high. You compare revision rates in spine surgery to hips and knees, and I think you'd find them to be very disappointing. If you look at the literature, the literature would tell you that's because of really a lack of global and segmental alignment.
Ultimately, that's why we think EOS is such a powerful product. We can talk more about that. Our view has been, we believe that we've got the technology that helps you understand what the alignment is, what it needs to be and how to get there through EOS and EOS Insight. We've been very focused on a procedural approach to the spine. Surgeons, you know, they look at the pathology in a patient. They don't ask themselves what screw I'm gonna use. They ask themselves, "What approach am I gonna use to treat the patient?" That approach is the procedural approach. That's why we look at procedures and design and develop procedures from an integrated standpoint.
We think that's been helpful for surgeons, and I think ultimately been a part of our ability to drive share. You kinda look at the broader market itself and you look at some of the disruption in the, I would call it the mid-majors. You look at Stryker leaving spine, selling to private equity. Well before that, Zimmer had done the same. J&J spinning out. NuVasive obviously sold to Globus. I think the opportunity for us to continue to drive share, I think is high because of, one, I think our view of how to make spine surgery better, and that's kinda. That's the whole point. I think the environment for us to execute that, I think is pretty right.
Okay. You know, talk to investors about spine. You know, I'll just say it. It's not every investor's favorite end market for a variety of reasons. I think one is it's pain. You know, it seems it's pretty intense, you know, anatomically and, you know, in terms of the implants and the sort of, call it the surgical mechanism of action for treating pain, you know. It is, you know, it's a well-established market. You know, you could say it's not. I mean, it is not difficult to diagnose, but there's a diagnosis involved.
The patients are typically, like knee pain, for example, you know, they're driven into their clinicians because of pain, because of a condition. That either results in a bunch of things, or ultimately, you know, and that stability results in surgery. The other point I'd make, you know, just to say it, is in defense of spine, it is one of the four most cash-accretive procedures that hospitals do.
Yes. Yeah.
I always say, like, if you ask any hospital if they would like to do more spine surgery, I think the answer is always gonna be, "Sure. Yeah, we'd like to do more spine surgery.
Yeah.
I think it's labor and delivery, cardiac surgery, orthopedics, and spine are kind of the big four. Those are good kind of, I think, pillars of support. The question is, how do you drive share? I know you talked a little bit about procedural approach. You also talk a bunch about which are helpful, some of the metrics that you measure and present to investors to kinda help folks understand the trajectory and the progress that you're making. Maybe you know, run through those, and then I had a couple of quick follow-ups.
Yeah. Well, just one of the things we talk a lot about is surgeon adoption, as Todd just talked about. When you look at our material, we usually share it every year. We shared it in our Q4 call, is the adoption curve of surgeons. If you look back at the new surgeon users over the last eight quarters or so, it's been around 20%. It was 23% in Q4. What we find is, the last couple of years, the surgeons that we have on board exiting a year drive mid-double-digit volume growth the following year. If you look at those utilization charts, which we show for the past seven years or so, is they keep growing in year 3, 4, and 5 as well.
Our view is we continue to convert new surgeons. The surgeons have a long tail of surgeon utilization improvement. That gives, I mean, Todd and I, as we look at the numbers, a lot of confidence that we can continue to grow at the rates we certainly in dollar form and share taking at those rates over the foreseeable future. We go back to, are we converting surgeons? Are the surgeons using more of our stuff? That really is the growth algorithm. We get more case ASP as well. I think our guidance for the year is low single digit case ASP.
That's reflective of getting more of the procedure, which is also kind of a capturing of surgeons' business, if you will, as well, because we're getting more of their procedures over time, and they're doing more complex surgery with us as they get more experience with ATEC and with the procedures as well.
Okay. Yeah, one of those, I mean, the surgeon adoption and the utilization is pretty obviously important. But some of those metrics can also kind of move around, which I think can be a little bit confusing. You know, as we follow them, we've sort of been scratching our heads sometimes like, "Wait a second, you know, you beat numbers, but revenue per procedure went down, or, you know, you missed numbers, but revenue per procedure went up." You know, there was a quarter, I think, like that in 2024. Like, what. You know, there's a mixed element to this as well that kind of ties in with your adoption. You bring folks on, for example, maybe the
Well, you tell me maybe the beachhead or the point of entry is your lateral or prone lateral procedure.
that gets them involved with Alphatec. Then they start doing more procedures that might, as a surgeon, drive down their business. You know, prone lateral and lateral are some of the biggest ASPs that they might do. Maybe talk a little bit about the ebbs and flows of that number on just an average procedure basis and why it might be moving around and what that tells us.
Yeah. That's absolutely true. I think if you look at Q4, overall total company case ASP was flat year-over-year. As you break that down, though, what's interesting is you look at just the lateral procedure or just the cervical procedure, and those had case ASPs that grew year-over-year by 6%. To your point, there's. In the U.S., you look at those two elements, and there's healthy case ASP growth within two of those key procedures. Yet at a total U.S. level, case ASP is 1% or about a 1.5% growth year-over-year. That's because of the mix of cervical. We've made some progress in the cervical space over the past, you know, nine, 12 months.
We're getting more utilization from surgeons in cervical, and you know, it's hurting the case ASP growth a bit. Then there's also about 100 basis points of impact from the U.S. business or, sorry, from the OU.S. business. Their case ASP right now, it's a nascent business for us, but it's got a lower case ASP. So there's a little bit of tightness there, and that's how you kinda get to the flat ASP in Q4. I think we, as we look out at the year, we know we're gonna comp through some of the cervical stuff that we hit middle of last year, as far as growth goes.
We know the underlying growth is healthy and good, and that's where as we look at the full year. I think one of the things, if you just step back from our business to your point, there's some. We're taking a lot of share, and it doesn't happen. We'd like it to happen in a perfect linear experience, but the reality is, it's lumpy when you know, a lot of your growth is through taking share. As you look at the year, I think we feel real confident about that case ASP. Some of these metrics annually are just easier.
Predictors, you know, quarter to quarter you get some lumpiness in them. I think the real measure is how do you do on, you know, over a series of quarters or over a year.
Right. Just to put some taking share shape, you know, some color around that growing 15-20 times the market growth rate, if I'm not mistaken, something like that. It's just you're growing way above.
Multiples of the market.
Yeah, exactly. All right. That's helpful. One of the other things that's been a topic around the company has been, you know, reps. I think there've been times when there's been maybe a lot of excitement, maybe too much excitement over too much focus on reps. Like, are you hiring enough? Are you taking them from somebody else?
At a steady state, obviously, you know, the way we've looked at it is, and correct me if I'm wrong, is that, you know, when you're a smaller spine company, in the ocean of a $10 billion-$15 billion market, and you're taking share, that equates to opening accounts and adding coverage for territories and hospitals and things like that, which means you need reps to grow, just like you need capital to outfit those new centers.
Maybe talk a little bit about, you know, what the growth in reps looks like relative to your growth rate, where some of those reps are coming from. You know, just to level set color on what's happening on that element of your growth model.
Yeah, I think, and again, I think the reps are there to support the surgeon adoption in the end. When you look at the environment, and once you grab the attention of a surgeon, there's a pretty good chance that the rep whose livelihood is dependent upon that surgeon's business is gonna, you know, figure out they probably need to talk to us. That, you know, that naturally happens. There's all sorts of reasons why sometimes they come and sometimes they don't. I think we'll call it the changing environment in the industry relative to the transactions that have gone on, disruption, if you wanna call it that. I think that's kind of lowered the friction and those are multi-year experiences.
Anytime a company spins out or gets acquired or something like that, it's a multi-year experience for when reps either wanna be a part of or realize they're less interested and ready for a change and those types of things. I think, again, the environment from attracting the right talent to support the selling or the surgeon adoption is there. I think you're also right, much like when you invest in the instrumentation and the inventory required to grow a territory early in that investment period, the efficiency of those assets is relatively low. As you see the adoption curve grow, then you're gonna see those assets turn, and you're gonna get a higher rate of return on those assets once you're kind of full utilization.
It's the same way with sales reps and territories. You know, I think the other reality is as you get bigger and as you have territories that of substance, the people who are there to essentially build the confidence and have the relationship with the surgeon and the clinical experience, being able to bring on newer people into the fold for surgical support, that model becomes more effective as well in terms of supporting the ongoing surgical requirements. You know, I think the growth algorithm kind of works in both ways. You need competitive reps, but you're also adding new reps to the fold, if you will.
Got it. Just to not dive back into the period, the time of who's taking reps from whom. But you know, as if you were to look at where market share stacks, you know, Medtronic.
Yeah
Globus, you know, ex Stryker and stuff. What's the selection of reps coming into the company look like relative to those players?
Yeah. By and large, it looks like the market. I wouldn't tell you that we're benefiting or over-indexed from one to the other. Again, I think kind of depends on geography and the attraction of the surgeons, but by and large, it reflects the overall market share.
Okay
of the industry.
Then, you know, I do get the question, you know, Stryker selling to VB Spine, does that open up a whole, you know, bunch of reps that are coming? I have my view on that, but, you know, what's your, how has that changed the type of conversations that you have or the number of conversations that you have because of some of the either, you know, proposed strategic moves like, you know, J&J spinning DePuy Spine, or Stryker making that move? How has that changed? You know, is it a volume change or is it a quality change? How would you describe it?
In terms of additional reps being available from those places.
Oh, from those areas?
Yeah, areas of change.
Again, I think it just lowers the friction of change.
Got it.
I think people are just like just like anybody, if your current environment is uncertain, if you think there's more certainty to the left or to the right, maybe you're more interested in looking to the left or to the right.
Sure. Yeah. Like, you know, I felt more confident 6 or 9 months ago than I feel now.
Yeah.
Something. We're gonna have that conversation. The last and maybe one of the more important things that you've been investing in, and it's an important part of spine, and it's an important question, I think, for any innovative player that's gaining shares around enabling technology.
You have a number of enabling technology elements that are used already for prone lateral.
Yeah.
You just need them table stakes, you know, nerve avoidance and, you know, these are complex, minimally invasive procedures that have benefits, but they're a little technically more challenging, and the tech helps with that. What maybe let's talk a little bit about the role of your, Valence robot, the kind of goal and market strategy of that.
Yep.
Maybe compare and contrast with, you know, what investors in the market has learned about, let's call it, the bigger platform robots that have come to market from, say, Medtronic and Globus.
Yeah. I think a couple things. If you look at kinda large format robots, you know, the primary goal is to place pedicle screw. Clearly placing pedicle screws is important. I think if you looked and understood the utilization of those robots, you'd find them reasonably low. I think, you know, at the end of the day, they're reasonably high price points, and so you have to place them in institutions that, one, either have large capital budgets or two, have enough volume to earn them out. There's only a certain amount of those throughout the country.
If I just go to price point to start, I think our price point being in kind of that half a million dollar range prices it such that one, you can still place at a large academic setting because it is a differentiated robot and navigation platform. I think two, it's great for the community hospital setting and ASCs for those reasons. What is our offering? Our offering is really a robotic and navigation platform, and we have developed it and are launching it to be integrated with PTP. We did that because we think that the technology should address challenges with surgery. Our view was how do you launch the Valence robot in such a way that it addresses some of the adoption hurdles of lateral.
If some of those adoption hurdles of lateral are the surgeon has a fair amount of fluoroscopy exposure, the navigation component, the robotic navigation component helps with that, especially in placing the retractor. Then, of course, placing the retractor itself, which is creating the surgical corridor for lateral surgery, is probably one of the most complicated parts of the procedure. Being able to navigate that with a level of confidence and efficiency, and predictability, I think that is also a hurdle to adoption. I think our view has been, let's integrate this in a procedurally, and workflow-friendly way so that it really adds value in the surgical experience. That's been the pitch. Now, the beauty of it is it's still a platform.
You can place pedicle screws on, you know, in other surgeries, and you can use the freehand navigation component separate from that as well. It's a very flexible platform that gives you optionality to adopt it and use it in a variety of procedures. But again, our view is to launch it in a procedurally integrated workflow.
Got it. I think, you know, there is a sense of the sort of larger players that, you know, larger robot players that, you know, a hospital makes a commitment to a large platform robot. The benefit to the manufacturer is that typically comes with some expected or contracted level of screw utilization.
commitment. In this case, you know, breaking down the friction around adoption and then driving efficiency and adoption, without having to commit an OR or commit the hospital to another platform. I know it takes a little bit. We're all programmed, you know, fun, you know, around robots to be this one's better than that one. It's an interesting and different approach to robotics.
You know, kind of we're winding down, but maybe just, you know, talk a second about what was a hot topic last year, which was turning the corner on EBITDA cash generation, cash deployment, and kind of what, you know, gives you the confidence that you've hit the right balance of supporting new accounts with inventory and sets-
Yeah
you know, continuing to drive more cash flow out of the business.
Yeah. You know, I think as we set up our, really our cash flow goals for the year and the level of profitability that we have, I think on the profitability side, you know, we delivered about 41% drop-through to get to about 12% adjusted EBITDA last year. We exited the year at about 35% drop-through in the fourth quarter as we comped out of some of the cost rationalization actions we took the previous year. Our guide this year assumes about 32% drop-through. Feel like that's kind of a floor and given the fact that we exited at 35% rate, feel pretty good about going into the year this year.
You think about the cash flow, you know, probably the biggest component to that is really the deployment of sets and inventory and kinda getting back to this $0.75 On the growth dollar basis. Really as you think about how we've set up the investment, we really do understand, hey, what's our revenue goals by procedural flavor? What assets do we have in the field today? What's the efficiency of those assets? How many assets do we need to add to that to support the growth? That ultimately yields what we have. I think that's how we look at it.
I think the ability to manage that effectively. I think last year I think should be a pretty good validation of our ability to manage through that and understand what is required to grow and feel good about our opportunity to do that this year.
Great. Well, thanks so much for taking the time again.
Thanks, Matt.
Thanks for the time. You bet.