Alphatec Beats Wall Street’s Sales Forecasts, But Not EPS

Alphatec Holdings, Inc. reported $151 million in sales and a $33.7 million operating loss for the quarter ending September 2024. Sales were well above both Wall Street’s expectations and management’s guidance. EPS, however, missed analysts’ expectations.

Alphatec Explains Its Industry Leading Sales Growth Strategy

Patrick Miles, chairman and chief executive officer of Alphatec Holdings, Inc., reported that Alphatec generated $151 million in total revenue, which beat Wall Street’s expectations and led the spine industry at 30% surgical product sales growth.

“So super excited about what’s going on here. We’ve outgrown everyone in the spine business again by at least 2x. I’m expecting more. And our focus is on perpetuating profitable growth,” Miles said.

He added, “EOS Insight is launched, and we have a record number of orders year-to-date. The profitability is good at $7.4 million in adjusted Earnings Before Interest, Taxes, Depreciation and Amortization [EBITDA], greater than 50% sequential reduction in cash burn.

He explained that Alphatec is on track to generate cash in the fourth quarter and that they increased their term loan capacity by $50 million.

“Our value creation and cash generation are really the focus of what we’re doing. So as a spine-focused company, creating value clearly is our intention.”

He said they will do this by leading in revenue generation and increasing profitability. He also pointed to their recent streamlining of their organizational structure.

“So we have an infrastructure in place with all of our facilities to ultimately scale this business, and that was the intention from the beginning. We are positioned with sets and inventory to fuel expansive growth.”

J. Todd Koning, chief financial officer, added the $151 million in revenue was made up of $135 million in surgical revenue and $15 million of EOS revenue.

“We saw strong contributions across the portfolio, particularly in our lateral and expandable implant technologies, which contributed to the 9% growth in average revenue per procedure,” he said.

“Third quarter results grew $5 million sequentially as we benefited from the increased product availability and new territory additions. Third quarter non-GAAP gross margin was 69%, down 60 basis points compared to the prior year due to the impact of product mix.”

Analysts Worried that Alphatec Spending Too Much

Brooks O’Neill, an analyst with Lake Street Capital Markets, raised doubts that Alphatec won’t outspend their resources.

Miles said, “And so the one thing that I will tell you is we are committed to building a self-funding growth company.” He went on to explain that they are taking the necessary internal moves to streamline the organization so they can demonstrate consecutive flat operating expenses and an adjusted EBITDA above expectations.

Koning added, “I think clearly, this is a business of growth. That growth is generating incremental profitability through adjusted EBITDA. And as we think about the actions recently taken to ultimately narrow the organization, we also have done a significant deep dive in the operation to really root out discretionary spending and to really ultimately reduce our overall spend in that area as well. And so I think we’re being very thoughtful and very diligent about where we’re placing our resources and overall reducing that resource consumption today.”

Miles add that they have plenty of inventory for new representatives and new distributors, and that they are starting to see the investments they have made in the last year to 18 months pay off as they build the sales force they have always envisioned.

Mathew Blackman of Stifel said, “No. I appreciate that. But I guess the point is that we’re ramping up that productivity curve, and we still have ways to go.

Miles and Koning agreed.

Miles added, “Yes. We’re a nominal player in this business. There’s 95% to go…we’re a 5% market shareholder. But clearly, we’re growing aggressively. And I got to tell you, we’re the belle of the ball.”

“You look at what we’re doing procedurally with regard to lateral, what’s going on with regard to EOS. And it’s not a secret to the industry that there’s a lot going on here with regard to evolving care and people want to be associated with,” Miles added.

Matt Miksic from Barclays asked why competing with a robot today isn’t more of a challenge.

Miles replied that their goal is “to have a profound influence on spine care” and that the purpose of the EOS is to drive better decision-making, to be able to provide surgeons with data on the likelihood of a patient to have good outcomes from a specific intervention.

“And so all of our work has been how do we architect a procedure that’s reflective of a step-by-step execution where we can provide interoperative information to drive predictable outcomes. That is our strategy,” he said.

Matthew O’Brien from Piper Sandler questioned considering all the investments they are making why their top line in 2025 isn’t higher.

Koning agreed saying, “Our asset base does support a level of revenue growth that is higher than what’s implied. Ultimately, we’ll look at where we are, and we’ll talk about guidance in 2025. And—but I think your observation that we have invested, and we have the asset base to continue to grow at meaningful rates. And we’ve grown about, call it, over $100 million a year for the last three years or so.”