Barclays 28th Annual Global Healthcare Conference

Thanks, and good morning, everybody. Thanks for joining us today. So, very pleased to have with us again at our conference AlphaTech, Todd Koenig, Chief Financial Officer Robert Judd, VP of Finance and Head of Investor Relations. So, thanks again for joining us. Thanks for having us. All right. So maybe just to start to frame 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 kind of turning, I think, this time last year. There was questions around capital deployment, you know, questions around financing, questions around EBITDA. And 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. Financing seemed to be – and can you keep growing at these rates? So it's been a volatile Q1 for lots of stocks in our universe, maybe a little bit more so for some of the SMIT and small caps. So that's certainly no different for AlphaTech, I think, in that regard. But 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 that, 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 in terms of growth and profitability and cash flow and all that.

And 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 you 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. And if you really want to understand, like, where to share move, I think share moves to the players that ultimately can bring clarity and help surgeons do better surgery, and 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. And once you've compelled them, you'll attract the right sales talent. And so, you know, if you look at the state of spine, 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. And if you look at the literature, the literature would tell you that's because of really a lack of global and segmental alignment. And ultimately, that's why we think EOS is such a powerful product. We can talk more about that. But 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 a pathology in a patient. They don't ask themselves, what screw I'm going to use? They ask themselves, what approach am I going to use to treat the patient? And that approach is the procedural approach. And so 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. And so then you kind of 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. New Vase have obviously sold to Glovis. And so 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 kind of, that's the whole point. But then I think the environment for us to execute that, I think, is pretty right.

And, 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, one is it's 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. Um, but, but it is, you know, it's a well-established market. It's a, you know, you could say it's not, I mean, it's, it is not difficult to diagnose, but there's a diagnosis involved, but the patients are typically like knee pain, for example, you know, they're driven into their clinicians because of, because of pain, because of a condition and that either results in a bunch of things, uh, or ultimately, you know, with enough 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. And so I always say, like, if you ask any hospital if they would like to do more spine surgery, I think the answer is always going to be, sure, yeah, we'd like to do more spine surgery. I think It's labor and delivery, cardiac surgery, orthopedics, and spine are kind of the big four. And so those are good kind of, I think, pillars of support. And so then the question is, how do you drive share? And 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 kind of help folks understand the trajectory and the progress that you're making. So maybe, you know, run through those, and then I had a couple quick follow-ups.

Well, just one of the things we talk a lot about is surgeon adoption, as Todd just talked about. And when you look at our material, we share, usually share it every year. We shared it in our Q4 call is the adoption curve of surgeons. And 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. But what we find is the last couple of years, the surgeons that we have on board exiting the year drive mid-double-digit volume growth the following year. And if you look at those utilization charts, which we show for the past seven years or so, they keep growing in year three, four, and five as well. And so 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, you know, certainly in dollar form share taking at those rates over the foreseeable future. And so we go back to, are we converting surgeons? The surgeons use more of our stuff. And that really is the growth algorithm. We get more case ASP as well. I think our guide 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.

Yeah, and 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. And, you know, you beat numbers, but revenue procedure went down or, you know, you missed numbers, but revenue procedure went up. You know, there was a quarter, I think, like that in 2024. And so, like, you know, there's a mixed element to this as well that kind of ties in with your adoption. So you bring folks on, for example, maybe the – will you tell me maybe the beachhead or the point of entry is your lateral or pro-lateral procedure? that gets them involved with AlphaTec. But then they start doing more procedures that might, as a surgeon, drive down their prolateral and lateral, some of the biggest ASPs that they might do. So 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, so that's absolutely true. I think you look at Q4. our 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 six percent so to your point uh there's and then so in the U.S. you look at those two elements and so there's healthy case ASP growth within two of those key procedures and yet at a total U.S. level case ASP is one percent or about a percent and a half growth year over year. And 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. And we're getting more utilization from surgeons in cervical. And it's, you know, it's hurting the case ASP growth a bit. And then there's also a little bit of, there's about a hundred bips of impact from the U.S. business, or sorry, from the OUS business. They're at case ASP right now. It's a nascent business for us, but it's got a lower case ASP. And so there's a little bit of tightness there. And that's how you kind of get to the flat ASP in Q4. But I think as we look out at the year, we know we're going to comp through some of the cervical stuff that we hit middle of last year, as far as growth goes. And so we know the underlying growth is healthy and good. And so that's where, as we look at the full year, and I think one of the things, if you just step back our business to your point there's there's some we're we're taking a lot of share and it doesn't happen in a we'd like it to happen in a perfect linear experience but the reality is it's it's lumpy when you're you know well your growth is true taking share and so uh as you look at the year i think we feel real confident about that ksasb and some of these metrics annually are just easier predictors than you know quarter to quarter you get some lumpiness in them but i think the The real measure is how do you do on, you know, over a series of quarters or over a year.

And 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. You're growing way, way above. Multiple of the markets. Yeah, exactly. So, all right. And that's helpful. One of the other things that's been a topic around the company has been, you know, reps. I think there's 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? But 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, $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. So 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 a 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's adoption in the end. But 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 going to, you know, figure out they probably need to talk to us. And so that, you know, that naturally happens. And there's all sorts of reasons why sometimes they come and sometimes they don't. I think the, we'll call it the changing environment in the industry relative to the transaction that have gone on, disruption, if you want to call it that, I think that's kind have 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 want to be a part of or realize they're less interested and ready for a change in those types of things. And so I think, again, the environment from attracting the right talent to support the selling or the The surge in 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. And as you see the adoption curve grow, then you're going to see those assets turn and you're going to 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. And so, you know, I think the other reality is as you get bigger and as you have territories 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, support, that model becomes more effective as well in terms of supporting the ongoing surgical requirements. And so, 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. And just not to

not to dive back into the, 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, Globus, X Striker and stuff, what's, what's the, what's the selection of reps coming into the company look like relative to, to those players? Yeah. I mean, by and large, it looks like the market.

And so I wouldn't tell you that we're benefiting or over indexed from one to the other. Again, I think it kind of depends on geography and the attraction of surgeons. But by and large, it reflects the overall market share. Okay. And then, you know, I do get the question,

you know, Striker selling to VB is fine. Does that open up a whole, you know, bunch of reps that are coming? And 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 proposed strategic moves like J&J spinning, DePue, DePue's fine, or Striker making that move? How has that changed? Is it a volume change or is it a quality change? How would you describe it? In terms of additional reps being available.

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, hey, if I'm, 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.

Like, you know, I felt more confident six or nine months ago than I feel now. We're ready to have that conversation. So 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 or enabling technology. So you have a number of enabling technology elements that are used already for pro-lateral and pro-lateral. You just need them, table stakes, nerve avoidance, and these are complex, minimally invasive procedures that have benefits, but they're a little technically more challenging, and the tech helps with that. Um, what, what, maybe let's talk a little bit about the role of, of your, uh, Valence robot, the kind of goal and market strategy of that, uh, and maybe compare and contrast with, you know, what investors in the market has learned about, call it the bigger platform robots, uh, that have come to market from, say, Metronic and Globus.

Yeah, so I think a couple things. If you look at kind of large format robots, you know, the primary goal is to place a pedicle screw, and clearly placing pedicle screws is important. I think if you looked and understood the utilization of those robots, you'd find them reasonably low. um 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 and there's only a certain amount of those throughout the country um so 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 uh you can still place it a large academic setting because it is a differentiated robot and navigation platform. I think, too, it's great for the community hospital setting and ASCs for those reasons. And so what is our offering? Our offering is a, it's really a robotic and navigation platform, and we have developed it and are launching it to be integrated with PTP. And we did that because we think that the technology should address challenges of surgery. And so 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, into the robotic navigation component helps with that, especially in place of the retractor. And 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. And so being able to navigate that with a level of confidence and efficiency and predictability, I think that is also a hurdle to adoption. And so 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. And so that's been the pitch. Now, the beauty of it is it's still a platform. You can place pubic screws in other surgeries, and you can use the freehand navigation component separate from that as well. And so 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.

And I think, you know, there is a sense of the sort of larger players that, you know, larger robot players that, you know, 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 and commitment. In this case, you know, breaking down the friction around adoption and then driving efficiency in adoption without having to commit an OR or commit the hospital to another platform. I know it takes a little bit of getting our mind we're all programmed around robots to be this this one's better than that one so it's an interesting and different approach to robotics we're winding down but maybe just 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. But also, you know, continuing to drive more cash flow out of the business.

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% just 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 seems about 32% drop through. I 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. And you think about the cash flow, you know, probably the biggest component to that is really the deployment of sets and inventory and kind of getting back to this 75 cents on the growth dollar basis. And 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? And that ultimately yields what we have. And so 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.