Alphatec Holdings, Inc. (ATEC) Earnings Call Transcript & Summary

Thanks, everyone, for joining today. My name is Allen Gong. I'm here on the medical supplies and devices team at JPMorgan. It's my pleasure to introduce the management team of Alphatec for prepared remarks. We'll be starting off with Pat Miles, and then Todd will be joining us for the Q&A. But yes, Pat, do you want to start us off?

Hello. My name is Pat Miles. I am the Chairman and CEO of Alphatec Spine. Would love to talk to you today a little bit about delivering long-term differentiated growth. And so it's kind of our story. You will get some forward-looking statements. So read that at your leisure. Really kind of 3 things we'd love to discuss today is really a little bit about the track record of execution. It's been very strong. I want to go into a little bit about. There's still a ton of growth opportunity within this space and within what we're building as well as talk a little bit about the foundation from which we're building from an infrastructure perspective. And then as stated, Todd and I will happily take questions, and we'll try to spend the majority of time on that. I would tell you, I've been at this at Alphatec for 8 years, and I think there's been great consistency in terms of what the reflected track record is. I think that this is a great time to be in spine. I think that ATEC is uniquely well positioned. There's great virtue in being 100% committed to something. Our ability to compel surgeon adoption through creating clinical distinction is very evident. One of the things that we've done extraordinarily well in my mind is we have proceduralized -- there's a lot of variables in spine. A lot of companies are out there selling individual parts. We think that the assembly of goods is important. When surgeons ultimately diagnose a patient, they think procedurally, what we want to do is fulfill that perspective. Deformity is an opportunity for us to walk into. We've made significant investment in that space with regard to EOS. We'll go into a little bit of that, but there's also a software tool, EOS Insight, that I'll describe to you. But it really has a PTP-like run in it for us. It will be kind of a great grower as the years come forth. Additionally, we built a significant infrastructure from which we can build. And so we've built a portfolio of goods from an ecosystem perspective, and we built a distribution center and a foundation, again, from which we can continue to leverage. Additionally, as we look forward, it's going to be a durable profitable sales growth walk. And so a little bit about the highlights, finished 2025 at $764 million, which was 25% revenue growth. $91 million is really kind of the floor of our adjusted EBITDA expectation. So 12% of revenue, and we will flow cash. And so this year, we became the third largest U.S. market shareholder. And really, that's been the kind of the focus of our efforts. Kind of back to the whole consistency of execution, when we did our LRP back in 2024, it was just off of finishing '23 with $482 million of revenue. We had a negative adjusted EBITDA and clearly went through some cash. That year, we committed to in '27 to be a $1 billion revenue company, $180 million of adjusted EBITDA, 18% and $65 million in free cash flow. So that was the commitment. And I think if you look at what we're doing, we're well on our way. And back to the whole $764 million, $91 million and 12% with positive cash flow, I think it creates just a reflected consistency of word indeed, which is clearly what we've been trying to accomplish. So as we look forward, we're looking at a '26 of $890 million in revenue, which would be a 17% grower, powerful leverage in $130 million of adjusted EBITDA, which would be a 15% margin and $20 million of free cash flow. And so I think it's important contextually to look at just this company and look at the asset that we're building. And I think if you look across the landscape of med tech and you say how many companies are growing at well north of double digits, doing it profitably, there's going to be a few number of companies doing that. And clearly, we're one of them, and we're growing aggressively. And so I think there's a contextual opportunity to look at the company. If nothing else, we are profoundly consistent. I would tell you that strategically, we have been -- this has kind of been the motto from the beginning. It's like if you want to start attracting surgeons to what you're doing, what you do is you create clinical distinction. If you create clinical distinction, you compel adoption. If you compel adoption, what happens is you get the sales guys who want to jump on the team. And so we've been very consistent with regard to how we do that and how deeply we do that, and it's fared quite well. I would tell you, just from a surgeon adoption perspective, a surgeon growth, north of 20% this year of surgeon growth. What's important is once they come over, do they utilize your bag. And I think all the way back to 2018, it's been up and to the right. And so we feel great about where we are from a volume perspective in terms of their utility as well as a utilization perspective. And so we continue to grow the business in a very aggressive way and continue to see a number of catalysts that will continue to help perpetuate that. And so we feel like there's a deep bench of growth catalysts. We feel like we're still very, very early in the story. If you look at orthopedics in general, and you wonder, I think people misunderstand the spine business. And if you compare the revision rates in orthopedics, spine stands out, and they stand out in not so good a way. And so when you look at revision rates of total knee in 5 years, it's 3%, total hips in 10 years, it's around 5%. And then you look at spine 1 to 3 years in short segment surgery or degenerative surgery, it's 10% to 15%. And in adult deformity, it's much higher. And so historically, the company response to that has been optimization of implants. And we feel like that there's so much more of an opportunity to bring things like InformatiX into the fold. And you can tell the volume of decision factors has grown over the years just with regard to the number of things that ultimately drive the variables in spine surgery. And so where everybody is kind of focused on implants, we feel like it's a bit of a failed currency. And so we feel like the requirement is transformation, not optimization. And that's what our thesis has really been. And that's why we were rewarded by being focused on the field and assembling a unique know-how that understands the clinical requirements of the field. And when you say, gosh, what's the business? The business really is, hey, how do we ultimately architect spine procedures. And so if you were to say what really makes us different? I would tell you today, it's spine procedures. We've done a reasonably good job in terms of assembling the goods in an elegant way that ultimately creates a sophisticated procedure. But it's not enough. And so what we believe that will be the driver of the long-term reflection is really the InformatiX play. Surgeons need more information to make better decisions. And that's all the way through the care continuum. And so I'll go into a little bit of that. But when I talk about proceduralization, if you look at the reflection of how we built the company, I would tell you that today's run rate is all about how well we proceduralize. And really, the area of most familiarity is the lateral approach. And so A bunch of us were at a company that had purple in it years ago. And so we created this thing called XLIF. The same people have recreated lateral surgery in a way that you could do it in multiple ways. PTP is kind of the moniker, but we've really recreated it. What we found is that we're able to grow the business, and we've done so in a very aggressive way. The beauty is we've seen surgeons really start with the utility of this procedure in degenerative short segment surgery and then continue to apply it to more complex pathologies. Again, the real opportunity here is to continue to evolve the InformatiX piece. And today, one of the core InformatiX elements that we have is called SafeOp. And what it tells you, if you think about what's between the skin and the spine from an anatomic perspective, if you go in laterally, it's nerves. And so what you absolutely have to have is an understanding of where the nerves are and what the health of the nerves are. And so that's an InformatiX piece that's interoperative that ultimately drives our lateral portfolio. The other 2 pieces that are coming forth, and I'll speak to a little bit is EOS and Valence, and those are other InformatiX pieces that will continue to drive a very rich environment for surgeons to continue to have more information as we roll forward. We ultimately realize that there's a dearth, meaning there's like next to no data that drives decision-making in spine. There's so much of it that's driven by gestalt. And so what we want to do is we want to capture data through automated means that ultimately continues to enrich the decision tree associated with what we're doing. So one of the things that we love is we love procedures and we love procedural workflow. And we don't believe there's such a thing as robotic surgery or endoscopic surgery. We think surgery is an assembly of goods that ultimately fulfills decompression, stabilization and alignment, which are the goals of spine surgery. And so we have a product called Valence and what it is, is a navigation and robotic tool that we've integrated into the workflow of surgery. It will launch this year. We're waiting on FDA clearance on the navigation front, but it's most importantly, procedurally integrated. And so it's reflective of the same kind of thesis from which we've built the company. It's got an optimized OR footprint. It's very small. And so the cost of goods is such that what we can do is place a lot of these very quickly. We want to minimize the volume of the whole capital cycle. And we feel like it will be a valuable piece in democratizing the lateral approach. If you think about the anatomy laterally, there's not a lot of bony landmarks. So when people navigate from an imaging perspective, it gets a little bit tough. And so we think that this is going to be a tool that ultimately helps in democratizing the technique. SafeOp is something that we've had for a number of years, but what we've done is continue to improve on it. If you want to appreciate a tool that is profoundly important lateral surgery, SafeOp is it. As I said, if you think about the anatomy between the skin and the spine, there's a big neural bundle within the so muscle. And so to understand where the nerves are and understand what the health of the nerves are is very, very important. When you think about the size of a somatic sensory, evoke potential is a very small signal. Spine is a very -- or surgery is a very noisy place from an electrical perspective, the ability to capture that signal and characterize it and communicate in a space is very, very valuable. It's a core competency of ours. We've done, I think, a great job in terms of design and development in that space. We've also evolved the tool to ultimately capture motor evoke potentials. That's relevant in cervical surgery. It's relevant in deformity surgery. And so the utility of this tool will continue to verticalize in terms of application. And so we think that as we roll forward especially the lateral front, the ability to navigate early and navigate from a bony perspective really continues to open up opportunity with regard to lateral utility. We've clearly prospered from the procedural approach. We have done the same with regard to cervical surgery. Cervical surgery is a bit of a proxy of great surgery for surgeons. We've been under-indexed in the space. What we've done is assembled a great retractor, great implants, neurophysiology piece and different applications to ultimately continue to raise our exposure in this area. I would tell you, 2025 has been a great year from a cervical perspective. And you've -- as you continue to see the demographics of our business, you see it continue to run a bit. Here's a piece that I can't be more bullish about in terms of just an InformatiX that drives improvement. And so we acquired EOS in 2021. And what it is for those of you who are not familiar, it's a full body standard end-to-end imaging system. You're standing, so you're in an active position. It's a biplanar view. There's no stitching. There's less radiation and reduced exam time. And so it's funny when we bought EOS, I think the people at EOS thought that they were an imaging company, and we thought that they're an InformatiX company. And we thought that what we can do is really inform surgery in a much more effective way. And so what we really did is kind of created a proprietary foundation for InformatiX in spine. Historically, spine data has all been surveyed. And so what we want to do is make sure that what we did is transform much of the automation. So in 2024, we came out with automated alignment. So through artificial intelligence, you'll get an alignment measure and literally, it will pick out all of the angulation. If you remember previously, I talked about the goals of surgery being decompression, stabilization and alignment. You want an objective measure of alignment because it's completely consistent with the durability of an intervention. And when you start to think about revision surgery and you start to think about durability, what you want to do is be able to inform alignment. And so we have automated alignment measures that we get to capture. We ultimately create a 3D reconstruction of normative values in terms of saying, hey, where should you be in space and then deliver that to the surgeon. As of late, we recently got a bone mineral density view as well from the exact same scan as you would just the EOS image. And so just the type of InformatiX that we can deliver to the surgeon and the surgical plan with regard to not only alignment measures, but also the bone mineral density. And so our view is as we collect this data, our ability to continue to provide relative information or relevant information as it relates to how high the surgeon should go with regard to his construct or what the construct should be as well as integrate into the implants themselves. And so we feel like it's an end-to-end ecosystem that ultimately is going to accelerate our deformity influence. And so we're very excited about it. It really provides us the ability to assess. We can simulate what the construct is going to look like. We can absolutely make sure that from a correction perspective, it's an objective reflection of exactly where you want to be in space and then to be able to confirm that through longitudinal data. And so as I said, there's been a dearth of data in spine and our ability to work with these institutions to collect this data is something that's of significant interest to us. Here's just an example. in an idiopathic application, you have a patient that gets less radiation based upon the EOS scan. You have a complete understanding as it relates to where she stands in space. On the 3D surgical planning with axial rotation, the third dimension is an understanding of a rotational deformity. And so understanding exactly where that patient is in space and how much needs to be derogated is valuable. One of the things that we've learned through the prone transpsoas experience is that patient positioning is very, very valuable. And so we've integrated patient positioning into the algorithm of tools that we provide for these applications. And just feel good also from an interoperative perspective, understand exactly what type of correction you've got on the table and then what further correction needs to be done in the operating room. So again, to create the objective measures so when you leave the operating room, you know that you got what you intended. And so clearly, the implants are what we sell into the space and the providing of neurophysiology, especially NEPs becomes important because when you derotate the spine, you want to make sure that you don't interrupt anything neurologically. And so I would tell you that from an engine behind the growth, it's the proceduralization piece. We think that the InformatiX element ultimately is the driver of long-term value. And again, super excited about what that looks like. Our view is that the information is going to drive what procedures and when to do them. And so we have been very deliberate with regard to where we focused our efforts. The U.S. market has been really kind of key to how we've engaged. We're still less than a 10% market shareholder. So we got a big run in front of us. We're greater than 30% in well-covered territories. So when you start to look at places where we've been successful, we have a big market share. And so what that does is at least creates confidence in us that we've got a great run ahead. And so if you look at the top 10 U.S. markets, I would tell you we're still less than 10% market share across the board. So it just speaks to the relevant opportunity. And so same-store sales is going to be in the 26% range. So we do sell internationally. It's another place of, I'd say, momentum in the business. The 2 places are places that don't have a high regulatory burden. They pay for things in a timely manner and regulatory, they're reasonable. And so really, we've concentrated on Australia and New Zealand, which is the first country that we've been in. We're approximately $10 million of revenue out of Australia and New Zealand. We've done over 1,000 PTPs. So there's an acceptance of the surgical thesis that we put forth. So that's exciting. Japan, big market. We're just getting into it, less than $5 million. And really, we'll get a lateral launch in '26. I think to some degree, and maybe we all feel like this, but I think we're a little bit of a misunderstood bunch. We made a bunch of financial commitments very early in the effort. What we want to do is build the infrastructure from which to scale. And we've done that. And so when I think when you look at this slide, I'm not going to go through each of the different elements. But what we've done is we view this as a long-term opportunity. We've committed to the long term back when we acquired EOS, and we see the ecosystem as something for which we want to invest and build over the long haul. And each of the elements ultimately affirms or communicates with the next. So our ability to take EOS element and an MRI and take a synthetic CT and inform the operating room is very evident to us and then to inform an assessment is very evident to us. And so our ability to have each of these speak to one another is very, very important. And these things don't happen overnight, and they're big ecosystems, and we feel like we have something from which to continue to scale. And so the core investments in this technology have been acquired, and we will perpetually build off of those. And so as you look kind of what the walk has been, it's been really foundational investments from '18 to '20 and really kind of building the foundation of the company. The first InformatiX that we got is SafeOp, which was 2018, and these things take a little bit of time to build. We ended up acquiring EOS and Valence between '21 and '23, we built our state-of-the-art headquarters. We have a beautiful headquarters that clearly attracts a lot of surgeons. We distribute out of Memphis, which is very, very important. And we have built scalable internal systems that are ultimately very, very valuable. And so as we look forward and we look at the growth profile forward, we see these infrastructure investments leveraging in a way that we continue to grow profitably. And so our commitment is to continue profitable growth. And when you start to see this leverage forward and this build forward, we're thrilled in that what we also want to be is just a data source and the reflective institutions are institutions from which have data sharing agreements that are of note. And so everybody from Duke to Northwestern to Yale to HSS and NYU and others are partners. And so in conclusion, the financial outlook is bright. As we said, $890 million is the guide, $130 million on the adjusted EBITDA, $20 million on the cash flow. We talked about our 100% spine focus, the lateral importance, deformity infrastructure and so on. So I guess with that, we would go ahead and take questions as you see fit, Allen. Thank you.

Okay. Thanks for that, Pat. If anyone has any questions in the audience, I think we have a mic that we're passing around. If you -- or we can just repeat the question as well. But just to kick it off, as you mentioned, you preannounced results today, you had a strong year of around mid-20s growth. When we look at the fourth quarter, what were the main drivers between the surgery and the EOS Insight side of the business? And then when we look forward to the guide, what does that contemplate for that going forward?

Yes. I think when you look at the fourth quarter, Allen, and clearly, I think we saw about 20% growth in the quarter. When you look at the surgical business, I think you saw a growth profile driven by volume, which I think is encouraging. The overall surgeon adoption number very, very strong. Our same-store sales very strong. So I think the core metrics that we've talked about in our business that give us confidence for future growth and continued momentum, I think all very, very much intact, and we feel good about that. I think when you look at how sequentially that revenue went from Q3 to Q4, I think clearly, that sequential step-up was a little bit lower than our historical norm. And I think some of that is attributed to the influence of deformity, especially the adolescent idiopathic deformity we saw in the third quarter, which is kind of normal Q2, Q3, you see that in the adolescent space given the summertime, and that's kind of a seasonality. Now that's a very nascent spot or a section of the market for us to participate in. And so that's a bit new and contributed revenue this year. And so I think there's beginning to be a bit of a seasonality effect that we hadn't seen historically, which speaks to maybe some of the different dynamic going from Q3 to Q4. The second part of your question was how do we think about 2026 and clearly, we laid out a revenue growth of about $126 million year-over-year. It's about 17% total growth. And so I think the -- it's about $118 million of surgical growth and about $8 million of EOS growth. And so the surgical growth is going to again be primarily driven by the volumetric component of the business. I think underpinning that is strong surgeon adoption numbers that we've seen thus far, continued utilization. I think we see the continued utilization of our surgeon cohorts, which gives us a lot of confidence in that. And then from an EOS standpoint, I think we continue to see strong interest and strong pipeline of interest in EOS. And so I feel good about continuing to walk that business up to our goal of $100 million in 2027 for EOS.

Got it. And then I guess just to dive into $126 million. I think you've talked about that as being where you want to start the range even before this quarter, you talked about 2023, 2024, how that was the sequential dollar growth that you were able to achieve in those years. Obviously, 2025, you did quite a bit better than that. So why is it appropriate to start off on what could be a more conservative tone? What are you leaving as upside relative to that versus what is factored into the number itself?

Yes. I think as we entered 2025, we guided to about $120 million of absolute dollar growth. And to your point, we delivered about $30 million north of that over the course of the year. And so I think clearly, our perspective historically has been and continues to be to put numbers out there that we believe we can achieve and have a reasonable opportunity to exceed. So we want to put thoughtful guidance out there in that context. And we think we're doing that based on the volume component of our surgical business. And I think opportunities for upside to that number are really the continued surgeon adoption. So I think that's going to be on the volumetric component of our business. As you think about the components of growth that's driven our business, historically, it's been lateral, and that's going to continue to be a significant contributor. You think about the more recent contributors, which has been cervical, and we've talked about how we proceduralized our cervical offering, and that's been a real benefit to the overall growth of the business that we've seen. And then deformity, we continue to expect that to be a contributor to growth, both on the adolescent side, which has more seasonality, but then the adult as well.

So on the point of seasonality, when we look at next year, is it appropriate to look at 2025 as being the right model for seasonality where because you have a growing presence in pediatric deformity that, yes, it might be a little bit of a difficult comp in third quarter just because you had a really strong opening out of the gate. But should we expect seasonality to kind of, all else equal, look more like 2025 versus what we generally associate with orthopedics and spine, where you have a strong fourth quarter, like a really strong fourth quarter?

Yes. I mean I think that is going to be the more norm. I think if you look at us historically, our sequentials have been kind of in the mid-teens or around $20 million of growth plus Q3 to Q4. Clearly, we saw a stronger Q3 this year, so the dollar step-up and consequently, the percentage sequential step-up was not as big, but it was off a larger starting point. And so I do think that, that will become a bit more of our normal seasonality. And certainly, I think as we go through the year, we'll definitely, I think, talk more about that.

Q4, Q1 looks more similar though as well?

I think the seasonality that's really new has really been more the Q2, Q3 given the pediatric Q3, Q4 -- or excuse me, Q4 to Q1 should be more kind of market seasonality.

Got it. Yes. The reason I'm asking on that is because I think there's definitely been some kind of murmuring around the conference that maybe there's some softness in volumes that showed up in December and people are worried about the outlook for the first quarter. So I guess, is that something that you're seeing in the spine market more broadly? Is that something you're seeing in your own business that we should call out for the first part of the year just to keep an eye on?

Well, clearly, we're early into the Q1. I think you looked at our volumes. And I think on a year-over-year basis on probably what was one of the toughest comps we had all year, our Q4 grew 20%, and we felt pretty good about that performance. And so I think the market felt reasonably good to us. Clearly, Q1 is always a bit of a slow one. And I think I talked to this last year as we were thinking about Q1, I think the same commentary in terms of market softness concerns in Q1 was last year. Where all of the holidays kind of fall towards the end of Q1 at the beginning of Q2 and then where vacations happen, I think it's tough to dissect quarter-by-quarter what is actual market softness. I think you look at the first half of last year, and you feel like the market was pretty good, and that continued into the second half of '25. And I don't see that there's a ton of signals to think that would be different this year.

Days of the weeks matter.

Days of the weeks matter as well.

Got it. I think one of the more interesting dynamics that have played out in the spine, and it kind of blends credit to your own strategy of being very spine-focused is that -- we've seen a lot of spine companies being spun off of long-standing multinational diversified med tech companies where we had Zimmer Biomet, we then Stryker, and now we also have J&J talking about spinning off the orthopedic business. So how much of a benefit or headwind has that been to your business where you have companies that maybe there's a little bit of disruption as they're working through the separation, through the divestiture. But now similar to you at face value, they're now a pure play with totally focused on spine. Is that something that was a headwind, a tailwind for you in 2025? And how should we think about it in 2026 with J&J contemplating their own?

Yes. From my perspective, I love disruption. I hope there's more. I think it's advantageous for us. I think that what we've done as it relates to the long play in a marketplace that others haven't played long is going to serve us. And I want them to make the same investments that we've had to make. And it's going to take time. And it's going to take time to develop the expertise that we've developed over the last 8 years. And so I kind of love our position. And so I think from a sales force build perspective, it avails more people within the funnel to ultimately run toward a company that ultimately has a portfolio of goods that's coveted and new. And so I think all of those are tailwinds. I can't point to the specific contribution that they've made in 2025. But I think that we've always talked about these things being -- when we talked about the Globus NuVasive thing, we said it's at least a 3-year phenomenon. It's not like it's not over. And so just the ability to continue to garner the type of salespeople who want to come over and join us has been good.

So no kind of like onetime benefit that we should expect to come out kind of consistent. Got it.

And I think if you look at who we were maybe 3 or 4 years ago, we're a different company today in terms of the quality of the portfolio and essentially all of the InformatiX that surround our procedural approach. And so I think we're a destination of choice on a stand-alone basis. And then clearly, when there's disruption, I think that makes it a little bit easier.

Okay. And then continuing on the competition front, lateral has been your bread and butter. You've really led the market with PTP. Like a lot of things in orthopedics and spine, success tends to breed people like fast followers. So I guess when we think about competitor offerings that are looking to capitalize on you building the market for PTP and the prone position, how should we think about those products competing against your own? How does that affect your ability to continue to rapidly take share and even convert the market going forward?

Yes. Again, like this is not arrogant. It's it's a deep appreciation for the requirements to ultimately build these tools to ultimately integrate into a lateral surgery. And so I would tell you, nobody has committed the type of dollars and sophistication that we have to neurophysiology. And so to automate the elements that ultimately tell a surgeon information about the health of a nerve is not done in any automated way that ultimately creates real-time information. And so our ability to have these tools in a mature way has been of great value, and we continue to evolve them through AI and the characterization of the waveforms and things of that nature. I would tell you that if we have a foundational sophistication, I would tell you, it's in neurophysiology, it's in mechanical design and development. Candidly, it's also in navigation. But as it relates to the lateral approach, I think people will absolutely see that there's been momentum created in the space. They'll do their own patient positioner, they'll do their own retractor, they'll do their own implant, but it's just not enough. At some point, the surgeon requires more than that. And that's where we feel like the integration of the navigation piece with the neurophysiology element just is another barrier to entry. And so the opportunity to continue sophistication will avail it to more surgeons who are uncomfortable in this space. And so we feel like that it's the assembly of goods, it's the opportunity and then what will inform what procedure to do is the next run. So our enthusiasm is that we're well ahead on the places that are extraordinarily difficult to design and develop into and to garner sophistication. So we've got a good head start.

Got it. And then the InformatiX piece, right? You're in a limited launch of Valence this year. You've been building out your enabling technology suite with SafeOp, with EOS Insight. So when I think about adding those on to the portfolio, ramping those up, how much of the market was previously inaccessible, if you will, to you before because you just didn't have a robotic offering. Was that holding you back at all? And how should we think about your ability to -- like the role of Valence, I suppose, in the growth strategy going forward?

Yes. I think if you look at the near term, I don't think that we've been impeded by not having a robot. An irritant of mine is that I think people think that there's robotic surgery, and there's not. Robots in spine surgery point a cannula in an angle that ultimately enables a screw to be placed down it. That's not surgery. That's placing a screw. Again, we go over the goals of surgery being decompression, stabilization and alignment, it's part of stabilization. And so we haven't been impeded. We've been the growth driver in this space. And so I wouldn't say that we've been impeded by not having a robot. I think the opportunity, I think, is to continue to avail technology in a way that improves surgical workflow. And that's where I think that the whole navigation piece and if somebody wants to use a robot, we have a great robot, you can place screws through the cannula. It's going to be awesome. But ultimately, the things that ultimately is going to drive it is the assembly of goods to create safety and predictability and reproducibility. Those are the things that ultimately are going to drive a business bigger.

And Allen, when we talk about the lateral market, we talk a lot about that $1 billion market and our ability to kind of penetrate that. But really, the opportunity is to grow that market from the $2 billion of traditional posterior approach PLIF and TLIF business out there. And I think what Pat's described is one of the key things that will help us continue to penetrate that and really accelerate that adoption into lateral because there are so many people out there who don't do lateral surgery because, well, maybe they don't like all the fluoroscopy, but it's a confidence level of being able to operate in the retroperitoneal space and do lateral surgery. And the integration of navigation robotics into our PTP is a great way to address that and get more predictability and ultimately, broader adoption of our lateral procedure.

With the last few minutes I had left, I do want to touch on the profitability side of things, right? You were able to reach free cash flow profitability this year. You're targeting continued adjusted EBITDA expansion next year and continued free cash flow profitability. I think a big part of your strategy really was forward investing in previous years to really enable you to get to this point of profitability. But as we work through some of that forward investment, as you maybe have to step on the pedal again for CapEx to really start supporting the growth that you have another year of at least hopefully, high teens growth. How should we think about your ability to drive continued free cash flow growth and also leverage down the P&L while supporting high teens and plus growth?

Yes. So maybe we speak to the confidence of our investment profile to drive the growth of the business in the long run. Our priorities are R&D and the selling channel. And so as we constructed our walk to profitability to that 18% in 2027, investment in R&D and investment in the sales channel have been priorities in that. We're clearly getting the leverage from the business that we've expected and from where we've expected it to come. And so we feel good about that. And that gives us confidence in our ability to continue to see leverage and meet our commitments because to your point, the growing profitability profile is a key component of our ability to deliver on the cash flow commitments that we have next year and the year after. And so if you think about the profitability of $130 million, there's about $20 million of noncash E&O in there. So that gives you $150 million of kind of cash EBITDA. We paid $20 million of that into interest. So now you're back to $130 million. And if you take our $0.75 ratio into play, you're going to spend $90 million to $100 million of cash on sets and inventory. And that kind of leaves you with about $30 million or so relative to our $20 million commitment on free cash. And so it's obviously a little bit more complicated than that, but those are the big moving pieces. And I think that gives us a level of confidence that we can continue to grow the top line that you need to, to see the profitability drop through, which ultimately allows you enough cash profitability to invest back into the business.

Great. That's perfect. Unfortunately, we are out of time. Thank you so much for the details today.