Alphatec Holdings, Inc. (“Alphatec” or the “Company”)
(Nasdaq:ATEC), a provider of innovative spine surgery solutions
with a mission to improve patient lives through the relentless
pursuit of superior outcomes, announced today recent corporate
highlights and financial results for its second quarter ended June
30, 2017.
Second Quarter 2017 Financial Highlights
- Total revenues of $24.4 million; revenue from the Company's
U.S. commercial business of $21.9 million
- General and administrative expenses declined by approximately
$0.9 million sequentially
- Cash burn improved to $6.4 million from $11.5 million
sequentially; cash balance of $19.1 million at June 30, 2017
- Operating loss of $0.7 million, sequential improvement from
$3.4 million in the first quarter
- Non-GAAP adjusted EBITDA of $1.2 million improved sequentially
from $0.5 million in the first quarter
- U.S. commercial gross margin of 71%
Organizational and Product Highlights
- Continued transition of sales organization from non-exclusive
to dedicated, building exceptional momentum with current and new
potential distributors and surgeons. Sales from dedicated sales
agents and distributors increased from less than 15% of U.S.
commercial revenue in the first quarter to more than 18% in the
second quarter
- Enhanced sales, marketing and product development organizations
with the addition of key sales leadership and engineering
talent
- Awarded patent for its innovative and novel uniplanar and
monoaxial screws, currently marketed under the Arsenal Deformity
product line
- Awarded patent that distinguishes and protects proprietary
features of the Alphatec Squadron Lateral Retractor, a key
component of the Company’s Battalion Lateral System, which will be
fully launched in late 2017 and will mark the Company’s entry into
the $500M U.S. Lateral market
“We delivered results that were firmly in-line
with our expectations,” said Terry Rich, CEO of Alphatec.
“Importantly, we continued to make excellent progress executing on
our priorities as we reposition the Alphatec brand. Despite our
deliberate decision to disrupt short-term revenue by exiting
non-strategic relationships, we continue to see positive traction
from new and existing distributors. This sets us up well for
revenue growth in the second half of 2017. I am extremely
confident in the team, the culture we are building, and the
expertise that surrounds me, and I believe that Alphatec is
exceptionally well-positioned to drive future growth and
shareholder value.”
Comparison of Financial Results for the
Second Quarter 2017 to First Quarter 2017
Following is a table, comparing key second
quarter 2017 results to key first quarter 2017 results. The
Company believes that sequential results, at this time, are the
best indicators for evaluating the Company's core performance.
These are the comparisons management uses in its own evaluation of
continuing operating performance, given the re-focus of the
Company’s strategy under Alphatec’s new leadership team.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Change |
|
|
|
June 30, 2017 |
|
March 31, 2017 |
|
$000's |
|
% |
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. commercial
revenue |
|
$ |
21,877 |
|
|
$ |
23,437 |
|
|
$ |
(1,560 |
) |
|
(6.7 |
%) |
|
U.S gross profit |
|
|
15,521 |
|
|
|
16,269 |
|
|
|
(748 |
) |
|
(4.6 |
%) |
|
U.S. gross margin |
|
|
70.9 |
% |
|
|
69.4 |
% |
|
|
1.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
Research and
development |
|
$ |
990 |
|
|
$ |
1,449 |
|
|
$ |
(459 |
) |
|
(31.7 |
%) |
|
Sales and
marketing |
|
|
10,298 |
|
|
|
11,103 |
|
|
|
(805 |
) |
|
(7.3 |
%) |
|
General and
administrative |
|
|
5,351 |
|
|
|
6,223 |
|
|
|
(872 |
) |
|
(14.0 |
%) |
|
Amortization of
intangible assets |
|
|
172 |
|
|
|
172 |
|
|
|
- |
|
|
|
|
Restructuring
expenses |
|
|
528 |
|
|
|
1,231 |
|
|
|
(703 |
) |
|
(57.1 |
%) |
|
Gain on sale of
assets |
|
|
(856 |
) |
|
|
- |
|
|
|
(856 |
) |
|
|
|
Total
operating expenses |
|
$ |
16,483 |
|
|
|
20,178 |
|
|
$ |
(3,695 |
) |
|
(18.3 |
%) |
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
$ |
(735 |
) |
|
$ |
(3,399 |
) |
|
$ |
2,664 |
|
|
78.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing
operations |
|
$ |
(2,629 |
) |
|
$ |
(5,424 |
) |
|
$ |
2,795 |
|
|
51.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Adjusted
EBITDA |
|
$ |
1,218 |
|
|
$ |
508 |
|
|
$ |
710 |
|
|
139.8 |
% |
|
|
|
|
|
|
|
|
|
|
U.S. commercial revenues for the second quarter
of 2017 were $21.9 million, down $1.6 million, or approximately 7%,
compared to $23.4 million in the first quarter of 2017. The
sequential revenue decline was largely driven by deliberate
decisions to discontinue non-strategic relationships.
U.S. gross profit and gross margin for the
second quarter of 2017 were $15.5 million and 70.9%, respectively,
compared to $16.3 million and 69.4%, respectively, for the first
quarter of 2017. The gross margin improvement was a result of
supply chain optimization and a sequential reduction in inventory
kit write-offs related to distributor turnover.
Total operating expenses for the second quarter
of 2017 were $16.5 million, reflecting a decrease of $3.7 million,
an approximate 18% improvement over the first quarter of 2017.
On a non-GAAP basis, excluding restructuring charges and a
gain on sale of assets, total operating expenses in the second
quarter of 2017 improved $2.1 million, or approximately 11%,
compared to the first quarter of 2017. The improvements reflect the
execution of operational improvement initiatives, including
workforce reductions implemented in October 2016 and February 2017,
consolidation of facilities, and ongoing successful efforts to
reduce expenses.
GAAP loss from continuing operations for the
second quarter of 2017 was $2.6 million, compared to a loss of $5.4
million for the first quarter of 2017.
Non-GAAP Adjusted EBITDA in the second quarter
of 2017 was $1.2 million, compared to $0.5 million in the first
quarter of 2017. For more detailed information, please refer
to the table, "Alphatec Holdings, Inc. Reconciliation of Non-GAAP
Financial Measures" that follows.
Current and Long-term debt includes $33.6
million in term debt and $8.9 million outstanding under the
Company’s revolving credit facility at June 30, 2017. This compares
to $34.2 million in term debt and $10.4 million outstanding under
the Company’s revolving credit facility at March 31, 2017.
Cash and cash equivalents were $19.1 million at
June 30, 2017, compared to $25.5 million reported at March 31,
2017.
Comparison of Financial Results for the
Three and Six Months Ended June 30, 2017 and 2016
Revenue decreased on a year-over-year basis,
resulting from the Company’s execution of the transition of its
sales organization, in addition to the impact of lost revenue
related to the financial and operational challenges the Company
faced in 2016 prior to the sale of its international
business. The year-over-year improvement in operating
expenses is the result of a comprehensive initiative to reduce
costs and drive operational efficiencies. For additional
information, please reference the following financial statement
tables and the Company’s Quarterly Report on Form 10-Q to be filed
with the Securities and Exchange Commission on August 11, 2017.
Non-GAAP Information
To supplement the Company’s financial statements
presented in accordance with U.S. generally accepted accounting
principles (GAAP), the Company reports certain non-GAAP financial
measures such as Adjusted EBITDA. Adjusted EBITDA included in
this press release is a non-GAAP financial measure that represents
net income (loss), excluding the effects of interest, taxes,
depreciation, amortization, stock-based compensation expenses, and
other non-recurring income or expense items, such as sale of
assets, impairments, restructuring expenses, severance expenses and
transaction-related expenses. The Company believes that
non-GAAP Adjusted EBITDA provides investors with an additional tool
for evaluating the Company's core performance, which management
uses in its own evaluation of continuing operating performance, and
a baseline for assessing the future earnings potential of the
Company. For completeness, management uses non-GAAP Adjusted
EBITDA in conjunction with GAAP earnings and earnings per common
share measures. The Company’s Adjusted EBITDA measure may not
provide information that is directly comparable to that provided by
other companies in the Company’s industry, as other companies in
the industry may calculate non-GAAP financial results differently,
particularly related to non-recurring, unusual items. Adjusted
EBITDA should be considered in addition to, and not as a substitute
for, or superior to, financial measures calculated in accordance
with GAAP. Included below are reconciliations of the
non-GAAP financial measures to the comparable GAAP financial
measure.
Investor Conference Call
Alphatec will hold a conference today at 1:30
p.m. PT / 4:30 p.m. ET to discuss the results. The dial-in numbers
are (877) 556-5251 for domestic callers and (720) 545-0036 for
international callers. The conference ID number is 57049951. A live
webcast of the conference call will be available online from the
investor relations page of the Company's corporate website at
www.alphatecspine.com.
About Alphatec Holdings,
Inc.
Alphatec Holdings, Inc., through its wholly
owned subsidiary Alphatec Spine, Inc., is a medical device company
that designs, develops, and markets spinal fusion technology
products and solutions for the treatment of spinal disorders
associated with disease and degeneration, congenital deformities,
and trauma. The Company's mission is to improve lives by providing
innovative spine surgery solutions through the relentless pursuit
of superior outcomes. The Company markets its products in the U.S.
via independent sales agents and a direct sales force.
Additional information can be found at
www.alphatecspine.com.
Forward Looking Statements
This press release may contain "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995 that involve risks and uncertainty. Such
statements are based on management's current expectations and are
subject to a number of risks and uncertainties that could cause
actual results to differ materially from those described in the
forward-looking statements. The Company cautions investors that
there can be no assurance that actual results or business
conditions will not differ materially from those projected or
suggested in such forward-looking statements as a result of various
factors. Forward-looking statements include the references to the
Company’s strategy in significantly repositioning the Alphatec
brand and turning the Company into a growth organization. The
important factors that could cause actual operating results to
differ significantly from those expressed or implied by such
forward-looking statements include, but are not limited to:
the uncertainty of success in developing new products or
products currently in the Company’s pipeline; the uncertainties in
the Company’s ability to execute upon its strategic operating plan;
the uncertainties regarding the ability to successfully license or
acquire new products, and the commercial success of such products;
failure to achieve acceptance of the Company’s products by the
surgeon community, including Battalion and Arsenal Deformity;
failure to obtain FDA or other regulatory clearance or approval for
new products, or unexpected or prolonged delays in the process;
continuation of favorable third party reimbursement for procedures
performed using the Company’s products; unanticipated expenses or
liabilities or other adverse events affecting cash flow or the
Company’s ability to successfully control its costs or achieve
profitability; uncertainty of additional funding; the Company’s
ability to compete with other competing products and with emerging
new technologies; product liability exposure; an unsuccessful
outcome in any litigation in which the Company is a defendant;
patent infringement claims; claims related to the Company’s
intellectual property and the Company’s ability to meet its
financial obligations under its credit agreements and the Orthotec
settlement agreement. The words “believe,” “will,” “should,”
“expect,” “intend,” “estimate” and “anticipate,” variations of such
words and similar expressions identify forward-looking statements,
but their absence does not mean that a statement is not a
forward-looking statement. A further list and description of
these and other factors, risks and uncertainties can be found in
the Company's most recent annual report, and any subsequent
quarterly and periodic reports, filed with the Securities and
Exchange Commission. Alphatec disclaims any intention or obligation
to update or revise any forward-looking statements, whether as a
result of new information, future events, or otherwise, unless
required by law.
ALPHATEC HOLDINGS, INC. |
|
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS |
|
(in thousands, except
per share amounts - unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
|
2017 |
|
|
|
2016 |
|
|
|
|
2017 |
|
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
24,379 |
|
|
$ |
32,242 |
|
|
|
$ |
52,357 |
|
|
$ |
66,448 |
|
|
|
Cost of revenues |
|
8,631 |
|
|
|
11,083 |
|
|
|
|
19,830 |
|
|
|
20,802 |
|
|
|
Gross profit |
|
15,748 |
|
|
|
21,159 |
|
|
|
|
32,527 |
|
|
|
45,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
Research and
development |
|
990 |
|
|
|
2,072 |
|
|
|
|
2,439 |
|
|
|
5,713 |
|
|
|
Sales and
marketing |
|
10,298 |
|
|
|
12,794 |
|
|
|
|
21,401 |
|
|
|
27,734 |
|
|
|
General and
administrative |
|
5,351 |
|
|
|
6,274 |
|
|
|
|
11,574 |
|
|
|
15,278 |
|
|
|
Amortization of
intangible assets |
|
172 |
|
|
|
255 |
|
|
|
|
344 |
|
|
|
510 |
|
|
|
Restructuring
expenses |
|
528 |
|
|
|
84 |
|
|
|
|
1,759 |
|
|
|
173 |
|
|
|
Gain on sale of
assets |
|
(856 |
) |
|
|
- |
|
|
|
|
(856 |
) |
|
|
- |
|
|
|
Total
operating expenses |
|
16,483 |
|
|
|
21,479 |
|
|
|
|
36,661 |
|
|
|
49,408 |
|
|
|
Operating loss |
|
(735 |
) |
|
|
(320 |
) |
|
|
|
(4,134 |
) |
|
|
(3,762 |
) |
|
|
Interest and
other expense, net |
|
(1,879 |
) |
|
|
(1,578 |
) |
|
|
|
(3,855 |
) |
|
|
(2,361 |
) |
|
|
Loss from continuing
operations before taxes |
|
(2,614 |
) |
|
|
(1,898 |
) |
|
|
|
(7,989 |
) |
|
|
(6,123 |
) |
|
|
Income tax
provision |
|
15 |
|
|
|
11 |
|
|
|
|
64 |
|
|
|
34 |
|
|
|
Loss from continuing
operations |
|
(2,629 |
) |
|
|
(1,909 |
) |
|
|
|
(8,053 |
) |
|
|
(6,157 |
) |
|
|
Loss from discontinued
operations |
|
(68 |
) |
|
|
(3,324 |
) |
|
|
|
(159 |
) |
|
|
(5,693 |
) |
|
|
Net loss |
$ |
(2,697 |
) |
|
$ |
(5,233 |
) |
|
|
$ |
(8,212 |
) |
|
$ |
(11,850 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
continuing operations |
$ |
(0.24 |
) |
|
$ |
(0.22 |
) |
|
|
$ |
(0.80 |
) |
|
$ |
(0.73 |
) |
|
|
Net loss per share
discontinued operations |
|
(0.01 |
) |
|
|
(0.39 |
) |
|
|
|
(0.02 |
) |
|
|
(0.67 |
) |
|
|
Net loss per
share - basic and diluted |
$ |
(0.24 |
) |
|
$ |
(0.62 |
) |
|
|
$ |
(0.82 |
) |
|
$ |
(1.40 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares
- basic and diluted |
|
11,047 |
|
|
|
8,488 |
|
|
|
|
10,033 |
|
|
|
8,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALPHATEC HOLDINGS, INC. |
|
|
CONDENSED CONSOLIDATED BALANCE
SHEETS |
|
|
(in
thousands) |
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
|
|
2017 |
|
|
|
2016 |
|
|
|
|
(unaudited) |
|
|
|
|
ASSETS |
|
|
Current assets: |
|
|
|
|
|
Cash and cash
equivalents |
$ |
19,107 |
|
|
$ |
19,593 |
|
|
|
Accounts
receivable, net |
|
13,126 |
|
|
|
18,512 |
|
|
|
Inventories,
net |
|
29,810 |
|
|
|
30,093 |
|
|
|
Prepaid expenses
and other current assets |
|
2,114 |
|
|
|
4,262 |
|
|
|
Current assets of
discontinued operations |
|
69 |
|
|
|
364 |
|
|
|
Total current
assets |
|
64,226 |
|
|
|
72,824 |
|
|
|
|
|
|
|
|
|
Property and equipment,
net |
|
14,467 |
|
|
|
15,076 |
|
|
|
Intangibles, net |
|
5,243 |
|
|
|
5,711 |
|
|
|
Other assets |
|
222 |
|
|
|
516 |
|
|
|
Noncurrent assets of
discontinued operations |
|
39 |
|
|
|
61 |
|
|
|
Total assets |
$ |
84,197 |
|
|
$ |
94,188 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
DEFICIT |
|
|
Current
liabilities: |
|
|
|
|
|
Accounts
payable |
$ |
2,861 |
|
|
$ |
8,701 |
|
|
|
Accrued
expenses |
|
23,917 |
|
|
|
27,589 |
|
|
|
Current portion
of long-term debt |
|
2,333 |
|
|
|
3,113 |
|
|
|
Current
liabilities of discontinued operations |
|
464 |
|
|
|
732 |
|
|
|
Total current
liabilities |
|
29,575 |
|
|
|
40,135 |
|
|
|
|
|
|
|
|
|
Total long term
liabilities |
|
62,569 |
|
|
|
71,954 |
|
|
|
Redeemable
preferred stock |
|
23,603 |
|
|
|
23,603 |
|
|
|
Stockholders'
deficit |
|
(31,550 |
) |
|
|
(41,504 |
) |
|
|
Total liabilities and
stockholders' deficit |
$ |
84,197 |
|
|
$ |
94,188 |
|
|
|
|
|
|
|
|
ALPHATEC HOLDINGS, INC. |
RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES |
(in thousands -
unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
March 31, |
|
|
June 30, |
|
|
June 30, |
|
|
|
|
2017 |
|
|
|
|
2017 |
|
|
|
2016 |
|
|
|
|
2017 |
|
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss, as
reported |
|
$ |
(3,399 |
) |
|
|
$ |
(735 |
) |
|
$ |
(320 |
) |
|
|
$ |
(4,134 |
) |
|
$ |
(3,762 |
) |
|
Add back: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
1,634 |
|
|
|
|
1,636 |
|
|
|
1,775 |
|
|
|
|
3,270 |
|
|
|
4,029 |
|
|
Amortization of
intangible assets |
|
|
234 |
|
|
|
|
234 |
|
|
|
270 |
|
|
|
|
468 |
|
|
|
540 |
|
|
Total EBITDA |
|
|
(1,531 |
) |
|
|
|
1,135 |
|
|
|
1,725 |
|
|
|
|
(396 |
) |
|
|
807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add back significant
items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation and stock price guarantee |
|
808 |
|
|
|
|
411 |
|
|
|
659 |
|
|
|
|
1,219 |
|
|
|
1,523 |
|
|
Restructuring and other charges |
|
|
1,231 |
|
|
|
|
528 |
|
|
|
84 |
|
|
|
|
1,759 |
|
|
|
173 |
|
|
Gain on sale of assets |
|
|
- |
|
|
|
|
(856 |
) |
|
|
- |
|
|
|
|
(856 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA, as adjusted for
significant items |
|
$ |
508 |
|
|
|
$ |
1,218 |
|
|
$ |
2,468 |
|
|
|
$ |
1,726 |
|
|
$ |
2,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALPHATEC HOLDINGS, INC. |
|
RECONCILIATION OF GEOGRAPHIC SEGMENT REVENUES
AND GROSS PROFIT |
|
(in thousands, except percentages -
unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
|
June 30, |
|
June 30, |
|
|
|
|
2017 |
|
|
|
2016 |
|
|
|
2017 |
|
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by source |
|
|
|
|
|
|
|
|
|
U.S. commercial
revenue |
$ |
21,877 |
|
|
$ |
28,279 |
|
|
$ |
45,314 |
|
|
$ |
57,512 |
|
|
|
Other |
|
2,502 |
|
|
|
3,963 |
|
|
|
7,043 |
|
|
|
8,936 |
|
|
|
Total revenues |
$ |
24,379 |
|
|
$ |
32,242 |
|
|
$ |
52,357 |
|
|
$ |
66,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit by
source |
|
|
|
|
|
|
|
|
|
U.S. |
$ |
15,521 |
|
|
$ |
20,251 |
|
|
$ |
31,790 |
|
|
$ |
43,974 |
|
|
|
Other |
|
227 |
|
|
|
908 |
|
|
|
737 |
|
|
|
1,672 |
|
|
|
Total gross profit |
$ |
15,748 |
|
|
$ |
21,159 |
|
|
$ |
32,527 |
|
|
$ |
45,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit margin by
source |
|
|
|
|
|
|
|
|
|
U.S. |
|
70.9 |
% |
|
|
71.6 |
% |
|
|
70.2 |
% |
|
|
76.5 |
% |
|
|
Other |
|
9.1 |
% |
|
|
22.9 |
% |
|
|
10.5 |
% |
|
|
18.7 |
% |
|
|
Total gross profit
margin |
|
64.6 |
% |
|
|
65.6 |
% |
|
|
62.1 |
% |
|
|
68.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
Investor/Media Contact:
Zack Kubow
The Ruth Group
(646) 536-7000
alphatec@theruthgroup.com
Company Contact:
Jeff Black
Executive Vice President and Chief Financial Officer
Alphatec Holdings, Inc.
(760) 431-9286
jblack@alphatecspine.com
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