Alphatec Holdings, Inc. (“Alphatec,” “ATEC,” 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, today reported financial results for
its first quarter ended March 31, 2018 and recent corporate
highlights.
First Quarter 2018 Financial Highlights
and 2018 Outlook
- Total net revenue of $21.3 million; U.S. commercial revenue of
$19.2 million
- U.S. commercial gross margin of 70%
- Cash balance of $47.6 million at March 31, 2018
- Operating cash burn (excluding debt service) of $2.5
million
- Reiterated revenue guidance of approximately $95 million for
full year 2018, with revenue growth expected to accelerate in the
second half of the year
First Quarter
Organizational, Commercial and Product
Highlights
- Completed the acquisition of SafeOp Surgical, Inc. (“SafeOp”)
to significantly differentiate the Company’s instrumented
procedures and improve patient outcomes with advanced automated
neuromonitoring technology
- Secured $50 million in equity financing to fund the cash
purchase price of SafeOp and to strengthen the balance sheet for
future growth initiatives
- Continued to drive momentum in the transition of the sales
organization, expanding quality revenue from dedicated distribution
partners and agents to nearly 50% of U.S. commercial revenue
- Increased number of surgeon visits to corporate headquarters
for the fifth consecutive quarter, with revenue attributable to new
surgeons increasing nearly 70% sequentially
- Appointed experienced spine executive Kelli Howell as Executive
Vice President, Clinical Strategies
“We continue to build the
foundation for long-term growth,” said Terry Rich, ATEC’s President
and Chief Operating Officer. “Reported financial results,
even adjusting for seasonality, are not yet reflective of the
operational and strategic progress made, but we believe the
positive effects of our distribution transition and solid revenue
contribution from new surgeons validate our strategy. Surgeon and
distributor engagement is improving, the ATEC innovators are
applying their experience to create an organic innovation machine,
and excitement in the field is absolutely palpable. We are on
track to achieve our vision of becoming the most respected,
fastest-growing U.S. spine company.”
Kelli Howell Appointed Executive Vice President,
Clinical Strategies
Ms. Howell brings more than two decades of
clinical research and education experience to the Company. As a
member of ATEC’s senior leadership team, she will drive increased
focus on clinical verification and validation, as well as develop
plans for improved internal education programs, surgeon and sales
education strategies, and market research initiatives. Ms. Howell
joins the Company following an eighteen-year tenure at NuVasive,
Inc., where she most recently served as Vice President of Research
and Health Informatics following various research, education, and
clinical resources roles.
“I am incredibly excited to welcome Kelli to the
ATEC Family,” said Chairman and Chief Executive Officer, Pat Miles.
“Many members of our team have worked with Kelli previously.
In fact, I collaborated with her for nearly 20 years. We have
witnessed her ability to drive market acceptance of innovative
products through the use of clinically validated data and
published, peer-reviewed research. I have great confidence that she
will contribute immensely to our efforts as we work to distinguish
ATEC as a leading provider of innovative solutions that improve
outcomes.”
Comparison of Financial Results for the
First Quarter 2018 to Fourth Quarter 2017
Following is a table comparing key first quarter
2018 results to fourth quarter 2017 results. These are the
comparisons management uses in its own evaluation of continuing
operating performance given the re-focus of the Company’s strategy
under the new leadership team.
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Change |
|
|
March 31, 2018 |
|
December 31, 2017 |
|
$ |
|
% |
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. commercial
revenue |
$ |
19,201 |
|
|
$ |
20,949 |
|
|
$ |
(1,748 |
) |
|
(8 |
%) |
|
U.S. gross profit |
|
13,432 |
|
|
|
14,639 |
|
|
|
(1,207 |
) |
|
(8 |
%) |
|
U.S. gross margin |
|
70.0 |
% |
|
|
69.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
Research and development |
$ |
1,786 |
|
|
$ |
1,437 |
|
|
$ |
349 |
|
|
24 |
% |
|
Sales and marketing |
|
10,060 |
|
|
|
9,742 |
|
|
|
318 |
|
|
3 |
% |
|
General and administrative |
|
6,442 |
|
|
|
7,243 |
|
|
|
(801 |
) |
|
(11 |
%) |
|
Amortization of intangible assets |
|
177 |
|
|
|
172 |
|
|
|
5 |
|
|
3 |
% |
|
Transaction-related expenses |
|
1,542 |
|
|
|
- |
|
|
|
1,542 |
|
|
NM |
|
|
Gain on settlement |
|
(6,168 |
) |
|
|
- |
|
|
|
(6,168 |
) |
|
NM |
|
|
Restructuring |
|
398 |
|
|
|
308 |
|
|
|
90 |
|
|
29 |
% |
|
Total operating
expenses |
$ |
14,237 |
|
|
$ |
18,902 |
|
|
$ |
(4,665 |
) |
|
(25 |
%) |
|
|
|
|
|
|
|
|
|
|
Operating loss |
$ |
(667 |
) |
|
$ |
(3,608 |
) |
|
$ |
2,941 |
|
|
82 |
% |
|
|
|
|
|
|
|
|
|
|
Interest and other
income (expense) |
$ |
(1,645 |
) |
|
$ |
12,044 |
|
|
$ |
(13,689 |
) |
|
(114 |
%) |
|
|
|
|
|
|
|
|
|
|
Loss from continuing
operations |
$ |
(1,854 |
) |
|
$ |
(5,424 |
) |
|
$ |
3,570 |
|
|
66 |
% |
|
|
|
|
|
|
|
|
|
|
Non-GAAP Adjusted
EBITDA |
$ |
(2,390 |
) |
|
$ |
958 |
|
|
$ |
(3,348 |
) |
|
(349 |
%) |
|
|
|
|
|
|
|
|
|
|
U.S. commercial revenue for the first quarter of
2018 was $19.2 million, compared to $20.9 million in the fourth
quarter of 2017. Results were impacted by typical spine
market seasonality, as well as the Company’s continued transition
of its distribution channel to more dedicated, scalable partners.
Revenue growth generated by expanding the dedicated sales channel,
coupled with new surgeon adoption offset much of the revenue impact
associated with transitioning or discontinuing non-strategic
distributor relationships.
U.S. gross profit and gross margin for the first
quarter of 2018 were $13.4 million and 70.0%, respectively,
compared to $14.6 million and 69.9%, respectively, for the fourth
quarter of 2017. U.S. gross margin has stabilized as the Company
continues to reduce product costs and optimize its supply
chain.
Total operating expenses for the first quarter
of 2018 were $14.2 million compared to $18.9 million in the fourth
quarter of 2017. The decrease was driven primarily by a $6.2
million contract settlement gain recorded in the first quarter of
2018. On a non-GAAP basis, which excludes restructuring
charges, stock-based compensation, transaction-related expenses,
and the gain on settlement, total operating expenses in the first
quarter increased to $17.9 million, compared to $16.3 million in
the fourth quarter of 2017. The increase primarily reflects
planned increased investments, including product development and
strategic hiring.
Operating loss for the first quarter of 2018 was
$0.7 million, compared to a loss of $3.6 million for the fourth
quarter of 2017.
Non-GAAP Adjusted EBITDA for the first quarter
of 2018 was $(2.4) million, compared to $1.0 million in the fourth
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 $31.5
million in term debt and $8.4 million outstanding under the
Company’s revolving credit facility at March 31, 2018. This
compares to $32.4 million in term debt and $10.3 million
outstanding under the Company’s revolving credit facility at
December 31, 2017.
Cash and cash equivalents were $47.6 million at
March 31, 2018, compared to $22.5 million reported at December 31,
2017. During the first quarter of 2018, the Company raised
net cash proceeds from a private placement and warrant financing of
$46.4 million and paid $13.8 million for the acquisition of SafeOp.
The Company also generated approximately $3.0 million in proceeds
from common stock warrant exercises during April 2018, which is not
reflected in the cash balance at March 31, 2018.
Comparison of Financial Results for the
Three Months Ended March 31, 2018 and 2017
Revenue decreased on a year-over-year basis, as
a result of the continued transition of its distribution channel to
more dedicated, sustainable partners and the discontinuation of
non-strategic distributor relationships. The year-over-year
decrease in operating expenses is primarily the result of s $6.2
million contract settlement gain recorded in the first quarter of
2018; otherwise, operating expenses decreased slightly. 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 or before
May 11, 2018.
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, settlement gains, 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 call today at 1:30 p.m. PT /
4:30 p.m. ET to discuss first quarter 2018 results. The dial-in
numbers are (877) 556-5251 for domestic callers and (720) 545-0036
for international callers. The conference ID number is 2378857. A
live webcast of the conference call will be available online from
the investor relations page of the Company's corporate website at
www.atecspine.com.
Inducement Award Granted
As an inducement to accepting employment with
the Company, and in accordance with applicable NASDAQ listing
requirements, the Board of Directors has approved an award to Ms.
Howell of 50,000 restricted stock units (RSUs) and 50,000 stock
options (Options) at a strike price of $3.30 per share, the fair
market value on March 12, 2018 (the grant date). The RSUs and
Options will be granted following registration of the common stock
underlying the RSUs and Options. The RSUs will vest in equal
annual installments on each of the first four anniversaries of date
of employment, and the options will vest 25 percent on the first
anniversary and in equal monthly installments of 1/36th of the
balance of the Options, provided Ms. Howell remains continuously
employed by Alphatec as of such vesting date. In
addition, the RSUs and Options will fully vest upon a change in
control of Alphatec. Alphatec is providing this
information in accordance with NASDAQ Listing Rule 5635(c)(4).
About Alphatec Holdings,
Inc.
Alphatec Holdings, Inc., through its wholly
owned subsidiaries, Alphatec Spine, Inc. and SafeOp Surgical, 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.atecspine.com.
Forward-Looking Statements
This press release contains "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 current 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 |
|
March 31, |
|
|
2018 |
|
|
|
2017 |
|
|
|
|
|
|
|
|
|
Revenues |
$ |
21,307 |
|
|
$ |
27,978 |
|
Cost of revenues |
|
7,737 |
|
|
|
11,199 |
|
Gross profit |
|
13,570 |
|
|
|
16,779 |
|
|
|
|
|
Operating
expenses: |
|
|
|
Research
and development |
|
1,786 |
|
|
|
1,449 |
|
Sales and
marketing |
|
10,060 |
|
|
|
11,103 |
|
General
and administrative |
|
6,442 |
|
|
|
6,223 |
|
Amortization of intangible assets |
|
177 |
|
|
|
172 |
|
Transaction-related expenses |
|
1,542 |
|
|
|
- |
|
Gain on
settlement |
|
(6,168 |
) |
|
|
- |
|
Restructuring expenses |
|
398 |
|
|
|
1,231 |
|
Total operating
expenses |
|
14,237 |
|
|
|
20,178 |
|
Operating loss |
|
(667 |
) |
|
|
(3,399 |
) |
Other income
(expense): |
|
|
|
Interest
expense, net |
|
(1,707 |
) |
|
|
(1,981 |
) |
Other
income, net |
|
62 |
|
|
|
5 |
|
Total other expense,
net |
|
(1,645 |
) |
|
|
(1,976 |
) |
Loss from continuing
operations before taxes |
|
(2,312 |
) |
|
|
(5,375 |
) |
Income
tax (benefit) provision |
|
(458 |
) |
|
|
49 |
|
Loss from continuing
operations |
|
(1,854 |
) |
|
|
(5,424 |
) |
Loss from
discontinued operations |
|
(62 |
) |
|
|
(91 |
) |
Net loss |
$ |
(1,916 |
) |
|
$ |
(5,515 |
) |
|
|
|
|
Net loss per
share, basic and diluted: |
|
|
|
Continuing operations |
$ |
(0.09 |
) |
|
$ |
(0.60 |
) |
Discontinued operations |
|
(0.00 |
) |
|
|
(0.01 |
) |
Net loss per share,
basic and diluted |
$ |
(0.09 |
) |
|
$ |
(0.61 |
) |
Shares used in calculating basic and diluted net loss per
share |
|
|
|
|
21,212 |
|
|
|
9,005 |
|
|
|
|
|
Stock-based
compensation included in: |
|
|
|
Cost of revenue |
|
22 |
|
|
|
3 |
|
Research and
development |
|
(116 |
) |
|
|
311 |
|
Sales and
marketing |
|
111 |
|
|
|
73 |
|
General and
adminstrative |
|
602 |
|
|
|
421 |
|
|
$ |
619 |
|
|
$ |
808 |
|
|
|
|
|
|
ALPHATEC HOLDINGS, INC. |
CONDENSED CONSOLIDATED BALANCE
SHEETS |
(in
thousands) |
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
2018 |
|
2017 |
|
(unaudited) |
|
|
ASSETS |
Current assets: |
|
|
|
Cash and cash
equivalents |
$ |
47,645 |
|
$ |
22,466 |
|
Accounts
receivable, net |
|
11,960 |
|
|
14,822 |
|
Inventories,
net |
|
28,872 |
|
|
27,292 |
|
Prepaid expenses
and other current assets |
|
1,986 |
|
|
1,767 |
|
Current assets of
discontinued operations |
|
269 |
|
|
131 |
|
Total current
assets |
|
90,732 |
|
|
66,478 |
|
|
|
|
|
Property and equipment,
net |
|
11,549 |
|
|
12,670 |
|
Goodwill |
|
14,346 |
|
|
- |
|
Intangibles, net |
|
26,514 |
|
|
5,248 |
|
Other assets |
|
137 |
|
|
208 |
|
Noncurrent assets of
discontinued operations |
|
58 |
|
|
56 |
|
Total assets |
$ |
143,336 |
|
$ |
84,660 |
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) |
Current
liabilities: |
|
|
|
Accounts
payable |
$ |
3,769 |
|
$ |
3,878 |
|
Accrued
expenses |
|
23,368 |
|
|
22,246 |
|
Current portion
of long-term debt |
|
6,891 |
|
|
3,306 |
|
Current
liabilities of discontinued operations |
|
467 |
|
|
312 |
|
Total current
liabilities |
|
34,495 |
|
|
29,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long term
liabilities |
|
53,665 |
|
|
57,973 |
|
Redeemable
preferred stock |
|
23,603 |
|
|
23,603 |
|
Stockholders'
equity |
|
31,573 |
|
|
(26,658 |
) |
Total liabilities and
stockholders' deficit |
$ |
143,336 |
|
$ |
84,660 |
|
|
|
|
|
|
ALPHATEC HOLDINGS, INC. |
RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES |
(in thousands -
unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Three Months Ended |
|
|
December 31, |
|
March 31, |
|
|
2017 |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
18,902 |
|
|
|
14,237 |
|
|
|
20,178 |
|
Adjustments: |
|
|
|
|
|
|
Stock-based compensation |
|
|
(2,300 |
) |
|
|
(597 |
) |
|
|
(805 |
) |
Restructuring |
|
|
(308 |
) |
|
|
(398 |
) |
|
|
(1,231 |
) |
Transaction-related expenes |
|
|
- |
|
|
|
(1,542 |
) |
|
|
- |
|
Gain on
settlement |
|
|
- |
|
|
|
6,168 |
|
|
|
- |
|
Non-GAAP operating
expenses |
|
$ |
16,294 |
|
|
$ |
17,868 |
|
|
$ |
18,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Three Months Ended |
|
|
December 31, |
|
March 31, |
|
|
2017 |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
Operating loss, as
reported |
|
$ |
(3,608 |
) |
|
$ |
(667 |
) |
|
$ |
(3,399 |
) |
Add back: |
|
|
|
|
|
|
Depreciation |
|
|
1,711 |
|
|
|
1,592 |
|
|
|
1,633 |
|
Amortization of
intangible assets |
|
|
234 |
|
|
|
294 |
|
|
|
235 |
|
Total EBITDA |
|
|
(1,663 |
) |
|
|
1,219 |
|
|
|
(1,531 |
) |
|
|
|
|
|
|
|
Add back significant
items: |
|
|
|
|
|
|
Stock-based compensation |
|
|
2,313 |
|
|
|
619 |
|
|
|
808 |
|
Restructuring |
|
|
308 |
|
|
|
398 |
|
|
|
1,231 |
|
Transaction-related expenes |
|
|
- |
|
|
|
1,542 |
|
|
|
- |
|
Gain on
settlement |
|
|
- |
|
|
|
(6,168 |
) |
|
|
- |
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
958 |
|
|
$ |
(2,390 |
) |
|
$ |
508 |
|
|
|
|
|
|
|
|
|
ALPHATEC HOLDINGS, INC. |
RECONCILIATION OF GEOGRAPHIC SEGMENT REVENUES
AND GROSS PROFIT |
(in thousands, except percentages -
unaudited) |
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
March 31, |
|
2018 |
|
2017 |
|
(unaudited) |
Revenues by source |
|
|
|
U.S. commercial
revenue |
$ |
19,201 |
|
|
$ |
23,437 |
|
Other |
|
2,106 |
|
|
|
4,541 |
|
Total revenues |
$ |
21,307 |
|
|
$ |
27,978 |
|
|
|
|
|
Gross profit by
source |
|
|
|
U.S. |
$ |
13,432 |
|
|
$ |
16,268 |
|
Other |
|
138 |
|
|
|
511 |
|
Total gross profit |
$ |
13,570 |
|
|
$ |
16,779 |
|
|
|
|
|
Gross profit margin by
source |
|
|
|
U.S. |
|
70.0 |
% |
|
|
69.4 |
% |
Other |
|
6.6 |
% |
|
|
11.3 |
% |
Total gross profit
margin |
|
63.7 |
% |
|
|
60.0 |
% |
|
|
|
|
Investor/Media Contact:
Lee Roth / Emma Poalillo
The Ruth Group
(646) 536-7000
alphatec@theruthgroup.com
Company Contact:
Jeff Black
Executive Vice President and Chief Financial Officer
Alphatec Holdings, Inc.
ir@atecspine.com
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