Alphatec Holdings, Inc. (Nasdaq:ATEC), the parent company of
Alphatec Spine, Inc., announced today financial results for the
third quarter of fiscal 2012, ended September 30, 2012.
"On behalf of the entire Alphatec Spine team, I would like to
extend our most sincere thoughts to our many friends whose lives
have been so disrupted by Hurricane Sandy," said Les Cross,
Chairman and Chief Executive Officer of Alphatec Spine.
Mr. Cross continued, "As we discussed in our press release and
conference call on October 22, 2012, a challenging spine market
continued to impact our results in the third quarter. However,
regardless of the spine market's environment, I remain excited and
confident about the potential for the future acceleration of
Alphatec's current revenue growth in the U.S. and internationally.
We have a solid plan in place and I am pleased with the traction
our initiatives are gaining to re-focus Alphatec as a market-driven
and customer-focused organization in order to grow sales and
profitability during this difficult time in the spine market. I am
also pleased to have recently added a seasoned sales and marketing
veteran from the spine industry, Tom McLeer, who joins Alphatec to
lead our U.S. commercial operations. Our strategy is focused
on:
- Accelerating Alphatec's introduction of new and innovative
products that add value to spine surgeons, hospitals and patients.
We continue to seek to deliver new products through internal
development and licensing opportunities;
- Expanding our global distribution network with experienced
distributors;
- Growing our customer base of spine surgeons; and
- Supporting our sales initiatives from the operational side of
our business with ongoing improvements to our processes that reduce
costs and improve our gross margin.
"With respect to new products, we recently launched two
important additions to our product portfolio, including our new
spinous process fixation system called BridgePoint™, and our new
synthetic bone growth biologic called Alphatec NEXoss™.
Additionally, we are awaiting FDA market clearance on a third
device, which is an anchored, zero-profile, fully retrievable
cervical interbody spacer that fills a gap in our cervical
portfolio.
"With respect to new distributors and customers, the current
market environment continues to provide opportunities to add new
distributors and we added several in the third quarter.
Importantly, the closing of the acquisition of certain assets of
Phygen, LLC is imminent and should be a transformational event for
Alphatec Spine. The Phygen transaction should provide us with
access to a network of over 100 leading U.S. spine surgeons who
formed Phygen out of a desire to seek improved treatment outcomes
for spinal disorders through surgeon-inspired technology that
generates unique, high-quality and cost effective products.
"The acquisition should also enable Alphatec to collaboratively
tap into the collective medical knowledge of members of the Phygen
surgeon group, enhancing our product innovation and product
refinement capabilities to help advance the standard of patient
care in an evolving spine industry. With complementary cultures,
product portfolios and distribution networks, Phygen should
represent a great opportunity for Alphatec and Phygen to layer
their respective products into each other's distribution
network.
"On the operational side of our business, we continue to make
progress in driving additional efficiencies in our business to
generate tangible improvements to our margin structure. We made
significant progress in Q3 to drive lean practices throughout our
U.S. supply chain.
"While I expect the Company to continue to achieve quarterly
progress with our initiatives to scale Alphatec's business, it will
take time to yield meaningful and positive impacts to our revenue
growth. We are building a new and stronger foundation that should
strengthen future revenue growth and lower our cost structure."
Third Quarter 2012 Financial Results
Consolidated net revenues for the third quarter of 2012 were
$46.8 million, down approximately 1.6 percent compared to $47.6
million reported for the third quarter of 2011. On the basis of
constant currency, net revenues in the third quarter of 2012 were
approximately $47.8 million, or essentially even with the third
quarter of 2011.
U.S. net revenues for the third quarter of 2012 were $31.0
million, compared to $32.7 million reported for the third quarter
of 2011. U.S. net revenues were driven by strong sales of the
Company's biologics products.
International net revenues for the third quarter of 2012 were
$15.9 million, compared to $14.9 million reported for the third
quarter of 2011. On the basis of constant currency, international
net revenues for the third quarter of 2012 were $16.8 million, up
approximately 12.3 percent compared to the third quarter of
2011.
Gross profit and gross profit margin for the third quarter of
2012 were $29.6 million and 63.3 percent, respectively, compared to
$30.2 million and 63.4 percent, respectively, for the third quarter
of 2011. Gross profit in the third quarter of 2012 was reduced by
$1.0 million for the amortization of a licensed intangible asset as
part of the Cross Medical settlement described below, which offset
an increase in gross profit of approximately $0.4 million related
to adjustments to sales milestone accruals. Gross profit margin in
the third quarter of 2012 was impacted by higher sales of biologic
products and international sales, both of which typically carry
lower gross profit margins compared to non-biologic sales in the
U.S.
As previously reported in January 2012, the Company announced
that it had reached a global settlement agreement with Cross
Medical Products regarding a license agreement dispute initiated by
Cross Medical and a patent infringement suit initiated by the
Company. As part of the settlement, the Company agreed to pay Cross
Medical $18 million. An initial payment of $5 million dollars was
made in January 2012 and the Company will make thirteen payments of
$1 million per quarter thereafter, starting August 1, 2012. The
Company expensed $9.8 million in the fourth quarter of 2011, which
was charged to operating expenses as a legal settlement adjustment.
With respect to the remaining $8.2 million, $8.0 million will be
recorded as a licensed intangible asset to be amortized over 2012
and the first three quarters of 2013, plus imputed interest of $0.2
million.
Total operating expenses for the third quarter of 2012 were
$31.6 million, or 67.5 percent of revenues, reflecting a decrease
of approximately $1.0 million, compared to the third quarter of
2011.
GAAP Net loss for the third quarter of 2012 was $2.5 million, or
($0.03) per share (basic and diluted), compared to a net loss of
$1.3 million, or ($0.01) per share (basic and diluted) for the
third quarter of 2011.
Adjusted EBITDA in the third quarter of 2012 was $6.0 million,
or 12.8 percent of revenues, compared to $3.5 million, or 7.3
percent of revenues reported for the third quarter of 2011.
Adjusted EBITDA represents net income or loss excluding the effects
of interest, taxes, depreciation, amortization, stock-based
compensation, and other non-recurring items, such as restructuring
expenses, IPR&D and transaction-related expenses.
Cash and cash equivalents were $25.9 million at September 30,
2012, a $5.3 million increase from the $20.7 million reported at
December 31, 2011.
2012 Financial Guidance
Financial guidance for the remainder of 2012 is as follows:
Based on the spine market's lack of fundamental improvement,
coupled with the uncertainty surrounding the impact of Hurricane
Sandy on spine procedure volumes in the U.S., the Company now
expects revenue for 2012 to be in a range between $189 million and
$193 million, or minus 4% to minus 2% growth over 2011. Adjusted
EBITDA guidance will be in the range of $18 million to $20
million.
Conference Call
Information
Alphatec Spine has scheduled a conference call for today,
November 5, 2012, at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern
Time to discuss its third quarter 2012 financial results. The
conference call ID is 46731968 and the dial-in number is (877)
556-5251. A live webcast of the conference call will be available
online from the investor relations section of the Alphatec Spine
website at www.AlphatecSpine.com. The webcast will be recorded and
will remain available on the investor relations section of Alphatec
Spine's website for at least 30 days.
About Alphatec Spine
Alphatec Spine, Inc. is a wholly owned subsidiary of Alphatec
Holdings, Inc. (Nasdaq:ATEC). Alphatec Spine is a medical device
company that designs, develops, manufactures and markets products
for the surgical treatment of spine disorders, primarily focused on
the aging spine. The Company's mission is to combine world-class
customer service with innovative, surgeon-driven products that will
help improve the aging patient's quality of life. The Company is
poised to achieve its goal through new solutions for patients with
osteoporosis, stenosis and other aging spine deformities, improved
minimally invasive products and techniques and integrated biologics
solutions. In addition to its U.S. operations, the Company also
markets its products in over 50 international markets through its
affiliate, Scient'x S.A.S., via a direct sales force in France,
Italy and the United Kingdom and via independent distributors in
the rest of Europe, the Middle East and Africa. In Latin America,
the Company conducts its business through its subsidiary, Cibramed
Produtos Medicos. In Japan, the Company markets its products
through its subsidiary, Alphatec Pacific, Inc. In the rest of Asia
and Australia, the Company sells its and Scient'x's products
through its and Scient'x's distributors.
The Alphatec Holdings, Inc. logo is available at
http://www.globenewswire.com/newsroom/prs/?pkgid=3520
Non-GAAP Information
Non-GAAP earnings and earnings per share included in this press
release are non-GAAP (generally accepted accounting principles)
financial measures that represents net income (loss) excluding the
effects of amortization and other non-recurring or expense items,
such as loss on extinguishment of debt, restructuring expenses and
transaction-related expenses. Management does not consider these
expenses when it makes certain evaluations of the operations of the
Company. Non-GAAP earnings and earnings per share, as defined
above, may not be similar to non-GAAP earnings measures used by
other companies and is not a measurement under GAAP. 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 severance expense and transaction-related expenses.
Adjusted EBITDA, as defined above, may not be similar to adjusted
EBITDA measures used by other companies and is not a measurement
under GAAP. Though management finds non-GAAP-based earnings or loss
and EBITDA useful for evaluating aspects of the Company's business,
its reliance on these measures is limited because excluded items
often have a material effect on the Company's earnings and earnings
per common share calculated in accordance with GAAP. Therefore,
management uses non-GAAP adjusted EBITDA in conjunction with GAAP
earnings and earnings per common share measures. 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 base-line for assessing the future earnings
potential of the Company. While the GAAP results are more complete,
the Company prefers to allow investors to have supplemental metrics
since, with reconciliation to GAAP, they may provide greater
insight into the Company's financial results.
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. Alphatec Spine 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 references to Alphatec Spine's 2012
revenue, adjusted EBITDA, free cash flow and earnings projections;
the success of initiatives to drive global sales growth and
increase margins, new product development and market success of
those products; and reductions in the Company's manufacturing costs
and operating expenses. 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. 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 ability to close the Phygen transaction
and realize the benefits of such transaction; the uncertainty of
success in developing new products or products currently in
Alphatec Spine's pipeline; failure to achieve acceptance of
Alphatec Spine's products by the surgeon community, including the
products discussed in this press release; failure to successfully
implement streamlining activities to create anticipated savings;
failure to successfully begin in-house manufacturing of certain
products; failure to obtain FDA clearance or approval for new
products, including the products discussed in this press release,
or unexpected or prolonged delays in the process; Alphatec Spine's
ability to develop and expand its U.S. and/or global revenues;
continuation of favorable third party payor reimbursement for
procedures performed using Alphatec Spine's products; unanticipated
expenses or liabilities or other adverse events affecting cash flow
or Alphatec Spine's ability to successfully control its costs or
achieve profitability; uncertainty of additional funding; Alphatec
Spine's ability to compete with other competing products and with
emerging new technologies; product liability exposure; failure to
meet all financial obligations in the Cross Medical Settlement or
its credit agreement; patent infringement claims and claims related
to Alphatec Spine's intellectual property. Please refer to the
risks detailed from time to time in Alphatec Spine's SEC reports,
including its Annual Report Form 10-K for the year ended December
31, 2011, filed on March 5, 2012 with the Securities and Exchange
Commission, as well as other filings on Form 10-Q and periodic
filings on Form 8-K. Alphatec Spine 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
BALANCE SHEETS |
(in thousands -
unaudited) |
|
|
|
|
|
|
|
September 30, 2012 |
December 31, 2011 |
ASSETS |
|
|
Current assets: |
|
|
Cash and cash
equivalents |
$ 25,941 |
$ 20,666 |
Accounts receivable, net |
37,565 |
41,711 |
Inventories, net |
48,344 |
45,916 |
Prepaid expenses and other current
assets |
7,344 |
6,888 |
Deferred income tax
assets |
2,576 |
1,248 |
Total current assets |
121,770 |
116,429 |
|
|
|
Property and equipment, net |
31,806 |
31,476 |
Goodwill |
168,499 |
168,609 |
Intangibles, net |
41,063 |
47,144 |
Other assets |
2,528 |
3,034 |
Total assets |
$ 365,666 |
$ 366,692 |
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY |
|
|
Current liabilities: |
|
|
Accounts payable |
$ 17,529 |
$ 17,390 |
Accrued expenses |
30,886 |
32,583 |
Deferred revenue |
3,069 |
2,768 |
Current portion of long-term
debt |
1,720 |
4,396 |
Total current liabilities |
53,204 |
57,137 |
|
|
|
Total long term
liabilities |
50,808 |
40,624 |
Redeemable preferred
stock |
23,603 |
23,603 |
Stockholders' equity |
238,051 |
245,328 |
Total liabilities and stockholders'
equity |
$ 365,666 |
$ 366,692 |
|
|
ALPHATEC HOLDINGS,
INC. |
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS |
(in thousands,
except per share amounts - unaudited) |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|
2012 |
2011 |
2012 |
2011 |
|
|
|
|
|
Revenues |
$ 46,839 |
$ 47,619 |
$ 143,535 |
$ 148,201 |
Cost of revenues |
16,844 |
17,001 |
50,773 |
54,959 |
Amortization of acquired intangible
assets |
362 |
411 |
1,114 |
1,223 |
Total cost of revenues |
17,206 |
17,412 |
51,887 |
56,182 |
Gross profit |
29,633 |
30,207 |
91,648 |
92,019 |
|
|
|
|
|
Operating expenses: |
|
|
|
|
Research and development |
3,216 |
3,858 |
11,003 |
13,653 |
Sales and marketing |
17,778 |
19,145 |
55,843 |
57,065 |
General and administrative |
9,758 |
8,627 |
28,714 |
26,707 |
Amortization of acquired intangible
assets |
491 |
545 |
1,574 |
1,629 |
Transaction related costs |
364 |
-- |
364 |
-- |
Restructuring expenses |
-- |
394 |
-- |
993 |
Total operating expenses |
31,607 |
32,569 |
97,498 |
100,047 |
Operating loss |
(1,974) |
(2,362) |
(5,850) |
(8,028) |
Interest and other income
(expense), net |
(533) |
(475) |
(5,013) |
(1,231) |
Loss from continuing operations before
taxes |
(2,507) |
(2,837) |
(10,863) |
(9,259) |
Income tax benefit |
(38) |
(1,533) |
(759) |
(3,044) |
Net loss |
$ (2,469) |
$ (1,304) |
$ (10,104) |
$ (6,215) |
|
|
|
|
|
|
|
|
|
|
Net loss per common share: |
|
|
|
|
Basic and diluted net loss per
share |
$ (0.03) |
$ (0.01) |
$ (0.11) |
$ (0.07) |
|
|
|
|
|
Weighted-average shares - basic and
diluted |
89,503 |
88,829 |
89,222 |
88,757 |
|
|
ALPHATEC HOLDINGS,
INC. |
RECONCILIATION OF
NON-GAAP FINANCIAL MEASURES |
(in thousands, except
per share amounts - unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|
2012 |
2011 |
2012 |
2011 |
|
|
|
|
|
Operating loss, as reported |
$ (1,974) |
$ (2,362) |
$ (5,850) |
$ (8,028) |
Add back: |
|
|
|
|
Depreciation |
3,542 |
3,671 |
10,536 |
11,105 |
Amortization of intangible
assets |
1,405 |
330 |
4,199 |
982 |
Amortization of acquired intangible
assets |
853 |
956 |
2,688 |
2,852 |
Total EBITDA |
3,826 |
2,595 |
11,573 |
6,911 |
|
|
|
|
|
Add back significant items: |
|
|
|
|
Stock-based compensation |
1,000 |
480 |
2,210 |
1,928 |
Acquisition-related inventory
step-up |
-- |
-- |
-- |
751 |
Transaction related expenses |
364 |
-- |
364 |
-- |
Restructuring and other
expenses |
793 |
394 |
793 |
993 |
|
|
|
|
|
EBITDA, as adjusted for significant
items |
$ 5,983 |
$ 3,469 |
$ 14,940 |
$ 10,583 |
|
|
|
|
|
|
|
|
|
|
Net loss, as reported |
$ (2,469) |
$ (1,304) |
$ (10,104) |
$ (6,215) |
Add back: |
|
|
|
|
Acquisition-related inventory
step-up |
-- |
-- |
-- |
751 |
Amortization of acquired intangible
assets |
853 |
956 |
2,688 |
2,852 |
Amortization of intangible
assets |
1,405 |
330 |
4,199 |
982 |
Loss on extinguishment of debt |
-- |
-- |
2,910 |
-- |
Transaction related expenses |
364 |
-- |
364 |
-- |
Restructuring and other
expenses |
793 |
394 |
793 |
993 |
|
|
|
|
|
Net loss, as adjusted for significant
items |
$ 946 |
$ 376 |
$ 850 |
$ (637) |
|
|
|
|
|
|
|
|
|
|
Net loss per common share - basic and
diluted |
$ (0.03) |
$ (0.01) |
$ (0.11) |
$ (0.07) |
Add back: |
|
|
|
|
Acquisition-related inventory
step-up |
-- |
-- |
-- |
0.01 |
Amortization of acquired intangible
assets |
0.01 |
0.01 |
0.03 |
0.03 |
Amortization of intangible
assets |
0.02 |
0.00 |
0.05 |
0.01 |
Loss on extinguishment of debt |
-- |
-- |
0.03 |
-- |
Transaction related expenses |
0.00 |
-- |
0.00 |
-- |
Restructuring and other
expenses |
0.01 |
0.00 |
0.01 |
0.01 |
|
|
|
|
|
Net loss per common share - basic
and |
|
|
|
|
diluted, as adjusted for significant
items |
$ 0.01 |
$ 0.00 |
$ 0.01 |
$ (0.01) |
|
|
|
|
|
|
|
|
|
|
ALPHATEC HOLDINGS,
INC. |
RECONCILIATION OF
GEOGRAPHIC SEGMENT REVENUES AND GROSS PROFIT |
(in thousands, except
percentages - unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Impact from |
|
September 30, |
|
Foreign |
|
2012 |
2011 |
% Change |
Currency |
|
|
|
|
|
Revenues by geographic
segment |
|
|
|
U.S. |
$ 30,980 |
$ 32,674 |
-5.2% |
0.0% |
International |
15,859 |
14,945 |
6.1% |
-5.5% |
Total revenues |
$ 46,839 |
$ 47,619 |
-1.6% |
-1.9% |
|
|
|
|
|
Gross profit by geographic
segment |
|
|
|
U.S. |
$ 21,360 |
$ 22,248 |
|
|
International |
8,273 |
7,959 |
|
|
Total gross profit |
$ 29,633 |
$ 30,207 |
|
|
|
|
|
|
|
Gross profit margin by geographic
segment |
|
|
U.S. |
68.9% |
68.1% |
|
|
International |
52.2% |
53.3% |
|
|
Total gross profit margin |
63.3% |
63.4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
Impact from |
|
September 30, |
|
Foreign |
|
2012 |
2011 |
% Change |
Currency |
|
|
|
|
|
Revenues by geographic
segment |
|
|
|
U.S. |
$ 96,430 |
$ 101,073 |
-4.6% |
0.0% |
International |
47,105 |
47,128 |
0.0% |
-3.7% |
Total revenues |
$ 143,535 |
$ 148,201 |
-3.1% |
-1.2% |
|
|
|
|
|
Gross profit by geographic
segment |
|
|
|
U.S. |
$ 66,785 |
$ 68,357 |
|
|
International |
24,863 |
23,662 |
|
|
Total gross profit |
$ 91,648 |
$ 92,019 |
|
|
|
|
|
|
|
Gross profit margin by geographic
segment |
|
|
U.S. |
69.3% |
67.6% |
|
|
International |
52.8% |
50.2% |
|
|
Total gross profit margin |
63.9% |
62.1% |
|
|
|
|
|
|
|
|
|
|
|
|
Footnotes: |
1) The impact from foreign
currency represents the percentage change in 2012 revenues due to
the change in foreign exchange rates for the periods
presented. |
CONTACT: Investor/Media Contact:
Mark Francois
Senior Director, Investor Relations
Alphatec Spine, Inc.
(760) 494-6610
mfrancois@AlphatecSpine.com
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