ATEC Alphatec Holdings Inc

Alphatec Holdings, Inc. (“ATEC” or the “Company”) (Nasdaq: ATEC), a provider of innovative spine surgery solutions dedicated to revolutionizing the approach to spine surgery, today announced financial results for the quarter ended March 31, 2019, and recent corporate highlights. 

First Quarter 2019 Financial Highlights

• Total net revenue of $24.6 million; U.S. product revenue of $23.0 million, up approximately 20% compared to the first quarter of 2018;
• U.S. commercial gross margin of 71.4%;
• Cash and cash equivalents of $16.4 million at March 31, 2019; and
• Additional capital commitment of up to $30 million from Squadron Capital.

Year-to-Date Commercial, Product, and Organizational Highlights

• Enhanced clinical distinction of portfolio via 3 new commercial releases: the IdentiTi™ ACDF system, the IdentiTi™ PLIF system, and AlphaGRAFT® DBM Fiber;
• Received FDA clearance for SafeOp Advanced Automated Neuromonitoring System and affirmed performance through collaboration with key surgeon partners;
• Drove contribution from new products to 22% of Q1 2019 U.S. revenue on strong acceptance of alpha releases;
• Expanded contribution from strategic distribution network to 84% of U.S. revenue in Q1 2019 compared to 72% in Q1 2018;
• Increased revenue per distributor by more than 30% and increased revenue per case by 13% in Q1 2019 compared to Q1 2018; and
• Strengthened distribution network through promotion of David Sponsel to Head of Sales.

“Financial results in the first quarter have begun to more fully reflect the grit and tenacity of the new ATEC,” said Pat Miles, Chairman and Chief Executive Officer.  “On the success of last year’s alpha launches, first quarter U.S. revenue growth accelerated to 20% year-over-year, our second consecutive quarter of double-digit growth.  As we continue to commercially launch the twelve new products slated for 2019 and leverage the high-caliber sales leadership team and professional distribution network we are building, we expect surgeon adoption to accelerate. While we still have a great deal of work to do and are early in the transformation, we are incredibly excited to unleash the full effect of the ATEC organic innovation machine.”

Comparison of Financial Results for the First Quarter 2019 to First Quarter 2018

	Three Months Ended								Change
	March 31, 2019				March 31, 2018				$				%
	(unaudited)				(unaudited)
Revenue from U.S. products	$	22,955			$	19,201			$	3,754			20	%
Gross profit from U.S. products		16,394				14,767				1,627			11	%
Gross margin from U.S. products		71.4	%			76.9	%
Operating expenses
Research and development	$	3,469			$	1,786			$	1,683			94	%
Sales, general and administrative		21,000				17,257				3,743			22	%
Litigation-related expenses		2,623				580				2,043			352	%
Amortization of intangible assets		182				177				5			3	%
Transaction-related expenses		-				1,542				(1,542	)		(100	%)
Gain on settlement		-				(6,168	)			6,168			(100	%)
Restructuring		60				398				(338	)		(85	%)
Total operating expenses	$	27,334			$	15,572			$	11,762			76	%
Operating loss	$	(10,766	)		$	(667	)		$	(10,099	)		1514	%
Non-GAAP operating loss	$	(4,206	)		$	(2,778	)		$	(1,428	)		51	%
Non-GAAP adjusted EBITDA	$	(2,421	)		$	(892	)		$	(1,529	)		171	%

Revenue from U.S. products for the first quarter 2019 was $23.0 million, up 20% compared to $19.2 million in the first quarter 2018. Revenue growth generated by the strategic distribution channel is increasingly offsetting the continued revenue impacts associated with transitioning or discontinuing non-strategic distributor relationships.

Gross profit and gross margin from U.S. products for the first quarter 2019 were $16.4 million and 71.4%, respectively, compared to $14.8 million and 76.9%, respectively, for the first quarter 2018. U.S. gross margin was pressured by increased non-cash excess and obsolete write-offs related to legacy products.

Total operating expenses for the first quarter 2019 were $27.3 million, compared to $15.6 million in the first quarter 2018.  On a non-GAAP basis, excluding restructuring charges, stock-based compensation, transaction-related expenses, litigation-related expenses, one-time gains and fair value adjustments, total operating expenses in the first quarter 2019 increased to $22.8 million from $18.6 million in 2018, reflecting increased investments in organic product development to support new product launches and increased selling costs from U.S. revenue growth.

Operating loss for the first quarter 2019 was $10.8 million, compared to $0.7 million in the first quarter 2018. On a non-GAAP basis, excluding restructuring charges, stock-based compensation, transaction-related expenses, litigation-related expenses, one-time gains, fair value adjustments and non-cash excess and obsolescence charges, operating loss was $4.2 million for the first quarter 2019, compared to a loss of $2.8 million for the first quarter 2018. 

Non-GAAP adjusted EBITDA in the first quarter was a loss of $2.4 million, compared to a loss of $0.9 million in the first quarter 2018. 

For more detailed information on non-GAAP operating loss and non-GAAP adjusted EBITDA, please refer to the table, “Alphatec Holdings, Inc. Reconciliation of Non-GAAP Financial Measures,” that follows.

Current and long-term debt includes $35.0 million in term debt and $10.6 million outstanding under the Company’s revolving credit facility at March 31, 2019, with cash and cash equivalents of $16.4 million. In March 2019, the Company closed its expanded credit facility with Squadron Medical Finance Solutions, providing for up to $30 million in additional financing, as needed. To date, no amounts have been drawn on the new credit facility.

2019 Financial Outlook

ATEC expects total revenue in 2019 of $98.0 million to $103.0 million.  The Company expects U.S. product revenue of $94.0 million to $98.0 million, reflecting growth of 13% to 17% compared to 2018.

Investor Conference Call

ATEC will present the results via a live webcast today at 1:30 p.m. PT / 4:30 p.m. ET to discuss the results. At that time, please click here to access the live webcast.  An audiocast of the presentation will be also be available domestically at (877) 556-5251 and internationally at (720) 545-0036. The conference ID number is 7137619.

Non-GAAP Financial 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. The Company believes that these non-GAAP financial measures provide 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. The Company’s non-GAAP financial measures 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. Non-GAAP financial results 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 measures.

About Alphatec Holdings, Inc.

Alphatec Holdings, Inc., through its wholly-owned subsidiaries, Alphatec Spine, Inc. and SafeOp Surgical, Inc., is a provider of innovative spine surgery solutions dedicated to revolutionizing the approach to spine surgery. ATEC 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 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 revenue and growth outlook, planned commercial launches and product introductions, the Company’s strategy in significantly repositioning the ATEC brand, turning the Company into a growth organization and creating future market disruption, and the Company’s future ability to finance its operations. 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; 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 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 LLC settlement agreement. The words “believe,” “will,” “should,” “expect,” “intend,” “estimate,” “look forward” 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. ATEC 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.

Investor/Media Contact:		Company Contact:
Tina Jacobsen		Jeff Black
Investor Relations		Chief Financial Officer
(760) 494-6790		ir@atecspine.com
ir@atecspine.com

ALPHATEC HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts - unaudited)
		Three Months Ended
		March 31,
			2019				2018
	Revenues:
	Revenue from U.S. products	$	22,955			$	19,201
	Revenue from international supply agreement		1,600				2,106
	Total revenues		24,555				21,307
	Cost of revenues		7,987				6,402
	Gross profit		16,568				14,905
	Operating expenses:
	Research and development		3,469				1,786
	Sales, general and administrative		21,000				17,257
	Litigation-related expenses		2,623				580
	Amortization of intangible assets		182				177
	Transaction-related expenses		-				1,542
	Gain on settlement		-				(6,168	)
	Restructuring expenses		60				398
	Total operating expenses		27,334				15,572
	Operating loss		(10,766	)			(667	)
	Total other income (expense), net		(2,119	)			(1,645	)
	Loss from continuing operations before taxes		(12,885	)			(2,312	)
	Income tax (benefit) provision		31				(458	)
	Loss from continuing operations		(12,916	)			(1,854	)
	Loss from discontinued operations		(52	)			(62	)
	Net loss	$	(12,968	)		$	(1,916	)
	Net loss per share, basic:
	Continuing operations	$	(0.29	)		$	(0.09	)
	Discontinued operations		(0.00	)			(0.00	)
	Net loss per share, basic and diluted	$	(0.29	)		$	(0.09	)
	Shares used in calculating basic and diluted net loss per share
			45,020				21,212
	Stock-based compensation included in:
	Cost of revenue	$	28			$	22
	Research and development		462				(116	)
	Sales, general and administrative		1,122				713
		$	1,612			$	619

 

	ALPHATEC HOLDINGS, INC.
	CONDENSED CONSOLIDATED BALANCE SHEETS
	(in thousands)
		March 31,			December 31,
		2019			2018
		(Unaudited)
	ASSETS
	Current assets:
	Cash	$	16,419		$	29,054
	Accounts receivable, net		13,760			15,095
	Inventories, net		31,166			28,765
	Prepaid expenses and other current assets		2,167			2,380
	Current assets of discontinued operations		237			242
	Total current assets		63,749			75,536
	Property and equipment, net		12,821			13,235
	Right-of-use asset		2,394			-
	Goodwill		13,897			13,897
	Intangibles, net		26,226			26,408
	Other assets		277			347
	Noncurrent assets of discontinued operations		53			54
	Total assets	$	119,417		$	129,477
	LIABILITIES AND STOCKHOLDERS' EQUITY
	Current liabilities:
	Accounts payable	$	6,780		$	4,399
	Accrued expenses		18,527			22,316
	Current portion of long-term debt		619			3,276
	Current portion of lease liability		1,132			-
	Current liabilities of discontinued operations		569			621
	Total current liabilities		27,627			30,612
	Total long term liabilities		58,937			57,688
	Redeemable preferred stock		23,603			23,603
	Stockholders' equity		9,250			17,574
	Total liabilities and stockholders' equity	$	119,417		$	129,477

 

ALPHATEC HOLDINGS, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(in thousands - unaudited)
			Three Months Ended
			March 31,
			2019				2018
	Operating expenses			27,334				15,572
	Adjustments:
	Stock-based compensation			(1,584	)			(597	)
	Contingent consideration fair value adjustment			(289	)			-
	Litigation-related expenses			(2,623	)			(580	)
	Restructuring			(60	)			(398	)
	Transaction-related expenses			-				(1,542	)
	Gain on settlement			-				6,168
	Non-GAAP operating expenses		$	22,778			$	18,623
			Three Months Ended
			March 31,
			2019				2018
	Operating loss, as reported		$	(10,766	)		$	(667	)
	Add back significant items:
	Stock-based compensation			1,612				619
	Contingent consideration fair value adjustment			289				-
	Litigation-related expenses			2,623				580
	Restructuring			60				398
	Transaction-related expenses			-				1,542
	Excess & obsolescence charges			1,976				918
	Gain on settlement			-				(6,168	)
	Adjusted operating loss			(4,206	)			(2,778	)
	Add back:
	Depreciation			1,603				1,592
	Amortization of intangible assets			182				294
	Adjusted EBITDA		$	(2,421	)		$	(892	)

 

ALPHATEC HOLDINGS, INC.
RECONCILIATION OF GEOGRAPHIC SEGMENT REVENUES AND GROSS PROFIT
(in thousands, except percentages - unaudited)
		Three Months Ended
		March 31,
		2019				2018
	Revenues by source
	Revenue from U.S. products	$	22,955			$	19,201
	Revenue from international supply agreement		1,600				2,106
	Total revenues	$	24,555			$	21,307
	Gross profit by source
	Revenue from U.S. products	$	16,394			$	14,767
	Revenue from international supply agreement		174				138
	Total gross profit	$	16,568			$	14,905
	Gross profit margin by source
	Revenue from U.S. products		71.4	%			76.9	%
	Revenue from international supply agreement		10.9	%			6.6	%
	Total gross profit margin		67.5	%			70.0	%