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CST: 19/05/2019 02:17:02   

Alphatec Reports First Quarter 2019 Financial Results and Corporate Highlights

9 Days ago

Strong Early Traction from New Products Drives U.S. Revenue Growth of 20%

CARLSBAD, Calif., May 09, 2019 (GLOBE NEWSWIRE) -- 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 %
         

 

 

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