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 financial results for
its third quarter ended September 30, 2017 and recent corporate
highlights.
Third Quarter 2017 Financial Highlights
- Total revenue of $23.1 million; U.S. commercial revenue of
$20.7 million;
- Cash burn improved to $3.7 million from $6.4 million
sequentially;
- Operating expenses improved $0.7 million sequentially; non-GAAP
operating expenses improved $1.2 million sequentially.
Organizational, Commercial, and Product
Highlights
- Enhanced senior leadership team with the appointment of Patrick
Miles, a globally recognized spine visionary, to the position of
Executive Chairman;
- Expanded the Board of Directors with the appointments of
seasoned medical device executive, Quentin Blackford, and capital
markets expert, Ward Woods;
- Continued to drive momentum in transition of sales organization
from non-exclusive to dedicated with third quarter sales from
dedicated sales agents and distributors of over 30%, up
significantly from just over 18% last quarter;
- Commercially launched the Alphatec SquadronTM Lateral
Retractor, a key component of the Battalion® Lateral System, in
October.
“I am pleased with the execution of our team
during the third quarter. Our financial results were in line with
our pre-announced ranges. In spite of the revenue challenges
presented by weather and the sequential loss of two selling days in
the quarter, we successfully managed operating expenses and
improved cash burn,” said Terry Rich, CEO. “We also
drove momentum in the transition of our sales channel and made
excellent progress on the initiatives that remain priorities as we
reimagine Alphatec, keeping us on track to grow revenue
sequentially in the fourth quarter.”
“I am especially excited to welcome Pat Miles,
one of the spine industry’s most respected leaders, to our team,”
added Rich. “Under his leadership, and with his passionate
contribution to Alphatec’s product development, marketing, and
surgeon engagement, we will lead the industry in terms of spine
experience, driving innovation that improves the surgical
experience and patient outcomes. We are exceptionally
well-positioned to take market share in U.S.
spine.”
Comparison of Financial Results for the
Third Quarter 2017 to Second Quarter 2017
Following is a table, comparing key third
quarter 2017 results to second quarter 2017 results. At this
time, the Company believes that sequential results are the best
indicators of 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 a new leadership
team.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Change |
|
|
September 30, 2017 |
|
June 30, 2017 |
|
$000's |
|
% |
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. commercial
revenue |
$ |
20,662 |
|
|
$ |
21,877 |
|
|
$ |
(1,215 |
) |
|
(5.6 |
%) |
|
U.S gross profit |
|
14,280 |
|
|
|
15,521 |
|
|
|
(1,241 |
) |
|
(8.0 |
%) |
|
U.S. gross margin |
|
69.1 |
% |
|
|
70.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
Research
and development |
$ |
1,044 |
|
|
$ |
990 |
|
|
$ |
54 |
|
|
5.5 |
% |
|
Sales and
marketing |
|
10,015 |
|
|
|
10,298 |
|
|
|
(283 |
) |
|
(2.8 |
%) |
|
General
and administrative |
|
4,403 |
|
|
|
5,351 |
|
|
|
(948 |
) |
|
(17.7 |
%) |
|
Amortization of intangible assets |
|
172 |
|
|
|
172 |
|
|
|
- |
|
|
|
|
Restructuring expenses |
|
139 |
|
|
|
528 |
|
|
|
(389 |
) |
|
(73.7 |
%) |
|
Gain on
sale of assets |
|
- |
|
|
|
(856 |
) |
|
|
856 |
|
|
|
|
Total
operating expenses |
$ |
15,773 |
|
|
|
16,483 |
|
|
$ |
(710 |
) |
|
(4.3 |
%) |
|
|
|
|
|
|
|
|
|
|
Operating loss |
$ |
(1,261 |
) |
|
$ |
(735 |
) |
|
$ |
(526 |
) |
|
(71.6 |
%) |
|
|
|
|
|
|
|
|
|
|
Loss from continuing
operations |
$ |
(3,076 |
) |
|
$ |
(2,629 |
) |
|
$ |
(447 |
) |
|
(17.0 |
%) |
|
|
|
|
|
|
|
|
|
|
Non-GAAP Adjusted
EBITDA |
$ |
1,126 |
|
|
$ |
1,218 |
|
|
$ |
(92 |
) |
|
(7.6 |
%) |
|
|
|
|
|
|
|
|
|
U.S. commercial revenue for the third quarter of
2017 was $20.7 million, down $1.2 million compared to $21.9 million
in the second quarter of 2017. The sequential decline was
driven primarily by the impact of two less surgery days in the
third quarter, weather-related impacts, and deliberate decisions to
discontinue non-strategic relationships.
U.S. gross profit and gross margin for the third
quarter of 2017 were $14.3 million and 69.1%, respectively,
compared to $15.5 million and 70.9%, respectively, for the second
quarter of 2017. The decrease in gross margin was due to lower
sales volume, changes in product mix, and the impact of variations
in inventory write-offs as the Company continues to optimize its
supply chain.
Total operating expenses for the third quarter
of 2017 were $15.8 million, reflecting a decrease of $0.7 million
compared to $16.5 million in the second quarter of 2017. On a
non-GAAP basis, excluding restructuring charges and a gain on sale
of assets, total operating expenses in the third quarter improved
by $1.2 million compared to the second quarter of 2017. The
improvements reflected the execution of operational improvement
initiatives, including workforce reductions, facilities
consolidation, and the success of ongoing efforts to reduce
expenses.
GAAP loss from continuing operations for the
third quarter of 2017 was $3.1 million, compared to a loss of $2.6
million for the second quarter of 2017.
Non-GAAP Adjusted EBITDA in the third quarter of
2017 was $1.1 million, compared to $1.2 million in the second
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 $33.0
million in term debt and $9.2 million outstanding under the
Company’s revolving credit facility at September 30, 2017. This
compares to $33.6 million in term debt and $8.9 million outstanding
under the Company’s revolving credit facility at June 30, 2017.
Cash and cash equivalents were $15.4 million at
September 30, 2017, compared to $19.1 million reported at June 30,
2017. In October 2017, the Company secured a commitment for
additional equity investments of $3.5 million to $4.0 million,
payable on or before January 1, 2018, and generated cash proceeds
of $1.7 million from the exercise of warrants.
Comparison of Financial Results for the
Three and Nine Months Ended September 30, 2017 and
2016
Revenue decreased on a year-over-year basis as a
result of the Company’s execution of its sales organization
transition and 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 November 10, 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 4698936. 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.
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.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 material 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.
Investor/Media Contact:
Zack KubowThe Ruth Group(646)
536-7000alphatec@theruthgroup.com
Company Contact:
Jeff BlackExecutive Vice President and Chief Financial
OfficerAlphatec Holdings, Inc. (760)
431-9286ir@atecspine.com
ALPHATEC HOLDINGS, INC. |
|
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS |
|
(in thousands, except
per share amounts - unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September
30, |
|
|
September
30, |
|
|
|
2017 |
|
2016 |
|
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
$ |
23,099 |
|
|
$ |
26,711 |
|
|
|
$ |
75,456 |
|
|
$ |
93,158 |
|
|
|
Cost of revenues |
|
8,587 |
|
|
|
10,849 |
|
|
|
|
28,417 |
|
|
|
31,651 |
|
|
|
Gross profit |
|
14,512 |
|
|
|
15,862 |
|
|
|
|
47,039 |
|
|
|
61,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
Research
and development |
|
1,044 |
|
|
|
1,087 |
|
|
|
|
3,483 |
|
|
|
6,799 |
|
|
|
Sales and
marketing |
|
10,015 |
|
|
|
11,764 |
|
|
|
|
31,416 |
|
|
|
39,498 |
|
|
|
General
and administrative |
|
4,403 |
|
|
|
4,136 |
|
|
|
|
15,977 |
|
|
|
19,416 |
|
|
|
Amortization of intangible assets |
|
172 |
|
|
|
83 |
|
|
|
|
516 |
|
|
|
593 |
|
|
|
Restructuring expenses |
|
139 |
|
|
|
1,605 |
|
|
|
|
1,898 |
|
|
|
1,736 |
|
|
|
Goodwill
and intangible asset impairment |
|
|
|
1,736 |
|
|
|
|
|
|
1,778 |
|
|
|
Gain on
sale of assets |
|
- |
|
|
|
- |
|
|
|
|
(856 |
) |
|
|
- |
|
|
|
Total
operating expenses |
|
15,773 |
|
|
|
20,411 |
|
|
|
|
52,434 |
|
|
|
69,820 |
|
|
|
Operating loss |
|
(1,261 |
) |
|
|
(4,549 |
) |
|
|
|
(5,395 |
) |
|
|
(8,313 |
) |
|
|
Interest
and other expense, net |
|
(1,822 |
) |
|
|
(10,511 |
) |
|
|
|
(5,677 |
) |
|
|
(12,869 |
) |
|
|
Loss from continuing
operations before taxes |
|
(3,083 |
) |
|
|
(15,060 |
) |
|
|
|
(11,072 |
) |
|
|
(21,182 |
) |
|
|
Income
tax provision |
|
(7 |
) |
|
|
(4,997 |
) |
|
|
|
57 |
|
|
|
(4,962 |
) |
|
|
Loss from continuing
operations |
|
(3,076 |
) |
|
|
(10,063 |
) |
|
|
|
(11,129 |
) |
|
|
(16,220 |
) |
|
|
Loss from discontinued
operations |
|
(61 |
) |
|
|
(3,658 |
) |
|
|
|
(220 |
) |
|
|
(9,351 |
) |
|
|
Net loss |
$ |
(3,137 |
) |
|
$ |
(13,721 |
) |
|
|
$ |
(11,349 |
) |
|
$ |
(25,571 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
continuing operations |
$ |
(0.22 |
) |
|
$ |
(1.17 |
) |
|
|
$ |
(0.98 |
) |
|
$ |
(1.91 |
) |
|
|
Net loss per share
discontinued operations |
|
(0.01 |
) |
|
|
(0.43 |
) |
|
|
|
(0.02 |
) |
|
|
(1.10 |
) |
|
|
Net loss per
share - basic and diluted |
$ |
(0.23 |
) |
|
$ |
(1.60 |
) |
|
|
$ |
(1.00 |
) |
|
$ |
(3.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares
- basic and diluted |
|
13,938 |
|
|
|
8,560 |
|
|
|
|
11,349 |
|
|
|
8,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALPHATEC HOLDINGS, INC. |
|
|
CONDENSED CONSOLIDATED BALANCE
SHEETS |
|
|
(in
thousands) |
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
|
|
2017 |
|
2016 |
|
|
|
(unaudited) |
|
|
|
|
ASSETS |
|
|
Current assets: |
|
|
|
|
|
Cash and
cash equivalents |
$ |
15,437 |
|
|
$ |
19,593 |
|
|
|
Accounts
receivable, net |
|
13,303 |
|
|
|
18,512 |
|
|
|
Inventories, net |
|
29,747 |
|
|
|
30,093 |
|
|
|
Prepaid
expenses and other current assets |
|
2,019 |
|
|
|
4,262 |
|
|
|
Current
assets of discontinued operations |
|
236 |
|
|
|
364 |
|
|
|
Total current
assets |
|
60,742 |
|
|
|
72,824 |
|
|
|
|
|
|
|
|
|
Property and equipment,
net |
|
13,275 |
|
|
|
15,076 |
|
|
|
Intangibles, net |
|
5,482 |
|
|
|
5,711 |
|
|
|
Other assets |
|
222 |
|
|
|
516 |
|
|
|
Noncurrent assets of
discontinued operations |
|
52 |
|
|
|
61 |
|
|
|
Total assets |
$ |
79,773 |
|
|
$ |
94,188 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
DEFICIT |
|
|
Current
liabilities: |
|
|
|
|
|
Accounts
payable |
$ |
2,865 |
|
|
$ |
8,701 |
|
|
|
Accrued
expenses |
|
22,606 |
|
|
|
27,589 |
|
|
|
Current
portion of long-term debt |
|
3,037 |
|
|
|
3,113 |
|
|
|
Current
liabilities of discontinued operations |
|
283 |
|
|
|
732 |
|
|
|
Total current
liabilities |
|
28,791 |
|
|
|
40,135 |
|
|
|
|
|
|
|
|
|
Total
long term liabilities |
|
60,894 |
|
|
|
71,954 |
|
|
|
Redeemable preferred stock |
|
23,603 |
|
|
|
23,603 |
|
|
|
Stockholders' deficit |
|
(33,515 |
) |
|
|
(41,504 |
) |
|
|
Total liabilities and
stockholders' deficit |
$ |
79,773 |
|
|
$ |
94,188 |
|
|
|
|
|
|
|
|
ALPHATEC HOLDINGS, INC. |
RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES |
(in thousands -
unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
|
September 30, |
|
|
September 30, |
|
|
|
|
2017 |
|
2016 |
|
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss, as
reported |
|
|
$ |
(1,261 |
) |
|
$ |
(4,549 |
) |
|
|
$ |
(5,395 |
) |
|
$ |
(8,313 |
) |
|
Add back: |
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
|
1,564 |
|
|
|
1,623 |
|
|
|
|
4,834 |
|
|
|
5,652 |
|
|
Amortization of intangible assets |
|
|
|
234 |
|
|
|
306 |
|
|
|
|
702 |
|
|
|
915 |
|
|
Total EBITDA |
|
|
|
537 |
|
|
|
(2,620 |
) |
|
|
|
141 |
|
|
|
(1,746 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Add back significant
items: |
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation and stock price guarantee |
|
|
450 |
|
|
|
(12 |
) |
|
|
|
1,669 |
|
|
|
1,510 |
|
|
Restructuring and other charges |
|
|
|
139 |
|
|
|
1,605 |
|
|
|
|
1,898 |
|
|
|
1,778 |
|
|
Goodwill
and intangible asset impairment |
|
|
|
- |
|
|
|
1,736 |
|
|
|
|
- |
|
|
|
1,736 |
|
|
Gain on
sale of assets |
|
|
|
- |
|
|
|
- |
|
|
|
|
(856 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
|
$ |
1,126 |
|
|
$ |
709 |
|
|
|
$ |
2,852 |
|
|
$ |
3,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
ALPHATEC HOLDINGS, INC. |
|
RECONCILIATION OF GEOGRAPHIC SEGMENT REVENUES
AND GROSS PROFIT |
|
(in thousands, except percentages -
unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
|
September 30, |
|
September 30, |
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by source |
|
|
|
|
|
|
|
|
|
U.S. commercial
revenue |
$ |
20,662 |
|
|
$ |
25,189 |
|
|
$ |
65,976 |
|
|
$ |
82,445 |
|
|
|
Other |
|
2,437 |
|
|
|
1,522 |
|
|
|
9,480 |
|
|
|
10,713 |
|
|
|
Total revenues |
$ |
23,099 |
|
|
$ |
26,711 |
|
|
$ |
75,456 |
|
|
$ |
93,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit by
source |
|
|
|
|
|
|
|
|
|
U.S. |
$ |
14,280 |
|
|
$ |
15,209 |
|
|
$ |
46,070 |
|
|
$ |
56,430 |
|
|
|
Other |
|
232 |
|
|
|
653 |
|
|
|
969 |
|
|
|
5,077 |
|
|
|
Total gross profit |
$ |
14,512 |
|
|
$ |
15,862 |
|
|
$ |
47,039 |
|
|
$ |
61,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit margin by
source |
|
|
|
|
|
|
|
|
|
U.S. |
|
69.1 |
% |
|
|
60.4 |
% |
|
|
69.8 |
% |
|
|
68.4 |
% |
|
|
Other |
|
9.5 |
% |
|
|
42.9 |
% |
|
|
10.2 |
% |
|
|
47.4 |
% |
|
|
Total gross profit
margin |
|
62.8 |
% |
|
|
59.4 |
% |
|
|
62.3 |
% |
|
|
66.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
Alphatec (NASDAQ:ATEC)
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