Full Press Release Details
ATEC Reports Third Quarter 2019 Financial Results
and Recent Corporate Highlights
Third Quarter U.S. Revenue Growth of 34% Year-Over-Year
Drives Increase in Full Year 2019 Guidance
CARLSBAD, Calif., October 30, 2019 - 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 September 30, 2019, and recent corporate highlights.
Third Quarter 2019 Financial Results
Third Quarter-to-Date Corporate Highlights
"Our continued focus on compelling surgeon adoption by creating clinical distinction and revitalizing the ATEC sales channel substantially accelerated organic U.S. revenue growth in the third quarter," said Pat Miles, Chairman and Chief Executive Officer. "As a result, we are increasing 2019 revenue expectations for the second time this year, now anticipating full-year U.S. revenue growth of over 26%. I'm proud of all that our teams have accomplished to date, and I am even more enthusiastic about the future for spine's new Organic Innovation Machine."
Comparison of Selected GAAP and Non-GAAP Financial Results for the
Third Quarter 2019 to Third Quarter 2018
| Three Months Ended | Change | ||||||||||||||
| September 30, 2019 | September 30, 2018 | $ | % | ||||||||||||
| (unaudited) | (unaudited) | ||||||||||||||
| Revenue from U.S. products | $ | 28,051 | $ | 20,996 | $ | 7,055 | 34 | % | |||||||
| Gross profit from U.S. products | 19,853 | 16,001 | 3,852 | 24 | % | ||||||||||
| Gross margin from U.S. products | 70.8 | % | 76.2 | % | |||||||||||
| Operating Expenses | |||||||||||||||
| Research and development | $ | 3,962 | $ | 3,157 | $ | 805 | 25 | % | |||||||
| Sales, general and administrative | 26,792 | 18,833 | 7,959 | 42 | % | ||||||||||
| Litigation-related expenses | 604 | 1,329 | (725 | ) | (55 | %) | |||||||||
| Amortization of intangible assets | 172 | 187 | (15 | ) | (8 | %) | |||||||||
| Transaction-related expenses | - | 66 | (66 | ) | (100 | %) | |||||||||
| Restructuring | - | 167 | (167 | ) | (100 | %) | |||||||||
| Total operating expenses | $ | 31,530 | $ | 23,739 | $ | 7,791 | 33 | % | |||||||
| Operating loss | $ | (11,597 | ) | $ | (7,533 | ) | $ | (4,064 | ) | 54 | % | ||||
| Non-GAAP operating loss | $ | (5,114 | ) | $ | (3,006 | ) | $ | (2,108 | ) | 70 | % | ||||
| Non-GAAP adjusted EBITDA | $ | (3,190 | ) | $ | (1,415 | ) | $ | (1,775 | ) | 125 | % |
Revenue from U.S. products for the third quarter 2019 was $28.1 million, up 34% compared to $21.0 million in the third quarter 2018. Revenue growth generated by new products and the strategic distribution channel continues to outpace the ongoing revenue impacts of transitioning or discontinuing non-strategic distributor relationships.
Gross profit and gross margin from U.S. products for the third quarter 2019 were $19.9 million and 70.8%, respectively, compared to $16.0 million and 76.2%, respectively, for the third quarter 2018. U.S. gross margin was impacted by increased non-cash excess and obsolete write-offs related to legacy products. On a non-GAAP basis, excluding non-cash excess and obsolete charges, U.S. gross margin was 78.9% in the third quarter of 2019, compared to 79.8% in the third quarter of 2018.
Total operating expenses for the third quarter 2019 were $31.5 million compared to $23.7 million in the third quarter 2018. On a non-GAAP basis, excluding stock-based compensation, fair value adjustments, litigation-related expenses, restructuring and transaction-related expenses, total operating expenses increased to $27.4 million from $20.0 million in 2018, reflecting increased selling costs from U.S. revenue growth, as well as increased investments in organic product development to support new product launches.
Non-GAAP adjusted operating loss, which excludes stock-based compensation, fair value adjustments, litigation-related expenses, restructuring, transaction-related expenses and excess and obsolescence charges, was $5.1 million for the third quarter 2019, compared to a loss of $3.0 million for the third quarter 2018.
Non-GAAP adjusted EBITDA, which excludes stock-based compensation, fair value adjustments, litigation-related expenses, restructuring, transaction-related expenses and excess and
obsolescence charges in the third quarter 2019 was a loss of $3.2 million, compared to a loss of $1.4 million in the third quarter 2018.
For more detailed information on non-GAAP operating expenses, non-GAAP adjusted 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 at face value includes $45 million in term debt and $11.6 million outstanding under the Company's revolving credit facility at September 30, 2019, with cash and cash equivalents of $57.8 million.
Updated 2019 Financial Outlook
| Full Year 2019 | Previous | Updated | ||
| Guidance ($M) | YoY Growth | Guidance ($M) | YoY Growth | |
| U.S. Product Revenue | $100 to $104 | 20% to 24% | $105 to $107 | 26% to 28% |
| International Supply Agreement | $4 to $5 | (38%) to (50%) | No change | No change |
| Total Revenue | $104 to $109 | 13% to 19% | $109 to $112 | 19% to 22% |
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 6098197.
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, including non-GAAP U.S. gross margin, non-GAAP operating expenses, non-GAAP operating loss, and non-GAAP Adjusted EBITDA. 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 technology for the treatment of spinal disorders. 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, 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: |
| Josh Berg | 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 | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Revenues: | ||||||||||||||||
| Revenue from U.S. products | $ | 28,051 | $ | 20,996 | $ | 77,099 | $ | 60,606 | ||||||||
| Revenue from international supply agreement | 1,150 | 2,006 | 3,976 | 5,745 | ||||||||||||
| Total revenues | 29,201 | 23,002 | 81,075 | 66,351 | ||||||||||||
| Cost of revenues | 9,268 | 6,796 | 25,688 | 19,686 | ||||||||||||
| Gross profit | 19,933 | 16,206 | 55,387 | 46,665 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | 3,962 | 3,157 | 10,791 | 6,952 | ||||||||||||
| Sales, general and administrative | 26,792 | 18,833 | 72,360 | 53,628 | ||||||||||||
| Litigation-related expenses | 604 | 1,329 | 4,427 | 4,143 | ||||||||||||
| Amortization of intangible assets | 172 | 187 | 526 | 551 | ||||||||||||
| Transaction-related expenses | - | 66 | - | 1,546 | ||||||||||||
| Gain on settlement | - | - | - | (6,168 | ) | |||||||||||
| Restructuring expenses | - | 167 | 60 | 758 | ||||||||||||
| Total operating expenses | 31,530 | 23,739 | 88,164 | 61,410 | ||||||||||||
| Operating loss | (11,597 | ) | (7,533 | ) | (32,777 | ) | (14,745 | ) | ||||||||
| Total other expenses, net | (2,926 | ) | (1,754 | ) | (6,966 | ) | (5,183 | ) | ||||||||
| Loss from continuing operations before taxes | (14,523 | ) | (9,287 | ) | (39,743 | ) | (19,928 | ) | ||||||||
| Income tax (benefit) provision | 20 | 26 | 122 | (1,697 | ) | |||||||||||
| Loss from continuing operations | (14,543 | ) | (9,313 | ) | (39,865 | ) | (18,231 | ) | ||||||||
| Loss from discontinued operations | (24 | ) | (42 | ) | (106 | ) | (116 | ) | ||||||||
| Net loss | $ | (14,567 | ) | $ | (9,355 | ) | $ | (39,971 | ) | $ | (18,347 | ) | ||||
| Net loss per share, basic and diluted: | ||||||||||||||||
| Continuing operations | $ | (0.26 | ) | $ | (0.22 | ) | $ | (0.81 | ) | $ | (0.56 | ) | ||||
| Discontinued operations | (0.00 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | ||||||||
| Net loss per share, basic and diluted | $ | (0.26 | ) | $ | (0.22 | ) | $ | (0.81 | ) | $ | (0.56 | ) | ||||
| Shares used in calculating basic and diluted net loss per share | 55,736 | 42,497 | 49,252 | 32,658 | ||||||||||||
| Stock-based compensation included in: | ||||||||||||||||
| Cost of revenue | $ | 57 | $ | 18 | $ | 113 | $ | 51 | ||||||||
| Research and development | 388 | 179 | 921 | 192 | ||||||||||||
| Sales, general and administrative | 3,158 | 1,478 | 6,532 | 3,199 | ||||||||||||
| $ | 3,603 | $ | 1,675 | $ | 7,566 | $ | 3,442 |
ALPHATEC HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | ||||||||
| 2019 | 2018 | ||||||||
| (Unaudited) | |||||||||
| ASSETS | |||||||||
| Current assets: | |||||||||
| Cash | $ | 57,843 | $ | 29,054 | |||||
| Accounts receivable, net | 15,430 | 15,095 | |||||||
| Inventories, net | 33,065 | 28,765 | |||||||
| Prepaid expenses and other current assets | 10,852 | 2,380 | |||||||
| Current assets of discontinued operations | 214 | 242 | |||||||
| Total current assets | 117,404 | 75,536 | |||||||
| Property and equipment, net | 18,723 | 13,235 | |||||||
| Right-of-use asset | 2,112 | - | |||||||
| Goodwill | 13,897 | 13,897 | |||||||
| Intangibles, net | 25,882 | 26,408 | |||||||
| Other assets | 214 | 347 | |||||||
| Noncurrent assets of discontinued operations | 51 | 54 | |||||||
| Total assets | $ | 178,283 | $ | 129,477 | |||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||
| Current liabilities: | |||||||||
| Accounts payable | $ | 6,010 | $ | 4,399 | |||||
| Accrued expenses | 22,972 | 22,316 | |||||||
| Current portion of long-term debt | 836 | 3,276 | |||||||
| Current portion of lease liability | 1,263 | - | |||||||
| Current liabilities of discontinued operations | 504 | 621 | |||||||
| Total current liabilities | 31,585 | 30,612 | |||||||
| Total long term liabilities | 65,441 | 57,688 | |||||||
| Redeemable preferred stock | 23,603 | 23,603 | |||||||
| Stockholders' equity | 57,654 | 17,574 | |||||||
| Total liabilities and stockholders' equity | $ | 178,283 | $ | 129,477 |
ALPHATEC HOLDINGS, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(in thousands - unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||||||
| Operating expenses | 31,530 | 23,739 | 88,164 | 61,410 | |||||||||||||||
| Adjustments: | |||||||||||||||||||
| Stock-based compensation | (3,546 | ) | (1,657 | ) | (7,453 | ) | (3,391 | ) | |||||||||||
| Contingent consideration fair value adjustment | - | (546 | ) | (289 | ) | (646 | ) | ||||||||||||
| Litigation-related expenses | (604 | ) | (1,329 | ) | (4,427 | ) | (4,143 | ) | |||||||||||
| Restructuring | - | (167 | ) | (60 | ) | (758 | ) | ||||||||||||
| Transaction-related expenses | - | (66 | ) | - | (1,546 | ) | |||||||||||||
| Gain on settlement | - | - | - | 6,168 | |||||||||||||||
| Non-GAAP operating expenses | $ | 27,380 | $ | 19,974 | $ | 75,935 | $ | 57,094 | |||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||||||
| Operating loss, as reported | $ | (11,597 | ) | $ | (7,533 | ) | $ | (32,777 | ) | $ | (14,745 | ) | |||||||
| Add back significant items: | |||||||||||||||||||
| Stock-based compensation | 3,603 | 1,675 | 7,566 | 3,442 | |||||||||||||||
| Contingent consideration fair value adjustment | - | 546 | 289 | 646 | |||||||||||||||
| Litigation-related expenses | 604 | 1,329 | 4,427 | 4,143 | |||||||||||||||
| Restructuring | - | 167 | 60 | 758 | |||||||||||||||
| Transaction-related expenses | - | 66 | - | 1,546 | |||||||||||||||
| Excess & obsolete charges | 2,276 | 744 | 6,451 | 2,016 | |||||||||||||||
| Gain on settlement | - | - | - | (6,168 | ) | ||||||||||||||
| Adjusted operating loss | (5,114 | ) | (3,006 | ) | (13,984 | ) | (8,362 | ) | |||||||||||
| Operating loss, as reported | $ | (11,597 | ) | $ | (7,533 | ) | $ | (32,777 | ) | $ | (14,745 | ) | |||||||
| Depreciation | 1,752 | 1,405 | 4,828 | 4,454 | |||||||||||||||
| Amortization of intangible assets | 172 | 186 | 526 | 612 | |||||||||||||||
| EBITDA | (9,673 | ) | (5,942 | ) | (27,423 | ) | (9,679 | ) | |||||||||||
| Add back significant items: | |||||||||||||||||||
| Stock-based compensation | 3,603 | 1,675 | 7,566 | 3,442 | |||||||||||||||
| Contingent consideration fair value adjustment | - | 546 | 289 | 646 | |||||||||||||||
| Litigation-related expenses | 604 | 1,329 | 4,427 | 4,143 | |||||||||||||||
| Restructuring | - | 167 | 60 | 758 | |||||||||||||||
| Transaction-related expenses | - | 66 | - | 1,546 | |||||||||||||||
| Excess & obsolete charges | 2,276 | 744 | 6,451 | 2,016 | |||||||||||||||
| Gain on settlement | - | - | - | (6,168 | ) | ||||||||||||||
| Adjusted EBITDA | $ | (3,190 | ) | $ | (1,415 | ) | $ | (8,630 | ) | $ | (3,296 | ) |
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, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Revenues by source | ||||||||||||||||
| Revenue from U.S. products | $ | 28,051 | $ | 20,996 | $ | 77,099 | $ | 60,606 | ||||||||
| Revenue from international supply agreement | 1,150 | 2,006 | 3,976 | 5,745 | ||||||||||||
| Total revenues | $ | 29,201 | $ | 23,002 | $ | 81,075 | $ | 66,351 | ||||||||
| Gross profit by source | ||||||||||||||||
| Revenue from U.S. products | $ | 19,853 | $ | 16,001 | $ | 55,087 | $ | 46,230 | ||||||||
| Revenue from international supply agreement | 80 | 205 | 300 | 435 | ||||||||||||
| Total gross profit | $ | 19,933 | $ | 16,206 | $ | 55,387 | $ | 46,665 | ||||||||
| Gross profit margin by source | ||||||||||||||||
| Revenue from U.S. products | 70.8 | % | 76.2 | % | 71.4 | % | 76.3 | % | ||||||||
| Revenue from international supply agreement | 7.0 | % | 10.2 | % | 7.5 | % | 7.6 | % | ||||||||
| Total gross profit margin | 68.3 | % | 70.5 | % | 68.3 | % | 70.3 | % | ||||||||
| RECONCILIATION OF GAAP TO NON-GAAP GROSS PROFIT AND GROSS MARGIN FROM U.S. PRODUCTS | ||||||||||||||||
| (in thousands, except percentages - unaudited) | ||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| GAAP-based gross profit from U.S. products | $ | 19,853 | $ | 16,001 | $ | 55,087 | $ | 46,230 | ||||||||
| Add: non-cash excess and obsolete charges | 2,276 | 744 | 6,451 | 2,016 | ||||||||||||
| Non-GAAP gross profit from U.S. products | $ | 22,129 | $ | 16,745 | $ | 61,538 | $ | 48,246 | ||||||||
| GAAP-based gross margin from U.S. products | 70.8 | % | 76.2 | % | 71.4 | % | 76.3 | % | ||||||||
| Add: non-cash excess and obsolete charges | 8.1 | % | 3.5 | % | 8.4 | % | 3.3 | % | ||||||||
| Non-GAAP gross margin from U.S. products | 78.9 | % | 79.8 | % | 79.8 | % | 79.6 | % |