Market Overview

ATEC Reports Third Quarter 2020 Financial Results and Recent Corporate Highlights

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  • U.S. Revenue Grows 43%
  • Eighth Consecutive Quarter of Double-Digit Revenue Growth

CARLSBAD, Calif., Nov. 05, 2020 (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 September 30, 2020, and recent corporate highlights.

Third Quarter 2020 Financial Results

  • Total revenue of $41.2 million, including U.S. revenue of $40.1 million, up 43% year-over-year;
  • U.S. gross margin of 72.9%;
  • Cash and cash equivalents of $15.7 million as of September 30, 2020; and
  • Pro forma cash of $123.4 million including net proceeds from October 2020 follow-on offering.

Recent Corporate Highlights

  • Expanded contribution of U.S. revenue from new products to over 70% of Q3 U.S. revenue, up from 42% in Q3 2019;
  • Increased U.S. revenue per case by 13% year-over-year, driven by strong performance in the lateral interbody fusion and AlphaInformatiX product categories;
  • Continued sales network transformation, resulting in 47% year-over-year revenue growth from strategic distribution;
  • Increased revenue per surgeon by 20% year-over-year;
  • Closed a follow-on equity offering that generated net proceeds of $107.7 million to support continued growth-related investments and expand the institutional shareholder base;
  • Successfully completed over 550 Prone Transpsoas, or PTP, surgeries in preparation to launch the approach in the fourth quarter 2020;
  • Launched the Sigma TLIF Access System and the InVictus MIS Modular Pedicle Screw System that fully integrate with SafeOp Neural InformatiX, the SingleStep system and IdentiTi TLIF implants to enable a comprehensive MIS TLIF approach; and
  • Launched the InVictus MIS Tower Fixation System, allowing for less disruptive treatment of more complex pathologies.

"We have built the foundation for long-term success," said Pat Miles, Chairman and Chief Executive Officer. "This marks our eighth consecutive quarter of double-digit revenue growth. Our recently completed follow-on offering will fuel the Organic Innovation Machine and continue to drive clinical distinction.  We thank those who have invested in our mission to revolutionize the approach to spine surgery.  I could not be more confident in ATEC's future. Our best is yet to come."

Comparison of Selected GAAP and Non-GAAP Financial Results
for the Third Quarter 2020 to Third Quarter 2019

Revenue from U.S. products for the third quarter 2020 was $40.1 million, up 43% compared to $28.1 million in the third quarter 2019. Revenue growth was generated primarily by increased surgeon adoption of new products and the continued evolution of the strategic distribution channel.

Gross profit and gross margin from U.S. products for the third quarter 2020 were $29.2 million and 72.9%, respectively, compared to $19.9 million and 70.8%, respectively, for the third quarter 2019. On a non-GAAP basis, excluding non-cash excess and obsolete charges, U.S. gross margin was 77.8% in the third quarter of 2020, compared to 78.9% in the third quarter 2019. Non-GAAP U.S. gross margin was impacted by product mix and amortization of SafeOp-related intangibles, which began amortizing in late 2019.

Total operating expenses for the third quarter 2020 were $42.1 million compared to $31.5 million in the third quarter 2019. On a non-GAAP basis, excluding stock-based compensation, litigation-related expenses and transaction-related expenses, total operating expenses increased to $36.1 million from $27.4 million in 2019, 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, litigation-related expenses, transaction-related expenses and excess and obsolescence charges, was $4.8 million for the third quarter 2020, compared to a loss of $5.1 million for the third quarter 2019.

Non-GAAP adjusted EBITDA, which excludes stock-based compensation, litigation-related expenses, transaction-related expenses and excess and obsolescence charges in the third quarter 2020 was a loss of $2.0 million, compared to a loss of $3.2 million in the third quarter 2019.

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.

Cash and cash equivalents at September 30, 2020 were $15.7 million, with an additional $25.0 million available under the credit facility with Squadron Capital (the "Squadron facility"). Including proceeds from the follow-on offering, pro forma cash and cash equivalents were $123.4 million.

Current and long-term debt at face value as of September 30, 2020 includes $75 million in term debt under the Squadron facility.

Financial Outlook for the Full Years 2020 and 2021

ATEC anticipates full year 2020 revenue will range between $143.5 million and $146.0 million, which includes U.S. revenue between $140.0 million and $142.0 million and international revenue between $3.5 million and $4.0 million. ATEC also expects U.S. revenue growth of approximately 25% for the full year 2021.

The Company remains subject to the potential and uncertain impact of the ongoing COVID-19 pandemic. If hospitals experience a surge in cases and need to defer elective procedures to preserve capacity for COVID-19 patients, the Company's ability to achieve these financial objectives could be adversely affected.

Investor Conference Call

ATEC will present these via a live webcast today at 1:30 p.m. PT / 4:30 p.m. ET. The live webcast will be accessible via this link.  An audiocast of the presentation will also be available domestically at (877) 556-5251 and internationally at (720) 545-0036. The conference ID number is 5178028.

A replay of the webcast will remain available on ATEC's corporate website at www.atecspine.com until the Company releases fourth quarter financial results. In addition, a replay of the audiocast will be available until November 15, 2020. The replay dial-in numbers are (855) 859-2056 for domestic callers and (404) 537-3406 for international callers. Please use the replay conference ID number 5178028.

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. (ATEC), through its wholly-owned subsidiaries, Alphatec Spine, Inc. and SafeOp Surgical, Inc., is a medical device company dedicated to revolutionizing the approach to spine surgery through clinical distinction. ATEC's Organic Innovation Machine is focused on developing new approaches that integrate seamlessly with the SafeOp Neural InformatiX System to safely and reproducibly treat spine's various pathologies and achieve the goals of spine surgery. Alphatec's vision is to become the Standard Bearer in Spine. For more information, visit us 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 references to the impact of the COVID-19 pandemic on the Company's business and financial results, references to the Company's revenue and growth outlook, planned commercial launches, product introduction and surgeon adoption, salesforce revitalization and growth of strategic distribution network, 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 impact of COVID-19 pandemic on the Company's business and the economy; 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 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 asserted against the Company. 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:                        

Tina Jacobsen                                        
Investor Relations                                 
(760) 494-6790                                
ir@atecspine.com                                 

Company Contact:

Jeff Black
Chief Financial Officer
Alphatec Holdings, Inc.
ir@atecspine.com 


ALPHATEC HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
  (in thousands, except per share amounts)
                 
                 
  Three Months Ended   Nine Months Ended  
  September 30,   September 30,  
  2020   2019   2020   2019  
  (unaudited)   (unaudited)   (unaudited)   (unaudited)  
Revenues:                
Revenue from U.S. products $ 40,052     $ 28,051     $ 97,956     $ 77,099    
Revenue from international supply agreement   1,111       1,150       2,951       3,976    
Total revenues   41,163       29,201       100,907       81,075    
Cost of revenues   11,926       9,268       29,797       25,688    
Gross profit   29,237       19,933       71,110       55,387    
                 
Operating expenses:                
Research and development   4,379       3,800       11,800       10,413    
Sales, general and administrative   35,985       26,954       91,021       72,738    
Litigation-related   1,560       604       5,507       4,427    
Amortization of acquired intangible assets   172       172       516       526    
Transaction-related   2             4,093          
Restructuring                     60.00    
Total operating expenses   42,098       31,530       112,937       88,164    
Operating loss   (12,861 )     (11,597 )     (41,827 )     (32,777 )  
Other income (expense):                
Interest and other expense, net   (2,768 )     (2,926 )     (8,674 )     (6,966 )  
Loss on debt extinguishment               (1,555 )        
Total other expenses, net   (2,768 )     (2,926 )     (10,229 )     (6,966 )  
Loss from continuing operations before taxes   (15,629 )     (14,523 )     (52,056 )     (39,743 )  
Income tax provision   40       20       140       122    
Loss from continuing operations   (15,669 )     (14,543 )     (52,196 )     (39,865 )  
Loss from discontinued operations         (24 )           (106 )  
Net loss $ (15,669 )   $ (14,567 )   $ (52,196 )   $ (39,971 )  
                 
                 
Net loss per share, basic and diluted:                
Continuing operations $ (0.24 )   $ (0.26 )   $ (0.82 )   $ (0.81 )  
Discontinued operations   (0.00 )     (0.00 )     (0.00 )     (0.00 )  
Net loss per share, basic and diluted $ (0.24 )   $ (0.26 )   $ (0.82 )   $ (0.81 )  
                 
Shares used in calculating basic and diluted net loss per share   64,761       55,736       63,669       49,252    
                 
Stock-based compensation included in:                
Cost of revenue $ 139     $ 57     $ 374     $ 113    
Research and development   379       227       1,066       543    
Sales, general and administrative   4,026       3,319       11,247       6,910    
  $ 4,544     $ 3,603     $ 12,687     $ 7,566    
                 



ALPHATEC HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
       
       
  September 30,   December 31,
  2020   2019
  (unaudited)    
ASSETS
Current assets:      
Cash $ 15,678   $ 47,113
Accounts receivable, net   24,270     16,150
Inventories, net   42,144     34,854
Prepaid expenses and other current assets   3,321     9,880
Withholding tax receivable from Officer   934    
Current assets of discontinued operations   335     321
Total current assets   86,682     108,318
       
Property and equipment, net   27,681     19,722
Right-of-use asset   1,530     1,860
Goodwill   13,897     13,897
Intangibles, net   24,283     25,605
Other assets   549     493
Noncurrent assets of discontinued operations   55     53
Total assets $ 154,677   $ 169,948
       
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:      
Accounts payable $ 13,910   $ 7,772
Accrued expenses   30,980     26,416
Current portion of long-term debt   1,672     489
Current portion of lease liability   1,208     1,314
Current liabilities of discontinued operations   395     399
Total current liabilities   48,165     36,390
       
Total long term liabilities   74,858     66,324
       
Redeemable preferred stock   23,603     23,603
Stockholders' equity   8,051     43,631
Total liabilities and stockholders' equity $ 154,677   $ 169,948
       


ALPHATEC HOLDINGS, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(in thousands)
                 
                 
                 
    Three Months Ended   Nine Months Ended  
    September 30,   September 30,  
    2020   2019   2020 2019  
    (unaudited)   (unaudited)   (unaudited) (unaudited)  
Operating expenses     42,098       31,530       112,937     88,164    
Adjustments:                
Stock-based compensation     (4,405 )     (3,546 )     (12,313 )   (7,453 )  
Contingent consideration fair value adjustment                     (289 )  
Litigation-related expenses     (1,560 )     (604 )     (5,507 )   (4,427 )  
Restructuring                     (60 )  
Transaction-related expenses     (2 )           (4,093 )      
Non-GAAP operating expenses   $ 36,131     $ 27,380     $ 91,024   $ 75,935    
                 
                 
    Three Months Ended   Nine Months Ended  
    September 30,   September 30,  
    2020   2019   2020 2019  
    (unaudited)   (unaudited)   (unaudited) (unaudited)  
Operating loss, as reported   $ (12,861 )   $ (11,597 )   $ (41,827 ) $ (32,777 )  
Add back significant items:                
Stock-based compensation     4,544       3,603       12,687     7,566    
Contingent consideration fair value adjustment                     (289 )  
Litigation-related expenses     1,560       604       5,507     4,427    
Restructuring                     60    
Transaction-related expenses     2             4,093        
Excess & obsolete charges     1,995       2,276       5,429     6,451    
Adjusted operating loss     (4,760 )     (5,114 )     (14,111 )   (14,562 )  
                 
                 
Operating loss, as reported   $ (12,861 )   $ (11,597 )   $ (41,827 ) $ (32,777 )  
Depreciation     2,307       1,752       6,482     4,828    
Amortization of intangible assets     441       172       1,322     526    
EBITDA     (10,113 )     (9,673 )     (34,023 )   (27,423 )  
Add back significant items:                
Stock-based compensation     4,544       3,603       12,687     7,566    
Contingent consideration fair value adjustment                     (289 )  
Litigation-related expenses     1,560       604       5,507     4,427    
Restructuring                     60    
Transaction-related expenses     2             4,093        
Excess & obsolete charges     1,995       2,276       5,429     6,451    
Adjusted EBITDA   $ (2,012 )   $ (3,190 )   $ (6,307 ) $ (9,208 )  
                 



ALPHATEC HOLDINGS, INC.  
RECONCILIATION OF GEOGRAPHIC SEGMENT REVENUES AND GROSS PROFIT  
(in thousands, except percentages)  
                 
                 
  Three Months Ended   Nine Months Ended  
  September 30,   September 30,  
  2020   2019   2020   2019  
Revenues by source (unaudited)   (unaudited)   (unaudited)   (unaudited)  
Revenue from U.S. products $ 40,052     $ 28,051     $ 97,956     $ 77,099    
Revenue from international supply agreement   1,111       1,150       2,951     $ 3,976    
Total revenues $ 41,163     $ 29,201     $ 100,907     $ 81,075    
                 
Gross profit by source                
Revenue from U.S. products $ 29,178     $ 19,853     $ 70,966     $ 55,087    
Revenue from international supply agreement   59       80       144       300    
Total gross profit $ 29,237     $ 19,933     $ 71,110     $ 55,387    
                 
Gross profit margin by source                
Revenue from U.S. products   72.9 %     70.8 %     72.4 %     71.4 %  
Revenue from international supply agreement   5.3 %     7.0 %     4.9 %     7.5 %  
Total gross profit margin   71.0 %     68.3 %     70.5 %     68.3 %  
                 
                 
RECONCILIATION OF GAAP TO NON-GAAP GROSS PROFIT AND GROSS MARGIN FROM U.S. PRODUCTS  
(in thousands, except percentages)  
                 
  Three Months Ended   Nine Months Ended  
  September 30,   September 30,  
  2020   2019   2020   2019  
  (unaudited)   (unaudited)   (unaudited)   (unaudited)  
GAAP-based gross profit from U.S. products $ 29,178     $ 19,853     $ 70,966     $ 55,087    
Add: non-cash excess and obsolete charges   1,995       2,276       5,429       6,451    
Non-GAAP gross profit from U.S. products $ 31,173     $ 22,129     $ 76,395     $ 61,538    
                 
GAAP-based gross margin from U.S. products   72.9 %     70.8 %     72.4 %     71.4 %  
Add: non-cash excess and obsolete charges   5.0 %     8.1 %     5.5 %     8.4 %  
Non-GAAP gross margin from U.S. products   77.8 %     78.9 %     78.0 %     79.8 %  
                 


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