Financial

ATEC Reports First Quarter 2020 Financial Results and Recent Corporate Highlights

CARLSBAD, Calif., May 11, 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 March 31, 2020, and recent corporate highlights.

First Quarter 2020 Financial Results

  • Total revenue of $30.1 million; U.S. revenue of $29.1 million, up 27% year over year;
  • U.S. gross margin of 72.1%; and
  • Cash and cash equivalents of $27.5 million as of March 31, 2020; pro forma cash of $47.5 million, including recent draw against credit facility.

Recent Corporate Highlights

  • Increased contribution from new products to 56% of Q1 2020 U.S. revenue up from 22% in Q1 2019 and 48% in Q4 2019;
  • Grew Q1 2020 revenue per case by 15% over Q1 2019;
  • Continued progress transforming the sales network with Q1 2020 U.S. revenue growth from strategic distribution up 34% compared to Q1 2019 and significant sales talent additions in key geographies;
  • Completed three FDA 510K new product regulatory submissions; and
  • Secured an additional $35 million capital commitment from Squadron Capital.

“During the first quarter, we saw continued solid business momentum,” said Pat Miles, Chairman and Chief Executive Officer.  “While that momentum was interrupted by circumstances outside of our control, we will navigate through the current challenges with the same focus and execution that has driven our success to date. We are bringing clinical distinction to a market that yearns for it by fulfilling our commitment to launch 8 to 10 new products this year and continuing to expand our sales network with savvy distributors who know that the future of spine innovation is at ATEC.  This company has faced and overcome a lot of adversity over the last few years. We are confident that we have the proven team and resilient culture to not only weather this crisis, but to emerge as the leader in spine innovation.”

Comparison of Selected GAAP and Non-GAAP Financial Results

Revenue from U.S. products for the first quarter 2020 was $29.1 million, up 27% compared to $23.0 million in the first quarter 2019. Revenue growth was generated by new products and the strategic distribution channel, which continues to drive increases in average revenue per case and the number of product categories sold per case.

Gross profit and gross margin from U.S. products for the first quarter 2020 were $21.0 million and 72.1%, respectively, compared to $16.4 million and 71.4%, respectively, for the first quarter 2019. U.S. gross margin continues to be impacted by 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% in the first quarter 2020, compared to 80% in the first quarter 2019.  The year-over-year decrease in non-GAAP gross margin was attributable to non-cash amortization and product mix.

Total operating expenses for the first quarter 2020 were $38.8 million compared to $27.3 million in the first quarter 2019.  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 $28.5 million from $22.8 million in 2019, reflecting increased selling costs related to 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 $5.6 million for the first quarter 2020, compared to a loss of $4.2 million for the first quarter 2019. 

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 first quarter 2020 was a loss of $3.1 million, compared to a loss of $2.4 million in the first 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.

Current and long-term debt at face value at March 31, 2020 includes $45 million in term debt with Squadron and $11.9 million outstanding under the Company’s revolving credit facility at March 31, 2020, with cash and cash equivalents of $27.5 million. To extend its cash runway, the Company completed a draw of $20 million under its credit facility with Squadron Capital on April 2, 2020. Including this draw, the Company’s pro forma term debt with Squadron was $65.0 million at March 31, 2020, with pro forma cash and cash equivalents of $47.5 million.

Expanded Credit Facility

On May 9, 2020, ATEC secured a commitment for $35 million in additional secured financing from Squadron.  This capital will be made available under the same material terms and conditions as the existing term loan with Squadron, subject to customary closing conditions. Under the terms of the amended facility, the maturity date on the entire term loan will be extended to May 2025. A portion of the proceeds from the expanded facility will be used to retire the Company’s outstanding obligation under its working capital revolver with MidCap Funding.

In connection with the additional commitment, ATEC will issue warrants to purchase 1.076 million shares of ATEC common stock at an exercise price of $4.88 per share. ATEC expects this transaction to close before the end of May 2020.

2020 Financial Outlook

As a result of hospitals globally postponing elective procedures to preserve capacity for COVID-19 patients, ATEC suspended its previously announced 2020 revenue guidance on April 8, 2020. The Company cannot yet determine the extent or duration of deferred surgeries, nor the requirements or the timing of the recovery once operating room and other pandemic-related constraints have been lifted.

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 also  be available domestically at (877) 556-5251 and internationally at (720) 545-0036. The conference ID number is 2684098.

A replay of the webcast will remain available on ATEC’s corporate website at www.atecspine.com until the Company releases second quarter financial results. In addition, a replay of the audiocast will be available until May 19, 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 2684098.

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 architects and commercializes approach-based technology that integrates seamlessly with the SafeOp Neural InformatiX System to provide real-time, objective nerve information that can enhance the safety and reproducibility of spine surgery. Additional information can be found at www.atecspine.com.

About Squadron Medical Finance Solutions, LLC, a division of Squadron Capital

Squadron Capital seeks to acquire and invest in operating companies located both in the US and abroad. Squadron’s mission is long-term investment (multi-generational) and assistance to the portfolio companies’ leadership teams in the execution of their business plans. Squadron Medical Finance Solutions assists orthopedic OEMs in achieving their business objectives by offering financing of surgical instruments and implant sets, or by providing debt financing to support the broader capital requirements of growing companies. Squadron is a strategic investor in a broad range of companies in the orthopedic space, both public and private. 

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Mike Adams

Mike Adams is a medical device sales leader with extensive clinical experience in spine and biologics and a nationwide distribution network built over the last 10+ years in the industry. He has held various leadership positions in healthcare and device including Distributor Partner, Hospital COO and Spine VP of Sales. He currently leads the commercialization strategy for OrthoSpine Partners and is a Distributor Principal at Novel Medical. Because of his unique career path, Mike has the ability to see the healthcare business from multiple perspectives making him passionate about building strategic partnerships that help reduce overall costs, drive innovation, and cultivate growth for new markets.

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