CARLSBAD, Calif., March 07, 2019 (GLOBE NEWSWIRE) — Alphatec Holdings, Inc. (“ATEC” or the “Company”) (Nasdaq: ATEC), today announced financial results and operating highlights for the fourth quarter and full year ended December 31, 2018. The Company also announced that it has secured an additional $30 million financing commitment from Squadron Capital to fund continued growth initiatives.
Fourth Quarter and Full Year 2018 Financial Highlights
December 31, 2018
|Year Ended |
December 31, 2018
|Total revenue||$25.3 million||$91.7 million|
|Revenue from U.S. products||$23.1 million||$83.7 million|
|Gross margin from U.S. products||71.6%||75.0%|
|Operating expenses||$24.3 million||$85.7 million|
|Non-GAAP operating expenses||$20.1 million||$77.2 million|
|Operating loss||$(7.7) million||$(22.4) million|
|Non-GAAP Adjusted EBITDA||$(1.7) million||$(7.1) million|
Organizational, Commercial, and Product Highlights
- Received FDA 510(k) clearance for 12 products
- Released 12 products for alpha evaluation
- Acquired SafeOp Surgical, Inc. and received 510(k) clearance for the SafeOp advanced neuromonitoring system
- Made significant progress transforming the salesforce, generating nearly 30% year-over-year revenue growth from strategic distribution partners
- Increased revenue per distributor by approximately 20% while reducing total number of distributors by approximately 20%
- Doubled new surgeon revenue in 2018
- Continued the Company’s organizational and cultural transformation, hiring nearly 45% of the current ATEC team in 2018, the vast majority of which are focused on the product and technology pipeline
“2018 was a pivotal year for ATEC. We began to build a strong foundation through our 12 new alpha product releases, development of unprecedented neuromonitoring technology, and the transformation of the cultural mindset of our organization,” said Pat Miles, Chairman and Chief Executive Officer. “Our revenue in the fourth quarter accelerated at a double-digit rate on both a sequential and year-over-year basis. This is the result of sales channel improvements, and does not yet reflect the impact of our product portfolio enhancements. We expect the clinical distinction of these new solutions will continue to drive accelerated surgeon adoption and attract an even greater number of high-caliber distributors.”
Comparison of 2018 to 2017 Financial Results
U.S. product revenue for the fourth quarter 2018 was $23.1 million, up 10% compared to $20.9 million in the fourth quarter 2017. U.S. product revenue for the full year 2018 was $83.7 million, down 4% compared to $86.9 million in the full year 2017, attributed to the transition or discontinuation of legacy, non-strategic distribution. For the full year 2018, revenue from strategic distribution grew $14.8 million, or 29%, while revenue from legacy distribution decreased $18.2 million, or 51%. Revenue growth generated by strategic distributors is increasingly offsetting the revenue impacts associated with transitioning or discontinuing legacy distributor relationships.
U.S. gross profit and gross margin for the fourth quarter 2018 were $16.5 million and 71.6%, respectively, compared to $16.0 million and 76.6%, respectively, for the fourth quarter 2017. U.S. gross profit and gross margin the full year 2018 were $62.7 million and 75.0%, respectively, compared to $66.6 million and 76.6%, respectively, for the full year 2017. U.S. gross margin was pressured in 2018 by increased excess and obsolete inventory expense related to legacy products. Gross profit and gross margin reflect the reclassification of instrument depreciation from cost of sales to selling, general, and administrative expenses for both 2018 and 2017. The reclassification of depreciation expense was $5.3 million for 2018 and $5.9 million for 2017.
Total operating expenses for the fourth quarter 2018 were $24.3 million, reflecting an increase of $4.0 million compared to $20.3 million in the fourth quarter 2017. Total operating expenses for the full year 2018 were $85.7 million, reflecting an increase of $8.5 million compared to $77.2 million in the full year 2017.
On a non-GAAP basis, excluding restructuring charges, stock-based compensation, transaction-related expenses, litigation-related expenses, and fair value adjustments, and one-time gains, total operating expenses in the fourth quarter 2018 increased to $20.1 million from $17.5 million in 2017, and increased to $77.2 million for the full year 2018 from $71.6 million in 2017. These increases are attributed to increased investments in organic product development, the support of new product launches, and investment in the sales channel. Total operating expenses reflect the reclassification of instrument depreciation from cost of sales to selling, general, and administrative expenses for both 2018 and 2017. The reclassification of depreciation expense was $5.3 million for 2018 and $5.9 million for 2017.
Operating loss for the fourth quarter 2018 was $7.7 million, compared to a loss of $3.6 million for the fourth quarter 2017, of which $1.7 million was attributed to an increase in restructuring and litigation-related expenses. Operating loss for the full year 2018 was $22.4 million, compared to a loss of $9.0 million for the full year 2017, of which $6.7 million was attributed to an increase in stock-based compensation and litigation-related expenses.
Non-GAAP Adjusted EBITDA in the fourth quarter was a loss of $1.7 million, compared to income of $1.3 million in the fourth quarter 2017. Non-GAAP Adjusted EBITDA in the full year 2018 was a loss of $7.1 million, compared to income of $4.1 million in the full year 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 $35.0 million in term debt and $11.0 million outstanding under the Company’s revolving credit facility at December 31, 2018. This compares to $32.4 million in term debt and $10.3 million outstanding under the Company’s revolving credit facility at December 31, 2017.
Cash and cash equivalents were $29.1 million at December 31, 2018, compared to $22.5 million reported at December 31, 2017.
Expanded Credit Facility
On March 7, 2019, ATEC secured a commitment of up to $30 million in additional secured financing from Squadron Medical Finance Solutions. 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.
In connection with this additional commitment, ATEC will issue warrants to Squadron to purchase 4.8 million shares of ATEC common stock at an exercise price of $2.17 at the time of the first draw under the credit facility.
ATEC expects this transaction to close before the end of March 2019.
“We are pleased to again be partnering with Squadron, a well-informed, long-term strategic investor. Squadron has consistently proven to be a strong supporter of the ATEC team and our vision, ” said Jeff Black, ATEC Chief Financial Officer. “We anticipate that this financing will allow us to execute our business and fund our growth initiatives into the second half of 2020. Importantly, with this financing, we can continue our focus on unlocking value through new innovative technologies and partnerships.”
2019 Financial Outlook
Alphatec expects total 2019 revenue between $98.0 million and $103.0 million, with U.S. product revenue between $94.0 million and $98.0 million, reflecting U.S. revenue growth of 13% to 17% compared to 2018.
Investor Conference Call
Alphatec will host a live webcast and audiocast of the conference call today at 1:30 p.m. PT / 4:30 p.m. ET to discuss the results. The webcast will be available at https://edge.media-server.com/m6/p/345xttxs. The audiocast will be available domestically at (877) 556-5251 and internationally at (720) 545-0036. The conference ID number is 8267309. During today’s conference call, management will be referring to a supplemental presentation that will be available on the Investors section of the Company’s website and as part of the live webcast.