Alphatec Spine, Inc.
Mar 15, 2016

Alphatec Holdings Announces Fourth Quarter and Full Year 2015 Revenue and Financial Results

Company Announces Extension of Credit Agreement Maturity

CARLSBAD, Calif., March 15, 2016 (GLOBE NEWSWIRE) -- Alphatec Holdings, Inc. (Nasdaq:ATEC), the parent company of Alphatec Spine, Inc., a global provider of spinal fusion technologies, announced today financial results for the fourth quarter and full year ended December 31, 2015.

Recent Positive Progress Made Towards Alphatec's Corporate Strategic Objectives

Strategic Pillar #1:  "Go-to-Market" Product Portfolio and R&D Pipeline

Strategic Pillar #2:  Transform Manufacturing and Distribution Operations

Strategic Pillar #3:  Expand Global Commercial Participation

"In 2015 we made substantial progress toward furthering our corporate strategic initiatives within each of our three pillars," said Jim Corbett, President and Chief Executive Officer of Alphatec Spine. "I am particularly pleased with the speed at which we are bringing new products to the large spinal fusion segments of the market; the headway we have made in efforts to outsource implant manufacturing and physical distribution and our progress in expanding our commercial footprint in new markets and to new surgeon customers.  We believe we have laid the foundation for future profitable growth and will continue to focus on our strategic objectives while finding the right capital structure to support our business."

Extension of MidCap Financial Credit Facility

In conjunction with its earnings announcement, the Company announced that on March 11, 2016, it entered into a third amendment and waiver (the "Third Amendment") to the Amended Credit Facility (the "Facility") with MidCap Financial ("MidCap"). The Third Amendment extends the maturity date of the Facility from August 30, 2016 to December 31, 2016. In addition, the Third Amendment contains a waiver of the Company's failure to achieve the minimum fixed charge coverage ratio required by the Facility for December of 2015 and January of 2016.  This constituted an event of default under the Facility.  With the Third Amendment, the Company is not required to calculate such ratio in February of 2016.  The Company's other lender, Deerfield, which had previously provided a waiver for December of 2015 has also provided a waiver for January of 2016.

"The extension of the MidCap facility provides us with additional flexibility as we work toward a long-term solution for our capital structure," said Jim Corbett, President and CEO of Alphatec Spine. "We are grateful to the team at MidCap Financial that has taken the time to understand our business, our prospects and our capital needs."

The Company will delay issuance of its 2016 financial guidance as it works to reach resolution regarding its capital structure and liquidity position.

Quarter Ended December 31, 2015

Consolidated net revenues for the fourth quarter of 2015 were $47.0 million, down 12.4% compared to $53.6 million reported for the fourth quarter of 2014, or down 9.4% on a constant currency basis.  Consolidated revenues were impacted by $1.6 million in foreign currency changes in the fourth quarter due primarily to declines in the valuation of the Japanese Yen and Euro against the U.S. dollar.  Sequentially, consolidated net revenue for the fourth quarter was up 9.3% compared to the third quarter of 2015.

U.S. net revenues for the fourth quarter of 2015 were $29.5 million, compared to $35.7 million reported for the fourth quarter of 2014. Sequentially, U.S. revenue for the fourth quarter was up 7.6% from the third quarter of 2015.

International net revenues for the fourth quarter of 2015 were $17.5 million, down 2.3% compared to $17.9 million for the fourth quarter of 2014, or up 6.3% on a constant currency basis.

Consolidated gross profit and gross margin for the fourth quarter of 2015 were $31.1 million and 66.2%, respectively, compared to $37.7 million and 70.3%, respectively, for the fourth quarter of 2014.

Gross profit in the fourth quarter of 2015 declined 17% from the fourth quarter of 2014 primarily a result of lower U.S. sales volume, foreign currency translation effects and global geographic mix.

Gross margin declined 4.1 percentage points compared to a strong quarter for gross margin in the fourth quarter of 2014.  The decline over prior year is primarily attributable to unfavorable regional mix, product mix and currency (1.4 percentage points), increased depreciation expense related to instruments (0.4 percentage points) and non-recurring accelerated depreciation associated with the cessation of manufacturing activities (2.1 percentage points).

Total operating expenses for the fourth quarter of 2015 were $36.9 million, reflecting an increase of approximately 6% over the fourth quarter of 2014.  This variance is primarily attributable to a stock-based compensation adjustment associated with a third party consulting agreement in research and development, as well as non-recurring restructuring expenses related to the outsourcing of manufacturing and restructuring of international operations.

GAAP net loss for the fourth quarter of 2015 was $9.9 million or ($0.10) per share (basic and diluted), compared to a net loss of $273 thousand, or ($0.00) per share basic and ($0.03) per share diluted for the fourth quarter of 2014. Please refer to the table, "Alphatec Holdings, Inc. Reconciliation of Non-GAAP Financial Measures" that follows for more detailed information.

Adjusted EBITDA in the fourth quarter of 2015 was $5.2 million, or 11.1% of revenues, compared to $8.3 million, or 15.4% of revenues reported in the fourth quarter of 2014. Fourth quarter 2015 adjusted EBITDA represents net income excluding effects of interest and other expenses, taxes, depreciation, amortization and stock-based compensation. Please refer to the table, "Alphatec Holdings, Inc. Reconciliation of Non-GAAP Financial Measures" that follows for more detailed information.

Unrestricted cash and cash equivalents were $11.2 million at December 31, 2015, compared to $19.7 million reported at December 31, 2014. Additionally, the Company reported $2.4 million of restricted cash, which must be used for future payment obligations associated with the Orthotec settlement.

Current portion of long-term debt, which includes both MidCap Financial and Deerfield, was $80.1 million at December 31, 2015.

Year Ended December 31, 2015

Consolidated net revenues for full year 2015 were $185.3 million, representing a decrease of 10.5%, compared to $207.0 million reported for full year 2014.  Consolidated revenues were adversely impacted by $11.0 million in foreign currency changes against the U.S. dollar for the full year 2014, predominately changes against the Japanese Yen and Euro.

U.S. net revenues for full year 2015 were $114.6 million, representing decrease of 16.4%, compared to $137.1 million reported for full year 2014.

International net revenues for full year 2015 were $70.7 million, representing an increase of $800 thousand on an as reported basis compared to $69.9 million for full year 2014, or up 16.9% on a constant currency basis. 

Consolidated gross profit and gross margin for full year 2015 were $120.1 million and 64.8%, respectively, compared to $143.4 million and 69.3%, respectively, for full year 2014.

Gross margin for the full year 2015 decreased 4.5 percentage points over the prior year primarily due to unfavorable variation in regional mix, product mix and currency (2.4 percentage points) and one-time charges,  including manufacturing restructuring (2.4 percentage points), offset by a decrease in amortization expense (0.3 percentage points).

Total operating expenses for full year 2015 were $292.5 million, reflecting an increase of $151.0 million compared to full year 2014. This variance is driven primarily by non-cash, goodwill and intangible asset impairment charges totaling $165.2 million and restructuring expenses totaling $1.2 million. 

When adjusted for non-recurring impairment and restructuring expenses, total operating expenses for the full year of 2015 would be $126.2 million, reflecting an improvement of 10.4%, or $14.7 million compared to the full year of 2014. This decrease is primarily attributable to lower commission expense as a result of lower U.S. sales volume, as well as savings in marketing and general and administrative functions and litigation expense.  Please refer to the tables titled, "Alphatec Holdings, Inc. Non-GAAP Condensed Consolidated Statement of Operations" that follow for more detailed information.

GAAP net loss for full year 2015 was $178.7 million or ($1.79) per share (basic and diluted), compared to a net loss of $12.9 million, or ($0.13) per share basic and ($0.16) per share diluted for full year 2014. GAAP net loss for full year 2015 was unfavorably impacted by $165.2 million of non-cash impairment charges.

Adjusted EBITDA for full year 2015 was $20.7 million, or 11.2% of revenues, compared to $30.8 million, or 14.9% of revenues reported for full year 2014. Full year 2015 adjusted EBITDA represents net income excluding effects of interest and other expenses, taxes, depreciation, amortization, stock-based compensation, and IPR&D. Please refer to the table, "Alphatec Holdings, Inc. Reconciliation of Non-GAAP Financial Measures" that follows for more detailed information.

Non-GAAP Information

Alphatec Spine reports certain non-GAAP financial measures such as non-GAAP earnings and earnings per share, adjusted for effects of amortization and other non-recurring or expense items, such as impairments, loss on extinguishment of debt, and restructuring expenses.  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, in process research and development (IPR&D) expenses and other non-recurring income or expense items, such as impairments, restructuring expenses, severance expenses, litigation expenses, damages associated with ongoing litigation 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 base-line 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.  These non-GAPP financial measures 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.

About Alphatec Spine

Alphatec Spine, Inc., a wholly owned subsidiary of Alphatec Holdings, Inc., is a global medical device company that designs, develops, manufactures 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 delivering advancements in spinal fusion technologies. The Company and its affiliates market products in the U.S. and internationally via a direct sales force and independent distributors.

Additional information can be found at www.alphatecspine.com.

Forward Looking Statements

This press release may contain "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.  Alphatec Spine 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 success of the Company's initiatives to drive global sales growth and expand its geographical sales coverage; increase margins and increase operating efficiencies; the success of the Company in achieving its three strategic pillars, the Company's ability to implement a plan that will ensure that it competes more effectively in the marketplace, expands global participation, and improves operations through the Company's plan to outsource manufacturing and distribution; the ability of the Company to remain listed on the NASDAQ Stock Market; and the ability of the Company to restructure its capital structure and raise additional capital in order to continue to operate its business and service its ongoing debt obligations; and the ability of the Company to meet the financial covenants under its debt facilities or obtain waivers in the event that such covenants are not met.  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 Company's ability to execute its business plan in light of its cash position and its current liabilities, which includes $80.1 million of debt; the Company's ability to restructure its capital structure and raise additional capital as necessary to continue to operate its business and service its ongoing debt obligations; the uncertainty of success in developing new products or products currently in Alphatec Spine's pipeline, including the products discussed in this press release; the uncertainties in the Company's ability to execute upon its strategic operating plan to outsource manufacturing and distribution; the uncertainties regarding the ability to successfully license or acquire new products, and the commercial success of such products; failure to achieve acceptance of Alphatec Spine's products by the surgeon community, including Battalion, Neocore, Arsenal Deformity and Arsenal CBX; failure to successfully implement outsourcing, streamlining and lean activities to create anticipated savings; failure to obtain FDA clearance or approval or international regulatory approvals for new products, including the products discussed in this press release, or unexpected or prolonged delays in the process; continuation of favorable third party payor 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 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.  Please refer to the risks detailed from time to time in Alphatec Spine's SEC reports, including its Annual Report Form 10-K for the year ended December 31, 2015, filed on March 15, 2016 with the Securities and Exchange Commission, as well as other filings on Form 10-Q and periodic filings on Form 8-K.  Alphatec Spine 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.    

 

ALPHATEC HOLDINGS, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 
  (in thousands, except per share amounts - unaudited)  
          
          
  Three Months Ended  Twelve  Months Ended 
  December 31,  December 31, 
   2015   2014    2015   2014  
             
 Revenues$  47,003  $  53,627   $  185,279  $  206,980  
 Cost of revenues   15,508     15,529      63,742     61,834  
 Amortization of acquired intangible assets   360     408      1,453     1,736  
 Total cost of revenues 15,868   15,937    65,195   63,570  
 Gross profit 31,135   37,690    120,084   143,410  
   66.2%  70.3%   64.8%  69.3% 
 Operating expenses:        
 Research and development   8,106     3,661      17,767     16,799  
 In-process research and development   -      -       274     527  
 Sales and marketing   18,883     20,634      70,856     77,179  
 General and administrative   8,394     9,705      34,867     43,381  
 Amortization of acquired intangible assets   533     717      2,400     2,974  
 Impairment of goodwill and intangibles   -      -       165,171     -   
 Restructuring expenses   1,025     -       1,188     706  
 Total operating expenses 36,941   34,717    292,523   141,566  
 Operating (loss) income   (5,806)    2,973      (172,439)    1,844  
 Interest and other income (expense), net   (2,854)    (3,107)     (5,556)    (13,639) 
 Pretax net loss   (8,660)    (134)     (177,995)    (11,795) 
 Income tax provision   1,243     139      681     1,087  
 Net loss$  (9,903) $  (273)  $  (178,676) $  (12,882) 
             
          
 Basic net loss per share$  (0.10) $  (0.00)  $  (1.79) $  (0.13) 
 Diluted net loss per share$  (0.10) $  (0.03)  $  (1.79) $  (0.16) 
             
 Weighted-average shares - basic 100,511   98,261    99,574   97,347  
 Weighted-average shares - diluted 100,511   98,477    99,574   97,735  
             


 ALPHATEC HOLDINGS, INC. 
 CONDENSED CONSOLIDATED BALANCE SHEETS 
 (in thousands - unaudited)  
      
      
  December 31, December 31, 
   2015   2014  
 ASSETS    
 Current assets:    
   Cash and cash equivalents $  11,229  $  19,735  
   Restricted Cash    2,350     4,400  
   Accounts receivable, net    38,319     40,440  
   Inventories, net    44,908     41,747  
   Prepaid expenses and other current assets    5,052     5,466  
   Deferred income tax assets    -      1,324  
 Total current assets   101,858     113,112  
      
 Property and equipment, net   21,945     26,040  
 Goodwill   -      171,333  
 Intangibles, net   21,616     30,259  
 Other assets   1,285     4,179  
 Total assets$  146,704  $  344,923  
      
 LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY    
 Current liabilities:    
   Accounts payable $  14,169  $  10,130  
   Accrued expenses    29,791     35,393  
   Deferred revenue    648     1,300  
   Common stock warrant liabilities    687     8,702  
   Current portion of long-term debt    80,105     8,076  
 Total current liabilities   125,400     63,601  
      
   Total long term liabilities    34,277     108,765  
   Redeemable preferred stock    23,603     23,603  
   Stockholders' (deficit) equity    (36,576)    148,954  
 Total liabilities and stockholders' (deficit) equity$  146,704  $  344,923  
      


ALPHATEC HOLDINGS, INC. 
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES 
(in thousands, except per share amounts - unaudited)  
         
         
  Three Months Ended  Twelve  Months Ended 
  December 31,  December 31, 
   2015   2014    2015   2014  
             
 Operating income (loss), as reported$  (5,806) $  2,973   $  (172,439) $  1,844  
 Add back:        
 Depreciation   3,907     2,913      12,974     12,160  
 Amortization of intangible assets   132     341      2,204     1,515  
 Amortization of acquired intangible assets   893     1,125      3,853     4,710  
 Total EBITDA   (874)    7,352      (153,407)    20,229  
          
 Add back significant items:        
 Stock-based compensation   203     913      2,643     4,554  
 In-process research and development   -     -      274     527  
 Goodwill and intangible impairment   -     -      165,171     -  
 Litigation expenses and trial costs   -     -      -     4,779  
 Stock price guarantee   4,877     -      4,877     -  
 Restructuring and other charges   1,025     -      1,188     742  
             
 EBITDA, as adjusted for significant items$  5,231  $  8,265   $  20,745  $  30,831  
               
          
 Net loss, as reported$  (9,903) $  (273)  $  (178,676) $  (12,882) 
 Add back:        
          
 Amortization of acquired intangible assets   893     1,125      3,853     4,710  
 Amortization of intangible assets   132     341      2,204     1,515  
 In-process research and development   -      -       274     527  
 Goodwill and intangible impairment   -      -       165,171     -   
 Litigation settlement and trial costs   -      -       -      4,779  
 Restructuring and other charges   1,025     -       1,188     742  
 Fair value adjustments to stock warrants and guarantees   4,877     (2,870)     (3,138)    (2,578) 
          .    
 Net loss, as adjusted for significant items$  (2,976) $  (1,677)  $  (9,124) $  (3,187) 
             
          
 Net loss per common share - basic$  (0.10) $  (0.00)  $  (1.79) $  (0.13) 
 Add back:        
 Amortization of acquired intangible assets   0.01     0.01      0.04     0.05  
 Amortization of intangible assets   0.00     0.00      0.02     0.02  
 In-process research and development   -      -       0.00     0.01  
 Goodwill and intangible impairment   -      -       1.66     -   
 Litigation settlement and trial costs   -      -       -      0.05  
 Restructuring and other charges   0.01     -       0.01     0.01  
 Warrant fair value adjustment   0.05     (0.03)     (0.03)    (0.03) 
             
 Net loss per common share - basic        
   as adjusted for significant items$  (0.03) $  (0.02)  $  (0.09) $  (0.03) 
             
         
         
         
 Weighted-average shares - basic 100,511   98,261    99,574   97,347  
               


ALPHATEC HOLDINGS, INC.   
RECONCILIATION OF GEOGRAPHIC SEGMENT REVENUES AND GROSS PROFIT  
(in thousands, except percentages - unaudited)   
       
 
      
  Three Months Ended     % Change 
  December 30, % Change % Change Foreign 
   2015   2014  As Reported Operations Currency 
      
 Revenues by geographic segment    
  U.S.$  29,479  $  35,684   -17.4%  -17.4%  0.0% 
  International 17,524   17,943   -2.3%  6.3%  -8.6% 
 Total revenues$  47,003  $  53,627   -12.4%  -9.4%  -3.0% 
          
 Gross profit by geographic segment    
  U.S.$  20,933  $  26,358  
  International   10,202     11,332  
 Total gross profit$  31,135  $  37,690    
        
 Gross profit margin by geographic segment    
  U.S. 71.0%  73.9% 
  International 58.2%  63.2% 
 Total gross profit margin 66.2%  70.3% 
 
 
  Twelve Months Ended     % Change 
  December 30, % Change % Change Foreign 
   2015   2014  As Reported Operations Currency 
      
 Revenues by geographic segment    
  U.S.$  114,578  $  137,060   -16.4%  -16.4%  0.0% 
  International 70,701   69,920   1.1%  16.9%  -15.8% 
 Total revenues$  185,279  $  206,980   -10.5%  -5.2%  -5.3% 
          
 Gross profit by geographic segment    
  U.S.$  77,538  $  100,568  
  International   42,546     42,842  
 Total gross profit$  120,084  $  143,410  
      
 Gross profit margin by geographic segment    
  U.S. 67.7%  73.4% 
  International 60.2%  61.3% 
 Total gross profit margin 64.8%  69.3% 
 
 Footnotes: 
 1)  The impact from foreign currency represents the percentage change in 2015 revenues due to the change in foreign 
 exchange rates for the periods presented. 
   
CONTACT: Investor/Media Contact:
Christine Zedelmayer
Investor Relations
Alphatec Spine, Inc.
(760) 494-6610
czedelmayer@alphatecspine.com