First-Quarter Revenue Shrinks at Alphatec Spine

Alphatec Holdings Inc. experienced a financially dismal first quarter.

The parent company of Alphatec Spine reported consolidated net revenues of $49.2 million, down 2.5 percent compared with the same period last year, or 1 percent on a constant currency basis. The Carlsbad, Calif.-based firm also posted a $6.6 million net loss, about $4 million more than its 2013 total.

Executives, naturally, downplayed the weak showing and highlighted the quarter’s better-performing players, noting the 15 percent growth in U.S. hospital non-biologics implant volume (driven primarily by increased uptake of interbody solutions such as Novel and Alphatec Solus, as well as Zodiac Deformity) and the 10 percent increase in less-invasive product sales (thanks mostly to solid Japanese sales of Illico MIS).

Bigwigs also pointed out that Alphatec’s international business accounted for 35 percent of total first-quarter revenue, and gross margin improved 280 basis points over the same period in 2013 to 67.7 percent. In addition, Alphatec received U.S. Food and Drug Administration 510(k) clearance in the first quarter for a new spinal fixation that treats complex degenerative conditions; launched a minimally invasive biologics product for harvesting and providing autologous bone; and launched the DiscoCerv cervical disc prosthesis in China.

“I am very pleased with the progress we have made in the first quarter to expand our portfolio globally,” Alphatec Chairman/CEOLes Cross said. “Our strategic focus on driving the adoption of our less-invasive solutions, combined with the demonstrated benefits of our biologics offerings, will be further advanced through these new additions to our comprehensive portfolio and recent approvals in certain key markets. We will refocus our efforts to reinvigorate growth in our U.S. business. We look forward to training surgeons on the unique value and benefits of our new and existing products that can help patients across the world regain their active lifestyles and live better.”

Cross attributed his company’s disappointing Q1 performance to severe winter weather, the loss of PureGen revenue and Alphatec’s “planned” exit from the French market. The confluence of factors drove international revenue down 1.5 percent to $17.1 million and caused domestic proceeds to fall 3 percent. Excluding revenues from the cessation of sales in France, international revenues grew about 8 percent over the same period in 2013 on a constant currency basis.

U.S. net revenues for the first quarter of 2014 were $32.1 million, down sightly from the $33.1 million reported last year. Excluding revenue contributions from PureGen in the first quarter of 2013, U.S. net revenues were relatively flat; U.S. hospital implant volumes came in strong, but were offset by continued industry pricing pressures.

Gross profit was $33.3 million, a 1.8 percent increase compared with the $32.7 million reported in the first quarter of 2013.

“We are pleased with our bottom line results in the first quarter given that revenues were affected by our planned exit from the French market, loss of revenue contributions from PureGen in Q1 2013, and the effect of severe weather across the U.S.,” Cross said. “Our strong adjusted EBITDA and margin expansion in the first quarter represents our continued focus on driving operational efficiencies and fiscal discipline across the organization. We remain focused on building a track record of operational execution and advancing our long-term strategy of delivering 20 percent non-GAAP adjusted EBITDA margin and continued gross margin expansion.”

Adjusted EBITDA in the first quarter was $6.7 million, or 13.6 percent of revenues, compared with $6.1 million, or 12.1 percent of revenues reported in Q1 2013.First quarter 2014 adjusted EBITDA represents net income excluding effects of interest, taxes, depreciation, amortization, stock-based compensation and the following items: $4.8 million in OrthoTec trial-related litigation expenses and $800,000 of expenses related to restructuring of the company’s French operations.
Total operating expenses for the first quarter were $38 million, a $3.9 million increase over last year. Executives attributed the higher expenses to $4.8 million in trial-related costs for the OrthoTec legal matter and the restructuring of French operations, though both were offset by improvements in general and administrative expenses.

GAAP net loss for the first quarter of 2014 was $6.7 million or 7 cents per share (basic and diluted), compared with a net loss of $2.6 million, or 3 cents per share (basic and diluted) for the first quarter of 2013.Non-GAAP EPS, when adjusted for the OrthoTec trial-related expense items, as well as expenses associated with the ongoing restructuring of the company’s French operations, was 1 cent per share (basic), compared with 0 cents per share (basic) for the first quarter of 2013.

Cash and cash equivalents were $23.8 million on March 31, 2014, up from the $21.3 million reported on Dec. 31, 2013. The company also reported $17.8 million of restricted cash resulting from the draw-down of $20 million from the Deerfield credit facility on March 20, 2014, which must be used for payment obligations associated with the OrthoTec settlement.

Executives expect annual 2014 revenue of $208 million to $215 million, representing approximately 1.6 percent to 5 percent growth compared with 2013, or 4.5 percent to 8 percent when adjusted for French sales. Alphatec officials reaffirmed guidance expectations for annual adjusted EBITDA of $30 million to $33 million in 2014, a 19 percent to 31 percent growth compared with 2013, and representing roughly 14.4 percent to 15.3 percent of total annual revenue.