atec-ex991

CARLSBAD, Calif., October 30, 2019 – 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, 2019, and recent corporate highlights.

“Our continued focus on compelling surgeon adoption by creating clinical distinction and revitalizing the ATEC sales channel substantially accelerated organic U.S. revenue growth in the third quarter,” said Pat Miles, Chairman and Chief Executive Officer. “As a result, we are increasing 2019 revenue expectations for the second time this year, now anticipating full-year U.S. revenue growth of over 26%. I’m proud of all that our teams have accomplished to date, and I am even more enthusiastic about the future for spine’s new Organic Innovation Machine.”

	Three Months Ended						Change
	September 30, 2019			September 30, 2018			$			%
	(unaudited)			(unaudited)

Revenue from U.S. products	$	28,051		$	20,996		$	7,055			34	%
Gross profit from U.S. products		19,853			16,001			3,852			24	%
Gross margin from U.S. products		70.8	%		76.2	%

Operating Expenses
Research and development	$	3,962		$	3,157		$	805			25	%
Sales, general and administrative		26,792			18,833			7,959			42	%
Litigation-related expenses		604			1,329			(725	)		(55	%)
Amortization of intangible assets		172			187			(15	)		(8	%)
Transaction-related expenses		-			66			(66	)		(100	%)
Restructuring		-			167			(167	)		(100	%)
Total operating expenses	$	31,530		$	23,739		$	7,791			33	%

Operating loss	$	(11,597	)	$	(7,533	)	$	(4,064	)		54	%

Non-GAAP operating loss	$	(5,114	)	$	(3,006	)	$	(2,108	)		70	%

Non-GAAP adjusted EBITDA	$	(3,190	)	$	(1,415	)	$	(1,775	)		125	%

Revenue from U.S. products for the third quarter 2019 was $28.1 million, up 34% compared to $21.0 million in the third quarter 2018. Revenue growth generated by new products and the strategic distribution channel continues to outpace the ongoing revenue impacts of transitioning or discontinuing non-strategic distributor relationships.

Gross profit and gross margin from U.S. products for the third quarter 2019 were $19.9 million and 70.8%, respectively, compared to $16.0 million and 76.2%, respectively, for the third quarter 2018. U.S. gross margin was impacted by increased 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 78.9% in the third quarter of 2019, compared to 79.8% in the third quarter of 2018.

Total operating expenses for the third quarter 2019 were $31.5 million compared to $23.7 million in the third quarter 2018. 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 $27.4 million from $20.0 million in 2018, 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, fair value adjustments, litigation-related expenses, restructuring, transaction-related expenses and excess and obsolescence charges, was $5.1 million for the third quarter 2019, compared to a loss of $3.0 million for the third quarter 2018.

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 third quarter 2019 was a loss of $3.2 million, compared to a loss of $1.4 million in the third quarter 2018.

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 includes $45 million in term debt and $11.6 million outstanding under the Company’s revolving credit facility at September 30, 2019, with cash and cash equivalents of $57.8 million.

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 be also be available domestically at (877) 556-5251 and internationally at (720) 545-0036. The conference ID number is 6098197.

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.

Alphatec Holdings, Inc., through its wholly-owned subsidiaries, Alphatec Spine, Inc. and SafeOp Surgical, Inc., is a provider of innovative spine surgery solutions dedicated to revolutionizing the approach to spine surgery. ATEC designs, develops and markets technology for the treatment of spinal disorders. The Company markets its products in the U.S. via independent sales agents and a direct sales force.

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 the references to the Company’s revenue and growth outlook, planned commercial launches and product introductions, 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 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 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 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 LLC settlement agreement. 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.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018

Revenues:
Revenue from U.S. products	$	28,051		$	20,996		$	77,099		$	60,606
Revenue from international supply agreement		1,150			2,006			3,976			5,745
Total revenues		29,201			23,002			81,075			66,351
Cost of revenues		9,268			6,796			25,688			19,686
Gross profit		19,933			16,206			55,387			46,665

Operating expenses:
Research and development		3,962			3,157			10,791			6,952
Sales, general and administrative		26,792			18,833			72,360			53,628
Litigation-related expenses		604			1,329			4,427			4,143
Amortization of intangible assets		172			187			526			551
Transaction-related expenses		-			66			-			1,546
Gain on settlement		-			-			-			(6,168	)
Restructuring expenses		-			167			60			758
Total operating expenses		31,530			23,739			88,164			61,410
Operating loss		(11,597	)		(7,533	)		(32,777	)		(14,745	)
Total other expenses, net		(2,926	)		(1,754	)		(6,966	)		(5,183	)
Loss from continuing operations before taxes		(14,523	)		(9,287	)		(39,743	)		(19,928	)
Income tax (benefit) provision		20			26			122			(1,697	)
Loss from continuing operations		(14,543	)		(9,313	)		(39,865	)		(18,231	)
Loss from discontinued operations		(24	)		(42	)		(106	)		(116	)
Net loss	$	(14,567	)	$	(9,355	)	$	(39,971	)	$	(18,347	)


Net loss per share, basic and diluted:
Continuing operations	$	(0.26	)	$	(0.22	)	$	(0.81	)	$	(0.56	)
Discontinued operations		(0.00	)		(0.00	)		(0.00	)		(0.00	)
Net loss per share, basic and diluted	$	(0.26	)	$	(0.22	)	$	(0.81	)	$	(0.56	)

Shares used in calculating basic and diluted net loss per share		55,736			42,497			49,252			32,658

Stock-based compensation included in:
Cost of revenue	$	57		$	18		$	113		$	51
Research and development		388			179			921			192
Sales, general and administrative		3,158			1,478			6,532			3,199
	$	3,603		$	1,675		$	7,566		$	3,442

	September 30,		December 31,
	2019		2018
	(Unaudited)
ASSETS
Current assets:
Cash	$	57,843	$	29,054
Accounts receivable, net		15,430		15,095
Inventories, net		33,065		28,765
Prepaid expenses and other current assets		10,852		2,380
Current assets of discontinued operations		214		242
Total current assets		117,404		75,536

Property and equipment, net		18,723		13,235
Right-of-use asset		2,112		-
Goodwill		13,897		13,897
Intangibles, net		25,882		26,408
Other assets		214		347
Noncurrent assets of discontinued operations		51		54
Total assets	$	178,283	$	129,477

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	6,010	$	4,399
Accrued expenses		22,972		22,316
Current portion of long-term debt		836		3,276
Current portion of lease liability		1,263		-
Current liabilities of discontinued operations		504		621
Total current liabilities		31,585		30,612

Total long term liabilities		65,441		57,688

Redeemable preferred stock		23,603		23,603
Stockholders' equity		57,654		17,574
Total liabilities and stockholders' equity	$	178,283	$	129,477

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018


Operating expenses		31,530			23,739			88,164			61,410
Adjustments:
Stock-based compensation		(3,546	)		(1,657	)		(7,453	)		(3,391	)
Contingent consideration fair value adjustment		-			(546	)		(289	)		(646	)
Litigation-related expenses		(604	)		(1,329	)		(4,427	)		(4,143	)
Restructuring		-			(167	)		(60	)		(758	)
Transaction-related expenses		-			(66	)		-			(1,546	)
Gain on settlement		-			-			-			6,168
Non-GAAP operating expenses	$	27,380		$	19,974		$	75,935		$	57,094


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018

Operating loss, as reported	$	(11,597	)	$	(7,533	)	$	(32,777	)	$	(14,745	)
Add back significant items:
Stock-based compensation		3,603			1,675			7,566			3,442
Contingent consideration fair value adjustment		-			546			289			646
Litigation-related expenses		604			1,329			4,427			4,143
Restructuring		-			167			60			758
Transaction-related expenses		-			66			-			1,546
Excess & obsolete charges		2,276			744			6,451			2,016
Gain on settlement		-			-			-			(6,168	)
Adjusted operating loss		(5,114	)		(3,006	)		(13,984	)		(8,362	)


Operating loss, as reported	$	(11,597	)	$	(7,533	)	$	(32,777	)	$	(14,745	)
Depreciation		1,752			1,405			4,828			4,454
Amortization of intangible assets		172			186			526			612
EBITDA		(9,673	)		(5,942	)		(27,423	)		(9,679	)
Add back significant items:
Stock-based compensation		3,603			1,675			7,566			3,442
Contingent consideration fair value adjustment		-			546			289			646
Litigation-related expenses		604			1,329			4,427			4,143
Restructuring		-			167			60			758
Transaction-related expenses		-			66			-			1,546
Excess & obsolete charges		2,276			744			6,451			2,016
Gain on settlement		-			-			-			(6,168	)
Adjusted EBITDA	$	(3,190	)	$	(1,415	)	$	(8,630	)	$	(3,296	)

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2019			2018			2019			2018
	Revenues by source
	Revenue from U.S. products	$	28,051		$	20,996		$	77,099		$	60,606
	Revenue from international supply agreement		1,150			2,006			3,976			5,745
	Total revenues	$	29,201		$	23,002		$	81,075		$	66,351

	Gross profit by source
	Revenue from U.S. products	$	19,853		$	16,001		$	55,087		$	46,230
	Revenue from international supply agreement		80			205			300			435
	Total gross profit	$	19,933		$	16,206		$	55,387		$	46,665

	Gross profit margin by source
	Revenue from U.S. products		70.8	%		76.2	%		71.4	%		76.3	%
	Revenue from international supply agreement		7.0	%		10.2	%		7.5	%		7.6	%
	Total gross profit margin		68.3	%		70.5	%		68.3	%		70.3	%


	RECONCILIATION OF GAAP TO NON-GAAP GROSS PROFIT AND GROSS MARGIN FROM U.S. PRODUCTS
(in thousands, except percentages - unaudited)

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2019			2018			2019			2018

	GAAP-based gross profit from U.S. products	$	19,853		$	16,001		$	55,087		$	46,230
	Add: non-cash excess and obsolete charges		2,276			744			6,451			2,016
	Non-GAAP gross profit from U.S. products	$	22,129		$	16,745		$	61,538		$	48,246

	GAAP-based gross margin from U.S. products		70.8	%		76.2	%		71.4	%		76.3	%
	Add: non-cash excess and obsolete charges		8.1	%		3.5	%		8.4	%		3.3	%
	Non-GAAP gross margin from U.S. products		78.9	%		79.8	%		79.8	%		79.6	%


Full Year 2019	Previous		Updated
	Guidance ($M)	YoY Growth	Guidance ($M)	YoY Growth
U.S. Product Revenue	$100 to $104	20% to 24%	$105 to $107	26% to 28%
International Supply Agreement	$4 to $5	(38%) to (50%)	No change	No change
Total Revenue	$104 to $109	13% to 19%	$109 to $112	19% to 22%


Investor/Media Contact:	Company Contact:

Josh Berg	Jeff Black
Investor Relations	Chief Financial Officer
(760) 494-6790	ir@atecspine.com
ir@atecspine.com