Alphatec (US:ATEC)2021-08-02 16:00PART I – FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for Alphatec Holdings, Inc. as of June 30, 2021, and for the three and six-month periods then ended Condensed Consolidated Balance Sheets The balance sheet shows a significant increase in total assets to $441.0 million as of June 30, 2021, from $261.2 million at December 31, 2020 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash | $76,581 | $107,765 | | Inventories, net | $86,715 | $46,001 | | Total current assets | $206,359 | $184,160 | | Goodwill | $45,189 | $13,897 | | Intangible assets, net | $92,981 | $24,720 | | Total assets | $441,027 | $261,223 | | Liabilities & Equity | | | | Total current liabilities | $107,565 | $58,312 | | Long-term debt | $55,789 | $37,999 | | Total liabilities | $203,910 | $107,740 | | Total stockholders' equity | $213,514 | $129,880 | Condensed Consolidated Statements of Operations For the second quarter of 2021, total revenue more than doubled to $62.2 million from $29.6 million in Q2 2020 Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $62,249 | $29,629 | $106,370 | $59,744 | | Gross profit | $41,065 | $20,842 | $72,923 | $41,873 | | Operating loss | ($35,752) | ($11,158) | ($54,798) | ($28,966) | | Net loss | ($38,205) | ($15,805) | ($61,108) | ($36,527) | | Net loss per share | ($0.39) | ($0.25) | ($0.66) | ($0.58) | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2021, net cash used in operating activities was $35.1 million Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | ($35,110) | ($30,145) | | Net cash used in investing activities | ($124,847) | ($6,978) | | Net cash provided by financing activities | $128,769 | $21,098 | | Net decrease in cash | ($31,184) | ($15,950) | | Cash at beginning of period | $107,765 | $47,113 | | Cash at end of period | $76,581 | $31,163 | Notes to Condensed Consolidated Financial Statements The notes provide detailed information supporting the financial statements, including the EOS acquisition, revenue recognition, debt structure, and legal proceedings - The company is a medical technology firm focused on designing, developing, and marketing technology for treating spinal disorders35 - On May 13, 2021, the company acquired a controlling interest in EOS imaging S.A. ("EOS"), a global medical device company specializing in low dose 2D/3D imaging and surgical planning, which now operates as a wholly owned subsidiary37 - The company early adopted ASU 2020-06 on January 1, 2021, which simplifies accounting for convertible instruments, with no material impact on the financial statements57 - In July 2021, subsequent to the reporting period, the company received confirmation from the SBA that its entire $4.3 million PPP Loan was forgiven157 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting a 110% revenue increase in Q2 2021 driven by the EOS acquisition and organic growth from new products and an expanded sales network Overview The company is a medical technology firm focused on advancing technology for the surgical treatment of spinal disorders - The company's vision is to revolutionize spine surgery through clinical distinction and become the standard bearer in the field160 - Growth is driven by introducing market-shifting innovation and expanding the sales network with high-quality exclusive and dedicated distributors161162 Recent Developments Key recent developments include the acquisition of EOS imaging S.A. on May 13, 2021, and the ongoing navigation of COVID-19 pandemic impacts on sales - Acquired EOS imaging S.A. on May 13, 2021, to integrate its low dose 2D/3D imaging and surgical planning technology into the company's procedural approach to spine surgery163 - The COVID-19 pandemic has caused volatility in sales trends due to its impact on elective surgeries, with demand recovering as local conditions improve164 Results of Operations For Q2 2021, total revenue grew 110% year-over-year to $62.2 million, with the EOS acquisition contributing 21% and organic product volume growth contributing 89% Comparison of Operating Results (in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | % Change | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total revenue | $62,249 | $29,629 | 110% | $106,370 | $59,744 | 78% | | Gross profit | $41,065 | $20,842 | 97% | $72,923 | $41,873 | 74% | | Total operating expenses | $76,817 | $32,000 | 140% | $127,721 | $70,839 | 80% | | Operating loss | ($35,752) | ($11,158) | 220% | ($54,798) | ($28,966) | 89% | | Net loss | ($38,205) | ($15,805) | 142% | ($61,108) | ($36,527) | 67% | - Revenue growth was primarily driven by the expansion of the new product portfolio, an increased surgeon user base, and the transformation of the sales network, supplemented by revenue from the EOS acquisition176 - The increase in Sales, General and Administrative expenses was primarily due to higher compensation-related costs, variable selling expenses tied to revenue growth, and continued investment in the strategic distribution channel and sales and marketing functions181 Liquidity and Capital Resources The company's cash position decreased by $31.2 million to $76.6 million as of June 30, 2021, primarily due to cash used for the EOS acquisition, partially offset by $131.8 million in net proceeds from a private placement - Cash decreased from $107.8 million at year-end 2020 to $76.6 million at June 30, 2021185 - The primary use of cash was the acquisition of EOS, offset by $131.8 million in net proceeds from a private placement in March 2021185 - The company has an $85.0 million Term Loan with Squadron Medical, with $45.0 million outstanding and $40.0 million available as of June 30, 2021186187 - The $4.3 million PPP Loan was fully forgiven by the SBA in July 2021188 Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate risk from its $49.3 million in floating-rate debt, where a 100-basis point increase would decrease pre-tax income by approximately $0.5 million annually - The company has $49.3 million in outstanding floating-rate debt. A 100-basis point increase in interest rates would decrease pre-tax income and cash flow by about $0.5 million annually206 - The company is exposed to commodity price risk for materials like titanium and stainless steel, but a 10% price change is not expected to have a material impact on operations207 - The planned discontinuation of LIBOR after 2021 poses a risk, as it could lead to interest rate increases on the company's funding arrangements214 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2021208 - There were no material changes to internal control over financial reporting in the second quarter of 2021209 - Due to the timing of the acquisition, the internal controls of EOS were excluded from the evaluation of effectiveness for this reporting period209 PART II – OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings, most notably ongoing litigation with NuVasive, Inc., with no material accruals recorded as a loss is not considered probable - The company is involved in various legal proceedings arising from its business activities, with litigation being inherently unpredictable210 - The company has not recorded a contingent liability for the ongoing litigation with NuVasive, Inc., as a loss is considered possible but not probable, and a range of potential charges cannot be reasonably estimated118211 Risk Factors The company highlights new material risks following the EOS acquisition, including integration challenges, global operational risks, and potential interest rate increases due to LIBOR discontinuation - Significant management attention and resources will be required to integrate the business practices and operations of EOS, with transaction and restructuring costs potentially reducing near-term synergies212 - Global operations are subject to risks including currency fluctuations, political or economic instability, trade restrictions, and compliance with regulations like the U.S. Foreign Corrupt Practices Act213 - The planned discontinuation of the LIBOR benchmark rate after 2021 could result in interest rate increases on the company's funding arrangements, adversely affecting cash flows214 Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer and financial statements in iXBRL format - Lists filed exhibits, including certifications by the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act219220221 - Includes the financial statements and notes formatted in iXBRL (Inline eXtensible Business Reporting Language)221