Alphatec (ATEC) - 2023 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements The company's unaudited condensed consolidated financial statements for Q3 2023 show increased assets and a widened net loss, primarily due to operational growth and higher expenses Condensed Consolidated Balance Sheets The balance sheets show total assets increased to $670.2 million by September 30, 2023, driven by higher current assets and goodwill, alongside increased liabilities and stockholders' deficit Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 (Unaudited) | Dec 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $333,558 | $255,634 | | Cash and cash equivalents | $122,526 | $84,696 | | Inventories | $130,672 | $101,521 | | Total Assets | $670,221 | $520,968 | | Goodwill | $71,555 | $47,367 | | Total Current Liabilities | $148,044 | $138,870 | | Long-term debt | $506,613 | $349,511 | | Total Liabilities | $690,779 | $529,032 | | Total Stockholders' Deficit | ($44,161) | ($34,667) | Condensed Consolidated Statements of Operations The statements of operations indicate significant revenue growth for both Q3 and the nine months ended September 30, 2023, alongside increased operating and net losses Q3 2023 vs Q3 2022 Performance (in thousands, except per share) | Metric | Q3 2023 | Q3 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $118,262 | $89,839 | +31.6% | | Gross Profit | $80,047 | $59,516 | +34.5% | | Operating Loss | ($38,359) | ($34,970) | +9.7% | | Net Loss | ($42,654) | ($36,793) | +15.9% | | Net Loss Per Share | ($0.35) | ($0.35) | 0.0% | Nine Months 2023 vs 2022 Performance (in thousands, except per share) | Metric | Nine Months 2023 | Nine Months 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $344,292 | $244,923 | +40.6% | | Gross Profit | $215,013 | $164,208 | +31.0% | | Operating Loss | ($128,565) | ($111,948) | +14.8% | | Net Loss | ($137,560) | ($116,510) | +18.1% | | Net Loss Per Share | ($1.18) | ($1.14) | +3.5% | Condensed Consolidated Statements of Cash Flows Cash flow statements show a net increase in cash for the nine months ended September 30, 2023, primarily driven by financing activities offsetting operating and investing outflows Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($53,481) | ($66,731) | | Net cash used in investing activities | ($113,762) | ($43,445) | | Net cash provided by financing activities | $205,348 | $30,215 | | Net increase (decrease) in cash | $37,830 | ($81,136) | | Cash at end of period | $122,526 | $106,112 | - The significant increase in cash from financing activities in 2023 was driven by proceeds from a new term loan ($148.5 million) and a common stock offering ($67.4 million)[26] - Cash used in investing activities increased substantially due to a $55.0 million business acquisition and higher property and equipment purchases ($54.8 million vs $36.0 million year-over-year)[26] Notes to Condensed Consolidated Financial Statements The notes detail significant financial events including a $55.0 million business acquisition, a $150.0 million term loan, and multiple equity offerings totaling over $200 million - On April 19, 2023, the company acquired a navigation-enabled robotics platform for $55.0 million in cash, resulting in $26.9 million of intangible assets and $24.6 million of goodwill[59][71] - In January 2023, the company entered into a $150.0 million term loan with Braidwell, fully drawn by September 2023, maturing in 2028[78] - The company completed two equity offerings in 2023, raising net proceeds of approximately $57.5 million in April and $9.9 million in August[123][122] - Subsequent to quarter-end, on October 27, 2023, the company completed a public offering of 14.3 million shares at $10.50 per share, raising gross proceeds of approximately $150.1 million[139] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong revenue growth to increased product volume and adoption, while higher operating expenses led to an increased operating loss, necessitating active capital structure management through debt and equity offerings Recent Developments Recent developments highlight significant financing and strategic activities undertaken in 2023 to strengthen the company's financial position and product portfolio - The company has undertaken significant financing and strategic activities in 2023 to bolster its financial position and product portfolio[144][145][148] - Public Offering (Oct 2023): Raised gross proceeds of approximately $150.1 million from an underwritten public offering[144] - Asset Purchase (Apr 2023): Acquired a Navigation-enabled Robotics Platform for $55.0 million in cash[145] - Underwritten Offering (Apr 2023): Raised net proceeds of approximately $57.5 million from a registered securities offering[146] - Term Loan (Jan 2023): Entered into a $150.0 million term loan credit facility, fully drawn as of September 28, 2023[148] Results of Operations Results of operations show substantial revenue growth for both the three and nine months ended September 30, 2023, accompanied by increased operating expenses Total Revenue (in thousands) | Period | 2023 | 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Three Months | $118,262 | $89,839 | $28,423 | 32% | | Nine Months | $344,292 | $244,923 | $99,369 | 41% | - Revenue growth was primarily driven by increased product volume from a larger surgeon user base, expanded new product portfolio, and increasing technology adoption[160] Operating Expenses Breakdown - Nine Months Ended Sep 30 (in thousands) | Expense Category | 2023 | 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Research and development | $47,831 | $32,429 | +47% | | Sales, general and administrative | $269,960 | $218,093 | +24% | | Total operating expenses | $343,578 | $276,156 | +24% | - The increase in R&D expenses was due to higher personnel costs and stock-based compensation, while SG&A expenses rose due to higher compensation and variable selling costs associated with revenue growth and strategic distribution channel investment[162][163] Liquidity and Capital Resources The company's liquidity is primarily supported by cash on hand, its Revolving Credit Facility, the Braidwell Term Loan, and cash from operations - The company's principal sources of liquidity are cash on hand, its Revolving Credit Facility, the Braidwell Term Loan, and cash from operations[168] Cash and Debt Position (in millions) | Item | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $122.5 | $84.7 | | Braidwell Term Loan | $150.0 | $0.0 | | Revolving Credit Facility | $46.0 | N/A | | 2026 Convertible Notes | $316.3 | $316.3 | Summary of Cash Flows - Nine Months Ended Sep 30 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Operating Activities | ($53,481) | ($66,731) | | Investing Activities | ($113,762) | ($43,445) | | Financing Activities | $205,348 | $30,215 | Quantitative and Qualitative Disclosures About Market Risk The company reports no significant changes to its market risk disclosures since its 2022 Annual Report on Form 10-K - There have been no significant changes to the market risk information previously disclosed in the company's 2022 Annual Report on Form 10-K[187] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting despite ERP system implementation - Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[188] - The company is implementing a new enterprise resource planning (ERP) system, but reported no material changes to internal control over financial reporting during the third quarter of 2023[190] PART II – OTHER INFORMATION Legal Proceedings The company refers to Note 9 of the financial statements for details on material legal proceedings, including litigation involving its Chairman and CEO - For a description of material legal proceedings, the report refers to Note 9 of the Notes to Condensed Consolidated Financial Statements[191] Risk Factors A new risk factor highlights the potential failure to realize anticipated benefits from the recent Navigation-enabled Robotics Platform acquisition due to integration challenges or unforeseen expenses - A new risk factor has been added concerning the acquisition of the Navigation-enabled Robotics Platform[192] - The success of the acquisition depends on the company's ability to integrate the platform, enhance its value, and achieve growth without disrupting operations or incurring unforeseen expenses[193] Other Information This section discloses updates to Rule 10b5-1 trading plans for several company executives and directors, including terminations, establishments, and modifications - Several executives and directors have entered into, modified, or terminated Rule 10b5-1 trading plans for the sale of company common stock[194][195][196][198][199] Exhibits The report lists filed exhibits, including CEO and CFO Sarbanes-Oxley Act certifications and iXBRL-formatted financial statements - Exhibits filed with the report include Sarbanes-Oxley Act certifications for the Principal Executive Officer and Principal Financial Officer, and iXBRL data files[201][202][203]