Alphatec Holdings, Inc 10-Q for FY2022 Q1
Alphatec Holdings, Inc. (ATEC)
About this 10-Q
Alphatec Holdings, Inc filed this 10-Q on May 5, 2022, covering the quarter ended March 31, 2022 (FY2022 Q1).
Headline figures
Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $70.93M
- up 60.8% from $44.12M a year earlier
- Net loss
- $42.84M
- compared with a net loss of $22.9M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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( State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
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(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes
As of April 29, 2022, there were
ALPHATEC HOLDINGS, INC.
QUARTERLY REPORT ON FORM 10-Q
March 31, 2022
Table of Contents
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Item 1. |
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3 |
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Condensed Consolidated Balance Sheets as of March 31, 2022 (unaudited) and December 31, 2021 |
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Notes to Condensed Consolidated Financial Statements (unaudited) |
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Item 2. |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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32 |
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Item 4. |
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32 |
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Item 1. |
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33 |
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Item 1A. |
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33 |
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Item 2. |
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33 |
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Item 5. |
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33 |
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Item 6. |
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34 |
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35 |
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2
PART I. FINANCIAL INFORMATION
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Item 1. |
Financial Statements |
ALPHATEC HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for par value data)
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March 31, 2022 |
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December 31, 2021 |
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Assets |
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(Unaudited) |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net of allowances of $ |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Right-of-use asset |
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Goodwill |
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Intangible assets, net |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Contract liability |
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Short-term debt |
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Current portion of operating lease liability |
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Total current liabilities |
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Long-term debt |
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Operating lease liability, less current portion |
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Other long-term liabilities |
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Commitments and contingencies (Note 10) |
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Redeemable preferred stock, $ March 31, 2022 and December 31, 2021; at March 31, 2022 and December 31, 2021 |
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Stockholders' equity: |
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Series A convertible preferred stock, $ issued and outstanding at March 31, 2022 and December 31, 2021 |
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Common stock, $ shares outstanding at March 31, 2022; and outstanding at December 31, 2021 |
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Treasury stock, |
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Additional paid-in capital |
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Accumulated other comprehensive deficit |
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Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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See accompanying notes to unaudited condensed consolidated financial statements.
3
ALPHATEC HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share amounts)
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Three Months Ended |
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March 31, |
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2022 |
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2021 |
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Revenue: |
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Revenue from products and services |
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$ |
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$ |
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Revenue from international supply agreement |
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Total revenue |
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Cost of sales |
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Gross profit |
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Operating expenses: |
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Research and development |
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Sales, general and administrative |
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Litigation-related expenses |
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Amortization of acquired intangible assets |
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Transaction-related expenses |
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Restructuring expenses |
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Total operating expenses |
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Operating loss |
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Interest and other expense, net: |
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Interest expense, net |
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Other expense, net |
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Total interest and other expense, net |
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Net loss before taxes |
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Income tax provision |
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Net loss |
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$ |
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$ |
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Net loss per share, basic and diluted |
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$ |
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$ |
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Weighted average shares outstanding, basic and diluted |
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See accompanying notes to unaudited condensed consolidated financial statements.
4
ALPHATEC HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
(In thousands)
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Three Months Ended |
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March 31, |
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2022 |
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2021 |
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Net loss |
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$ |
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$ |
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Foreign currency translation adjustments |
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Comprehensive loss |
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$ |
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$ |
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See accompanying notes to unaudited condensed consolidated financial statements.
5
ALPHATEC HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
(In thousands)
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Common stock |
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Additional paid-in |
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Treasury |
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Accumulated other comprehensive |
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Accumulated |
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Total stockholders’ |
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Shares |
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Par Value |
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capital |
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stock |
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loss |
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deficit |
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equity |
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Balance at December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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Distributor equity incentives |
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— |
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— |
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— |
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— |
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Common stock issued for warrant exercises |
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— |
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— |
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— |
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— |
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Common stock issued for stock option exercises |
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— |
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— |
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— |
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— |
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Common stock issued for vesting of restricted stock units, net of shares withheld for tax liability |
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— |
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( |
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— |
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— |
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— |
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( |
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Foreign currency translation adjustments |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
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Balance at March 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
( |
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$ |
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Common stock |
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Additional paid-in |
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Shareholder note |
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Treasury |
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Accumulated other comprehensive |
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Accumulated |
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Total stockholders’ |
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Shares |
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Par Value |
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capital |
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receivable |
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stock |
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income (loss) |
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deficit |
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equity |
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Balance at December 31, 2020 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Distributor equity incentives |
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— |
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— |
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— |
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— |
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— |
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— |
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Common stock issued for warrant exercises |
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— |
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— |
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— |
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— |
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— |
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Common stock issued for stock option exercises |
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— |
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— |
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— |
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— |
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— |
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Common stock issued for vesting of restricted stock units, net of shares withheld for tax liability |
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— |
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( |
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— |
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— |
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— |
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— |
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( |
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Shareholder note receivable |
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— |
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— |
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— |
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— |
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— |
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— |
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Foreign currency translation adjustments |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Balance at March 31, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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See accompanying notes to unaudited condensed consolidated financial statements.
6
ALPHATEC HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
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Three Months Ended March 31, |
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2022 |
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2021 |
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Operating activities: |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Stock-based compensation |
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Amortization of debt discount and debt issuance costs |
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Amortization of right-of-use assets |
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Write-down for excess and obsolete inventories |
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Loss on disposal of assets |
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Other |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Inventories |
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Prepaid expenses and other current assets |
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Other assets |
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( |
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— |
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Accounts payable |
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Accrued expenses and other current liabilities |
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Lease liability |
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Other long-term liabilities |
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( |
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Net cash used in operating activities |
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( |
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( |
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Investing activities: |
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Purchase of property and equipment |
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Purchase of intangible assets |
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— |
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Purchase of debt and equity securities |
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— |
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Settlement of forward contract |
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— |
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Net cash used in investing activities |
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( |
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( |
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Financing activities: |
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Proceeds from common stock offering |
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— |
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Net cash received (paid) from common stock exercises |
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( |
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Proceeds from financed insurance |
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— |
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Other |
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( |
) |
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( |
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Net cash provided by financing activities |
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Effect of exchange rate changes on cash |
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( |
) |
|
|
( |
) |
|
Net (decrease) increase in cash and cash equivalents |
|
|
( |
) |
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
|
|
|
$ |
|
|
|
Cash paid for income taxes |
|
$ |
— |
|
|
$ |
|
|
|
Supplemental disclosure of noncash activities: |
|
|
|
|
|
|
|
|
|
Financed insurance |
|
$ |
|
|
|
$ |
— |
|
|
Purchases of property and equipment in accounts payable and accrued expenses |
|
$ |
|
|
|
$ |
|
|
|
Recognition of lease liability |
|
$ |
— |
|
|
$ |
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
7
ALPHATEC HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The Company and Basis of Presentation
The Company
Alphatec Holdings, Inc. (the “Company”), through its wholly owned subsidiaries, Alphatec Spine, Inc. (“Alphatec Spine”), SafeOp Surgical, Inc. (“SafeOp”), and EOS imaging S.A. (“EOS”), is a medical technology company that designs, develops, and markets technology for the treatment of spinal disorders associated with disease and degeneration, congenital deformities, and trauma. The Company markets its products in the United States of America and internationally via a network of independent distributors and direct sales representatives.
Basis of Presentation and Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company translates the financial statements of its foreign subsidiaries using end-of-period exchange rates for assets and liabilities and average exchange rates during each reporting period for results of operations. All intercompany balances and transactions have been eliminated during consolidation.
The accompanying condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Pursuant to these rules and regulations, the Company has condensed or omitted certain information and footnotes it normally includes in its annual consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The unaudited interim condensed consolidated financial statements reflect all adjustments, including normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of the financial position and results of operations for the periods presented. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2021, which are included in the Company’s Annual Report on Form 10-K that was filed with the SEC. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022, or any other future periods.
8
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of property and equipment, goodwill, intangible assets, allowances for doubtful accounts, the valuation of share-based liabilities, deferred tax assets, inventory, stock-based compensation, revenues, restructuring liabilities, income tax uncertainties, and other contingencies.
Fair Value Measurements
The carrying amount of financial instruments consisting of cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses, and short-term debt included in the Company’s condensed consolidated financial statements are reasonable estimates of fair value due to their short maturities.
Authoritative guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
|
|
Level 1: |
Quoted prices in active markets for identical assets or liabilities. |
|
|
Level 2: |
Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active; or other inputs that can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
|
|
Level 3: |
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
Excess and Obsolete Inventory
Most of the Company’s inventory is comprised of finished goods, which is primarily produced by third-party suppliers. Specialized implants, fixation products, biologics, and disposables are determined by utilizing a standard cost method that includes capitalized variances which approximates the weighted average cost. Imaging equipment and related parts are valued at weighted average cost. Inventories are stated at the lower of cost or net realizable value. The Company reviews the components of its inventory on a periodic basis for excess and obsolescence and adjusts inventory to its net realizable value as necessary.
The Company records a lower of cost or net realizable value (“LCNRV”) inventory reserve for estimated excess and obsolete inventory based upon its expected use of inventory on hand. The Company’s inventory, which consists primarily of specialized implants, fixation products, biologics, and disposables is at risk of obsolescence due to the need to maintain substantial levels of inventory. In order to market its products effectively and meet the demands of interoperative product placement, the Company maintains and provides surgeons and hospitals with a variety of inventory products and sizes. For each surgery, fewer than all components will be consumed. The need to maintain and provide a wide variety of inventory causes inventory to be held that is not likely to be used.
The Company’s estimates and assumptions for excess and obsolete inventory are reviewed and updated on a quarterly basis. The estimates and assumptions are determined primarily based on current usage of inventory and the age of inventory quantities on hand. Additionally, the Company considers recent experience to develop assumptions about future demand for its products, while considering market conditions, product life cycles and new product launches. Increases in the LCNRV reserve for excess and obsolete inventory result in a corresponding charge to cost of sales.
9
Revenue Recognition
In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Revenue from Contracts with Customers (“Topic 606”), the Company recognizes revenue from sales of products and services when the customer obtains control of the promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. The principles in Topic 606 are applied using the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.
Sales are derived primarily from the sale of spinal implant products to hospitals and medical centers through direct sales representatives and independent distributors, and with the acquisition of EOS, includes imaging equipment and related services. Revenue is recognized when obligations under the terms of a contract with customers are satisfied, which occurs with the transfer of control of products to customers, either upon shipment of the product or delivery of the product to the customer depending on the shipping terms, or when the products are used in a surgical procedure (implanted in a patient). Revenue from the sale of imaging equipment is recognized as each distinct performance obligation is fulfilled and control transfers to the customer, beginning with shipment or delivery, depending on the terms. Revenue from other distinct performance obligations, such as maintenance on imaging equipment and other imaging related services, is recognized in the period the service is performed, and makes up less than
To the extent that the transaction price includes variable consideration, such as discounts, rebates, and customer payment penalties, the Company estimates the amount of variable consideration that should be included in the transaction price. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance and all information that is reasonably available, including historical, current, and forecasted information and whether, in the Company’s judgement, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.
The Company records a contract liability, or deferred revenue, when it has an obligation to provide a product or service to the customer and payment is received in advance of its performance. When the Company sells a product or service with a future performance obligation, revenue is deferred on the unfulfilled performance obligation and recognized over the related performance period. Generally, the Company does not have observable evidence of the standalone selling price related to its future service obligations; therefore, the Company estimates the selling price using an expected cost plus a margin approach. The transaction price is allocated using the relative standalone selling price method. The use of alternative estimates could result in a different amount of revenue deferral.
Recent Accounting Pronouncements
In August 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The guidance requires application of ASC 606, “Revenue from Contracts with Customers” to recognize and measure contract assets and contract liabilities acquired in a business combination. ASU No. 2021-08 adds an exception to the general recognition and measurement principle in ASC 805 where assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from contracts with customers, are measured at fair value on the acquisition date. Under the new guidance, the acquirer will recognize acquired contract assets and contract liabilities as if the acquirer had originated the contract. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. The Company does not intend to early adopt the standard and is in the process of assessing the impact, if any, on its condensed consolidated financial statements and related disclosures.
10
3. Business Combination
The Company recognizes assets acquired, liabilities assumed, and any noncontrolling interest at fair value at the date of acquisition.
On December 16, 2020, the Company entered into the Tender Offer Agreement with EOS, pursuant to which the Company agreed to commence a public tender offer (the “Offer”) to purchase all of the issued and outstanding ordinary shares, nominal value €
EOS, which now operates as a wholly owned subsidiary of the Company, is a global medical device company that designs, develops and markets innovative, low dose 2D/3D full body and biplanar weight-bearing imaging, rapid 3D modeling of EOS patient X-ray images, web-based patient-specific surgical planning, and integration of surgical plan into the operating room that collectively bridge the entire spectrum of care from imaging to post-operative assessment capabilities for orthopedic surgery. The Company plans to integrate this technology into its procedural approach to spine surgery to better inform and better achieve spinal alignment objectives in surgery.
The Company is still in the process of finalizing the purchase price allocation given the timing of the acquisition and the size and scope of the assets and liabilities subject to valuation. While the Company does not expect material changes in the outcome of the valuation, certain assumptions and findings that were in place at the date of acquisition may result in changes in the purchase price allocation. During the three months ended March 31, 2022, the Company recorded a purchase accounting adjustment primarily related to deferred tax assets, which resulted in a $
|
(in thousands) |
As of May 13, 2021 |
|
|
|
Cash paid for purchase of EOS shares at Change in Control Date |
$ |
|
|
|
Cash paid for purchase of OCEANEs at Change in Control Date |
|
|
|
|
Total cash paid at Change in Control Date |
|
|
|
|
Fair value of investment in EOS Shares held prior to Change in Control Date |
|
|
|
|
Fair value of investment in OCEANEs held prior to Change in Control Date |
|
|
|
|
Total fair value of investment in EOS held prior to Change in Control Date |
|
|
|
|
Fair value of noncontrolling interest acquired after Change in Control Date |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
|
|
|
Accounts receivable |
|
|
|
|
Inventory |
|
|
|
|
Other current assets |
|
|
|
|
Property, plant and equipment, net |
|
|
|
|
Deferred tax assets |
|
|
|
|
Right-of-use asset |
|
|
|
|
Goodwill |
|
|
|
|
Definite-lived intangible assets: |
|
|
|
|
Developed technology |
|
|
|
|
Customer relationships |
|
|
|
|
Trade names |
|
|
|
|
Other noncurrent assets |
|
|
|
|
Contract liabilities |
|
|
|
|
Long-term debt |
|
|
|
|
Other liabilities assumed |
|
|
|
|
Total identifiable net assets |
$ |
|
|
11
The purchase price, including cash paid at the Change in Control Date, the fair value of the investment held prior to the Change in Control Date, and the fair value of the noncontrolling interest acquired after the Change in Control Date, exceeded the fair value of the net tangible and identifiable intangible assets acquired as part of the acquisition. As a result, the Company recorded goodwill in connection with the acquisition. Goodwill primarily consists of expected revenue synergies resulting from the combination of product portfolios and cost synergies related to elimination of redundant facilities and functions associated with the combined entity. Goodwill recognized in this transaction is not deductible for tax purposes. The intangible assets acquired will be amortized on a straight-line basis over useful lives of
The following table presents the unaudited pro forma results for the three months ended March 31, 2021, which combines the historical results of operations of the Company and its wholly owned subsidiaries as though the companies had been combined as of January 1, 2020 and therefore many of the non-recurring business combination adjustments would have been included in the year ended December 31, 2020 by nature of such adjustments, instead of the periods presented. The pro forma information is presented for informational purposes only and is not indicative of the results of operations that may have been achieved if the acquisition had taken place at such time. The comparable period for the three months ended March 31, 2021 includes adjustments directly attributable to the business combination, including $
|
|
Three Months Ended March 31, |
|
|||||
|
(in thousands, except per share amounts) |
2022 |
|
|
2021 |
|
||
|
Total revenue |
$ |
|
|
|
$ |
|
|
|
Net loss |
|
( |
) |
|
|
( |
) |
|
Net loss per share, basic and diluted |
$ |
( |
) |
|
$ |
( |
) |
4. Fair Value Measurements
Assets and liabilities measured at fair value on a recurring basis included the following as of March 31, 2022, and December 31, 2021 (in thousands):
|
|
March 31, 2022 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
$ |
|
|
|
|
— |
|
|
|
— |
|
|
$ |
|
|
|
Total cash equivalents |
$ |
|
|
|
|
— |
|
|
|
— |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability classified equity award |
$ |
— |
|
|
|
— |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
$ |
|
|
|
|
— |
|
|
|
— |
|
|
$ |
|
|
|
Total cash equivalents |
$ |
|
|
|
|
— |
|
|
|
— |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability classified equity award |
$ |
— |
|
|
|
— |
|
|
|
|
|
|
$ |
|
|
The Company did not have any transfers of assets and liabilities between the levels of the fair value measurement hierarchy during the periods presented.
12
The Company issued a liability classified equity award to one of its executive officers. The award vests in 2023 subject to continued service and a specific market condition. As the award will be settled in cash, it is classified as a liability within Level 3 of the fair value hierarchy as the Company is using a probability-weighted income approach, utilizing significant unobservable inputs including the probability of achieving the specific market condition with the valuation updated at each reporting period. The full fair value of the award was $
The following table provides a reconciliation of liabilities measured at fair value using significant unobservable inputs (Level 3) for the three months ended March 31, 2022 (in thousands):
|
|
|
Level 3 Liabilities |
|
|
|
Balance at December 31, 2021 |
|
$ |
|
|
|
Straight-line recognition of liability classified equity award |
|
|
|
|
|
Change in fair value measurement |
|
|
|
|
|
Balance at March 31, 2022 |
|
$ |
|
|
Fair Value of Long-term Debt
The fair value, based on a quoted market price (Level 1), of the Company’s outstanding Senior Convertible Notes due
5. Inventories
Inventories reported at the lower of cost or net realizable value consist of the following (in thousands):
|
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
|
Raw materials |
|
$ |
|
|
|
$ |
|
|
|
Work-in-process |
|
|
|
|
|
|
|
|
|
Finished goods |
|
|
|
|
|
|
|
|
|
Inventories |
|
$ |
|
|
|
$ |
|
|
6. Property and Equipment, net
Property and equipment, net consist of the following (in thousands, except as indicated):
|
|
|
Useful lives (in years) |
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
|
Surgical instruments |
|
|
|
$ |
|
|
|
$ |
|
|
|
Machinery and equipment |
|
|
|
|
|
|
|
|
|
|
|
Computer equipment |
|
|
|
|
|
|
|
|
|
|
|
Office furniture and equipment |
|
|
|
|
|
|
|
|
|
|
|
Leasehold improvements |
|
|
|
|
|
|
|
|
|
|
|
Construction in progress |
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation and amortization |
|
|
|
|
( |
) |
|
|
( |
) |
|
Property and equipment, net |
|
|
|
$ |
|
|
|
$ |
|
|
Total depreciation expense was $
13
7. Goodwill and Intangible Assets
Goodwill
The change in the carrying amount of goodwill during the period ended March 31, 2022 included the following (in thousands):
|
December 31, 2021 |
|
$ |
|
|
|
Purchase price allocation adjustment |
|
|
|
|
|
Foreign currency fluctuation |
|
|
( |
) |
|
March 31, 2022 |
|
$ |
|
|
Intangible assets, net
Intangible assets, net consist of the following (in thousands, except as indicated):
|
|
|
Remaining Avg. Useful lives |
|
|
Gross |
|
|
Accumulated |
|
|
Intangible |
|
||||
|
March 31, 2022: |
|
(in years) |
|
|
Amount |
|
|
Amortization |
|
|
Assets, net |
|
||||
|
Developed product technology |
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Trademarks and trade names |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Customer relationships |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Distribution network |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
In-process research and development |
|
n/a |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining Avg. Useful lives |
|
|
Gross |
|
|
Accumulated |
|
|
Intangible |
|
||||
|
December 31, 2021: |
|
(in years) |
|
|
Amount |
|
|
Amortization |
|
|
Assets, net |
|
||||
|
Developed product technology |
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Trademarks and trade names |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Customer relationships |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Distribution network |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
In-process research and development |
|
n/a |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Total amortization expense attributed to intangible assets was $
Future amortization expense related to intangible assets is as follows (in thousands):
|
Year Ending December 31, |
|
|
|
|
|
Remainder of 2022 |
|
$ |
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
$ |
|
|
14
8. Contract Liability
Contract liability consists of the following (in thousands):
|
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
|
Contract liability |
|
$ |
|
|
|
$ |
|
|
|
Less: Non-current portion of contract liability |
|
|
( |
) |
|
|
( |
) |
|
Current portion of contract liability |
|
$ |
|
|
|
$ |
|
|
The non-current contract liability balance is included in other long-term liabilities on the condensed consolidated balance sheets. Contract liability relates to contracts with customers for which partial or complete payment of the transaction price has been received from the customer and the related obligations must be completed before revenue can be recognized. These amounts primarily related to undelivered equipment, services, or maintenance agreements. The Company recognized $
|
Balance at December 31, 2021 |
|
$ |
|
|
|
Payments received |
|
|
|
|
|
Revenue recognized |
|
|
( |
) |
|
Balance at March 31, 2022 |
|
$ |
|
|
9. Debt
0.75% Senior Convertible Notes due 2026
In August 2021, the Company issued $
The 2026 Notes are convertible into shares of the Company’s common stock based upon an initial conversion rate of
Holders of the Convertible Notes have the right to convert their notes in certain circumstances and during specified periods. Prior to the close of business on the business day immediately preceding February 2, 2026, holders may convert all or a portion of their 2026 Notes only under the following circumstances: (1) during any calendar quarter (and only during such calendar quarter) commencing after the calendar quarter ending on September 30, 2021, if the last reported sale price of the Company’s common stock for at least
15
The 2026 Notes are redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after
If a fundamental change occurs prior to the maturity date, holders may require the Company to repurchase all or a portion of their 2026 Notes for cash at a price equal to
The Company recorded the full principal amount of the 2026 Notes as a long-term liability net of deferred issuance costs. The annual effective interest rate for the 2026 Notes is
The outstanding principal amount and carrying value of the 2026 Notes consist of the following (in thousands):
|
|
|
March 31, 2022 |
|
|
|
Principal |
|
$ |
|
|
|
Unamortized debt issuance costs |
|
|
( |
) |
|
Net carrying value |
|
$ |
|
|
Capped Call Transactions
In connection with the offering of the 2026 Notes, the Company entered into the Capped Call Transactions with certain financial institutions. The Capped Call Transactions are expected generally to reduce the potential dilution and/or offset the cash payments the Company is required to make in excess of the principal amount of the 2026 Notes upon conversion of the 2026 Notes in the event that the market price per share of the Company’s common stock is greater than the strike price of the Capped Call Transactions with such reduction and/or offset subject to a cap. The Capped Call Transactions have an initial cap price of $
The Capped Call Transactions are separate transactions and are not part of the terms of the 2026 Notes and will not affect any holder’s rights under the notes. Holders of the 2026 Notes will not have any rights with respect to the Capped Call Transactions.
The Capped Call Transactions meet all of the applicable criteria for equity classification and, as a result, the related $
OCEANE Convertible Bonds
On May 31, 2018, EOS issued
As discussed in Note 3, in connection with the Offer to acquire EOS, the Company purchased
16
The OCEANEs are convertible by their holders into new EOS Shares or exchangeable for existing EOS Shares, at the Company’s option, at an initial conversion rate of
EOS has a right to redeem all of the OCEANEs at its option any time after June 20, 2021 at a cash redemption price equal to the par value of the OCEANEs plus accrued and unpaid interest if the product of the volume-weighted-average price of the shares and the conversion ratio as specified in the agreement in effect on each trading day exceeds
The carrying value of the outstanding OCEANEs was $
Other Debt Agreements
In January and April 2021, prior to the acquisition, EOS obtained
In February 2022, the Company extended the maturity for each loan agreement to
Total Indebtedness
Principal payments remaining on the Company's debt are as follows as of March 31, 2022 (in thousands):
|
Remainder of 2022 |
|
$ |
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total |
|
|
|
|
|
Less: debt discount |
|
|
( |
) |
|
Total |
|
|
|
|
|
Less: current portion of long-term debt |
|
|
( |
) |
|
Long-term debt |
|
$ |
|
|
17
10. Commitments and Contingencies
Leases
The Company determines if an arrangement is a lease at inception by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration over a period of time. The
The Company aggregates all lease and non-lease components for each class of underlying assets into a single lease component and variable charges for common area maintenance and other variable costs are recognized as expense as incurred. Total variable costs associated with leases for the three months ended March 31, 2022 were immaterial. The Company had an immaterial amount of financing leases as of March 31, 2022, which is included in property and equipment, net, and accrued expenses and other current liabilities, on the condensed consolidated balance sheets.
Operating Lease
The Company occupies approximately
On April 9, 2021, the Company entered into a
With the acquisition of EOS, the Company assumed its ROU assets and lease liabilities in the amount of $
Future minimum annual lease payments for all operating leases of the Company are as follows as of March 31, 2022 (in thousands):
|
Remainder of 2022 |
|
$ |
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total undiscounted lease payments |
|
|
|
|
|
Less: imputed interest |
|
|
( |
) |
|
Operating lease liability |
|
|
|
|
|
Less: current portion of operating lease liability |
|
|
( |
) |
|
Operating lease liability, less current portion |
|
$ |
|
|
The Company’s weighted average remaining lease term and weighted average discount rate as of March 31, 2022 and December 31, 2021 are as follows:
|
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
|
Weighted-average remaining lease term (years) |
|
|
|
|
|
|
|
|
|
Weighted-average discount rate |
|
|
|
% |
|
|
|
% |
18
Information related to the Company’s operating leases is as follows (in thousands):
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Rent expense |
|
$ |
|
|
|
$ |
|
|
|
Cash paid for amounts included in measurement of lease liabilities |
|
$ |
|
|
|
$ |
|
|
Purchase Commitments
With the acquisition of EOS, the Company assumed its inventory purchase commitment agreement with a third-party supplier. The Company is obligated to certain minimum purchase commitment requirements through December 2026. As of March 31, 2022, the remaining minimum purchase commitment required by the Company under the agreement was $32.4 million.
Litigation
The Company is and may become involved in various legal proceedings arising from its business activities. While management is not aware of any litigation matter that in and of itself would have a material adverse impact on the Company’s condensed consolidated results of operations, cash flows or financial position, litigation is inherently unpredictable, and depending on the nature and timing of a proceeding, an unfavorable resolution could materially affect the Company’s future consolidated results of operations, cash flows or financial position in a particular period. The Company assesses contingencies to determine the degree of probability and range of possible loss for potential accrual or disclosure in the Company’s condensed consolidated financial statements. An estimated loss contingency is accrued in the Company’s condensed consolidated financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgments about future events. When evaluating contingencies, the Company may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. In addition, damage amounts claimed in litigation against the Company may be unsupported, exaggerated or unrelated to reasonably possible outcomes, and as such are not meaningful indicators of the Company’s potential liability.
In February 2018, NuVasive, Inc. filed suit against the Company in the United States District Court for the Southern District of California (NuVasive, Inc. v. Alphatec Holdings, Inc. et al., Case No. 3:18-cv-00347-CAB-MDD (S.D. Cal.)), alleging that certain of the Company’s products (including components of its Battalion™ Lateral System), infringe, or contribute to the infringement of, U.S. Patent Nos. 7,819,801, 8,355,780, 8,439,832, 8,753,270, 9,833,227 (entitled “Surgical access system and related methods”), U.S. Patent No. 8,361,156 (entitled “Systems and methods for spinal fusion”), and U.S. Design Patent Nos. D652,519 (“Dilator”) and D750,252 (“Intervertebral Implant”). NuVasive seeks unspecified monetary damages and an injunction against future purported infringement.
In March 2018, the Company moved to dismiss NuVasive’s claims of infringement of its design patents for failure to state a cognizable legal claim. In May 2018, the Court ruled that NuVasive failed to state a plausible claim for infringement of the asserted design patents and dismissed those claims with prejudice. The Company filed its answer, affirmative defenses and counterclaims to NuVasive’s remaining claims in May 2018.
Also in March 2018, NuVasive moved for a preliminary injunction. In March 2018, the Court denied that motion without prejudice for failure to comply with the Court’s chambers rules. In April 2018, NuVasive again moved for a preliminary injunction. In July 2018, after a hearing on the matter in June 2018, the Court denied that motion on the grounds that NuVasive failed to establish either likelihood of success on the merits or that it would suffer irreparable harm absent injunction.
In September 2018, NuVasive filed an Amended Complaint, asserting additional infringement claims of U.S. Patent Nos. 9,924,859, 9,974,531 and 8,187,334. The Company filed its answer, affirmative defenses and counterclaims to these claims in October 2018. Also in October 2018, NuVasive moved to dismiss the Company’s counterclaims that NuVasive intentionally had misled the U.S. Patent and Trademark Office as a means of obtaining certain patents asserted against the Company. In January 2019, the Court denied NuVasive’s motion as to all but one counterclaim, but granted the Company leave to amend that counterclaim to cure dismissal. The Company amended that counterclaim in February 2019 and, that same month, NuVasive again moved to dismiss it. In March 2019, the Court denied NuVasive’s motion. NuVasive filed its Answer to the amended counterclaim in April 2019.
19
In December 2018, the Company filed a petition with the Patent Trial and Appeal Board (“PTAB”) challenging the validity of certain claims of the ’156 and ’334 Patents. In July 2019, PTAB instituted inter partes review (“IPR”) of the validity of asserted claims of the two patents at issue. In July 2019, PTAB instituted IPR of the validity of asserted claims of the two patents at issue and held a hearing on the matter in April 2020. In July 2020, the PTAB ruled that all challenged claims of the ‘156 Patent were valid (not unpatentable) and ruled that several challenged claims of the ‘334 Patent were invalid, while finding that other challenged claims of the ‘334 Patent valid. NuVasive and the Company both appealed the PTAB’s written decision on the matter. In February 2022, the U.S. Court of Appeals for the Federal Circuit affirmed the PTAB’s ruling without opinion.
In January 2020, NuVasive filed a Motion for Partial Summary Judgment of infringement and validity of the ’832, ’780 and ’270 Patents and the Company filed a Motion for Summary Judgment of non-infringement of all asserted claims and of invalidity of the ’832 Patent and for dismissal of NuVasive’s claim for lost profits and its allegations of assignor estoppel. In April 2020, the Court granted NuVasive’s Motion as to the alleged infringement of the ’832 Patent only and denied NuVasive’s Motion in all other respects. Also, in April 2020, the Court granted the Company’s Motion as to dismissal of the allegations of assignor estoppel and denied the Company’s Motion in all other respects.
In November 2020, NuVasive filed a Motion to Strike the Company’s Invalidity Contentions concerning the ’156 and ’334 Implant Patents. In April 2021, the Court denied NuVasive’s motion.
In January 2021, NuVasive filed a Motion for Partial Summary Judgment of infringement and validity of the ’156 and ’334 Implant Patents and the Company filed a Motion for Summary Judgment of invalidity of those same patents. These motions were argued to the Court on June 29, 2021. In August 2021, the Court denied NuVasive’s motion and granted the Company’s motion for summary judgment of invalidity of the ’156 Patent. In September 2021, NuVasive elected not to proceed with its remaining claims for the ’334 Patent, ’780 Patent, ’270 Patent, ’227 Patent, and ’859 Patent. Trial on the remaining patents (’801 Patent, ’832 Patent, and ’531 Patent) began on March 1, 2022, and completed on March 11, 2022. On March 15, 2022, the Court ordered the parties to participate in post-trial settlement conference. The Court has not entered judgement, and, on joint motion of the parties, the Court has extended the deadlines for post-trial motions until May 20, 2022. The post-trial settlement conference took place on March 28, 2022. The parties remain engaged in settlement discussions and the Company continues to contest vigorously all claims asserted.
The Company does not anticipate that any outcome will have a material adverse effect on the Company’s consolidated results of operations, cash flows or financial position.
Indemnifications
In the normal course of business, the Company enters into agreements under which it occasionally indemnifies third-parties for intellectual property infringement claims or claims arising from breaches of representations or warranties. In addition, from time to time, the Company provides indemnity protection to third-parties for claims relating to past performance arising from undisclosed liabilities, product liabilities, environmental obligations, representations and warranties, and other claims. In these agreements, the scope and amount of remedy, or the period in which claims can be made, may be limited. It is not possible to determine the maximum potential amount of future payments, if any, due under these indemnities due to the conditional nature of the obligations and the unique facts and circumstances involved in each agreement.
In October 2017, NuVasive filed a lawsuit in Delaware Chancery Court against Mr. Miles, the Company’s Chairman and CEO, who was a former officer and board member of NuVasive. The Company itself was not initially a named defendant in this lawsuit; however, on June 28, 2018, NuVasive amended its complaint to add the Company as a defendant. On October 12, 2018, the Delaware Court ordered that NuVasive begin advancing legal fees for Mr. Miles’ defense in the lawsuit, as well as Mr. Miles’ legal fees incurred in pursuing advancement of his fees, pursuant to an indemnification agreement between NuVasive and Mr. Miles. As of March 31, 2022, the Company has not recorded any liability on the condensed consolidated balance sheet related to this matter.
Royalties
The Company has entered into various intellectual property agreements requiring the payment of royalties based on the sale of products that utilize such intellectual property. These royalties primarily relate to products sold by Alphatec Spine and are based on fixed fees or are calculated either as a percentage of net sales or on a per-unit sold basis. Royalties are included on the accompanying condensed consolidated statements of operations as a component of cost of sales.
20
11. Orthotec Settlement
On September 26, 2014, the Company entered into a Settlement and Release Agreement, dated as of August 13, 2014, by and among the Company and its direct subsidiaries, including Alphatec Spine, Inc., Alphatec Holdings International C.V., Scient'x S.A.S. and Surgiview S.A.S.; HealthpointCapital, LLC, HealthpointCapital Partners, L.P., HealthpointCapital Partners II, L.P., John H. Foster and Mortimer Berkowitz III; and Orthotec, LLC and Patrick Bertranou, (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the Company agreed to pay Orthotec, LLC $
The payments set forth above are guaranteed by Stipulated Judgments held against the Company, HealthpointCapital Partners, L.P., HealthpointCapital Partners II, L.P., HealthpointCapital, LLC, John H. Foster and Mortimer Berkowitz III and, in the event of a default, will be entered and enforced against these entities and/or individuals in that order. In September 2014, the Company and HealthpointCapital entered into an agreement for joint payment of settlement whereby HealthpointCapital has agreed to contribute $
As of March 31, 2022, the Company has made installment payments in the aggregate of $
A reconciliation of the total net settlement obligation is as follows (in thousands):
|
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
|
Litigation settlement obligation - short-term portion |
|
$ |
|
|
|
$ |
|
|
|
Litigation settlement obligation - long-term portion |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
Future imputed interest |
|
|
|
|
|
|
|
|
|
Total settlement obligation, net |
|
$ |
|
|
|
$ |
|
|
12. Stock-Benefit Plans and Equity Transactions
Stock-Based Compensation
The Company has stock-based compensation plans under which it grants stock options, RSUs, and PRSUs to officers, directors and third parties. Total stock-based compensation for the periods presented were as follows (in thousands):
|
|
|
Three Months Ended |
|
|||||
|
|
|
March 31, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Cost of sales |
|
$ |
|
|
|
$ |
|
|
|
Research and development |
|
|
|
|
|
|
|
|
|
Sales, general and administrative |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
21
As of March 31, 2022, there was $
Restricted Stock Units and Performance Based Restricted Stock Units Awards
The Company issued approximately
Employee Stock Purchase Plan
Employees are eligible to participate in the ESPP approved by its shareholders. During the three months ended March 31, 2022, and 2021,
The Company estimates the fair value of shares issued to employees under the ESPP using the Black-Scholes option-pricing model. The assumptions used to estimate the fair value of stock options granted and stock purchase rights under the ESPP are as follows:
|
|
|
Three Months Ended |
|
|||||
|
|
|
March 31, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Risk-free interest rate |
|
|
|
% |
|
|
|
% |
|
Expected dividend yield |
|
|
— |
|
|
|
— |
|
|
Expected term (years) |
|
|
|
|
|
|
|
|
|
Volatility |
|
|
|
% |
|
|
|
% |
Warrants Outstanding
2017 PIPE Warrants
The 2017 Common Stock Warrants (the “2017 PIPE Warrants”) have a life and are exercisable by cash exercise only. During the three months ended March 31, 2022, and 2021, there were approximately
2018 PIPE Warrants
The 2018 Common Stock Warrants (the “2018 PIPE Warrants”) have a life and are exercisable by cash or cashless exercise. During the three months ended March 31, 2022, and 2021, there were approximately
22
SafeOp Surgical Merger Warrants
In conjunction with the Company’s 2018 acquisition of SafeOp, the Company issued warrants to purchase
Squadron Medical Warrants
During the year ended December 31, 2018, in connection with the initial debt financing with Squadron Medical and a participant lender, the Company issued warrants (the “Squadron Medical Warrants”) to purchase
Executive Warrants
In December 2017 the Company issued warrants to Mr. Patrick S. Miles, the Company’s Chairman and Chief Executive Officer, to purchase approximately
A summary of all outstanding warrants for common stock as of March 31, 2022, were as follows (in thousands, except for strike price data):
|
|
|
Number of Warrants |
|
|
Strike Price |
|
Expiration |
||
|
2017 PIPE Warrants |
|
|
|
|
|
$ |
|
|
|
|
2018 PIPE Warrants |
|
|
|
|
|
$ |
|
|
|
|
SafeOp Surgical Merger Warrants |
|
|
|
|
|
$ |
|
|
|
|
2018 Squadron Medical Warrants |
|
|
|
|
|
$ |
|
|
|
|
2019 Squadron Medical Warrants |
|
|
|
|
|
$ |
|
|
|
|
2020 Squadron Medical Warrants |
|
|
|
|
|
$ |
|
|
|
|
Executive Warrants |
|
|
|
|
|
$ |
|
|
|
|
Other(1) |
|
|
|
|
|
$ |
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All outstanding warrants were deemed to qualify for equity classification under authoritative accounting guidance.
23
13. Business Segment and Geographic Information
The Company operates in
Net revenue and property, plant and equipment, net, by geographic region were as follows (in thousands):
|
|
|
Revenue |
|
Property and equipment, net |
|
||||||||||
|
|
|
Three Months Ended March 31, |
|
March 31, |
|
|
December 31, |
|
|||||||
|
(in thousands) |
|
2022 |
|
|
2021 |
|
2022 |
|
|
2021 |
|
||||
|
United States |
|
$ |
|
|
|
$ |
|
|
$ |
|
|
|
$ |
|
|
|
International |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
$ |
|
|
|
$ |
|
|
14. Net Loss Per Share
Basic net loss per share is calculated by dividing the net loss available to common stockholders by the weighted-average number of common shares outstanding for the period. If applicable, diluted net loss per share attributable to common stockholders is calculated by dividing net loss available to common stockholders by the diluted weighted-average number of common shares outstanding for the period.
The following table presents the computation of basic and diluted net loss per share (in thousands, except per share amounts):
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Numerator: |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
Denominator: |
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted: |
|
$ |
( |
) |
|
$ |
( |
) |
The following potentially dilutive shares of common stock were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented (in thousands):
|
|
|
As of March 31, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Series A convertible preferred stock |
|
|
|
|
|
|
|
|
|
Options to purchase common stock and employee stock purchase plan |
|
|
|
|
|
|
|
|
|
Unvested restricted share awards |
|
|
|
|
|
|
|
|
|
Warrants to purchase common stock |
|
|
|
|
|
|
|
|
|
Senior convertible notes |
|
|
|
|
|
|
— |
|
|
Total |
|
|
|
|
|
|
|
|
15. Income Taxes
To calculate its interim tax provision, at the end of each interim period the Company estimates the annual effective tax rate, adjusted for discrete items arising in that quarter. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the estimated annual taxable income or loss for the year and projections of the proportion of income earned and taxed in foreign jurisdictions. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained, or the tax environment changes.
24
The Company’s effective tax rate from continuing operations was (
16. Related Party Transactions
In November 2018, the Company entered into the Term Loan and Inventory Financing Agreement with certain affiliates of Squadron Capital, LLC (“Squadron”), including an inventory supplier (the “Squadron Supplier Affiliate”). The Term Loan was amended in March 2019, May 2020, and December 2020. On August 10, 2021, the Company terminated and repaid all obligations under the Term Loan and the Inventory Financing Agreement. For the three months ended March 31, 2022, and 2021, the Company purchased inventory in the amounts of $
25
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
You should read the following management's discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto that appear elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”). In addition to historical information, the following management’s discussion and analysis of our financial condition and results of operations includes forward-looking information that involves risks, uncertainties, and assumptions. Our actual results and the timing of events could differ materially from those anticipated by these forward-looking statements as a result of many factors, such as those set forth under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, and any updates to those risk factors filed from time to time in our subsequent periodic and current reports filed with the SEC.
Overview
We are a medical technology company focused on the design, development, and advancement of technology for better surgical treatment of spinal disorders. We are dedicated to revolutionizing the approach to spine surgery through clinical distinction. We are focused on developing new approaches that integrate seamlessly with our expanding Alpha InformatiX™ product platform to better inform surgery and to achieve the goals of spine surgery more safely and reproducibly. We have a broad product portfolio designed to address the spine’s various pathologies. Our ultimate vision is to be the standard bearer in spine.
We intend to drive growth by capitalizing on our collective spine experience and investing in the research and development to continually differentiate our solutions and improve spine surgery. We believe our future success will be fueled by introducing market-shifting innovation to the spine market, and that we are well-positioned to capitalize on current spine market dynamics.
We market and sell our products through a network of independent distributors and direct sales representatives. An objective of our leadership team is to deliver increasingly consistent, predictable growth. To accomplish this, we have partnered more closely with new and existing distributors to create a more dedicated and loyal sales channel for the future. We have added, and intend to continue to add, new high-quality exclusive and dedicated distributors and direct sales representatives to expand future growth. We believe this will allow us to reach an untapped market of surgeons, hospitals, and national accounts across the United States and internationally, as well as better penetrate existing accounts and territories.
Revenue and Expense Components
The following is a description of the primary components of our revenue and expenses:
Revenue. We derive our revenue primarily from the sale of spinal surgery implants used in the treatment of spine disorders as well as the sale of medical imaging equipment which is used for surgical planning and post-operative assessment. Spinal implant products include pedicle screws and complementary implants, interbody devices, plates, and tissue-based materials. Medical imaging equipment includes our EOS full-body and weight-bearing x-ray imaging devices, and related services. Our revenue is generated by our direct sales force and independent distributors. Our products are shipped and invoiced to hospitals and surgical centers. Currently, most of our business is conducted with customers within markets in which we have experience and with payment terms that are customary to our business. We may defer revenue until the time of collection if circumstances related to payment terms, regional market risk or customer history indicate that collectability is not certain.
Cost of sales. Cost of sales consists primarily of direct product costs, royalties, service labor hours, and parts. Our product costs consist primarily of raw materials, component parts, direct labor, and overhead. The product costs of certain of our biologics products include the cost of procuring and processing human tissue. We incur royalties related to the technologies that we license from others and the products that are developed in part by surgeons with whom we collaborate in the product development process.
Research and development expenses. Research and development expenses consist of costs associated with the design, development, testing, and enhancement of our products. Research and development expenses also include salaries and related employee benefits, research-related overhead expenses, fees paid to external service providers and development consultants in the form of both cash and equity.
Sales, general and administrative expenses. Sales, general and administrative expenses consist primarily of salaries and related employee benefits, sales commissions and other variable costs, depreciation of our surgical instruments, regulatory affairs, quality assurance costs, professional service fees, travel, medical education, trade show and marketing costs, and insurance.
26
Litigation-related expenses. Litigation-related expenses are costs incurred for our ongoing litigation, primarily with NuVasive, Inc.
Amortization of acquired intangible assets. Amortization of acquired intangible assets consists of intangible assets acquired in business combinations and asset purchases.
Transaction-related expenses. Transaction-related expenses are certain costs incurred related primarily to the acquisition and integration of EOS.
Restructuring expenses. Restructuring expenses are costs incurred related primarily to severance, social plan benefits and related taxes in connection with cost rationalization efforts, as well as costs associated with the opening or closing of office and warehouse facilities.
Total interest and other expense, net. Total interest and other expense, net includes interest income, interest expense, gains and losses from foreign currency exchanges and other non-operating gains and losses.
Income tax provision. Income tax provision primarily consists of an estimate of federal, state, and foreign income taxes based on enacted state, and foreign tax rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in the valuation of our deferred tax assets and liabilities, and changes in tax laws.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures. On an on-going basis, we evaluate our estimates and assumptions, including those related to revenue recognition, allowances for accounts receivable, inventories, intangible assets, stock-based compensation, and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumption conditions.
Critical accounting policies are those that, in management’s view, are most important in the portrayal of our financial condition and results of operations. Management believes there have been no material changes during the three months ended March 31, 2022, to the critical accounting policies discussed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC.
Results of Operations
Total revenue
|
|
|
Three Months Ended March 31, |
|
|
Change |
|
||||||||||
|
(in thousands, except %) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from products and services |
|
$ |
70,918 |
|
|
$ |
43,716 |
|
|
$ |
27,202 |
|
|
|
62 |
% |
|
Revenue from international supply agreement |
|
|
15 |
|
|
|
405 |
|
|
|
(390 |
) |
|
|
(96 |
)% |
|
Total revenue |
|
$ |
70,933 |
|
|
$ |
44,121 |
|
|
$ |
26,812 |
|
|
|
61 |
% |
Revenue associated with our acquisition of EOS accounted for approximately $10.3 million, or 38%, of the increase in revenue from products and services for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. Revenue from products and services, excluding EOS, accounted for approximately $16.9 million, or 62%, of the increase during the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. The increase was primarily due to an increase in product volume that was due to the continued expansion of our new product portfolio, increases in our surgeon user base, and progress related to the transformation of our sales network.
27
Cost of sales
|
|
|
Three Months Ended March 31, |
|
|
Change |
|
||||||||||
|
(in thousands, except %) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||
|
Cost of sales |
|
$ |
21,717 |
|
|
$ |
12,263 |
|
|
$ |
9,454 |
|
|
|
77 |
% |
Cost of sales associated with EOS operations accounted for approximately $5.2 million, or 55%, of the increase for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. Cost of sales, excluding EOS, accounted for approximately $4.3 million, or 45%, of the increase during the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. The increase was primarily due to product volume.
Operating expenses
|
|
|
Three Months Ended March 31, |
|
|
Change |
|
||||||||||
|
(in thousands, except %) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
$ |
9,722 |
|
|
$ |
5,801 |
|
|
$ |
3,921 |
|
|
|
68 |
% |
|
Sales, general and administrative |
|
|
69,471 |
|
|
|
40,426 |
|
|
|
29,045 |
|
|
|
72 |
% |
|
Litigation-related expenses |
|
|
7,532 |
|
|
|
3,335 |
|
|
|
4,197 |
|
|
|
126 |
% |
|
Amortization of acquired intangible assets |
|
|
2,230 |
|
|
|
172 |
|
|
|
2,058 |
|
|
|
1,197 |
% |
|
Transaction-related expenses |
|
|
120 |
|
|
|
1,012 |
|
|
|
(892 |
) |
|
|
(88 |
)% |
|
Restructuring expenses |
|
|
1,370 |
|
|
|
158 |
|
|
|
1,212 |
|
|
|
767 |
% |
|
Total operating expenses |
|
$ |
90,445 |
|
|
$ |
50,904 |
|
|
$ |
39,541 |
|
|
|
78 |
% |
Research and development expenses. Research and development expense associated with EOS accounted for approximately $1.1 million, or 28%, of the total increase for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. Research and development expense, excluding EOS, accounted for approximately $2.8 million, or 72%, of the increase during the three months ended March 31, 2022, compared to the three months ended March 31, 2021. The increase was primarily due to an increase in personnel to support the expansion of our new product portfolio.
Sales, general and administrative expenses. Sales, general and administrative expenses associated with EOS accounted for approximately $2.9 million, or 10%, of the total increase for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. Sales, general and administrative expenses, excluding EOS, accounted for approximately $26.1 million, or 90%, of the increase during the three months ended March 31, 2022, compared to the three months ended March 31, 2021. The increase was primarily due to higher compensation-related costs and variable selling expenses associated with the increase in revenue, and our continued investment in building our strategic distribution channel. Additionally, we have increased our investment in our sales and marketing functions by increasing headcount to support the growth of our business, as well as necessary administrative support.
Litigation-related expenses. Litigation expenses increased by $4.2 million, or 126%, during the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. Litigation expense is primarily related to our ongoing litigation with NuVasive, Inc. and other legal activities.
Amortization of acquired intangible assets. The increase in amortization of acquired intangible assets is primarily due to the amortization of intangible assets acquired in the EOS acquisition.
Transaction-related expenses. The decrease in transaction-related expenses for the three months ended March 31, 2022, is primarily due to the closing of the EOS acquisition on May 13, 2021.
Restructuring expenses. The increase in restructuring costs for the three months ended March 31, 2022, is due to severance, social plan benefits and related taxes in connection with cost rationalization efforts.
28
Total interest and other expense, net
|
|
|
Three Months Ended March 31, |
|
|
Change |
|
||||||||||
|
(in thousands, except %) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||
|
Interest and other expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
$ |
(1,456 |
) |
|
$ |
(1,938 |
) |
|
$ |
482 |
|
|
|
(25 |
)% |
|
Other expense, net |
|
|
(30 |
) |
|
|
(1,889 |
) |
|
|
1,859 |
|
|
|
(98 |
)% |
|
Total interest and other expense, net |
|
$ |
(1,486 |
) |
|
$ |
(3,827 |
) |
|
$ |
2,341 |
|
|
|
(61 |
)% |
The decrease in other expense, net, during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 was primarily due to foreign currency losses related to the forward contract settlement and the net loss on debt extinguishment associated with the early payoff of the term loan and the PPP loan forgiveness, which were non-recurring expenses incurred during the three months ended March 31, 2021. The decrease in interest expense, net, was primarily due lower interest rates on the 2026 Notes compared to the Term Loan that was repaid in full during the year ended December 31, 2021.
Income tax provision
|
|
|
Three Months Ended March 31, |
|
|
Change |
|
||||||||||
|
(in thousands, except %) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||
|
Income tax provision |
|
$ |
129 |
|
|
$ |
30 |
|
|
$ |
99 |
|
|
|
330 |
% |
The increase in the income tax provision for the three months ended March 31, 2022, was primarily related to the recognition of uncertain tax positions.
Liquidity and Capital Resources
Our principal sources of liquidity are our existing cash and cash equivalents and cash from operations. Our liquidity and capital structure are evaluated regularly within the context of our annual operating and strategic planning process. We consider the liquidity necessary to fund our operations, which include working capital needs, investments in research and development, investments in inventory and instrument sets to support our customers, as well as other operating costs. Our future capital requirements will depend on many factors including our rate of revenue growth, the timing and extent of spending to support development efforts, the expansion of sales, marketing and administrative activities, and the timing of introductions of new products and enhancements to existing products. As current borrowing sources become due, we may be required to access the capital markets for additional funding. If we are required to access the debt market, we expect to be able to secure reasonable borrowing rates.
Cash and cash equivalents were $151.8 million and $187.2 million at March 31, 2022, and December 31, 2021, respectively. We believe that our existing funds, cash generated from our operations and our existing sources of and access to financing are adequate to satisfy our needs for working capital, capital expenditure and debt service requirements, and other business initiatives we plan to strategically pursue.
Summary of Cash Flows
|
|
|
Three Months Ended March 31, |
|
|||||
|
(in thousands) |
|
2022 |
|
|
2021 |
|
||
|
Cash (used in) provided by: |
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
(24,712 |
) |
|
$ |
(18,604 |
) |
|
Investing activities |
|
|
(13,407 |
) |
|
|
(25,994 |
) |
|
Financing activities |
|
|
2,697 |
|
|
|
130,776 |
|
|
Effect of exchange rate changes on cash |
|
|
(14 |
) |
|
|
(2,806 |
) |
|
Net (decrease) increase in cash and cash equivalents |
|
$ |
(35,436 |
) |
|
$ |
83,372 |
|
Operating Activities
We used cash of $24.7 million from operating activities for the three months ended March 31, 2022. The cash used in operating activities primarily related to costs associated with the continued expansion of our business and inventory purchases, offset by the timing of cash payments and receipts.
29
Investing Activities
We used cash of $13.4 million in investing activities for the three months ended March 31, 2022, which is primarily related to the purchase of surgical instruments to support the commercial launch of new products and growth of our business.
Financing Activities
Financing activities provided $2.7 million of cash for the three months ended March 31, 2022, which is related to proceeds from financed insurance and proceeds from warrant exercises.
Debt and Commitments
As of March 31, 2022, we had $316.3 million outstanding under the 2026 Notes. The 2026 Notes accrue interest at a rate of 0.75%, payable semi-annually in arrears on February 1 and August 1 of each year. Prior to maturity in August 2026, the holders of the 2026 Notes may, under certain circumstances, choose to convert their notes into shares of our common stock. Based on the terms we have the option to pay or deliver cash, shares of our common stock, or a combination thereof, when a conversion notice is received.
We assumed the OCEANE convertible bonds issued by EOS in connection with our acquisition of EOS. The OCEANEs bear interest at 6% per year, payable semi-annually in arrears on May 31 and November 30 of each year. Unless either earlier converted or repurchased, the outstanding OCEANEs of $13.9 million (€12.5 million) will mature on May 31, 2023.
We also assumed $5.2 million (€4.8 million) in other debts with the acquisition of EOS that are due in monthly and quarterly installments beginning in 2023 through maturity in 2027.
As of March 31, 2022, we have made $50.1 million in Orthotec settlement payments and there remains an outstanding balance of $7.7 million in Orthotec settlement payments (including imputed interest) to be paid by us.
With the acquisition of EOS, we assumed its inventory purchase commitment agreement with a third-party supplier. We are obligated to certain minimum purchase commitment requirements through December 2026. As of March 31, 2022, the remaining minimum purchase commitment under the agreement was $32.4 million.
Contractual obligations and commercial commitments
As of March 31, 2022, there have been no material changes, outside the normal course of business, in our outstanding contractual obligations from those disclosed within the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Real Property Leases
On April 9, 2021, we entered into a 7-year operating lease agreement for a distribution center which consists of approximately 75,643 square feet of office and warehouse space in Memphis, Tennessee. The term of the lease commenced on May 1, 2021, and will terminate on May 1, 2028, subject to two thirty-six-month options to renew. Base rent under the building lease will be commensurate with our proportionate share of occupancy of the building and will increase annually by 3.0% throughout the remainder of the lease.
With the acquisition of EOS, we assumed its right-of-use assets and leases liabilities in the amount of $4.3 million. EOS occupies its main office in Paris, France. The EOS office in Paris, France is an operating lease that commenced in 2019 and will terminate in September 2028.
On December 4, 2019, we entered into a lease agreement for our headquarters location which consists of 121,541 square feet of office, engineering, and research and development space in Carlsbad, California. The term of the lease commenced on February 1, 2021, and will terminate January 31, 2031, subject to two sixty-month options to renew. Base rent under the lease increases annually by 3.0% throughout the remainder of the lease.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
30
Recent Accounting Pronouncements
Aside from the changes disclosed in Note 2 to the Notes to Condensed Consolidated Financial Statements (Unaudited) under the heading “Recent Accounting Pronouncements,” if any, there have been no new accounting pronouncements or changes to accounting pronouncements during the three months ended March 31, 2022, as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the year ended December 31, 2021, that was filed with the SEC.
Forward Looking Statements
This Quarterly Report on Form 10-Q incorporates a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements regarding:
|
|
• |
our estimates regarding anticipated operating losses, future revenue, expenses, capital requirements, uses and sources of cash and liquidity, including our anticipated revenue growth and cost savings; |
|
|
• |
our ability to achieve profitability, and the potential need to raise additional funding; |
|
|
• |
our ability to ensure that we have effective disclosure controls and procedures; |
|
|
• |
our ability to meet, and potential liability from not meeting, any outstanding commitments and contractual obligations; |
|
|
• |
our ability to maintain compliance with the quality requirements of the U.S. Food and Drug Administration and similar foreign regulatory requirements; |
|
|
• |
our ability to market, improve, grow, commercialize and achieve market acceptance of any of our products or any product candidates that we are developing or may develop in the future; |
|
|
• |
our ability to continue to enhance our product offerings, and to commercialize and achieve market acceptance of any of our products or product candidates; |
|
|
• |
the effect of any existing or future federal, state or international regulations on our ability to effectively conduct our business; |
|
|
• |
our business strategy and our underlying assumptions about market data, demographic trends, reimbursement trends and pricing trends |
|
|
• |
our ability to maintain an adequate global sales network for our products, including to attract and retain independent distributors and direct sales representatives; |
|
|
• |
our ability to increase the use and promotion of our products by training and educating spine surgeons and our global sales network; |
|
|
• |
our ability to attract and retain a qualified management team, as well as other qualified personnel and advisors; |
|
|
• |
our ability to enter into licensing and business combination agreements with third parties and to successfully integrate the acquired technology and/or businesses; |
|
|
• |
the impact of global economic and political conditions and public health crises on our business and industry; and |
|
|
• |
other factors discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 or any document incorporated by reference herein or therein. |
Any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be wrong. They can be affected by inaccurate assumptions and/or by known or unknown risks and uncertainties. Many factors mentioned in our discussion in this Quarterly Report on Form 10-Q will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially from expected results.
We also provide a cautionary discussion of risks and uncertainties under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, and any updates to those risk factors filed from time to time in our subsequent periodic and current reports filed with the SEC. These are factors that we think could cause our actual results to differ materially from expected results. Other factors besides those listed there could also adversely affect us.
31
Without limiting the foregoing, the words “believe,” “anticipate,” “plan,” “expect,” “estimate,” “may,” “will,” “should,” “could,” “would,” “seek,” “intend,” “continue,” “project,” and similar expressions are intended to identify forward-looking statements. There are a number of factors and uncertainties that could cause actual events or results to differ materially from those indicated by such forward-looking statements, many of which are beyond our control, including the factors set forth under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 and any updates to those risk factors filed from time to time in our subsequent periodic and current reports filed with the SEC. In addition, the forward-looking statements contained herein represent our estimate only as of the date of this filing and should not be relied upon as representing our estimate as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements.
|
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
We have evaluated the information required under this item that was disclosed under Item 7A in our Annual Report on Form 10-K for the year ended December 31, 2021, and there have been no significant changes to this information.
|
Item 4. |
Controls and Procedures |
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time lines specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in SEC Rules 13a - 15(e) and 15d - 15(e)) as of March 31, 2022. Based on such evaluation, our management has concluded that as of March 31, 2022, our disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
We are in the process of implementing a new enterprise resource planning (“ERP”) system that affects many of our financial processes and is expected to improve the efficiency and effectiveness of certain financial and business transaction processes, as well as the underlying systems environment. There have been no changes to our internal control over financial reporting during the three months ended March 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Due to the timing of our acquisition of EOS, the internal control over financial reporting of the acquired company and its subsidiaries, including the portion of disclosure controls and procedures that related to internal control over financial reporting, was excluded from the evaluation of the effectiveness of our disclosure controls and procedures as of the period covered by this report. This exclusion is in accordance with the general guidance issued by the Staff of the SEC that an assessment of a recent business combination may be omitted from management's report on internal control over financial reporting in the first twelve months of consolidation.
32
PART II. OTHER INFORMATION
|
Item 1. |
Legal Proceedings |
Litigation
We are and may become involved in various legal proceedings arising from our business activities. While the Company has no material accruals for pending litigation or claims for which accrual amounts are not disclosed in the Company’s condensed consolidated financial statements, litigation is inherently unpredictable, and depending on the nature and timing of a proceeding, an unfavorable resolution could materially affect our future condensed consolidated results of operations, cash flows or financial position in a particular period. We assess contingencies to determine the degree of probability and range of possible loss for potential accrual or disclosure in our condensed consolidated financial statements. An estimated loss contingency is accrued in our condensed consolidated financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgments about future events. When evaluating contingencies, we may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. In addition, damage amounts claimed in litigation against us may be unsupported, exaggerated or unrelated to reasonably possible outcomes, and as such are not meaningful indicators of our potential liability.
Refer to Note 10 to the Notes to Condensed Consolidated Financial Statements included in Item 1, Part I of this Quarterly Report on Form 10-Q for further information regarding the NuVasive, Inc. litigation.
|
Item 1A. |
Risk Factors |
There have been no material changes to the risk factors described under Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 2, 2022, except for those noted below:
The United States has recently experienced historically high levels of inflation. If the inflation rate continues to increase, such as increases in the costs of labor and supplies, it will likely affect our expenses. Additionally, the United States is experiencing an acute workforce shortage, which in turn, has created a hyper-competitive wage environment that may increase our operating costs. To the extent inflation results in rising interest rates and has other adverse effects on the market, it may adversely affect our business, financial condition or results of operations.
|
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
During the three months ended March 31, 2022, the Company issued unregistered equity securities as described below:
On February 1, 2022, the Company issued 50,000 restricted shares of the Company’s common stock with a grant date fair value of $10.33, based on the market price of common stock on grant date, to a consultant for consulting services rendered to the Company. The restrictions applicable to the shares will expire if the consultant’s engagement with the Company continues through June 30, 2022.
On each of January 20, 2022, February 22, 2022, and March 17, 2022, the Company issued 10,000 restricted shares of the Company’s common stock with a grant date fair values of $10.61, $9.59 and $10.94, respectively, based on the market price of common stock on grant dates, to an independent distributor for distribution and related services rendered to the Company.
On each of January 5, 2022 and March 23, 2022, the Company issued 10,000 restricted shares of the Company’s common stock with a grant date fair values of $11.65 and $10.45, respectively, based on the market price of common stock on grant dates, to an independent distributor for distribution and related services rendered to the Company.
The issuances of the foregoing securities were made in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, as there was no general solicitation and the transactions did not involve a public offering.
|
Item 5. |
Other Information |
None.
33
|
Item 6. |
Exhibits |
|
Exhibit |
|
Number Exhibit Description |
|
|
|
|
|
31.1 |
|
|
|
|
|
|
|
31.2 |
|
|
|
|
|
|
|
32 |
|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
101 |
|
The following materials from the Alphatec Holdings, Inc. Quarterly Report on Form 10-Q for the Three Months Ended March 31, 2022, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets (Unaudited) as of March 31, 2022 and December 31, 2021, (ii) Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2022 and 2021, (iii) Condensed Consolidated Statements of Comprehensive Loss (Unaudited) for the Three Months Ended March 31, 2022 and 2021, (iv) Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three Months Ended March 31, 2022 and 2021, (v) Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2022 and 2021, and (vi) Notes to Condensed Consolidated Financial Statements (Unaudited). |
|
|
|
|
|
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.INS) |
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
ALPHATEC HOLDINGS, INC. |
|
|
|
|
|
|
|
By: |
/s/ Patrick S. Miles |
|
|
|
Patrick S. Miles |
|
|
|
Chairman and Chief Executive Officer |
|
|
|
(principal executive officer) |
|
|
|
|
|
|
By: |
/s/ J. Todd Koning |
|
|
|
J. Todd Koning |
|
|
|
Executive Vice President and Chief Financial Officer |
|
|
|
(principal financial officer and principal accounting officer) |
Date: May 5, 2022
35
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Patrick S. Miles, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Alphatec Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
By: |
|
/s/ Patrick S. Miles |
|
|
|
Patrick S. Miles |
|
|
|
Chairman and Chief Executive Officer |
|
|
|
(principal executive officer) |
|
|
|
May 5, 2022 |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, J. Todd Koning, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Alphatec Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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By: |
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/s/ J. Todd Koning |
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J. Todd Koning |
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Chief Financial Officer |
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(principal financial and accounting officer) |
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May 5, 2022 |
Exhibit 32
CERTIFICATION UNDER
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Alphatec Holdings, Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Patrick S. Miles, Chairman and Chief Executive Officer, certify, to my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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Dated: |
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May 5, 2022 |
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/s/ Patrick S. Miles |
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Patrick S. Miles |
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Chairman and Chief Executive Officer |
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(principal executive officer of the Company) |
In connection with the Quarterly Report of Alphatec Holdings, Inc. (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, J. Todd Koning, Chief Financial Officer, certify, to my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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Dated: |
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May 5, 2022 |
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/s/ J. Todd Koning |
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J. Todd Koning |
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Chief Financial Officer |
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(principal financial and accounting officer of the Company) |