UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
For the quarterly period ended SeptemberJune 30, 20212022
OR
☐ 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: 000-52024
ALPHATEC HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 20-2463898 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer | |
1950 Camino Vida Roble, Carlsbad, CA | 92008 | |
( |
|
1950 Camino Vida Roble
Carlsbad, CA 92008
(Address of principal executive offices, including zip code)
(760) 431-9286
(Registrant’s telephone number, including area code)code: (760) 431-9286
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common stock, par value $.0001 per share | ATEC | The NASDAQ Global Select Market |
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. Yes☒ No ☐
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). Yes☒ No ☐
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.
|
|
| Accelerated filer |
|
Non-accelerated filer | ☐ |
| Smaller reporting company |
|
Emerging growth company | ☐ |
|
|
|
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 ☐ No ☒
As of November 1, 2021,July 28, 2022, there were 99,293,042104,656,433 shares of the registrant’s common stock outstanding.
ALPHATEC HOLDINGS, INC.
QUARTERLY REPORT ON FORM 10-Q
SeptemberJune 30, 20212022
Table of Contents
|
|
|
| Page |
|
|
|
| |
|
|
|
|
|
Item 1. |
|
| 3 | |
|
|
|
|
|
|
|
| 3 | |
|
|
|
|
|
|
|
| 4 | |
|
|
|
|
|
|
|
| 5 | |
|
|
|
|
|
|
|
| 6 | |
|
|
|
|
|
|
|
| 8 | |
|
|
|
|
|
|
| Notes to Condensed Consolidated Financial Statements (unaudited) |
| 9 |
|
|
|
|
|
Item 2. |
| Management's Discussion and Analysis of Financial Condition and Results of Operations |
|
|
|
|
|
|
|
Item 3. |
|
|
| |
|
|
|
|
|
Item 4. |
|
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Item 1. |
|
|
| |
|
|
|
|
|
Item 1A. |
|
|
| |
|
|
|
|
|
Item 2. |
|
|
| |
|
|
|
|
|
Item 5. |
|
|
| |
|
|
|
|
|
Item 6. |
|
|
| |
|
|
|
|
|
|
| |||
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
|
|
ALPHATEC HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for par value data)
|
| September 30, 2021 |
|
| December 31, 2020 |
|
| June 30, 2022 |
|
| December 31, 2021 |
| |||||
Assets |
| (Unaudited) |
|
|
|
|
|
| (Unaudited) |
|
|
|
| ||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Cash |
| $ | 223,868 |
|
| $ | 107,765 |
| |||||||||
Accounts receivable, net |
|
| 33,676 |
|
|
| 23,527 |
| |||||||||
Cash and cash equivalents |
| $ | 107,470 |
|
| $ | 187,248 |
| |||||||||
Accounts receivable, net of allowances of $561 and $2,307, respectively |
|
| 43,928 |
|
|
| 41,893 |
| |||||||||
Inventories |
|
| 92,509 |
|
|
| 46,001 |
|
|
| 102,796 |
|
|
| 91,703 |
| |
Prepaid expenses and other current assets |
|
| 7,109 |
|
|
| 5,439 |
|
|
| 11,045 |
|
|
| 10,313 |
| |
Withholding tax receivable from Officer |
|
| — |
|
|
| 1,076 |
| |||||||||
Current assets of discontinued operations |
|
| — |
|
|
| 352 |
| |||||||||
Total current assets |
|
| 357,162 |
|
|
| 184,160 |
|
|
| 265,239 |
|
|
| 331,157 |
| |
Property and equipment, net |
|
| 77,214 |
|
|
| 36,670 |
|
|
| 99,183 |
|
|
| 87,401 |
| |
Right-of-use asset |
|
| 26,647 |
|
|
| 1,177 |
| |||||||||
Right-of-use assets |
|
| 28,116 |
|
|
| 25,283 |
| |||||||||
Goodwill |
|
| 44,335 |
|
|
| 13,897 |
|
|
| 39,170 |
|
|
| 39,689 |
| |
Intangible assets, net |
|
| 88,840 |
|
|
| 24,720 |
|
|
| 78,611 |
|
|
| 85,274 |
| |
Other assets |
|
| 3,910 |
|
|
| 541 |
|
|
| 1,616 |
|
|
| 3,249 |
| |
Noncurrent assets of discontinued operations |
|
| — |
|
|
| 58 |
| |||||||||
Total assets |
| $ | 598,108 |
|
| $ | 261,223 |
|
| $ | 511,935 |
|
| $ | 572,053 |
| |
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Accounts payable |
| $ | 29,438 |
|
| $ | 17,599 |
|
| $ | 33,157 |
|
| $ | 25,737 |
| |
Accrued expenses and other current liabilities |
|
| 43,985 |
|
|
| 35,264 |
|
|
| 55,874 |
|
|
| 55,549 |
| |
Contract liability |
|
| 16,670 |
|
|
| — |
| |||||||||
Contract liabilities |
|
| 13,850 |
|
|
| 15,255 |
| |||||||||
Short-term debt |
|
| 6,119 |
|
|
| 4,167 |
|
|
| 14,266 |
|
|
| 342 |
| |
Current portion of operating lease liability |
|
| 3,859 |
|
|
| 885 |
| |||||||||
Current liabilities of discontinued operations |
|
| — |
|
|
| 397 |
| |||||||||
Current portion of operating lease liabilities |
|
| 4,164 |
|
|
| 4,212 |
| |||||||||
Total current liabilities |
|
| 100,071 |
|
|
| 58,312 |
|
|
| 121,311 |
|
|
| 101,095 |
| |
Long-term debt |
|
| 320,974 |
|
|
| 37,999 |
|
|
| 313,397 |
|
|
| 326,489 |
| |
Operating lease liability, less current portion |
|
| 24,951 |
|
|
| 41 |
| |||||||||
Operating lease liabilities, less current portion |
|
| 27,335 |
|
|
| 24,383 |
| |||||||||
Other long-term liabilities |
|
| 16,752 |
|
|
| 11,388 |
|
|
| 15,750 |
|
|
| 17,061 |
| |
Commitments and contingencies (Note 7) |
|
|
|
|
|
|
|
| |||||||||
Redeemable preferred stock, $0.0001 par value; 20,000 shares authorized at September 30, 2021 and December 31, 2020; 3,319 shares issued and outstanding at September 30, 2021 and December 31, 2020 |
|
| 23,603 |
|
|
| 23,603 |
| |||||||||
Commitments and contingencies (Note 10) |
|
|
|
|
|
| |||||||||||
Redeemable preferred stock, $0.0001 par value; 20,000 shares authorized at |
|
| 23,603 |
|
|
| 23,603 |
| |||||||||
Stockholders' equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Common stock, $0.0001 par value; 200,000 authorized; 99,190 shares issued and 99,101 shares outstanding at September 30, 2021; and 82,294 shares issued and 82,104 shares outstanding at December 31, 2020 |
|
| 10 |
|
|
| 8 |
| |||||||||
Treasury stock, 1,808 shares at September 30, 2021 and 2 shares at December 31, 2020 |
|
| (25,097 | ) |
|
| (97 | ) | |||||||||
Series A convertible preferred stock, $0.0001 par value; 15 shares authorized, and 0 shares |
|
| — |
|
|
| — |
| |||||||||
Common stock, $0.0001 par value; 200,000 authorized; 104,633 shares issued and 104,518 |
|
| 11 |
|
|
| 10 |
| |||||||||
Treasury stock, 1,808 shares, at cost |
|
| (25,097 | ) |
|
| (25,097 | ) | |||||||||
Additional paid-in capital |
|
| 883,296 |
|
|
| 770,764 |
|
|
| 910,577 |
|
|
| 892,828 |
| |
Shareholder note receivable |
|
| (700 | ) |
|
| (4,000 | ) | |||||||||
Accumulated other comprehensive income |
|
| (3,614 | ) |
|
| 1,204 |
| |||||||||
Accumulated other comprehensive deficit |
|
| (12,463 | ) |
|
| (5,994 | ) | |||||||||
Accumulated deficit |
|
| (742,138 | ) |
|
| (637,999 | ) |
|
| (862,489 | ) |
|
| (782,325 | ) | |
Total stockholders’ equity |
|
| 111,757 |
|
|
| 129,880 |
|
|
| 10,539 |
|
|
| 79,422 |
| |
Total liabilities and stockholders’ equity |
| $ | 598,108 |
|
| $ | 261,223 |
|
| $ | 511,935 |
|
| $ | 572,053 |
| |
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)
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from products and services |
| $ | 62,735 |
|
| $ | 40,052 |
|
| $ | 168,336 |
|
| $ | 97,956 |
|
Revenue from international supply agreement |
|
| 145 |
|
|
| 1,111 |
|
|
| 914 |
|
|
| 2,951 |
|
Total revenue |
|
| 62,880 |
|
|
| 41,163 |
|
|
| 169,250 |
|
|
| 100,907 |
|
Cost of revenue |
|
| 23,266 |
|
|
| 11,926 |
|
|
| 56,713 |
|
|
| 29,797 |
|
Gross profit |
|
| 39,614 |
|
|
| 29,237 |
|
|
| 112,537 |
|
|
| 71,110 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
| 9,391 |
|
|
| 4,984 |
|
|
| 23,031 |
|
|
| 13,390 |
|
Sales, general and administrative |
|
| 61,494 |
|
|
| 35,380 |
|
|
| 162,578 |
|
|
| 89,431 |
|
Litigation-related expenses |
|
| 1,209 |
|
|
| 1,560 |
|
|
| 5,711 |
|
|
| 5,507 |
|
Amortization of acquired intangible assets |
|
| 2,012 |
|
|
| 172 |
|
|
| 3,392 |
|
|
| 516 |
|
Transaction-related expenses |
|
| 373 |
|
|
| 2 |
|
|
| 6,156 |
|
|
| 4,093 |
|
Restructuring expenses |
|
| 256 |
|
|
| — |
|
|
| 1,587 |
|
|
| — |
|
Total operating expenses |
|
| 74,735 |
|
|
| 42,098 |
|
|
| 202,455 |
|
|
| 112,937 |
|
Operating loss |
|
| (35,121 | ) |
|
| (12,861 | ) |
|
| (89,918 | ) |
|
| (41,827 | ) |
Interest and other expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
| (1,272 | ) |
|
| (2,762 | ) |
|
| (5,604 | ) |
|
| (8,668 | ) |
Loss on debt extinguishment, net |
|
| (7,434 | ) |
|
| — |
|
|
| (7,434 | ) |
|
| (1,555 | ) |
Other income (expense), net |
|
| 886 |
|
|
| (6 | ) |
|
| (1,020 | ) |
|
| (6 | ) |
Total interest and other expense, net |
|
| (7,820 | ) |
|
| (2,768 | ) |
|
| (14,058 | ) |
|
| (10,229 | ) |
Net loss before taxes |
|
| (42,941 | ) |
|
| (15,629 | ) |
|
| (103,976 | ) |
|
| (52,056 | ) |
Income tax provision |
|
| 90 |
|
|
| 40 |
|
|
| 163 |
|
|
| 140 |
|
Net loss |
| $ | (43,031 | ) |
| $ | (15,669 | ) |
| $ | (104,139 | ) |
| $ | (52,196 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted |
| $ | (0.43 | ) |
| $ | (0.24 | ) |
| $ | (1.09 | ) |
| $ | (0.82 | ) |
Weighted average shares outstanding, basic and diluted |
|
| 99,571 |
|
|
| 64,761 |
|
|
| 95,204 |
|
|
| 63,669 |
|
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenue from products and services |
| $ | 84,151 |
|
| $ | 61,885 |
|
| $ | 155,069 |
|
| $ | 105,601 |
|
Revenue from international supply agreement |
|
| — |
|
|
| 364 |
|
|
| 15 |
|
|
| 769 |
|
Total revenue |
|
| 84,151 |
|
|
| 62,249 |
|
|
| 155,084 |
|
|
| 106,370 |
|
Cost of sales |
|
| 28,675 |
|
|
| 21,184 |
|
|
| 50,392 |
|
|
| 33,447 |
|
Gross profit |
|
| 55,476 |
|
|
| 41,065 |
|
|
| 104,692 |
|
|
| 72,923 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Research and development |
|
| 10,596 |
|
|
| 7,839 |
|
|
| 20,318 |
|
|
| 13,640 |
|
Sales, general and administrative |
|
| 72,668 |
|
|
| 60,659 |
|
|
| 142,139 |
|
|
| 101,085 |
|
Litigation-related expenses |
|
| 5,495 |
|
|
| 1,167 |
|
|
| 13,027 |
|
|
| 4,502 |
|
Amortization of acquired intangible assets |
|
| 2,177 |
|
|
| 1,208 |
|
|
| 4,407 |
|
|
| 1,380 |
|
Transaction-related expenses |
|
| — |
|
|
| 4,771 |
|
|
| 120 |
|
|
| 5,783 |
|
Restructuring expenses |
|
| 289 |
|
|
| 1,173 |
|
|
| 1,659 |
|
|
| 1,331 |
|
Total operating expenses |
|
| 91,225 |
|
|
| 76,817 |
|
|
| 181,670 |
|
|
| 127,721 |
|
Operating loss |
|
| (35,749 | ) |
|
| (35,752 | ) |
|
| (76,978 | ) |
|
| (54,798 | ) |
Interest and other expense, net: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense, net |
|
| (1,435 | ) |
|
| (2,394 | ) |
|
| (2,891 | ) |
|
| (4,332 | ) |
Other income (expense), net |
|
| 67 |
|
|
| (16 | ) |
|
| 37 |
|
|
| (1,905 | ) |
Total interest and other expense, net |
|
| (1,368 | ) |
|
| (2,410 | ) |
|
| (2,854 | ) |
|
| (6,237 | ) |
Net loss before taxes |
|
| (37,117 | ) |
|
| (38,162 | ) |
|
| (79,832 | ) |
|
| (61,035 | ) |
Income tax provision |
|
| 203 |
|
|
| 43 |
|
|
| 332 |
|
|
| 73 |
|
Net loss |
| $ | (37,320 | ) |
| $ | (38,205 | ) |
| $ | (80,164 | ) |
| $ | (61,108 | ) |
Net loss per share, basic and diluted |
| $ | (0.36 | ) |
| $ | (0.39 | ) |
| $ | (0.79 | ) |
| $ | (0.66 | ) |
Weighted average shares outstanding, basic and diluted |
|
| 102,849 |
|
|
| 98,541 |
|
|
| 101,422 |
|
|
| 92,912 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
4
ALPHATEC HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
(In thousands)
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Net loss |
| $ | (43,031 | ) |
| $ | (15,669 | ) |
| $ | (104,139 | ) |
| $ | (52,196 | ) |
| $ | (37,320 | ) |
| $ | (38,205 | ) |
| $ | (80,164 | ) |
| $ | (61,108 | ) |
Foreign currency translation adjustments |
|
| (3,463 | ) |
|
| 18 |
|
|
| (4,818 | ) |
|
| 93 |
|
|
| (5,289 | ) |
|
| 1,697 |
|
|
| (6,469 | ) |
|
| (1,355 | ) |
Comprehensive loss |
| $ | (46,494 | ) |
| $ | (15,651 | ) |
| $ | (108,957 | ) |
| $ | (52,103 | ) |
| $ | (42,609 | ) |
| $ | (36,508 | ) |
| $ | (86,633 | ) |
| $ | (62,463 | ) |
See accompanying notes to unaudited condensed consolidated financial statements.
5
ALPHATEC HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
(In thousands)
|
| Common stock |
|
| Additional paid-in |
|
| Shareholder note |
|
| Treasury |
|
| Accumulated other comprehensive |
|
| Accumulated |
|
| Total stockholders’ |
| |||||||||||
|
| Shares |
|
| Par Value |
|
| capital |
|
| receivable |
|
| stock |
|
| income (loss) |
|
| deficit |
|
| equity |
| ||||||||
Balance at January 1, 2021 |
|
| 82,104 |
|
| $ | 8 |
|
| $ | 770,764 |
|
| $ | (4,000 | ) |
| $ | (97 | ) |
| $ | 1,204 |
|
| $ | (637,999 | ) |
| $ | 129,880 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 3,889 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,889 |
|
Distributor equity incentives |
|
| — |
|
|
| — |
|
|
| 129 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 129 |
|
Common stock issued for warrant exercises |
|
| 2,019 |
|
|
| — |
|
|
| 756 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 756 |
|
Common stock issued for stock option exercises |
|
| 69 |
|
|
| — |
|
|
| 210 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 210 |
|
Common stock issued for vesting of restricted stock awards, net of shares withheld for tax liability |
|
| 379 |
|
|
| — |
|
|
| (1,717 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,717 | ) |
Shareholder note receivable |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,100 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,100 |
|
Foreign currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,052 | ) |
|
| — |
|
|
| (3,052 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (22,903 | ) |
|
| (22,903 | ) |
Balance at March 31, 2021 |
|
| 84,571 |
|
| $ | 8 |
|
| $ | 774,031 |
|
| $ | (2,900 | ) |
| $ | (97 | ) |
| $ | (1,848 | ) |
| $ | (660,902 | ) |
| $ | 108,292 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 11,187 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,187 |
|
Distributor equity incentives |
|
| — |
|
|
| — |
|
|
| 94 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 94 |
|
Common stock issued for employee stock purchase plan and stock option exercises |
|
| 356 |
|
|
| — |
|
|
| 1,479 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,479 |
|
Common stock issued for vesting of performance and restricted stock awards, net of shares withheld for tax liability |
|
| 1,125 |
|
|
| — |
|
|
| (5,687 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,687 | ) |
Common stock issued for warrant exercises |
|
| 1,576 |
|
|
| — |
|
|
| 1,729 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,729 |
|
Issuance of common stock for public offering, net of offering costs of $6,200 |
|
| 12,421 |
|
|
| 2 |
|
|
| 131,826 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 131,828 |
|
Shareholder note receivable |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,100 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,100 |
|
Foreign currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,697 |
|
|
| — |
|
|
| 1,697 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (38,205 | ) |
|
| (38,205 | ) |
Balance at June 30, 2021 |
|
| 100,049 |
|
| $ | 10 |
|
| $ | 914,659 |
|
| $ | (1,800 | ) |
| $ | (97 | ) |
| $ | (151 | ) |
| $ | (699,107 | ) |
| $ | 213,514 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 10,299 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,299 |
|
Distributor equity incentives |
|
| 65 |
|
|
| — |
|
|
| 799 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 799 |
|
Common stock issued for warrant exercises |
|
| 331 |
|
|
| — |
|
|
| 731 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 731 |
|
Common stock issued for stock option exercises |
|
| 169 |
|
|
| — |
|
|
| 518 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 518 |
|
Common stock issued for vesting of performance and restricted stock awards, net of shares withheld for tax liability |
|
| 293 |
|
|
| — |
|
|
| (3,844 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,844 | ) |
Shareholder note receivable |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,100 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,100 |
|
Repurchase of common stock |
|
| (1,806 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (25,000 | ) |
|
| — |
|
|
| — |
|
|
| (25,000 | ) |
Purchase of capped calls |
|
| — |
|
|
| — |
|
|
| (39,866 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (39,866 | ) |
Foreign currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,463 | ) |
|
| — |
|
|
| (3,463 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (43,031 | ) |
|
| (43,031 | ) |
Balance at September 30, 2021 |
|
| 99,101 |
|
| $ | 10 |
|
| $ | 883,296 |
|
| $ | (700 | ) |
| $ | (25,097 | ) |
| $ | (3,614 | ) |
| $ | (742,138 | ) |
| $ | 111,757 |
|
|
| Common stock |
|
| Additional |
|
| Treasury |
|
| Accumulated other |
|
| Accumulated |
|
| Total |
| ||||||||||
|
| Shares |
|
| Par Value |
|
| capital |
|
| stock |
|
| loss |
|
| deficit |
|
| equity |
| |||||||
Balance at December 31, 2021 |
|
| 99,537 |
|
| $ | 10 |
|
| $ | 892,828 |
|
| $ | (25,097 | ) |
| $ | (5,994 | ) |
| $ | (782,325 | ) |
| $ | 79,422 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 7,730 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,730 |
|
Sales agent equity incentives |
|
| 199 |
|
|
| — |
|
|
| 2,178 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,178 |
|
Common stock issued for warrant exercises |
|
| 551 |
|
|
| — |
|
|
| 1,289 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,289 |
|
Common stock issued for stock option exercises |
|
| 39 |
|
|
| — |
|
|
| 140 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 140 |
|
Common stock issued for vesting of restricted stock |
|
| 852 |
|
|
| — |
|
|
| (4,751 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,751 | ) |
Foreign currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,180 | ) |
|
| — |
|
|
| (1,180 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (42,844 | ) |
|
| (42,844 | ) |
Balance at March 31, 2022 |
|
| 101,178 |
|
| $ | 10 |
|
| $ | 899,414 |
|
| $ | (25,097 | ) |
| $ | (7,174 | ) |
| $ | (825,169 | ) |
| $ | 41,984 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 10,109 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,109 |
|
Sales agent equity incentives |
|
| 20 |
|
|
| — |
|
|
| 361 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 361 |
|
Common stock issued for conversion of Series A preferred stock |
|
| 29 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Common stock issued for warrant exercises |
|
| 1,914 |
|
|
| 1 |
|
|
| 2,674 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,675 |
|
Common stock issued for employee stock purchase plan and stock option exercises |
|
| 535 |
|
|
| — |
|
|
| 2,331 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,331 |
|
Common stock issued for vesting of restricted stock |
|
| 819 |
|
|
| — |
|
|
| (4,562 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,562 | ) |
Common stock issued for asset acquisition |
|
| 23 |
|
|
| — |
|
|
| 250 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 250 |
|
Foreign currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,289 | ) |
|
| — |
|
|
| (5,289 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (37,320 | ) |
|
| (37,320 | ) |
Balance at June 30, 2022 |
|
| 104,518 |
|
| $ | 11 |
|
| $ | 910,577 |
|
| $ | (25,097 | ) |
| $ | (12,463 | ) |
| $ | (862,489 | ) |
| $ | 10,539 |
|
6
ALPHATEC HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
(In thousands)
|
| Common stock |
|
| Additional paid-in |
|
| Shareholder note |
|
| Treasury |
|
| Accumulated other comprehensive |
|
| Accumulated |
|
| Total stockholders’ |
| |||||||||||
|
| Shares |
|
| Par Value |
|
| capital |
|
| receivable |
|
| stock |
|
| income (loss) |
|
| deficit |
|
| equity |
| ||||||||
Balance at January 1, 2020 |
|
| 61,400 |
|
| $ | 6 |
|
| $ | 606,558 |
|
| $ | (5,000 | ) |
| $ | (97 | ) |
| $ | 1,088 |
|
| $ | (558,924 | ) |
| $ | 43,631 |
|
Cumulative effect of change in accounting principle |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (81 | ) |
|
| (81 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 3,630 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,630 |
|
Distributor equity incentives |
|
| — |
|
|
| — |
|
|
| 70 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 70 |
|
Common stock issued for warrant exercises |
|
| 1,390 |
|
|
| — |
|
|
| 1,158 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,158 |
|
Common stock issued for stock option exercises |
|
| 76 |
|
|
| — |
|
|
| 83 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 83 |
|
Common stock issued for vesting of restricted stock awards, net of shares withheld for tax liability |
|
| 394 |
|
|
| — |
|
|
| (408 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (408 | ) |
Foreign currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 69 |
|
|
| — |
|
|
| 69 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (20,722 | ) |
|
| (20,722 | ) |
Balance at March 31, 2020 |
|
| 63,260 |
|
| $ | 6 |
|
| $ | 611,091 |
|
| $ | (5,000 | ) |
| $ | (97 | ) |
| $ | 1,157 |
|
| $ | (579,727 | ) |
| $ | 27,430 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 3,608 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,608 |
|
Distributor equity incentives |
|
| — |
|
|
| — |
|
|
| 51 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 51 |
|
Common stock issued for warrant exercises |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Common stock issued for employee stock purchase plan and stock option exercises |
|
| 202 |
|
|
| — |
|
|
| 722 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 722 |
|
Common stock issued for vesting of restricted stock awards, net of shares withheld for tax liability |
|
| 387 |
|
|
| — |
|
|
| (164 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (164 | ) |
Issuance of common stock warrants |
|
| — |
|
|
| — |
|
|
| 2,974 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,974 |
|
Foreign currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| 6 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (15,805 | ) |
|
| (15,805 | ) |
Balance at June 30, 2020 |
|
| 63,849 |
|
| $ | 6 |
|
| $ | 618,282 |
|
| $ | (5,000 | ) |
| $ | (97 | ) |
| $ | 1,163 |
|
| $ | (595,532 | ) |
| $ | 18,822 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 4,761 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,761 |
|
Common stock issued for conversion of Series A preferred stock |
|
| 39 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Distributor equity incentives |
|
| — |
|
|
| — |
|
|
| 293 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 293 |
|
Common stock issued for warrant exercises |
|
| 68 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Common stock issued for stock option exercises |
|
| 24 |
|
|
| — |
|
|
| 70 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 70 |
|
Common stock issued for vesting of restricted stock awards, net of shares withheld for tax liability |
|
| 582 |
|
|
| — |
|
|
| (244 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (244 | ) |
Issuance of common stock warrants |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Foreign currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 18 |
|
|
| — |
|
|
| 18 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (15,669 | ) |
|
| (15,669 | ) |
Balance at September 30, 2020 |
|
| 64,562 |
|
| $ | 6 |
|
| $ | 623,162 |
|
| $ | (5,000 | ) |
| $ | (97 | ) |
| $ | 1,181 |
|
| $ | (611,201 | ) |
| $ | 8,051 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
76
ALPHATEC HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSSTOCKHOLDERS’ EQUITY
(UNAUDITED)
(In thousands)
|
| Nine Months Ended September 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Operating activities: |
|
|
|
|
|
|
|
|
Net loss |
| $ | (104,139 | ) |
| $ | (52,196 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 17,986 |
|
|
| 7,804 |
|
Stock-based compensation |
|
| 26,724 |
|
|
| 12,687 |
|
Amortization of debt issuance costs |
|
| 1,589 |
|
|
| 3,133 |
|
Amortization of right-of-use assets |
|
| 2,730 |
|
|
| 871 |
|
Provision for excess and obsolete inventory |
|
| 6,842 |
|
|
| 5,429 |
|
Loss on disposal of instruments |
|
| 969 |
|
|
| 281 |
|
Loss on extinguishment of debt, net |
|
| 7,434 |
|
|
| 1,555 |
|
Other |
|
| 861 |
|
|
| 79 |
|
Changes in operating assets and liabilities, net of effects of acquisition: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (1,417 | ) |
|
| (8,199 | ) |
Inventories |
|
| (23,817 | ) |
|
| (12,720 | ) |
Prepaid expenses and other current assets |
|
| 4,815 |
|
|
| (2,286 | ) |
Other assets |
|
| 69 |
|
|
| (53 | ) |
Accounts payable |
|
| (298 | ) |
|
| 4,246 |
|
Accrued expenses and other current liabilities |
|
| (3,343 | ) |
|
| 4,561 |
|
Lease liability |
|
| 168 |
|
|
| (975 | ) |
Other long-term liabilities |
|
| 4,251 |
|
|
| (3,901 | ) |
Net cash used in operating activities |
|
| (58,576 | ) |
|
| (39,684 | ) |
Investing activities: |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
| (48,946 | ) |
|
| (12,868 | ) |
Acquisition of business, net of cash acquired |
|
| (62,133 | ) |
|
| — |
|
Purchase of OCEANE |
|
| (21,097 | ) |
|
| — |
|
Cash paid for investments |
|
| (3,000 | ) |
|
| — |
|
Cash received from sale of assets |
|
| — |
|
|
| 27 |
|
Settlement of forward contract |
|
| (2,589 | ) |
|
| — |
|
Net cash used in investing activities |
|
| (137,765 | ) |
|
| (12,841 | ) |
Financing activities: |
|
|
|
|
|
|
|
|
Proceeds from public offering |
|
| 131,828 |
|
|
| — |
|
Proceeds from issuance of convertible notes |
|
| 316,250 |
|
|
| — |
|
Payment of debt issuance costs |
|
| (10,028 | ) |
|
| — |
|
Net cash (paid) received from common stock exercises |
|
| (5,825 | ) |
|
| 1,204 |
|
Borrowings under lines of credit |
|
| — |
|
|
| 42,455 |
|
Repayments under lines of credit |
|
| — |
|
|
| (56,615 | ) |
Purchase of capped calls |
|
| (39,866 | ) |
|
| — |
|
Repurchase of common stock |
|
| (25,000 | ) |
|
| — |
|
Proceeds from issuance of term debt, net |
|
| — |
|
|
| 34,012 |
|
Repayment of Squadron Medical term loan |
|
| (45,000 | ) |
|
| — |
|
Repayment of Inventory Financing Agreement |
|
| (8,088 | ) |
|
| — |
|
Other |
|
| (1,818 | ) |
|
| (48 | ) |
Net cash provided by financing activities |
|
| 312,453 |
|
|
| 21,008 |
|
Effect of exchange rate changes on cash |
|
| (9 | ) |
|
| 82 |
|
Net increase (decrease) in cash |
|
| 116,103 |
|
|
| (31,435 | ) |
Cash at beginning of period |
|
| 107,765 |
|
|
| 47,113 |
|
Cash at end of period |
| $ | 223,868 |
|
| $ | 15,678 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 4,297 |
|
| $ | 4,931 |
|
Cash paid for income taxes |
| $ | 225 |
|
| $ | 186 |
|
Supplemental disclosure of noncash activities: |
|
|
|
|
|
|
|
|
Common stock issued with term loan draw |
| $ | — |
|
| $ | 2,986 |
|
PPP Loan Forgiveness |
| $ | 4,271 |
|
|
| — |
|
Purchases of property and equipment in accounts payable |
| $ | 4,459 |
|
| $ | 1,881 |
|
Recognition of lease liability |
| $ | 23,403 |
|
| $ | — |
|
|
| Common stock |
|
| Additional |
|
| Shareholder |
|
| Treasury |
|
| Accumulated other |
|
| Accumulated |
|
| Total |
| |||||||||||
|
| Shares |
|
| Par Value |
|
| capital |
|
| receivable |
|
| stock |
|
| income (loss) |
|
| deficit |
|
| equity |
| ||||||||
Balance at December 31, 2020 |
|
| 82,104 |
|
| $ | 8 |
|
| $ | 770,764 |
|
| $ | (4,000 | ) |
| $ | (97 | ) |
| $ | 1,204 |
|
| $ | (637,999 | ) |
| $ | 129,880 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 3,889 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,889 |
|
Sales agent equity incentives |
|
| — |
|
|
| — |
|
|
| 129 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 129 |
|
Common stock issued for warrant exercises |
|
| 2,019 |
|
|
| — |
|
|
| 756 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 756 |
|
Common stock issued for stock option exercises |
|
| 69 |
|
|
| — |
|
|
| 210 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 210 |
|
Common stock issued for vesting of restricted stock |
|
| 379 |
|
|
| — |
|
|
| (1,717 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,717 | ) |
Shareholder note receivable |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,100 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,100 |
|
Foreign currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,052 | ) |
|
| — |
|
|
| (3,052 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (22,903 | ) |
|
| (22,903 | ) |
Balance at March 31, 2021 |
|
| 84,571 |
|
| $ | 8 |
|
| $ | 774,031 |
|
| $ | (2,900 | ) |
| $ | (97 | ) |
| $ | (1,848 | ) |
| $ | (660,902 | ) |
| $ | 108,292 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 11,187 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,187 |
|
Sales agent equity incentives |
|
| — |
|
|
| — |
|
|
| 94 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 94 |
|
Common stock issued for warrant exercises |
|
| 1,576 |
|
|
| — |
|
|
| 1,729 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,729 |
|
Common stock issued for employee stock purchase plan and stock option exercises |
|
| 356 |
|
|
| — |
|
|
| 1,479 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,479 |
|
Common stock issued for vesting of restricted stock |
|
| 1,125 |
|
|
| — |
|
|
| (5,687 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,687 | ) |
Issuance of common stock for public offering, net of offering costs of $6,200 |
|
| 12,421 |
|
|
| 2 |
|
|
| 131,826 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 131,828 |
|
Shareholder note receivable |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,100 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,100 |
|
Foreign currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,697 |
|
|
| — |
|
|
| 1,697 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (38,205 | ) |
|
| (38,205 | ) |
Balance at June 30, 2021 |
|
| 100,049 |
|
| $ | 10 |
|
| $ | 914,659 |
|
| $ | (1,800 | ) |
| $ | (97 | ) |
| $ | (151 | ) |
| $ | (699,107 | ) |
| $ | 213,514 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
87
ALPHATEC HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
|
| Six Months Ended June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Operating activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (80,164 | ) |
| $ | (61,108 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 19,007 |
|
|
| 10,394 |
|
Stock-based compensation |
|
| 19,387 |
|
|
| 15,970 |
|
Amortization of debt discount and debt issuance costs |
|
| 973 |
|
|
| 1,292 |
|
Amortization of right-of-use assets |
|
| 1,128 |
|
|
| 1,950 |
|
Write-down for excess and obsolete inventories |
|
| 4,100 |
|
|
| 4,317 |
|
Loss on disposal of assets |
|
| 1,194 |
|
|
| 689 |
|
Other |
|
| (126 | ) |
|
| 2,003 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
| ||
Accounts receivable |
|
| (2,255 | ) |
|
| (1,261 | ) |
Inventories |
|
| (16,615 | ) |
|
| (15,195 | ) |
Prepaid expenses and other current assets |
|
| (1,093 | ) |
|
| 1,515 |
|
Other assets |
|
| (253 | ) |
|
| 145 |
|
Accounts payable |
|
| 7,651 |
|
|
| 3,797 |
|
Accrued expenses |
|
| (3,646 | ) |
|
| (62 | ) |
Lease liabilities |
|
| (1,054 | ) |
|
| (26 | ) |
Contract liabilities |
|
| (187 | ) |
|
| (444 | ) |
Other long-term liabilities |
|
| (97 | ) |
|
| 914 |
|
Net cash used in operating activities |
|
| (52,050 | ) |
|
| (35,110 | ) |
Investing activities: |
|
|
|
|
|
| ||
Purchase of property and equipment |
|
| (26,338 | ) |
|
| (36,028 | ) |
Purchase of intangible assets |
|
| (1,479 | ) |
|
| — |
|
Acquisition of business, net of cash acquired |
|
| — |
|
|
| (62,133 | ) |
Purchase of OCEANE |
|
| — |
|
|
| (21,097 | ) |
Cash paid for investments |
|
| — |
|
|
| (3,000 | ) |
Settlement of forward contract |
|
| — |
|
|
| (2,589 | ) |
Net cash used in investing activities |
|
| (27,817 | ) |
|
| (124,847 | ) |
Financing activities: |
|
|
|
|
|
| ||
Proceeds from common stock offering |
|
| — |
|
|
| 131,828 |
|
Net cash received (paid) from common stock exercises |
|
| 218 |
|
|
| (3,044 | ) |
Proceeds from financed insurance |
|
| 1,617 |
|
|
| — |
|
Principal payments on finance lease obligations |
|
| (83 | ) |
|
| (2 | ) |
Principal payments on term loan and notes payable |
|
| (981 | ) |
|
| (13 | ) |
Net cash provided by financing activities |
|
| 771 |
|
|
| 128,769 |
|
Effect of exchange rate changes on cash |
|
| (682 | ) |
|
| 4 |
|
Net decrease in cash and cash equivalents |
|
| (79,778 | ) |
|
| (31,184 | ) |
Cash and cash equivalents at beginning of period |
|
| 187,248 |
|
|
| 107,765 |
|
Cash and cash equivalents at end of period |
| $ | 107,470 |
|
| $ | 76,581 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
| ||
Cash paid for interest |
| $ | 1,970 |
|
| $ | 3,476 |
|
Cash paid for income taxes |
| $ | 267 |
|
| $ | 225 |
|
Supplemental disclosure of noncash activities: |
|
|
|
|
|
| ||
Financed insurance |
| $ | 1,617 |
|
| $ | — |
|
Financed inventory |
| $ | — |
|
| $ | 3,707 |
|
Purchases of property and equipment in accounts payable and accrued expenses |
| $ | 2,304 |
|
| $ | 591 |
|
Purchase of intangible assets |
| $ | 750 |
|
| $ | — |
|
Recognition of lease liability |
| $ | — |
|
| $ | 23,159 |
|
Modification of lease liability for lease amendment |
| $ | 4,288 |
|
| $ | — |
|
Common stock issued for asset acquisition |
| $ | 250 |
|
| $ | — |
|
See accompanying notes to unaudited condensed consolidated financial statements.
8
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 U.S.United States of America and internationally via a network of independent sales agents and a direct sales force.
On September 1, 2016, the Company completed the sale of its previous international distribution operations and agreements to Globus Medical Ireland, Ltd., a subsidiary of Globus Medical, Inc., and its affiliated entities (collectively “Globus”). As a result of this transaction, the previous international distribution transactions are reported as discontinued operations in the condensed consolidated financial statements. See Note 5 for additional information on the divestiture of the previous international distribution business.
Recent Developmentsrepresentatives.
On May 13, 2021, the Company acquired a controlling interest in EOS, pursuant to the Tender Offer Agreement (the “Tender Offer Agreement”) it entered into on December 16, 2020, and in June 2021 purchased the remaining issued and outstanding ordinary shares for a 100% interest in EOS. 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 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. See Note 3 for additional information on the business combination.
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, 2020,2021, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 that was filed with the SEC on March 5, 2021.SEC. Operating results for the three and ninesix months ended SeptemberJune 30, 20212022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021,2022, or any other future periods.
The COVID-19 Pandemic
In 2020, a novel strain of Coronavirus, which causes COVID-19, was identified and declared by the World Health Organization to be a pandemic. The virus causing COVID-19 has since rapidly spread across the global to all countries, including to the United States. To slow the spread of COVID-19, governments have implemented measures, which include the mandatory closure of businesses, and restrictions on travel. In addition, many government agencies in conjunction with hospitals and healthcare systems have, to varying degrees, deferred or suspended elective surgical procedures. While certain spine surgeries are deemed essential and certain surgeries cannot be delayed, the Company has seen and may continue to see a reduction in procedural volumes as hospital systems and/or patients elect to defer spine surgery procedures and hospital systems experience staffing shortages.
9
The cumulative effect of these disruptions had an impact on the Company’s business during the year ended December 31, 2020 and the nine months ended September 30, 2021, and it is not possible to accurately predict the length or severity of the COVID-19 pandemic or the timing for a broad and sustained resumption of elective surgical procedures. The COVID-19 pandemic continues to evolve and its full impact on the Company’s business will depend on several factors that are uncertain and unpredictable, including, the efficacy and adoption of vaccines, future resurgences of the virus and its variants, the speed at which government restrictions are lifted or enacted, and patient capacity at hospitals and healthcare systems.
Reclassification
Certain amounts in the condensed consolidated financial statements for the three and nine months ended September 30, 2020 have been reclassified to conform to the current period’s presentation. These reclassifications were immaterial and had no impact on previously reported results of operations or accumulated deficit.
2. Summary of Significant Accounting Policies
The Company’s significant accounting policies are described in Note 2 to its audited consolidated financial statements for the year ended December 31, 2020, which are included in the Company’s Annual Report on Form 10-K that was filed with the SEC on March 5, 2021. Except as discussed below, these accounting policies have not changed during the nine months ended September 30, 2021.
Use of Estimates
To prepareThe preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management mustto make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported in the financial statementsamounts of revenues and accompanying notes.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, income tax uncertainties, and other contingencies.
Fair Value Measurements
ValuationThe carrying amount of Goodwillfinancial 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.
Goodwill representsAuthoritative guidance establishes a three-tier fair value hierarchy, which prioritizes the excessinputs 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 cost over the fair value of net assets acquired from the Company’s business combinations. The determination of the value of goodwillor liabilities.
Level 3: Unobservable inputs that are supported by little or no market activity and intangible assets arising from business combinations and asset acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase pricethat are significant to the fair value of the net tangibleassets or liabilities.
Excess and intangible assets acquired. Goodwill is not amortized; however, it is assessed for impairment using fair value measurement techniques on October 1st on an annual basis or more frequently if facts and circumstance warrant such a review. The goodwill is considered to be impaired if the Company determine that the carrying value of the reporting unit exceeds its respective fair value.Obsolete Inventory
Valuation of Intangible Assets
Intangible assets are comprised primarily of purchased technology, customer relationships, and trade names. The Company make significant judgments in relation to the valuation of intangible assets resulting from business combinations and asset acquisitions. Intangible assets are generally amortized on a straight-line basis over their estimated useful lives of 3 to 10 years. The useful lives and related amortization expense is based on the period of time the Company estimates the assets will generate net sales or otherwise be used. The Company also periodically review the lives assigned to intangible assets to ensure that its initial estimates do not exceed any revised estimated periods from which the Company expects to realize cash flows from the technologies. If a change were to occur in any of the above-mentioned factors or estimates, the likelihood of a material change in reported results would increase. The Company evaluates intangible assets with finite lives for indications of impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that could trigger an impairment review include significant under-performance relative to expected historical or projected future operating results, significant changes in the mannerMost 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 acquired assets orneed to maintain substantial levels of inventory. In order to market its products effectively and meet the strategy for the Company’s overall business or significant negative industry or economic trends. If this evaluation indicates that the valuedemands of the intangible asset may be impaired,interoperative product placement, the Company makes an assessmentmaintains and provides surgeons and hospitals with a variety of the recoverabilityinventory products and sizes. For each surgery, fewer than all components will be consumed. The need to maintain and provide a wide variety of the net carrying value of the asset over its remaining useful life. If this assessment indicatesinventory causes inventory to be held that the intangible asset is not recoverable,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 estimated undiscounted future cash flowsage of the technology over the remaining amortization period,inventory quantities on hand. Additionally, the Company reduces the net carrying value of the related intangible assetconsiders recent experience to fair valuedevelop assumptions about future demand for its products, while considering market conditions, product life cycles and may adjust the remaining amortization period. Significant judgment is requirednew product launches. Increases in the forecastsLCNRV reserve for excess and obsolete inventory result in a corresponding charge to cost of future operating results that are used in the discounted cash flow valuation models. It is possible that plans may change and estimates used may prove to be inaccurate. If actual results, or the plans and estimates used in future impairment analyses, are lower than the original estimates used to assess the recoverability of these assets, the Company could incur additional impairment charges.sales.
10
Revenue Recognition
The Company recognizes revenue from product sales inIn accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“Topic 606”). This standard applies to all contracts with customers, except for contracts that are within, the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under Topic 606, an entityCompany recognizes revenue from sales of products and services when itsthe 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. To determine revenue recognition for arrangements that an entity determines are within the scope ofThe principles in Topic 606 the entity performsare 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 distributorsales agents, 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 training services, and other imaging related services, is recognized in the period the service is performed, and makes up less than 10%10% of the Company’s total revenue. Revenue is measured based on the amount of consideration expected to be received in exchange for the transfer of the goods or services specified in the contract with each customer. In certain cases, the Company does offer the ability for customers to lease its imaging equipment primarily on a non-sales type basis, but such arrangements are immaterial to total revenue in the periods presented. The Company generally does not allow returns of products that have been delivered and will recognize such revenue when the Company concludes there is not a risk of significant revenue reversal in future periods for the expected consideration in the transaction.delivered. Costs incurred by the Company associated with sales contracts with customers are deferred over the performance obligation period and recognized in the same period as the related revenue, except for contracts that complete within one year or less, in which case the associated costs are expensed as incurred. Payment terms for sales to customers may vary but are commensurate with the general business practices in the country of sale.
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 utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.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.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 or due 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 Company had currentguidance requires application of ASC 606, “Revenue from Contracts with Customers” to recognize and non-currentmeasure contract liability balances totaling $16.7 millionassets and $2.7 million, respectively, as of September 30, 2021. The non-current contract liability balance is included in other long-term liabilities on the condensed consolidated balance sheets. The Company recognized $4.8 million and $8.2 million of revenue from its contract liabilities during the three and nine months ended September 30, 2021, respectively.
11
The opening and closing balances of the Company’s contract liability are as follows:
Balance at January 1, 2021 |
| $ | — |
|
Contract liability assumed from EOS |
|
| 21,196 |
|
Payments received |
|
| 6,354 |
|
Revenue recognized |
|
| (8,169 | ) |
Balance at September 30, 2021 |
| $ | 19,381 |
|
Fair Value Measurements
The carrying amount of financial instruments consisting of cash, accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses, and short-term debt includedacquired 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:
|
|
|
|
|
|
The following table presents information relatedbusiness combination. ASU No. 2021-08 adds an exception to the Company’s 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 a recurring basis as of September 30, 2021 and December 31, 2020 (in thousands):
| September 30, 2021 |
| |||||||||||||
Liabilities: | Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Liability classified equity award (1) | $ | — |
|
|
| — |
|
|
| 3,366 |
|
| $ | 3,366 |
|
Foreign currency forward contract |
| — |
|
|
| 279 |
|
|
| — |
|
|
| 279 |
|
Total | $ | — |
|
|
| 279 |
|
|
| 3,366 |
|
| $ | 3,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2020 |
| |||||||||||||
Liabilities: | Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Liability classified equity award (1) | $ | — |
|
|
| — |
|
|
| 4,108 |
|
| $ | 4,108 |
|
Foreign currency forward contract |
| — |
|
|
| 878 |
|
|
| — |
|
|
| 878 |
|
Total | $ | — |
|
|
| 878 |
|
|
| 4,108 |
|
| $ | 4,986 |
|
|
|
The Company did not have any transfers ofthe acquisition date. Under the new guidance, the acquirer will recognize acquired contract assets and contract liabilities betweenas if the levels of the fair value measurement hierarchy during the periods presented.
On March 16, 2021, the Company entered into 2 foreign currency forward contracts, with a settlement date of December 31, 2021, and with a notional amount of $8.0 million total, $4.0 million each (€6.7 million total and €3.3 million each), to mitigate the foreign currency exchange risk related to its EOS subsidiary. The contracts are not designated as hedging instruments. The Company classified the derivative liabilities within Level 2 of the fair value hierarchy as observable inputs are available for the full term of the derivative instruments. The fair value of the forward contracts was developed using a market approach based on publicly available market yield curves and the term of the contracts. The Company recognized a nominal loss from the change in fair value of the contracts during the nine months ended September 30, 2021. The loss on the change in fair value of the contracts was recorded as other expense on the condensed consolidated statement of operations.
12
On December 18, 2020, the Company entered into a foreign currency forward contract, with a notional amount of $117.9 million (€95.6 million) to mitigate the foreign currency exchange risk related to the Tender Offer Agreement, denominated in Euros. The contract was not designated as a hedging instrument. The Company classified the derivative liability within Level 2 of the fair value hierarchy as observable inputs were available for the full term of the derivative instrument. The fair value of the forward contract was developed using a market approach based on publicly available market yield curves and the term ofacquirer had originated the contract. On March 2, 2021, the foreign currency forward contract was settled for $115.3 million (€95.6 million). The Company recognized a $1.7 million loss from the change in fair value of the contract during the nine months ended September 30, 2021. The loss on the contract settlement was recorded as other expense on the condensed consolidated statement of operations and the cash settlement is included in investing activities in the condensed consolidated statement of cash flows for the nine months ended September 30, 2021.
During the second quarter of 2019, the Company issued a liability classified equity award to one of its executive officers. The award will be earned over a 4-year vesting period and upon 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 specified market condition with the valuation updated at each reporting period. The full fair value of the award was $3.4 million as of September 30, 2021 and is being recognized ratably as the underlying service period is provided.
The following table provides a reconciliation of liabilities measured at fair value using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2021 (in thousands):
|
| Level 3 Liabilities |
| |
Balance at January 1, 2021 |
| $ | 1,668 |
|
Vested portion of liability classified equity award |
|
| 258 |
|
Change in fair value measurement |
|
| 199 |
|
Balance at March 31, 2021 |
| $ | 2,125 |
|
Vested portion of liability classified equity award |
|
| 283 |
|
Change in fair value measurement |
|
| (68 | ) |
Balance at June 30, 2021 |
| $ | 2,340 |
|
Vested portion of liability classified equity award |
|
| 275 |
|
Change in fair value measurement |
|
| (617 | ) |
Balance at September 30, 2021 |
| $ | 1,998 |
|
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 2026 at September 30, 2021 was approximately $306.8 million. The fair value based on a quoted market price (Level 1), of the Company’s outstanding OCEANE at September 30, 2021 was approximately $14.4 million. See Note 6 for further information.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In August 2020, the FASB issued Accounting Standard Update (“ASU”) No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”), which simplifies the accounting for convertible instruments. The guidance removes certain accounting models that separate the embedded conversion features from the host contract for convertible instruments. ASU 2020-06 allows for a modified or full retrospective method of transition. This updatestandard is effective for fiscal years, beginning after December 15, 2021, and interim periods within those fiscal years, and early adoption is permitted. The Company early adopted ASU 2020-06 on January 1, 2021, electing the modified transition method that allows for a cumulative-effect adjustment in the period of adoption. There were no changes to the condensed consolidated financial statements as of January 1, 2021 as a result of the adoption.
13
Recently Issued Accounting Pronouncements
In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The guidance clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (i.e. warrants) that remain equity classified after a modification or exchange and provides guidance that clarifies whether an issuer should account for a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as (1) an adjustment to equity and, if so, the related earnings per share (EPS) effects, if any, or (2) an expense and, if so, the manner and pattern of recognition. The new guidance is effective for annual and interim periods beginning after December 15, 2021, and2022, with early adoption is permitted, including adoption in an interim period.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.
11
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 €0.01€0.01 per share (collectively, the “EOS Shares”), for a cash offer of €2.45€2.45 per EOS Share, and outstanding convertible bonds of EOS (“OCEANEs”) for a cash offer of €7.01€7.01 per OCEANE, which included accrued but unpaid interest. On May 13, 2021 (the “Initial Offer Period”“Change in Control Date”), the Company substantially completed the Offer, pursuant to which the Company purchased 59%59% of the issued and outstanding EOS Shares and 53%53% of the OCEANEs for $66.5$66.5 million in cash pursuant to the Offer. In addition, prior to the closing of the Initial Offer Period,Change in Control Date, the Company had also acquired 30%30% of the issued and outstanding EOS Shares and 4%4% of the OCEANEs on the open market for $25.0$25.0 million in cash. After the completion of the Initial Offer Period,Change in Control Date, the Company held a controlling financial interest in EOS representing 89%89% of issued and outstanding EOS Shares and 57%57% of OCEANEs, equal to approximately 80%80% of the capital and voting rights of EOS on a fully diluted basis. The Offer was reopened on May 17, 2021 to purchase the remaining EOS Shares for $8.5$8.5 million, ultimately resulting in the acquisition of 100%100% of EOS Shares and 57%57% of the OCEANEs as of June 2, 2021. As of June 2, 2021, the total cash paid to acquire 100%100% of the EOS Shares and 57%57% of the OCEANEs was $100.0$100.0 million.
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.
14During the six months ended June 30, 2022, the Company recorded a purchase accounting adjustment primarily related to deferred tax assets, which resulted in a $1.6 million increase to goodwill. The Company has completed its estimate of the fair value of the purchase consideration, the assets acquired, and the liabilities assumed. Accordingly, the Company has allocated the purchase consideration as follows:
(in thousands) | As of May 13, 2021 |
| |
Cash paid for purchase of EOS shares at Change in Control Date | $ | 46,908 |
|
Cash paid for purchase of OCEANEs at Change in Control Date |
| 19,620 |
|
Total cash paid at Change in Control Date |
| 66,528 |
|
Fair value of investment in EOS Shares held prior to Change in Control Date |
| 23,549 |
|
Fair value of investment in OCEANEs held prior to Change in Control Date |
| 1,477 |
|
Total fair value of investment in EOS held prior to Change in Control Date |
| 25,026 |
|
Fair value of noncontrolling interest acquired after Change in Control Date |
| 8,454 |
|
| $ | 100,008 |
|
|
|
| |
Cash and cash equivalents | $ | 16,778 |
|
Accounts receivable |
| 9,083 |
|
Inventory |
| 26,681 |
|
Other current assets |
| 4,422 |
|
Property, plant and equipment, net |
| 1,650 |
|
Deferred tax assets |
| 536 |
|
Right-of-use assets |
| 4,341 |
|
Goodwill |
| 29,469 |
|
Definite-lived intangible assets: |
|
| |
Developed technology |
| 56,000 |
|
Customer relationships |
| 9,500 |
|
Trade names |
| 6,000 |
|
Other noncurrent assets |
| 395 |
|
Contract liabilities |
| 21,196 |
|
Long-term debt |
| 15,297 |
|
Other liabilities assumed |
| 28,354 |
|
Total identifiable net assets | $ | 100,008 |
|
12
The Company is still in the process of finalizing the purchase price, allocation givenincluding cash paid at the timingChange in Control Date, the fair value of the acquisitioninvestment held prior to the Change in Control Date, and the size and scopefair value of the assets and liabilities subject to valuation. Whilenoncontrolling interest acquired after the Company does not expect material changesChange 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. The allocation of the purchase price to the assets acquired and liabilities assumed based on their fair values were as follows:
(in thousands) | As of May 13, 2021 |
| |
Cash paid for purchase of EOS shares in Initial Offer Period | $ | 46,908 |
|
Cash paid for purchase of OCEANEs in Initial Offer Period |
| 19,620 |
|
Total cash paid in Initial Offer Period |
| 66,528 |
|
Fair value of investment in EOS shares held before the Initial Offer Period |
| 23,549 |
|
Fair value of investment in OCEANEs held before the Initial Offer Period |
| 1,477 |
|
Total fair value of investment in EOS held before the Initial Offer Period |
| 25,026 |
|
Fair value of noncontrolling interest acquired subsequent to Initial Offer Period |
| 8,454 |
|
| $ | 100,008 |
|
|
|
|
|
Cash | $ | 16,778 |
|
Accounts receivable |
| 9,083 |
|
Inventory |
| 26,531 |
|
Other current assets |
| 4,422 |
|
Property, plant and equipment, net |
| 1,650 |
|
Right-of-use asset |
| 4,341 |
|
Goodwill |
| 31,822 |
|
Definite-lived intangible assets: |
|
|
|
Developed technology |
| 56,000 |
|
Customer relationships |
| 9,500 |
|
Trade names |
| 6,000 |
|
Other noncurrent assets |
| 395 |
|
Contract liabilities |
| 21,196 |
|
Long-term debt |
| 15,297 |
|
Other liabilities assumed |
| 30,021 |
|
Total identifiable net assets | $ | 100,008 |
|
The cash paid for the purchase of EOSControl 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 ten years, seven years and ten years for technology-based, customer-related, and trade name related intangible assets, respectively. The estimated fair values of the intangible assets acquired were primarily determined using the income approach based on significant inputs that were not observable in the market.
Acquisition related costs of $5.8$4.8 million and $5.8 million were recognized during the ninethree and six months ended SeptemberJune 30, 2021, respectively, as transaction-related expenses on the condensed consolidated statements of operations. NaN such costs were recognized during the three months ended September 30, 2021.operations as incurred. The Company’sCompany's results of operations for the three and six months ended SeptemberJune 30, 2021 included the operating results of EOS of $11.1 million of revenue and a net loss of $6.2 million in the condensed consolidated statement of operations. The Company’s results of operations for the nine months ended September 30, 2021 included the operating results of EOS since the date of acquisition, of $17.2$6.1 million of revenue and a net loss of $13.6$7.2 million in the condensed consolidated statement of operations.
15
The following table presents the unaudited pro forma results for the three and ninesix months ended SeptemberJune 30, 2021, and 2020, 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, 2020.2020 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 unaudited pro forma results presented include non-recurringcomparable period for the three and six months ended June 30, 2021 includes adjustments directly attributable to the business combination, including $3.1$2.0 million and $3.8 million in amortization charges for acquired intangible assets, a $2.0respectively, and $5.1 million adjustment related to the increased fair value of acquired inventory and $14.1$7.4 million in acquisition related expenses. expenses, respectively. The unaudited pro forma results include IFRS to U.S. GAAP adjustments for EOS historical results and adjustments for accounting policy alignment, which were materially similar to the Company. Any differences in accounting policies were adjusted to reflect the accounting policies of the Company in the unaudited pro forma results presented.
|
| Three Months Ended |
|
| Six Months Ended |
|
| ||||||||||
(in thousands, except per share amounts) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| ||||
Total revenue |
| $ | 84,151 |
|
| $ | 64,077 |
|
| $ | 155,084 |
|
| $ | 115,064 |
|
|
Net loss |
|
| (37,320 | ) |
|
| (40,016 | ) |
|
| (80,164 | ) |
|
| (61,215 | ) |
|
Net loss per share, basic and diluted |
| $ | (0.36 | ) |
| $ | (0.41 | ) |
| $ | (0.79 | ) |
| $ | (0.66 | ) |
|
4. Fair Value Measurements
Assets and liabilities measured at fair value on a recurring basis included the following as of June 30, 2022, and December 31, 2021 (in thousands):
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
(in thousands, except per share amounts) | 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Total revenue | $ | 62,880 |
|
| $ | 48,552 |
|
| $ | 178,393 |
|
| $ | 119,077 |
|
Net loss |
| (43,031 | ) |
|
| (21,681 | ) |
|
| (101,739 | ) |
|
| (80,373 | ) |
Net loss per share, basic and diluted | $ | (0.43 | ) |
| $ | (0.33 | ) |
| $ | (1.07 | ) |
| $ | (1.26 | ) |
| June 30, 2022 |
| |||||||||||||
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
| ||||
Money market funds | $ | 75,043 |
|
|
| — |
|
|
| — |
|
| $ | 75,043 |
|
Total cash equivalents | $ | 75,043 |
|
|
| — |
|
|
| — |
|
| $ | 75,043 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liability classified equity award | $ | — |
|
|
| — |
|
|
| 1,061 |
|
| $ | 1,061 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| December 31, 2021 |
| |||||||||||||
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
| ||||
Money market funds | $ | 140,010 |
|
|
| — |
|
|
| — |
|
| $ | 140,010 |
|
Total cash equivalents | $ | 140,010 |
|
|
| — |
|
|
| — |
|
| $ | 140,010 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liability classified equity award | $ | — |
|
|
| — |
|
|
| 2,052 |
|
| $ | 2,052 |
|
4. Select Condensed Consolidated Balance Sheets Details
Accounts Receivable, net
Accounts receivable, net consistThe Company did not have any transfers of assets and liabilities between the levels of the following (in thousands):fair value measurement hierarchy during the periods presented.
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||
Accounts receivable |
| $ | 34,545 |
|
| $ | 23,887 |
|
Allowance for doubtful accounts |
|
| (869 | ) |
|
| (360 | ) |
Accounts receivable, net |
| $ | 33,676 |
|
| $ | 23,527 |
|
Inventories
Inventories consist of the following (in thousands):
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||
Raw materials |
| $ | 16,120 |
|
| $ | 6,064 |
|
Work-in-process |
|
| 3,883 |
|
|
| 1,982 |
|
Finished goods |
|
| 110,531 |
|
|
| 67,892 |
|
|
|
| 130,534 |
|
|
| 75,938 |
|
Less: reserve for excess and obsolete inventories |
|
| (38,025 | ) |
|
| (29,937 | ) |
Inventories |
| $ | 92,509 |
|
| $ | 46,001 |
|
1613
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 $1.4 million as of June 30, 2022 and is being recognized ratably as the underlying service period is provided.
The following table provides a reconciliation of liabilities measured at fair value using significant unobservable inputs (Level 3) for the six months ended June 30, 2022 (in thousands):
|
| Level 3 |
| |
Balance at December 31, 2021 |
| $ | 2,052 |
|
Straight-line recognition of liability classified equity award |
|
| 196 |
|
Change in fair value measurement |
|
| 80 |
|
Balance at March 31, 2022 |
| $ | 2,328 |
|
Straight-line recognition of liability classified equity award |
|
| 202 |
|
Change in fair value measurement |
|
| (1,469 | ) |
Balance at June 30, 2022 |
| $ | 1,061 |
|
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 2026 was approximately $247.1 million at June 30, 2022 and approximately $308.1 million at December 31, 2021. The fair value, based on a quoted market price (Level 1), of the Company’s outstanding OCEANE was approximately $13.0 million at June 30, 2022 and approximately $14.1 million at December 31, 2021. See Note 9 for further information.
5. Inventories
Inventories reported at the lower of cost or net realizable value consist of the following (in thousands):
|
| June 30, |
|
| December 31, |
| ||
Raw materials |
| $ | 14,726 |
|
| $ | 14,671 |
|
Work-in-process |
|
| 5,336 |
|
|
| 5,712 |
|
Finished goods |
|
| 82,734 |
|
|
| 71,320 |
|
Inventories |
| $ | 102,796 |
|
| $ | 91,703 |
|
6. Property and Equipment, net
Property and equipment, net consist of the following (in thousands, except as indicated):
|
| Useful lives (in years) |
|
| September 30, 2021 |
|
| December 31, 2020 |
|
| Useful lives |
| June 30, |
|
| December 31, |
| |||||
Surgical instruments |
|
| 4 |
|
| $ | 120,092 |
|
| $ | 76,669 |
|
| 4 |
| $ | 145,123 |
|
| $ | 130,432 |
|
Machinery and equipment |
|
| 7 |
|
|
| 14,249 |
|
|
| 6,562 |
|
| 7 |
|
| 10,985 |
|
|
| 11,092 |
|
Computer equipment |
|
| 3 |
|
|
| 5,588 |
|
|
| 4,206 |
|
| 3 |
|
| 5,500 |
|
|
| 5,694 |
|
Office furniture and equipment |
|
| 5 |
|
|
| 3,756 |
|
|
| 1,380 |
|
| 5 |
|
| 4,316 |
|
|
| 3,861 |
|
Leasehold improvements |
| various |
|
|
| 1,558 |
|
|
| 1,761 |
|
| various |
|
| 3,404 |
|
|
| 1,754 |
| |
Construction in progress |
| n/a |
|
|
| 2,374 |
|
|
| 2,738 |
|
| n/a |
|
| 14,591 |
|
|
| 7,292 |
| |
|
|
|
|
|
|
| 147,617 |
|
|
| 93,316 |
|
|
|
|
| 183,919 |
|
|
| 160,125 |
|
Less: accumulated depreciation and amortization |
|
|
|
|
|
| (70,403 | ) |
|
| (56,646 | ) |
|
|
|
| (84,736 | ) |
|
| (72,724 | ) |
Property and equipment, net |
|
|
|
|
| $ | 77,214 |
|
| $ | 36,670 |
|
|
|
| $ | 99,183 |
|
| $ | 87,401 |
|
Total depreciation expense was $5.3$7.5 million and $13.8$14.6 million for the three and ninesix months ended SeptemberJune 30, 2022, respectively, and $5.0 million and $8.4 million for three and six months ended June 30, 2021, respectively,respectively. Construction in progress is not depreciated until placed in service. Property and $2.3 millionequipment includes assets under financing leases and $6.5 million for the three and nine months ended September 30, 2020, respectively. Amortizationrelated amortization of assets under capitalfinancing leases is included in depreciation expense. Construction in progress includes costs associated with internal-use software.
14
7. Goodwill and Intangible Assets
Goodwill
The change in the carrying amount of goodwill during the period ended June 30, 2022 included the following (in thousands):
December 31, 2021 |
| $ | 39,689 |
|
Purchase price allocation adjustment |
|
| 1,628 |
|
Foreign currency fluctuation |
|
| (2,147 | ) |
June 30, 2022 |
| $ | 39,170 |
|
Intangible assets, net
Intangible assets, net consist of the following (in thousands, except as indicated):
|
| Remaining Avg. Useful lives (in years) |
|
| September 30, 2021 |
|
| December 31, 2020 |
| |||
Developed product technology |
|
| 12 |
|
| $ | 75,240 |
|
| $ | 35,376 |
|
License agreements |
|
| 7 |
|
|
| 473 |
|
|
| 5,536 |
|
Trademarks and trade names |
|
| 10 |
|
|
| 5,858 |
|
|
| 792 |
|
Customer-related |
|
| 5 |
|
|
| 14,930 |
|
|
| 7,458 |
|
Distribution network |
|
| 3 |
|
|
| 2,413 |
|
|
| 4,027 |
|
In process research and development |
|
| 7 |
|
|
| 1,128 |
|
|
| 1,278 |
|
Total gross amount |
|
|
|
|
| $ | 100,042 |
|
| $ | 54,467 |
|
Less: accumulated amortization |
|
|
|
|
|
| (11,202 | ) |
|
| (29,747 | ) |
Intangible assets, net |
|
|
|
|
| $ | 88,840 |
|
| $ | 24,720 |
|
|
| Remaining Avg. |
| Gross |
|
| Accumulated |
|
| Intangible |
| |||
June 30, 2022: |
| (in years) |
| Amount |
|
| Amortization |
|
| Assets, net |
| |||
Developed product technology |
| 11 |
| $ | 72,740 |
|
| $ | (8,557 | ) |
| $ | 64,183 |
|
Trademarks and trade names |
| 9 |
|
| 5,298 |
|
|
| (708 | ) |
|
| 4,590 |
|
Customer relationships |
| 4 |
|
| 14,043 |
|
|
| (6,031 | ) |
|
| 8,012 |
|
Distribution network |
| 2 |
|
| 2,413 |
|
|
| (1,940 | ) |
|
| 473 |
|
In-process research and development |
| n/a |
|
| 1,353 |
|
|
| — |
|
|
| 1,353 |
|
Total |
|
|
| $ | 95,847 |
|
| $ | (17,236 | ) |
| $ | 78,611 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
| Remaining Avg. |
| Gross |
|
| Accumulated |
|
| Intangible |
| |||
December 31, 2021: |
| (in years) |
| Amount |
|
| Amortization |
|
| Assets, net |
| |||
Developed product technology |
| 12 |
| $ | 74,543 |
|
| $ | (5,768 | ) |
| $ | 68,775 |
|
Trademarks and trade names |
| 10 |
|
| 5,732 |
|
|
| (477 | ) |
|
| 5,255 |
|
Customer relationships |
| 5 |
|
| 14,732 |
|
|
| (5,264 | ) |
|
| 9,468 |
|
Distribution network |
| 3 |
|
| 2,413 |
|
|
| (1,840 | ) |
|
| 573 |
|
In-process research and development |
| n/a |
|
| 1,203 |
|
|
| — |
|
|
| 1,203 |
|
Total |
|
|
| $ | 98,623 |
|
| $ | (13,349 | ) |
| $ | 85,274 |
|
During the three months ended September 30, 2021, in connection with the expiration of the Supply Agreement with Globus, defined below, the Company wrote off $32.6 million in fully amortized intangible assets. During the nine months ended September 30, 2021, in connection with the Company’s acquisition of EOS, as further described in Note 3, the Company recorded additions to definite-lived intangible assets and goodwill in the amount of $71.5 million and $31.8 million, respectively.
Total amortization expense attributed to intangible assets was $2.3$2.2 million and $4.2$4.4 million for the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively, and $0.4$1.5 million and $1.3$1.9 million for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively. The Company recognized a $0.2 million impairment loss related to certain intellectual property within sales, general and administrative expense on its condensed consolidated statement of operations for the nine months ended September 30, 2021. In processIn-process research and development intangiblesassets begin amortizing when the relevant products reach full commercial launch.
17
Future amortization expense related to intangible assets is as follows (in thousands):
Year Ending December 31, |
|
|
|
|
|
|
| |
Remainder of 2021 |
| $ | 2,365 |
| ||||
2022 |
|
| 9,425 |
| ||||
Remainder of 2022 |
| $ | 4,429 |
| ||||
2023 |
|
| 9,425 |
|
|
| 8,859 |
|
2024 |
|
| 9,322 |
|
|
| 8,756 |
|
2025 |
|
| 8,737 |
|
|
| 8,171 |
|
2026 |
|
| 8,171 |
| ||||
Thereafter |
|
| 49,566 |
|
|
| 40,225 |
|
|
| $ | 88,840 |
|
| $ | 78,611 |
|
Accrued Expenses
Accrued expenses consist of the following (in thousands):
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||
Commissions |
| $ | 8,232 |
|
| $ | 7,038 |
|
Payroll and payroll related |
|
| 16,888 |
|
|
| 13,552 |
|
Litigation settlement obligation - short-term portion |
|
| 4,000 |
|
|
| 4,000 |
|
Professional fees |
|
| 2,286 |
|
|
| 3,551 |
|
Royalties |
|
| 2,234 |
|
|
| 2,293 |
|
Interest |
|
| 915 |
|
|
| 619 |
|
Administration fees |
|
| 1,556 |
|
|
| 442 |
|
Other |
|
| 7,874 |
|
|
| 3,769 |
|
Total accrued expenses |
| $ | 43,985 |
|
| $ | 35,264 |
|
Other Long-Term Liabilities
Other long-term liabilities consist of the following (in thousands):
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||
Litigation settlement obligation - long-term portion |
| $ | 4,547 |
|
| $ | 7,634 |
|
Tax liabilities |
|
| 2,891 |
|
|
| 373 |
|
Royalties |
|
| 3,236 |
|
|
| 1,678 |
|
Contract liability |
|
| 2,711 |
|
|
| — |
|
Other |
|
| 3,367 |
|
|
| 1,703 |
|
Other long-term liabilities |
| $ | 16,752 |
|
| $ | 11,388 |
|
5. Discontinued Operations
In connection with the sale of the previous international distribution business, the Company entered into a product manufacture and supply agreement (the “Supply Agreement”) with Globus, pursuant to which the Company supplied to Globus certain of its implants and instruments, previously offered for sale by the Company in international markets at agreed-upon prices for a minimum term of three years, with the option for Globus to extend the term for up to 2 additional twelve month periods subject to Globus meeting specified purchase requirements. The Supply Agreement expired and terminated on August 31, 2021 and all associated discontinued operations balances were removed from the condensed consolidated balance sheets ended September 30, 2021.
1815
8. Contract Liabilities
Contract liabilities consists of the following (in thousands):
In accordance
|
| June 30, |
|
| December 31, |
| ||
Contract liabilities |
| $ | 16,650 |
|
| $ | 18,151 |
|
Less: Non-current portion of contract liabilities |
|
| (2,800 | ) |
|
| (2,896 | ) |
Current portion of contract liabilities |
| $ | 13,850 |
|
| $ | 15,255 |
|
The non-current contract liabilities balance is included in other long-term liabilities on the condensed consolidated balance sheets. Contract liabilities relates to contracts with authoritative guidance, salescustomers 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 relate to Globus were reported under continuing operations as the Company had continuing involvement under the Supply Agreement.undelivered equipment, services, or maintenance agreements. The Company recordedrecognized $0.15.8 million and $0.910.1 million in both revenue and cost of revenue from the Supply Agreement in continuing operations forits contract liabilities during the three and ninesix months ended SeptemberJune 30, 2021, respectively. The Company recorded $1.12022, respectively, and $3.4 million in both revenue and cost of revenue from the Supply Agreement in continuing operations forits contract liabilities during the three and six months ended SeptemberJune 30, 2020,2021. The opening and $3.0 million in revenue and $2.8 million costclosing balances of revenue from the Supply Agreement in continuing operations for the nine months ended September 30, 2020.Company’s contract liabilities are as follows (in thousands):
Balance at December 31, 2021 |
| $ | 18,151 |
|
Payments received |
|
| 8,634 |
|
Revenue recognized |
|
| (10,135 | ) |
Balance at June 30, 2022 |
| $ | 16,650 |
|
9. Debt
6. Debt
0.75% Senior Convertible Notes due 2026
In August 2021, the Company issued $ $316.3316.3 million aggregate principal amount of unsecured Senior Convertible Senior Notes (the "2026 Notes") with a stated interest rate of 0.75%0.75% and a maturity date of August 1, 2026. TheInterest on the 2026 Notes began accruing interest immediately and is payable semi-annually in arrears on February 1 and August 1 of each year, beginning on February 1, 2022. The net proceeds from the sale of the 2026 Notes were approximately $306.2$306.2 million after deducting the initial purchasers’ offering expenses and before cash use for the Cappedprivately negotiated capped call transactions (the “Capped Call Transactions,Transactions”), as described below, the repurchase of stock, as described in Note 11, and the repayment of the outstanding term loan with Squadron Medical Finance Solutions, LLC (“Squadron Medical”) and outstanding obligation under the Inventory Financing Agreement, as described below. The 2026 Notes do not contain any financial covenants.covenants.
The 2026 Notes are convertible into shares of the Company’s common stock based upon an initial conversion rate of 54.5316 shares of the Company’s common stock per $1,000$1,000 principal amount of 2026 Notes (equivalent to an initial conversion price of approximately $18.34$18.34 per share). The conversion rate will be subject to adjustment upon the occurrence of certain specified events, including certain distributions and dividends to all or substantially all of the holders of the Company’s common stock. Based on the terms of the 2026 Notes, when a conversion notice is received, the Company has the option to pay or deliver cash, shares of the Company’s common stock, or a combination thereof. The 2026 Notes are classified as long-term debt on the condensed consolidated balances sheet as of September 30, 2021.
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 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130%130% of the conversion price on each applicable trading day; (2) during the 5 consecutive business days immediately after any 10 consecutive trading day period (the “measurement period”) in which the trading price per $1,000$1,000 principal amount of 2026 Notes for each trading day of the measurement period was less than 98%98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. From and after February 2, 2026, holders of the 2026 Notes may convert their notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. As of SeptemberJune 30, 2021,2022, none of the conditions permitting the holders of the 2026 Notes to convert have been met. The 2026 Notes are classified as long-term debt on the condensed consolidated balances sheet as of June 30, 2022.
16
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 August 6, 2024 and on or before the 40th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid interest, if any, but only if the last reported sale price per share of the Company’s common stock exceeds 130%130% of the conversion price for a specified period of time. In addition, calling any note for redemption will constitute a “make-whole fundamental change” with respect to that note, in which case the conversion rate applicable to the conversion of that note will be increased in certain circumstances if such note is converted after it is called for redemption.
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 100%100% of the principal amount of the 2026 Notes plus accrued and unpaid interest. NaN principal payments are otherwise due on the 2026 Notes prior to maturity.
19
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 1.4%1.4%. TotalThe interest expense forrecognized on the 2026 Notes was $0.6 million duringfor the three and ninesix months ended SeptemberJune 30, 2021.2022 includes $1.1 million and $2.2 million for the contractual coupon interest, respectively, and $0.5 million and $1.0 million for the amortization of debt issuance costs, respectively. The Company uses the if-converted method for assumed conversion of the 2026 Notes to compute the weighted-average shares of common stock outstanding for diluted earnings per share, if applicable.
The outstanding principal amount and carrying value of the 2026 Notes consist of the following (in thousands):
|
| September 30, 2021 |
|
| June 30, |
| ||
Principal |
| $ | 316,250 |
|
| $ | 316,250 |
|
Unamortized debt issuance costs |
|
| (9,751 | ) |
|
| (8,286 | ) |
Net carrying value |
| $ | 306,499 |
|
| $ | 307,964 |
|
Capped Call Transactions
In connection with the offering of the 2026 Notes, the Company entered into privately negotiated capped call transactions (the “Cappedthe Capped Call Transactions”)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 $27.68$27.68 per share of the Company’s common stock, which represents a premium of 100%100% over the last reported sale price of the Company’s common stock on August 5, 2021, and is subject to certain adjustments under the terms of the Capped Call Transactions. Collectively, the Capped Call Transactions cover, initially, the number of shares of the Company’s common stock underlying the 2026 Notes, subject to anti-dilution adjustments substantially similar to those applicable to the 2026 Notes. The cost of the Capped Call Transactions was approximately $39.9$39.9 million.
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 $39.9$39.9 million cost was recorded as a reduction to additional paid-in capital on the Company’s condensed consolidated statements of shareholders’ equity.
OCEANE Convertible Bonds
On May 31, 2018, EOS issued 4,344,651 OCEANE convertible bonds, denominated in Euros, due May 2023 for aggregate gross proceeds of $34.3$34.3 million (€29.5 million). The OCEANEs are unsecured obligations of EOS, rank equally with all other unsecured and unsubordinated obligations of EOS, and pay interest at a rate equal to 6%6% per year, payable semiannually in arrears on May 31 and November 30 of each year, beginning November 30, 2018.2018. Unless either earlier converted or repurchased, the OCEANEs will mature on May 31, 2023.2023. Interest expense was $0.3$0.2 million and $0.4$0.4 million for the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively, sinceand $0.1 million for the date of acquisition.three and six months ended June 30, 2021.
As discussed in Note 3, in connection with the Offer to acquire EOS, the Company purchased 2,486,135 OCEANE convertible bonds, and as such, 1,858,516 OCEANE convertible bonds with a principal amount of $15.3$15.3 million (€12.6 million) remained outstanding at the time of acquisition.
17
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 1 share per OCEANE, and the initial conversion rate is subject to customary anti-dilution adjustments. The OCEANEs are convertible at any time until the seventh business day prior to maturity or seventh business day prior to an earlier redemption of the OCEANE. If the number of shares calculated is not a whole number, the holder may request allocation of either the whole number of shares immediately below the number and receive an amount in cash equal to the remaining fractional share value, or the whole number of shares immediately above the number and pay an amount in cash equal to the remaining fractional share value. Holders of the OCEANEs have the option to convert all or any portion of such OCEANEs, regardless of any conditions, at any time until the close of seventh business day immediately preceding the maturity date.
20
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 150%150% of the par value of each OCEANE on each of at least 20 consecutive trading days during any 40 consecutive trading days, if EOS redeems the OCEANEs when the number of OCEANEs outstanding is 15%15% or less of the number of OCEANEs originally issued, or the occurrence of a tender or exchange offer. As a result of the Company’s acquisition of EOS, the OCEANEs are now convertible into new shares of EOS, as a wholly-owned subsidiary of the Company. OCEANE holders can redeem the notes upon the occurrence of an event of default or upon the occurrence of a change of control. In July 2021, in connection with the change of control, holders of 25,971 OCEANEs chose to redeem their bonds for approximately $0.2$0.2 million (€0.2 million).
The carrying value of the outstanding OCEANEs was $14.4$13.0 million (€12.5 million) as of SeptemberJune 30, 20212022..
Other Debt Agreements
In January and April 2021, prior to the acquisition, EOS obtained 2 loan agreements, denominated in Euros, under French stategovernment sponsored COVID-19 relief initiatives (PGE – pret(pret garanti par l’etat)l’etat or “PGE” loans). Each loan contains a 12-month12-month term and 90%90% of the principal balance of each loan is state guaranteed. The cost of the state guaranty is 0.25%0.25% of the loan amount, and the loan carriesamounts. The loans carry an interest-free rate from the commercial banks (€3,266,667)3.3 million) and a 1.75%1.75% interest from the lender (€1,450,000)1.5 million). The loan capital and loan guaranty costs are payable in full at the end of the 12-month term or the loan may be extended up to 5 additional years. If the Company choseschooses to extend the debt, the election must be made by the Company between months 8 and 11 of the 12-month term.The extension will carry an interest rate at the banks’ refinancing cost, to be applied from year 2 to year 6 and an increased state guaranty cost (50 to 200 bps, as per a scale with company size and extension year). The
In February 2022, the Company extended the maturity for each loan agreement to 2027. Each loan has recordeda 12-month period from the debt as short-term debt onapplicable extension date where interest only payments will occur (the “Interest Only Period”). Following the Company’s condensed consolidated balance sheets.Interest Only Period, monthly and quarterly installments of principal and interest under each loan agreement will be due until the original principal amounts and applicable interest is fully repaid in 2027. The outstanding obligation under each loan as of SeptemberJune 30, 2021 is $0.52022 was $3.4 million and $5.0$1.5 million (€0.43.3 million and €4.3€1.5 million). at weighted average interest rates of 0.98% and 1.25%, respectively, and weighted average costs of the state guaranty of 0.69% and 1.00%, respectively.
Total Indebtedness
Principal payments remaining on the Company's debt are as follows as of SeptemberJune 30, 20212022 (in thousands):
Remainder of 2021 |
| $ | 276 |
|
2022 |
|
| 5,849 |
|
2023 |
|
| 14,451 |
|
2024 |
|
| 18 |
|
2025 |
|
| — |
|
Thereafter |
|
| 316,250 |
|
Total |
|
| 336,844 |
|
Less: unamortized debt discount and debt issuance costs |
|
| (9,751 | ) |
Total |
|
| 327,093 |
|
Less: short-term debt |
|
| (6,119 | ) |
Long-term debt |
| $ | 320,974 |
|
Paycheck Protection Loan
On April 23, 2020, the Company received the proceeds from a loan in the amount of approximately $4.3 million (the “PPP Loan”) from Silicon Valley Bank, as lender, pursuant to the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The Company used all of the proceeds from the PPP Loan to retain employees and maintain payroll. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest, and covered utilities during the twenty-four-week period, beginning on the date of the loan approval. In July 2021, the Company received confirmation from the SBA that the entire PPP Loan was forgiven and recorded a gain on debt extinguishment of $4.3 million, which is included in loss on debt extinguishment, net, on the condensed consolidated statements of operations for the three and nine months ended September 30, 2021.
21
Remainder of 2022 |
| $ | 1,207 |
|
2023 |
|
| 13,936 |
|
2024 |
|
| 1,500 |
|
2025 |
|
| 1,233 |
|
2026 |
|
| 317,483 |
|
Thereafter |
|
| 590 |
|
Total |
|
| 335,949 |
|
Less: debt discount |
|
| (8,286 | ) |
Total |
|
| 327,663 |
|
Less: current portion of long-term debt |
|
| (14,266 | ) |
Long-term debt |
| $ | 313,397 |
|
18
Squadron Medical Credit Agreement
On November 6, 2018, the Company entered into a term loan with Squadron Medical Finance Solutions, LLC (“Squadron Medical”), a provider of debt financing to growing companies in the orthopedic industry. The term loan was subsequently amended on March 27, 2019, May 29, 2020 and December 16, 2020 to expand the availability of additional term loans, extend the maturity, remove all financial covenant requirements and, in the December 16, 2020 amendment, incorporate a debt exchange. On August 10, 2021, the Company repaid all obligations under the term loan, which consisted of the $45.0 million outstanding principal and $0.2 million accrued interest. As a result of the early termination of the term loan with Squadron Medical, the Company recorded a loss on debt extinguishment associated with the unamortized debt issuance costs of $11.7 million, which is included in loss on debt extinguishment, net, on the condensed consolidated statements of operations for the three and nine months ended September 30, 2021.
In connection with the initial 2018 term loan and subsequent amendments, the Company issued an aggregate of 6,759,530 warrants to Squadron Medical and a participant lender. See Note 11 for further information on the warrants issued.
Inventory Financing Agreement
In November 2018, the Company entered into an Inventory Financing Agreement with a key inventory and instrument components supplier whereby the Company was originally permitted to draw up to $3.0 million for the purchase of inventory. In November 2020 and May 2021, the Company amended the Inventory Financing Agreement with the supplier to increase the available draw to $6.0 million and then to $9.0 million for the purchase of inventory. On August 10, 2021, the Company terminated and repaid all obligations under the Inventory Financing Agreement, which consisted of $8.1 million outstanding principal and $0.1 million accrued interest.
MidCap Facility Agreement
On May 29, 2020, the Company repaid in full all amounts outstanding under the Amended Credit Facility with MidCap Funding IV, LLC (“MidCap”), including the outstanding balance of $9.6 million, which consisted of outstanding principal and accrued interest. As a result of the early termination of the Credit Facility with MidCap, the Company recorded a loss on debt extinguishment in its condensed consolidated statements of operations for the period ended September 30, 2020.
7.10. 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 Company recognizes right-of-use assets (“ROU assets”) and lease liabilities for office buildings and certain equipment with lease terms of 1 year to 10 years, some of which include options to extend and/or terminate the leases. Any short-term leases defined as twelve months or less or month-to-month leases were excluded and continue to be expensed each month. Total costs associated with these short-term leases is immaterial to all periods presented.
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 and ninesix months ended SeptemberJune 30, 20212022 were immaterial. The Company had an immaterial amount of financing leases as of SeptemberJune 30, 2021,2022, 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 121,541 square feet of office, engineering, and research and development space in Carlsbad, California. On December 4, 2019, the Company entered into a new 10-year10-year operating lease that commenced on February 1, 2021 and will terminate on January 31, 2031, subject to two sixty-month options to renew which wereare not reasonably certain to be exercised. The Company recognized a $21.1$21.1 million ROU asset and $21.5$21.5 million lease liability on the condensed consolidated balance sheet upon taking control of the premises on the lease commencement date. Base rent under the building lease for the first twelve months of the term will be $0.2$0.2 million per month subject to full abatement during months two through ten, and thereafter will increase annually by 3.0%3.0% throughout the remainder of the lease.
22
On April 9, 2021, the Company entered into a new 7-year7-year operating lease agreement for a new distribution center which consists of approximately 75,643 square feet of office and warehouse space in Memphis, Tennessee. The term of the new lease commenced on May 1, 2021 and will terminate on May 1, 2028, subject to two thirty-six-month options to renew which were not reasonably certain to be exercised. The Company recognized a $1.7$1.7 million ROU asset and $1.6 million lease liability upon taking control of the premises on the lease commencement date. Base rent under the new building lease will be commensurate with the Company’s proportionate share of occupancy of the new building and will increase annually by 3.0%3.0% throughout the remainder of the lease.
With the acquisition of EOS, the Company assumed its ROU assets and lease liabilities in the amount of $4.3$4.3 million. EOS occupies its main office in Paris, France. The EOS office in Paris, France is a 10-year10-year operating lease that commenced in 2019 and will terminate in September 2028.2028. Base rent under the lease is approximately $0.6$0.6 million per year.
Future minimum annual lease payments for all operating leases of the Company are as follows as of SeptemberJune 30, 20212022 (in thousands):
Remainder of 2021 |
| $ | 784 |
| ||||
2022 |
|
| 4,413 |
| ||||
Remainder of 2022 |
| $ | 2,193 |
| ||||
2023 |
|
| 4,621 |
|
|
| 4,667 |
|
2024 |
|
| 4,635 |
|
|
| 4,782 |
|
2025 |
|
| 4,602 |
|
|
| 4,752 |
|
2026 |
|
| 4,857 |
| ||||
Thereafter |
|
| 22,574 |
|
|
| 18,014 |
|
Total undiscounted lease payments |
|
| 41,629 |
|
|
| 39,265 |
|
Less: imputed interest |
|
| (12,819 | ) |
|
| (7,766 | ) |
Operating lease liability |
|
| 28,810 |
| ||||
Less: current portion of operating lease liability |
|
| (3,859 | ) | ||||
Operating lease liability, less current portion |
| $ | 24,951 |
| ||||
Operating lease liabilities |
|
| 31,499 |
| ||||
Less: current portion of operating lease liabilities |
|
| (4,164 | ) | ||||
Operating lease liabilities, less current portion |
| $ | 27,335 |
| ||||
The Company’s weighted-averageweighted average remaining lease term and weighted-averageweighted average discount rate as of SeptemberJune 30, 20212022 and December 31, 20202021 are as follows:
|
| September 30, 2021 |
|
| December 31, 2020 |
|
| June 30, |
|
| December 31, |
| ||||
Weighted-average remaining lease term (years) |
|
| 8.8 |
|
|
| 0.7 |
|
|
| 8.2 |
|
|
| 8.6 |
|
Weighted-average discount rate |
|
| 8.5 | % |
|
| 10.5 | % |
|
| 5.5 | % |
|
| 8.5 | % |
19
Information related to the Company’s operating leases is as follows (in thousands):
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Rent expense |
| $ | 1,156 |
|
| $ | 331 |
|
| $ | 3,358 |
|
| $ | 989 |
|
| $ | 1,091 |
|
| $ | 1,119 |
|
| $ | 2,247 |
|
| $ | 2,202 |
|
Cash paid for amounts included in measurement of lease liabilities |
| $ | 393 |
|
| $ | 373 |
|
| $ | 1,268 |
|
| $ | 1,113 |
|
| $ | 1,129 |
|
| $ | 495 |
|
| $ | 2,151 |
|
| $ | 875 |
|
Purchase Commitments
TheWith the acquisition of EOS, the Company entered into a distributionassumed its inventory purchase commitment agreement with a third-party provider in January 2020 in which thesupplier. The Company is obligated to certain minimum purchase commitment requirements related to inventory and equipment leases.through December 2026. As of SeptemberJune 30, 2021,2022, the remaining minimum purchase commitment required by the Company under the agreement was $1.0 million to be paid over a three-year period. The Company recognized an ROU asset in the amount of $1.1 million related to the leased assets within the agreement which is being amortized into rent expense through the lease term. The Company recognized $0.2 million and $0.4 million of rent expense pertaining to these assets for the three and nine months ended September 30, 2021, respectively, and $0.1 million of rent expense pertaining to these assets for the three and nine months ended September 30, 2020. The ROU asset related to the leased assets within the agreement on the Company’s condensed consolidated balance sheet was $0.6 million as of September 30, 2021.
23
With the acquisition of EOS, the company assumed its inventory purchase commitment agreement with a third-party supplier. EOS is obligated to certain minimum purchase commitment requirements through December 2025. As of September 30, 2021, the remaining minimum purchase commitment required by EOS under the agreement was $26.428.9 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,(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,infringed, or contributecontributed 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(“Surgical access system and related methods”), U.S. Patent No. 8,361,156 (entitled “Systems(“Systems and methods for spinal fusion”), and U.S. Design Patent Nos. D652,519 (“Dilator”) and D750,252 (“Intervertebral Implant”). NuVasive seekssought unspecified monetary damages and an injunction against future purported infringement. injunction.
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.patents. In May 2018, the Court ruled that NuVasive failed to state a plausible claim for infringement ofgranted the Company’s motion and dismissed 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.prejudice. In April 2018, NuVasive again moved for a preliminary injunction. In July 2018, after a hearing on the matter in June 2018, the Court again 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.motion.
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 new claims in October 2018. Also in October 2018, NuVasive moved to dismiss certain of 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.counterclaims. In January 2019, the Court denied NuVasive’s motion as to all but one counterclaim butand granted the Company leave to amend that counterclaim to cure dismissal.counterclaim. The Company amended thatthe 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 counterclaimanswer in April 2019.
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 of the validity of asserted claims of the two patents at issue and held a hearing on the matter in April 2020.inter partes review. 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‘334 Patent were invalid while findingand that other challenged claims of the ’334‘334 Patent valid. NuVasive and the Company have both appealed the PTAB’s written decision on the matter. The Company filed its Principal Brief onIn February 8, 2021. NuVasive filed its Principal Brief on April 21, 2021. The appeals are currently pending before2022, the U.S. Court of Appeals for the Federal Circuit.Circuit affirmed the ruling.
2420
In January 2020, NuVasive filed a Motionmoved for Partial Summary Judgment of infringement and validity of the ’832, ’780 and ’270 Patents and the Company filed a Motionmoved 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, theThe 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 Motionmoved for Partial Summary Judgment of infringement and validity of the ’156 and ’334 Implant Patents and the Company filed a Motionmoved for Summary Judgment of invalidity of those same patents. These motions were argued to the Court on June 29, 2021. OnIn August 31, 2021, the Court denied NuVasive’s motion and granted the Company’s motion for summary judgment of invalidity of the ’156 Patent. OnIn September 24, 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) has been setbegan on March 1, 2022, and concluded on March 11, 2022. On March 15, 2022, the Court ordered the parties to begin December 8, 2021.
The Company believes thatparticipate in post-trial settlement conference. In June 2022, following several post-trial settlement conferences and continued negotiations, the allegations described hereto lack meritparties reached a final resolution of all matters in dispute and intends to vigorously defend all claims asserted. The Company would recordexecuted a liability inconfidential settlement agreement. Following the consolidated financial statements if it is believed to be probable that a loss has been incurred and the amountjoint motion of the loss can be reasonably estimated. It is impossible at this time to assess whetherparties notifying the Court of the settlement agreement and requesting dismissal, the Court dismissed the action with prejudice. The outcome of this proceeding willthese proceedings did not have aany material adverse effect on the Company’s consolidated results of operations, cash flows or financial position. Therefore, in accordance with authoritative accounting guidance, the Company has not recorded any accrual for a contingent liability associated with this legal proceeding based on its belief that a liability, while possible, is not probable and any range of potential future charge cannot be reasonably estimated at this time.
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, onin June 28, 2018, NuVasive amended its complaint to add the Company as a defendant. OnIn October 12, 2018, the Delaware Court ordered that NuVasive begin advancingadvance 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 SeptemberJune 30, 2021,2022, the Company has 0tnot 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 revenue.sales.
25
8.11. 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 $49.0$49.0 million in cash, including initial cash payments totaling $1.75$1.75 million, which the Company previously paid in March 2014, and an additional lump sum payment of $15.75$15.75 million, which the Company previously paid in April 2014. The Company agreed to pay the remaining $31.5$31.5 million in 28 quarterly installments of $1.1$1.1 million and 1 additional quarterly installment of $0.7$0.7 million, commencing October 1, 2014. The unpaid balance of the principal amount due accrues interest at the rate of 7% per year until the balance is paid in full. The accrued but unpaid interest will be paid in quarterly installments of $1.1 million (or the full amount of the accrued but unpaid interest if less than $1.1 million) following the full payment of the $31.5 million in quarterly installments.
21
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 $5.0$5.0 million to the $49.0$49.0 million settlement amount. In October 2020,During the year ended December 31, 2021, HealthpointCapital begancompleted its $5.0 million contribution which will be in the form of 5 quarterly payments of varying amounts. The remaining $0.7 million receivable from HealthpointCapital, LLC as of September 30, 2021 continues to be classified within stockholders’ equity on the Company’s condensed consolidated balance sheet due to the related party nature with HealthpointCapital affiliates. Payments made by HealthpointCapital are recorded as a reduction to stockholder’s equity. See Note 13 for further information.settlement amount.
As of SeptemberJune 30, 2021,2022, the Company has made installment payments in the aggregate of $48.3$51.2 million, with a remaining outstanding balance of $9.2$6.5 million (including imputed interest), which is included in accrued expenses and other current liabilities and other long-term liabilities on the condensed consolidated balance sheets. The Company has the right to prepay the amounts due without penalty. In addition, the unpaid balance of the principal amount due accrues interest at the rate of 7% per year until the balance is paid in full. The accrued but unpaid interest will be paid in quarterly installments of $1.1 million (or the full amount of the accrued but unpaid interest if less than $1.1 million) following the full payment of the $31.5 million in quarterly installments described above. No additional interest will accrue on the accrued interest.. The Settlement Agreement provides for mutual releases of all claims in the Orthotec, LLC v. Surgiview, S.A.S, et al. matter in the Superior Court of California, Los Angeles County and all other related litigation matters involving the Company and its directors and affiliates.
A reconciliation of the total net settlement obligation is as follows (in thousands):
|
| September 30, 2021 |
|
| December 31, 2020 |
|
| June 30, |
|
| December 31, |
| ||||
Litigation settlement obligation - short-term portion |
| $ | 4,000 |
|
| $ | 4,000 |
|
| $ | 4,400 |
|
| $ | 4,400 |
|
Litigation settlement obligation - long-term portion |
|
| 4,547 |
|
|
| 7,634 |
|
|
| 1,865 |
|
|
| 3,587 |
|
Total |
|
| 8,547 |
|
|
| 11,634 |
|
|
| 6,265 |
|
|
| 7,987 |
|
Future interest |
|
| 618 |
|
|
| 1,199 |
| ||||||||
Total settlement obligation, gross |
|
| 9,165 |
|
|
| 12,833 |
| ||||||||
Related party receivable - included in stockholders' equity |
|
| (700 | ) |
|
| (4,000 | ) | ||||||||
Future imputed interest |
|
| 254 |
|
|
| 478 |
| ||||||||
Total settlement obligation, net |
| $ | 8,465 |
|
| $ | 8,833 |
|
| $ | 6,519 |
|
| $ | 8,465 |
|
The short-term portion of the litigation settlement obligation is included in accrued expenses and other current liabilities on the condensed consolidated balance sheets and the long-term portion of the litigation settlement obligation is included in other long-term liabilities on the condensed consolidated balance sheets.
12. Stock-Benefit Plans and Equity Transactions
9.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 |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Cost of sales |
| $ | 449 |
|
| $ | 235 |
|
| $ | 705 |
|
| $ | 330 |
|
Research and development |
|
| 1,362 |
|
|
| 664 |
|
|
| 2,334 |
|
|
| 1,162 |
|
Sales, general and administrative |
|
| 7,392 |
|
|
| 10,597 |
|
|
| 16,348 |
|
|
| 14,478 |
|
Total |
| $ | 9,203 |
|
| $ | 11,496 |
|
| $ | 19,387 |
|
| $ | 15,970 |
|
22
As of June 30, 2022, there was $53.3 million of unamortized compensation expense for RSUs and PRSUs to be recognized over a weighted average period of 1.80 years.
Restricted Stock Units and Performance Based Restricted Stock Units Awards
The Company issued approximately 1,310,000 and 2,540,000 shares of common stock, before net share settlement, upon vesting of RSUs and PRSUs during the three and six months ended June 30, 2022, respectively, and issued approximately 1,605,000 and 2,078,000 shares of common stock, before net share settlement, upon vesting of RSUs and PRSUs during the three and six months ended June 30, 2021, respectively.
Employee Stock Purchase Plan
Employees are eligible to participate in the ESPP approved by its shareholders. During the three and six months ended June 30, 2022, there were approximately 222,000 shares issued under the ESPP. During the three and six months ended June 30, 2021, there were approximately 112,000 shares issued under the ESPP.
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 and Six Months Ended |
| |||||
|
| June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Risk-free interest rate |
| 0.07% - 1.54% |
|
| 0.04% - 0.10 % |
| ||
Expected dividend yield |
|
| — |
|
|
| — |
|
Expected term (years) |
|
| 0.50 |
|
|
| 0.50 |
|
Volatility |
| 50.29% - 64.53% |
|
| 49.98% - 78.51% |
| ||
Warrants Outstanding
2017 PIPE Warrants
The 2017 Common Stock Warrants (the “2017 PIPE Warrants”) have a five-year life and are exercisable by cash exercise only. During the three and six months ended June 30, 2022, there were approximately 1,887,000 and 2,312,000 2017 PIPE Warrant exercises, respectively, for total cash proceeds of $2.7 million and $3.5 million, respectively. During the three and six months ended June 30, 2021, there were approximately 375,000 and 520,000 2017 PIPE Warrant exercises, respectively, for total cash proceeds of $0.8 million and $1.0 million, respectively. As of June 30, 2022, the 2017 PIPE Warrants have expired, and 0 2017 PIPE Warrants remained outstanding.
2018 PIPE Warrants
The 2018 Common Stock Warrants (the “2018 PIPE Warrants”) have a five-year life and are exercisable by cash or cashless exercise. During the three months ended June 30, 2022, there were 0 2018 PIPE Warrant exercises. During the six months ended June 30, 2022, there were approximately 126,000 2018 PIPE Warrant exercises for total cash proceeds of $0.4 million. During the three and six months ended June 30, 2021, there were approximately 693,000 and 2,841,000 2018 PIPE Warrant exercises, respectively, for total cash proceeds of $1.0 million and $1.3 million, respectively. As of June 30, 2022, approximately 8,354,000 2018 PIPE Warrants remained outstanding.
23
SafeOp Surgical Merger Warrants
In conjunction with the Company’s 2018 acquisition of SafeOp, the Company issued warrants to purchase 2,200,000 shares of common stock at an exercise price of $3.50 per share (the “SafeOp Warrants”), which have a five-year life and are exercisable by cash or cashless exercise. During the three and six months ended June 30, 2022, there were approximately 257,000 SafeOp Warrant cashless exercises. There were 0 SafeOp Warrant exercises during the three months ended June 30, 2021. During the six months ended June 30, 2021, there were approximately 970,000 SafeOp Warrant exercises for total cash proceeds of $0.1 million. As of June 30, 2022, approximately 938,000 SafeOp Warrants remained outstanding.
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 845,000 shares of common stock at an exercise price of $3.15 per share. An additional 4,839,000 Squadron Medical Warrants were issued at an exercise price of $2.17 per share during the second quarter of 2019, in conjunction with the Company’s draw on the expanded credit facility. In May 2020, an additional 1,076,000 Squadron Medical Warrants were issued at an exercise price of $4.88 per share in conjunction with the Company’s second amendment to the Squadron Medical debt for total Squadron Medical Warrants outstanding to Squadron Medical and the participant lender of 6,760,000. In conjunction with the second amendment, the expiration dates for all existing Squadron Medical Warrants were extended to May 29, 2027 to align all outstanding warrant expiration dates. NaN Squadron Medical Warrants have been exercised as of June 30, 2022.
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 1,327,000 shares of the Company’s common stock for $5.00 per share (the “Executive Warrants”). The Executive Warrants have a five-year term and are exercisable by cash or cashless exercise. The Executive Warrants issued to Mr. Miles were accounted for as share based compensation, and the fair value of the Executive Warrants of approximately $1.4 million were recognized in full in the statement of operations for the year ended December 31, 2017, as the Executive Warrants were immediately vested upon issuance. NaN Executive Warrants have been exercised as of June 30, 2022.
A summary of all outstanding warrants for common stock as of June 30, 2022, were as follows (in thousands, except for strike price data):
|
| Number of |
|
| Strike Price |
| Expiration | ||
2018 PIPE Warrants |
|
| 8,354 |
|
| $ | 3.50 |
| May 2023 |
SafeOp Surgical Merger Warrants |
|
| 938 |
|
| $ | 3.50 |
| May 2023 |
2018 Squadron Medical Warrants |
|
| 845 |
|
| $ | 3.15 |
| May 2027 |
2019 Squadron Medical Warrants |
|
| 4,839 |
|
| $ | 2.17 |
| May 2027 |
2020 Squadron Medical Warrants |
|
| 1,076 |
|
| $ | 4.88 |
| May 2027 |
Executive Warrants |
|
| 1,327 |
|
| $ | 5.00 |
| December 2022 |
Other(1) |
|
| 121 |
|
| $ | 5.37 |
| Various through February 2026 |
Total |
|
| 17,500 |
|
|
|
|
| |
All outstanding warrants were deemed to qualify for equity classification under authoritative accounting guidance.
24
13. Business Segment and Geographic Information
The Company operates in 1 segment based upon the Company’s organizational structure, the way in which the operations and investments are managed and evaluated by the chief operating decision maker (“CODM”) as well as the lack of available discrete financial information at a level lower than the consolidated level. The Company shares common, centralized support functions which report directly to the CODM and decision-making regarding the Company’s overall operating performance and allocation of Company resources is assessed on a consolidated basis.
26
Net revenue and property plant and equipment, net, by geographic region were as follows:follows (in thousands):
|
| Revenue |
|
| Property and equipment, net |
|
| Revenue |
|
| Property and equipment, net |
| ||||||||||||||||||||||||||||||||||||
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| September 30, |
|
| December 31, |
|
| Three Months Ended |
|
| Six Months Ended |
|
| June 30, |
|
| December 31, |
| ||||||||||||||||||||||||
(in thousands) |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||||||
United States |
| $ | 55,865 |
|
| $ | 40,052 |
|
| $ | 158,875 |
|
| $ | 97,956 |
|
| $ | 76,074 |
|
| $ | 36,670 |
|
| $ | 77,884 |
|
| $ | 59,294 |
|
| $ | 143,415 |
|
| $ | 103,010 |
|
| $ | 94,929 |
|
| $ | 85,320 |
|
International |
|
| 7,015 |
|
|
| 1,111 |
|
|
| 10,375 |
|
|
| 2,951 |
|
|
| 1,140 |
|
|
| — |
|
|
| 6,267 |
|
|
| 2,955 |
|
|
| 11,669 |
|
|
| 3,360 |
|
|
| 4,254 |
|
|
| 2,081 |
|
Total |
| $ | 62,880 |
|
| $ | 41,163 |
|
| $ | 169,250 |
|
| $ | 100,907 |
|
| $ | 77,214 |
|
| $ | 36,670 |
|
| $ | 84,151 |
|
| $ | 62,249 |
|
| $ | 155,084 |
|
| $ | 106,370 |
|
| $ | 99,183 |
|
| $ | 87,401 |
|
10.14. Net Loss Per Share
Basic net loss per share is calculated by dividing the net income or loss available to common stockholders by the weighted-average number of common shares outstanding for the period. DilutedIf 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 September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss, basic and diluted |
| $ | (43,031 | ) |
| $ | (15,669 | ) |
| $ | (104,139 | ) |
| $ | (52,196 | ) | ||||||||||||||||
Net loss |
| $ | (37,320 | ) |
| $ | (38,205 | ) |
| $ | (80,164 | ) |
| $ | (61,108 | ) | ||||||||||||||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average common shares outstanding, basic and diluted |
|
| 99,571 |
|
|
| 64,761 |
|
|
| 95,204 |
|
|
| 63,669 |
| ||||||||||||||||
Weighted average common shares outstanding |
|
| 102,849 |
|
|
| 98,541 |
|
|
| 101,422 |
|
|
| 92,912 |
| ||||||||||||||||
Net loss per share, basic and diluted: |
| $ | (0.43 | ) |
| $ | (0.24 | ) |
| $ | (1.09 | ) |
| $ | (0.82 | ) |
| $ | (0.36 | ) |
| $ | (0.39 | ) |
| $ | (0.79 | ) |
| $ | (0.66 | ) |
The anti-dilutive securities not included in diluted net loss per share were as follows (in thousands):
|
| As of September 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Series A Convertible Preferred Stock |
|
| 29 |
|
|
| 29 |
|
Options to purchase common stock and employee stock purchase plan |
|
| 3,524 |
|
|
| 4,141 |
|
Unvested restricted share awards |
|
| 8,733 |
|
|
| 8,072 |
|
Warrants to purchase common stock |
|
| 20,214 |
|
|
| 25,358 |
|
Convertible notes |
|
| 17,246 |
|
|
| — |
|
Total |
|
| 49,746 |
|
|
| 37,600 |
|
11. Stock-Benefit Plans and Equity Transactions
Share Repurchase
On August 3, 2021, the Company’s Board of Directors authorized the Company to repurchase an aggregate of up to $25.0 million of shares of the Company’s common stock. On August 10, 2021 the Company repurchased 1,806,358 shares of its common stock for approximately $25.0 million in privately negotiated transactions.
Stock Benefit Plans
On June 17, 2020, the Company’s shareholders approved an amendment to the Company’s 2016 Equity Incentive Award Plan (the “2016 Equity Plan”), which increased the amount of shares of common stock available for issuance under the 2016 Equity Plan by 7,000,000 shares. At September 30, 2021, 4,058,165following potentially dilutive shares of common stock were available for issuance underexcluded from the 2016 Equity Incentive Award Plan.
27
In 2007, the Company adopted the Alphatec Holdings, Inc. 2007 Amended and Restated Employee Stock Purchase Plan (the “ESPP”), which was first amended in May 2017. On June 16, 2021, the Company’s shareholders approved a second amendment to the ESPP which increased the amount of shares of common stock available for purchase under the ESPP by 500,000 shares.
The ESPP provides eligible employees with a means of acquiring equity in the Company at a discounted purchase price using their own accumulated payroll deductions. Under the terms of the ESPP, employees can elect to have up to 20% of their annual compensation, up to a maximum of $21,250 per year, withheld to purchase shares of Company common stock for a purchase price equal to 85% of the lower of the fair market valuediluted net loss per share (at closing) of Company common stock on (i) the commencement date of the six-month offering period or (ii) the respective purchase date. At September 30, 2021, 662,036 shares of common stock were available for purchase under the ESPP.
Stock-Based Compensation
Total stock-based compensationbecause their effect would have been anti-dilutive for the periods presented were as follows (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Cost of revenue |
| $ | 310 |
|
| $ | 139 |
|
| $ | 489 |
|
| $ | 374 |
|
Research and development |
|
| 1,440 |
|
|
| 528 |
|
|
| 2,602 |
|
|
| 1,482 |
|
Sales, general and administrative |
|
| 9,004 |
|
|
| 3,877 |
|
|
| 23,633 |
|
|
| 10,831 |
|
Total |
| $ | 10,754 |
|
| $ | 4,544 |
|
| $ | 26,724 |
|
| $ | 12,687 |
|
|
| As of |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Series A convertible preferred stock |
|
| — |
|
|
| 29 |
|
Options to purchase common stock and employee stock purchase plan |
|
| 3,050 |
|
|
| 3,659 |
|
Unvested restricted stock unit awards |
|
| 8,822 |
|
|
| 8,678 |
|
Warrants to purchase common stock |
|
| 17,500 |
|
|
| 20,525 |
|
Senior convertible notes |
|
| 17,246 |
|
|
| — |
|
Total |
|
| 46,618 |
|
|
| 32,891 |
|
Shares Reserved for Future Issuance
As of September 30, 2021, the Company’s shares of common stock reserved for future issuance were as follows (in thousands):
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
|
|
Warrants Outstanding
2017 PIPE Warrants
The 2017 Common Stock Warrants (the “2017 PIPE Warrants”) have a five-year life and are exercisable by cash exercise only. During the three and nine months ended September 30, 2021, there were 275,000 and 795,000 2017 PIPE Warrant exercises for total cash proceeds of $0.6 million and $1.6 million, respectively. During the three months ended September 30, 2020, there were 0 2017 PIPE Warrant exercises and during the nine months ended September 30, 2020 there were 125,000 2017 PIPE Warrant exercises for total cash proceeds of $0.3 million. As of September 30, 2021, 2,312,000 2017 PIPE Warrants remained outstanding.
28
2018 PIPE Warrants
The 2018 Common Stock Warrants (the “2018 PIPE Warrants”) have a five-year life and are exercisable by cash or cashless exercise. During the three and nine months ended September 30, 2021, there were 40,000 and 2,881,116 2018 PIPE Warrant exercises, respectively, for total cash proceeds of $0.1 million and $1.5 million, respectively. During the three months ended September 30, 2020, there were 136,000 2018 PIPE warrant cashless exercises. During the nine months September 30, 2020 there were 1,670,524 2018 PIPE warrant exercises for total cash proceeds of $0.9 million. As of September 30, 2021, 8,498,569 2018 PIPE Warrants remained outstanding.
SafeOp Surgical Merger Warrants
In conjunction with the Company’s 2018 acquisition of SafeOp, the Company issued warrants to purchase 2,200,000 shares of common stock at an exercise price of $3.50 per share, which have a five-year life and are exercisable by cash or cashless exercise. There were 0 exercises during the three months ended September 30, 2021. During the nine months ended September 30, 2021 there were 969,932 SafeOp Surgical Merger Warrant exercises for total cash proceeds of $0.1 million. During the three and nine months ended September 30, 2020, there were 14,583 SafeOp Surgical Merger Warrant cashless exercises. As of September 30, 2021, 1,194,943 SafeOp Surgical Merger Warrants remained outstanding.
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 to purchase 845,000 shares of common stock at an exercise price of $3.15 per share. An additional 4,838,710 warrants were issued at an exercise price of $2.17 per share during the second quarter of 2019, in conjunction with the Company’s draw on the expanded credit facility. In May 2020, an additional 1,075,820 warrants were issued at an exercise price of $4.88 per share in conjunction with the Company’s second amendment to the Squadron Medical debt for total warrants outstanding to Squadron Medical and the participant lender of 6,759,530. In conjunction with the second amendment, the expiration dates for all existing warrants were extended to May 29, 2027 to align all outstanding warrant expiration dates. In accordance with authoritative accounting guidance, the warrants qualified for equity treatment upon issuance and were recorded as a debt discount to the face of the debt liability based on fair value to be amortized into interest expense over the life of the debt agreement. The fair value assigned to the warrant amendment was also allocated as a debt issuance cost and amortized into interest expense. As the warrants provide for partial price protection that allow for a reduction in the price in the event of a lower per share priced issuance, the warrants were valued utilizing a Monte Carlo simulation that considers the probabilities of future financings. The Monte Carlo model simulates the present value of the potential outcomes of future stock prices of the Company over the seven-year life of the warrants. The projection of stock prices is based on the risk-free rate of return and the volatility of the stock price of the Company and correlates future equity raises based on the probabilities provided. NaN Squadron Medical Warrants have been exercised as of September 30, 2021.
Executive Warrants
In December 2017 the Company issued warrants to Mr. Patrick S. Miles, the Company’s Chairman and Chief Executive Officer, to purchase 1,327,434 shares of the Company’s common stock for $5.00 per share (the “Executive Warrants”). The warrants have a five-year term and are exercisable by cash or cashless exercise. The warrants issued to Mr. Miles were accounted for as share based compensation, and the fair value of the warrants of approximately $1.4 million were recognized in full in the statement of operations for the year ended December 31, 2017 as the warrants were immediately vested upon issuance. NaN Executive Warrants have been exercised as of September 30, 2021.
29
A summary of all outstanding warrants for common stock as of September 30, 2021 were as follows:
|
| Number of Warrants |
|
| Strike Price |
| Expiration | ||
2017 PIPE Warrants |
|
| 2,312,000 |
|
| $ | 2.00 |
| June 2022 |
2018 PIPE Warrants |
|
| 8,498,569 |
|
| $ | 3.50 |
| May 2023 |
SafeOp Surgical Merger Warrants |
|
| 1,194,943 |
|
| $ | 3.50 |
| May 2023 |
2018 Squadron Medical Warrants |
|
| 845,000 |
|
| $ | 3.15 |
| May 2027 |
2019 Squadron Medical Warrants |
|
| 4,838,710 |
|
| $ | 2.17 |
| May 2027 |
2020 Squadron Medical Warrants |
|
| 1,075,820 |
|
| $ | 4.88 |
| May 2027 |
Executive Warrants |
|
| 1,327,434 |
|
| $ | 5.00 |
| December 2022 |
Other(1) |
|
| 121,562 |
|
| $ | 2.87 |
| Various through May 2023 |
Total |
|
| 20,214,038 |
|
|
|
|
|
|
|
|
All outstanding warrants were deemed to qualify for equity classification under authoritative accounting guidance.
2017 Distributor Inducement Plan
Under the 2017 Distributor Inducement Plan, the Company is authorized to grant up to 1,000,000 shares of common stock to third-party distributors whereby, upon the achievement of certain Company sales and/or distribution milestones the Company may grant to a distributor shares of common stock or warrants to purchase shares of common stock. The warrants and restricted stock units issued under the plan are subject to time based or net sales-based vesting conditions. As of September 30, 2021, 575,000 warrants and 380,500 shares of restricted common stock have been granted under the 2017 Distributor Inducement Plan. As of September 30, 2021, 195,000 warrants and 136,100 restricted stock units have been earned or issued under the plan. Warrants granted under the plan as of September 30, 2021 were not yet subject to expiration related to any time or sales-based vesting conditions.
2017 Development Services Plan
Under the 2017 Development Services Plan, the Company is authorized to grant up to 7,000,000 shares of common stock to third-party individuals or entities whereby, upon the achievement of certain Company financial and commercial revenue milestones, future royalty payments for product and/or intellectual property development work may be paid in either cash or restricted shares of Company common stock at the election of the developer. Each common stock issuance is subject to net sales-based and other vesting provisions and satisfaction of applicable laws and market regulations regarding the issuance of restricted shares to such developers. The Company has entered into Development Services Agreements pursuant to which the Company has granted 6,934,000 shares of restricted common stock under the 2017 Development Services Plan, subject to achievement of the performance criteria and vesting conditions set forth in such Development Services Agreements. The Company recognizes stock-based compensation once the achievement of the performance criteria and vesting conditions are deemed probable.
2019 Management Objective Strategic Incentive Plan
Under the 2019 Management Objective Strategic Incentive Plan, the Company is authorized to grant up to 500,000 shares of common stock to third-party individuals or entities that do not qualify under the Company’s other existing equity plans, with a maximum grant of 50,000 shares per participant. As of September 30, 2021, 122,500 restricted shares and a warrant to purchase up to 12,500 restricted common stock shares have been granted under the 2019 Management Objective Strategic Incentive Plan.
12.15. 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, and applies that rate to its ordinary quarterly earnings.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 expected operatingestimated annual taxable income or loss for the year and projections of the proportion of income earned and taxed in foreign jurisdictions, permanent and temporary differences between book and tax amounts, and the likelihood of recovering deferred tax assets generated in the current year.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.
3025
The Company’s effective tax rate from continuing operations was (.21%(0.55%) and (.16%(0.42%) for the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively, and (.26%(0.11%) and (.27%(0.12%) for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively. The Company’s effective tax rate differs from the federal statutory rate of 21%21% in each period primarily due to the Company’s net loss position and valuation allowance.
13.16. RelatedParty Transactions
In July 2016, the Company entered into a forbearance agreement with HealthpointCapital, LLC, HealthpointCapital Partners, L.P., and HealthpointCapital Partners II, L.P. (collectively, "HealthpointCapital"), pursuant to which HealthpointCapital, on behalf of the Company, paid $1.0 million of the $1.1 million payment due and payable by the Company to Orthotec on July 1, 2016 and agreed to not exercise its contractual rights to seek an immediate repayment of such amount. Pursuant to this forbearance agreement, the Company repaid this amount in September 2016. The Company and HealthpointCapital also entered into an agreement for joint payment of settlement whereby HealthpointCapital has agreed to contribute $5.0 million to the $49.0 million Orthotec settlement amount. In October 2020, HealthpointCapital began making its $5.0 million contribution, which is in the form of 5 quarterly payments. As of September 30, 2021 HealthpointCapital had 1 remaining payment due in the amount of $0.7 million.
During the second quarter of 2018, HealthpointCapital Partners, L.P., and HealthpointCapital Partners II, L.P. distributed its holdings in the Company’s common stock to its limited partners. As a result, the fund is no longer a shareholder of the Company. The remaining $0.7 million receivable from HealthpointCapital continues to be classified within stockholders’ equity on the Company’s condensed consolidated balance sheets due to the related party nature with HealthpointCapital affiliates. Payments to be received from HealthpointCapital are recorded as a reduction to stockholder’s equity.
In November 2018, the Company entered into athe Term Loan and Inventory Financing agreementAgreement with certain affiliates of Squadron Capital, LLC.LLC (“Squadron”), including an inventory supplier (the “Squadron Supplier Affiliate”). The Term Loan was amended in March 2019, May 2020, and December 2020, and was subsequently paid in full on2020. On August 10, 2021.2021, the Company terminated and repaid all obligations under the Term Loan and the Inventory Financing Agreement. For the three and six months ended June 30, 2022, the Company purchased inventory in the amounts of $2.4 million and $4.8 million, respectively, from the Squadron Capital, LLCSupplier Affiliate. For the three and six months ended June 30, 2021, the Company purchased inventory in the amounts of $1.6 million and $3.9 million, respectively, from the Squadron Supplier Affiliate. As of June 30, 2022, and December 31, 2021, the Company had $1.7 million and $0.8 million, respectively, due to the Squadron Supplier Affiliate, for inventory purchases. Squadron was a lead investor in the private placement of shares of the Company’s common stockPrivate Placement that was closed on March 1, 2021. David Pelizzon, President and Director of Squadron, Capital, LLC, currently serves on the Company’s Board of Directors.
3126
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”), on March 5, 2021.. 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, 20202021, 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 have a broad product portfolio designed to address the majority of the U.S. market for spinal disorders. We are focused on developing new approaches that integrate seamlessly with the SafeOp Neural InformatiX Systemour expanding Alpha InformatiX™ product platform to treat the spine’s various pathologiesbetter inform surgery and to achieve the goals of spine surgery more safely and reproducibly.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 distributorssales agents 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 distributorsindependent sales agents 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 distributorsindependent sales agents 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 U.S.,United States of America and internationally, as well as better penetrate existing accounts and territories.
Recent Developments
0.75% Senior Convertible Notes due 2026
In August 2021, we issued $316.3 million principal amount of unsecured senior convertible notes with a stated interest rate of 0.75%, which we refer to as the 2026 Notes. The 2026 Notes began accruing interest immediately and is payable semi-annually in arrears on February 1 and August 1 of each year, beginning on February 1, 2022. The initial conversion price of the 2026 Notes represents a premium of approximately 100% over the closing price of our common stock on August 5, 2021, the date the 2026 Notes offering was priced. The net proceeds from the sale of the 2026 Notes were approximately $306.2 million after deducting the offering expenses. The 2026 Notes will mature on August 1, 2026, unless earlier converted, redeemed, or repurchased.
We used $39.9 million of the net proceeds from the 2026 Notes offering to enter into separate capped call instruments with certain financial institutions. The Capped Call Transactions effectively limit the premium for conversion of the 2026 Notes to 100% and are generally expected to reduce potential dilution to our common stock upon any conversion of the 2026 Notes and/or offset any payments we make upon conversion.
In addition, we repurchased 1,806,358 shares of our common stock for approximately $25.0 million concurrently with the issuance of the 2026 Notes. We also used approximately $53.4 million of the net proceeds to repay all obligations under our Term Loan and Inventory Financing Agreement. We intend to use the remainder of the net proceeds from the 2026 Notes for general corporate purposes.
32
Acquisition of EOS
On May 13, 2021, we acquired a controlling interest in EOS imaging S.A. (“EOS”), pursuant to the Tender Offer Agreement (the “Tender Offer Agreement”) we entered on December 16, 2020, and in June 2021 we purchased the remaining issued and outstanding ordinary shares for a 100% interest in EOS. EOS, which now operates as our wholly owned subsidiary, is a global medical device company that designs, develops and markets innovative, low dose 2D/3D full body and 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. We plan to integrate this technology into our procedural approach to spine surgery in order to better inform and better achieve spinal alignment objectives in surgery.
COVID-19 Pandemic
Since the beginning of the COVID-19 pandemic, we have seen volatility in sales trends since elective surgeries that use our products have been impacted to varying degrees.
We continue to monitor the impact of the COVID-19 pandemic on our business and recognize it may continue to negatively impact our business and results of operations during the remainder of 2021 and beyond. Given the present uncertainty surrounding the pandemic, we expect to continue to see volatility through at least the remaining duration of the pandemic as the impact on individual markets and responses to conditions by state and local governments continues to vary.
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.sales agents. Our products are requested directly by surgeons and shipped and billedinvoiced 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 revenuesales. Cost of revenuesales consists primarily of direct product costs, royalties, milestones,service labor hours, and the amortization of purchased intangibles.parts. Our product costs consist primarily of raw materials, component parts, direct labor, overhead, and raw materials and components.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. Amortization of purchased intangibles consists of amortization of developed product technology.
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, and costs associated with our Scientific Advisory Board and Executive Surgeon Panels.equity.
Sales, general and administrative expenses. Sales, general and administrative expenses consist primarily of salaries and related employee benefits, sales commissions and supportother variable costs, depreciation of our surgical instruments, freight, regulatory affairs, quality assurance costs, professional service fees, travel, medical education, trade show and marketing costs, insurance, and legal expenses.insurance.
27
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 our Memphis distribution centeroffice and closing costs related to our old headquarters office in Carlsbad, California.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.
33
Income tax provision. Income tax provision from continuing operations 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 generally accepted in the U.S.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, and 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. Aside from the changes disclosed in Note 2 to the Notes to Condensed Consolidated Financial Statements included in Item 1, Part I of this Quarterly Report on Form 10-Q, except as discussed below, managementManagement believes there have been no material changes during the ninethree months ended SeptemberJune 30, 20212022, 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, 20202021, filed with the SEC on March 5, 2021.
Valuation of Goodwill
Our goodwill represents the excess of the cost over the fair value of net assets acquired from our business combinations. The determination of the value of goodwill and intangible assets arising from business combinations and asset acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair value of the net tangible and intangible assets acquired. Goodwill is not amortized; however, it is assessed for impairment using fair value measurement techniques on an annual basis or more frequently if facts and circumstance warrant such a review. The goodwill is considered to be impaired if we determine that the carrying value of the reporting unit exceeds its respective fair value.
Valuation of Intangible Assets
Our intangible assets are comprised primarily of purchased technology, customer relationships, manufacturing know-how and trade secrets, and trade name and trademarks. We make significant judgments in relation to the valuation of intangible assets resulting from business combinations and asset acquisitions. Intangible assets are generally amortized on a straight-line basis over their estimated useful lives of 2 to 10 years. We base the useful lives and related amortization expense on the period of time we estimate the assets will generate net sales or otherwise be used. We also periodically review the lives assigned to our intangible assets to ensure that our initial estimates do not exceed any revised estimated periods from which we expect to realize cash flows from the technologies. If a change were to occur in any of the above-mentioned factors or estimates, the likelihood of a material change in our reported results would increase. We evaluate our intangible assets with finite lives for indications of impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that could trigger an impairment review include significant under-performance relative to expected historical or projected future operating results, significant changes in the manner of our use of the acquired assets or the strategy for our overall business or significant negative industry or economic trends. If this evaluation indicates that the value of the intangible asset may be impaired, we make an assessment of the recoverability of the net carrying value of the asset over its remaining useful life. If this assessment indicates that the intangible asset is not recoverable, based on the estimated undiscounted future cash flows of the technology over the remaining amortization period, we reduce the net carrying value of the related intangible asset to fair value and may adjust the remaining amortization period. Significant judgment is required in the forecasts of future operating results that are used in the discounted cash flow valuation models. It is possible that plans may change and estimates used may prove to be inaccurate. If our actual results, or the plans and estimates used in future impairment analyses, are lower than the original estimates used to assess the recoverability of these assets, we could incur additional impairment charges.
34
Results of Operations
The tables below set forth certain statements of operations data for the periods indicated (in thousands). Our historical results are not necessarily indicative of the operating results that may be expected in the future.
|
| Three Months Ended September 30, |
|
| Increase (Decrease) |
|
| Nine Months Ended September 30, |
|
| Increase (Decrease) |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| $ |
|
| % |
|
| 2021 |
|
| 2020 |
|
| $ |
|
| % |
| ||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from products and services |
| $ | 62,735 |
|
| $ | 40,052 |
|
| $ | 22,683 |
|
|
| 57 | % |
| $ | 168,336 |
|
| $ | 97,956 |
|
| $ | 70,380 |
|
|
| 72 | % |
Revenue from international supply agreement |
|
| 145 |
|
|
| 1,111 |
|
|
| (966 | ) |
|
| (87 | %) |
|
| 914 |
|
|
| 2,951 |
|
|
| (2,037 | ) |
|
| (69 | %) |
Total revenue |
|
| 62,880 |
|
|
| 41,163 |
|
|
| 21,717 |
|
|
| 53 | % |
|
| 169,250 |
|
|
| 100,907 |
|
|
| 68,343 |
|
|
| 68 | % |
Cost of revenue |
|
| 23,266 |
|
|
| 11,926 |
|
|
| 11,340 |
|
|
| 95 | % |
|
| 56,713 |
|
|
| 29,797 |
|
|
| 26,916 |
|
|
| 90 | % |
Gross profit |
|
| 39,614 |
|
|
| 29,237 |
|
|
| 10,377 |
|
|
| 35 | % |
|
| 112,537 |
|
|
| 71,110 |
|
|
| 41,427 |
|
|
| 58 | % |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
| 9,391 |
|
|
| 4,984 |
|
|
| 4,407 |
|
|
| 88 | % |
|
| 23,031 |
|
|
| 13,390 |
|
|
| 9,641 |
|
|
| 72 | % |
Sales, general and administrative |
|
| 61,494 |
|
|
| 35,380 |
|
|
| 26,114 |
|
|
| 74 | % |
|
| 162,578 |
|
|
| 89,431 |
|
|
| 73,147 |
|
|
| 82 | % |
Litigation-related expenses |
|
| 1,209 |
|
|
| 1,560 |
|
|
| (351 | ) |
|
| (23 | %) |
|
| 5,711 |
|
|
| 5,507 |
|
|
| 204 |
|
|
| 4 | % |
Amortization of acquired intangible assets |
|
| 2,012 |
|
|
| 172 |
|
|
| 1,840 |
|
|
| 1070 | % |
|
| 3,392 |
|
|
| 516 |
|
|
| 2,876 |
|
|
| 557 | % |
Transaction-related expenses |
|
| 373 |
|
|
| 2 |
|
|
| 371 |
|
|
| 18550 | % |
|
| 6,156 |
|
|
| 4,093 |
|
|
| 2,063 |
|
|
| 50 | % |
Restructuring expenses |
|
| 256 |
|
|
| — |
|
|
| 256 |
|
|
| 100 | % |
|
| 1,587 |
|
|
| — |
|
|
| 1,587 |
|
|
| 100 | % |
Total operating expenses |
|
| 74,735 |
|
|
| 42,098 |
|
|
| 32,637 |
|
|
| 78 | % |
|
| 202,455 |
|
|
| 112,937 |
|
|
| 89,518 |
|
|
| 79 | % |
Operating loss |
|
| (35,121 | ) |
|
| (12,861 | ) |
|
| (22,260 | ) |
|
| 173 | % |
|
| (89,918 | ) |
|
| (41,827 | ) |
|
| (48,091 | ) |
|
| 115 | % |
Interest and other expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
| (1,272 | ) |
|
| (2,762 | ) |
|
| 1,490 |
|
|
| (54 | %) |
|
| (5,604 | ) |
|
| (8,668 | ) |
|
| 3,064 |
|
|
| (35 | %) |
Loss on debt extinguishment, net |
|
| (7,434 | ) |
|
| — |
|
|
| (7,434 | ) |
|
| 100 | % |
|
| (7,434 | ) |
|
| (1,555 | ) |
|
| (5,879 | ) |
|
| 378 | % |
Other income (expense), net |
|
| 886 |
|
|
| (6 | ) |
|
| 892 |
|
|
| (14867 | %) |
|
| (1,020 | ) |
|
| (6 | ) |
|
| (1,014 | ) |
|
| 16900 | % |
Total interest and other expense, net |
|
| (7,820 | ) |
|
| (2,768 | ) |
|
| (5,052 | ) |
|
| 183 | % |
|
| (14,058 | ) |
|
| (10,229 | ) |
|
| (3,829 | ) |
|
| 37 | % |
Loss before taxes |
|
| (42,941 | ) |
|
| (15,629 | ) |
|
| (27,312 | ) |
|
| 175 | % |
|
| (103,976 | ) |
|
| (52,056 | ) |
|
| (51,920 | ) |
|
| 100 | % |
Income tax provision |
|
| 90 |
|
|
| 40 |
|
|
| 50 |
|
|
| 125 | % |
|
| 163 |
|
|
| 140 |
|
|
| 23 |
|
|
| 16 | % |
Net loss |
| $ | (43,031 | ) |
| $ | (15,669 | ) |
| $ | (27,362 | ) |
|
| 175 | % |
| $ | (104,139 | ) |
| $ | (52,196 | ) |
| $ | (51,943 | ) |
|
| 100 | % |
Three and Nine Months Ended September 30, 2021 compared to the Three and Nine Months Ended September 30, 2020
Total revenue
.
|
| Three Months Ended |
|
| Change |
|
| Six Months Ended |
|
| Change |
| ||||||||||||||||||||
(in thousands, except %) |
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
|
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
| ||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Revenue from products and services |
| $ | 84,151 |
|
| $ | 61,885 |
|
| $ | 22,266 |
|
|
| 36 | % |
| $ | 155,069 |
|
| $ | 105,601 |
|
| $ | 49,468 |
|
|
| 47 | % |
Revenue from international supply agreement |
|
| — |
|
|
| 364 |
|
|
| (364 | ) |
|
| (100 | )% |
|
| 15 |
|
|
| 769 |
|
|
| (754 | ) |
|
| (98 | )% |
Total revenue |
| $ | 84,151 |
|
| $ | 62,249 |
|
| $ | 21,902 |
|
|
| 35 | % |
| $ | 155,084 |
|
| $ | 106,370 |
|
| $ | 48,714 |
|
|
| 46 | % |
Revenue associated with our acquisition of EOS accounted for approximately 27%$5.7 million, or 26%, and 17%$16.0 million, or 32%, of the increase in total revenue from products and services for the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively, as compared to the same periods in 2020. Product volumethree and six months ended June 30, 2021. Revenue from products and services, excluding EOS, accounted for our business, excludingapproximately $16.6 million, or 74%, and $33.5 million, or 68%, of the EOS acquisition, increased our revenue by approximately 26% and 51% forincrease during the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively, as compared to the same periodsthree and six months ended June 30, 2021. The increase was primarily due to an increase in 2020, primarilyproduct 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 networknetwork..
28
Revenue from international supply agreement, which is attributed to
Cost of sales to Globus Medical Ireland, Ltd., a subsidiary
|
| Three Months Ended |
|
| Change |
|
| Six Months Ended |
|
| Change |
| ||||||||||||||||||||
(in thousands, except %) |
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
|
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
| ||||||||
Cost of sales |
| $ | 28,675 |
|
| $ | 21,184 |
|
| $ | 7,491 |
|
|
| 35 | % |
| $ | 50,392 |
|
| $ | 33,447 |
|
| $ | 16,945 |
|
|
| 51 | % |
Cost of Globus Medical, Inc.sales associated with EOS operations accounted for approximately $4.0 million, or 53%, and its affiliated entities (collectively “Globus”), under which we supply to Globus certain of its implants and instruments at agreed-upon prices for a minimum term of three years, decreased by $1.0$10.1 million, or 87%60%, duringof the three months ended September 30, 2021 compared to the three months ended September 30, 2020, and decreased by $2.0 million, or 69%, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The decreases in revenue from the international supply agreement duringincrease for the three and ninesix months ended SeptemberJune 30, 2021 compared to the three and nine months ended September 30, 2020 were primarily due the expiration of the supply agreement with Globus on August 31, 2021.
Total cost of revenue. Total cost of revenue, excluding EOS, increased by $2.2 million, or 18%, and by $12.2 million, or 41% during the three and nine months ended September 30, 2021,2022, respectively, as compared to the three and ninesix months ended SeptemberJune 30, 2020, respectively.2021. Cost of sales, excluding EOS, accounted for approximately $4.9 million, or 65%, and $8.2 million, or 48%, of the increase during the three and six months ended June 30, 2022, respectively, as compared to the three and six months ended June 30, 2021. The increases areincrease was primarily due to product volume.volume, offset by a decrease in inventory expense associated with the purchase accounting of EOS. Inventory expense associated with the purchase accounting of EOS accounted foroffset the increase by approximately 22%$1.3 million, or 18%, and 14% of the total increases for$1.3 million, or 8%, during the three and ninesix months ended SeptemberJune 30, 2021, respectively. Cost of revenue associated with EOS operations accounted for approximately 55% and 35% of the increase for the three and nine months ended September 30, 2021,2022, respectively, as compared to the three and ninesix months ended SeptemberJune 30, 2020, respectively. 2021.
Cost of revenue from the international supply agreement decreased by $1.0 million, or 87% during the three months ended September 30, 2021 as compared to the three months ended September 30, 2020, and decreased by $2.0 million, or 69% during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. The decreases in cost of revenue from the international supply agreement during the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 were primarily due to the expiration of the supply agreement with Globus on August 31, 2021.Operating expenses
35
|
| Three Months Ended |
|
| Change |
|
| Six Months Ended |
|
| Change |
| ||||||||||||||||||||
(in thousands, except %) |
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
|
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
| ||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Research and development |
| $ | 10,596 |
|
| $ | 7,839 |
|
| $ | 2,757 |
|
|
| 35 | % |
| $ | 20,318 |
|
| $ | 13,640 |
|
| $ | 6,678 |
|
|
| 49 | % |
Sales, general and administrative |
|
| 72,668 |
|
|
| 60,659 |
|
|
| 12,009 |
|
|
| 20 | % |
|
| 142,139 |
|
|
| 101,085 |
|
|
| 41,054 |
|
|
| 41 | % |
Litigation-related expenses |
|
| 5,495 |
|
|
| 1,167 |
|
|
| 4,328 |
|
|
| 371 | % |
|
| 13,027 |
|
|
| 4,502 |
|
|
| 8,525 |
|
|
| 189 | % |
Amortization of acquired intangible assets |
|
| 2,177 |
|
|
| 1,208 |
|
|
| 969 |
|
|
| 80 | % |
|
| 4,407 |
|
|
| 1,380 |
|
|
| 3,027 |
|
|
| 219 | % |
Transaction-related expenses |
|
| — |
|
|
| 4,771 |
|
|
| (4,771 | ) |
|
| (100 | )% |
|
| 120 |
|
|
| 5,783 |
|
|
| (5,663 | ) |
|
| (98 | )% |
Restructuring expenses |
|
| 289 |
|
|
| 1,173 |
|
|
| (884 | ) |
|
| (75 | )% |
|
| 1,659 |
|
|
| 1,331 |
|
|
| 328 |
|
|
| 25 | % |
Total operating expenses |
| $ | 91,225 |
|
| $ | 76,817 |
|
| $ | 14,408 |
|
|
| 19 | % |
| $ | 181,670 |
|
| $ | 127,721 |
|
| $ | 53,949 |
|
|
| 42 | % |
Research and development expenses. The increases during the three and nine months ended September 30, 2021 as compared to the three and nine months ended September 30, 2020 were primarily due to personnel and new project costs. Research and development expense associated with EOS accounted for approximately 36%$0.9 million, or 32%, and 19%$2.0 million, or 30%, of the total increase for the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively, as compared to the three and ninesix months ended SeptemberJune 30, 2020, respectively.2021. Research and development expense, excluding EOS, accounted for approximately $1.9 million, or 68%, and $4.7 million, or 70%, of the increase during the three and six months ended June 30, 2022, respectively, compared to the three and six months ended June 30, 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 $2.6 million, or 21%, and $7.6 million, or 19%, of the total increase for the three and six months ended June 30, 2022, respectively, as compared to the three and six months ended June 30, 2021. Sales, general and administrative expenses, excluding EOS, increased by $22.0accounted for approximately $9.4 million, or 62%79%, and by $66.4$33.4 million, or 74%81%, of the increase during the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively, compared to the three and ninesix months ended SeptemberJune 30, 2020, respectively.2021. The increases during the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 wereincrease 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. Sales, generalbusiness, as well as necessary administrative support.
Litigation-related expenses. Litigation expenses increased by $4.3 million, or 371%, and administrative expenses associated with EOS accounted for approximately 12% and 8% of the total increases for$8.5 million, or 189%, during the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively, as compared to the three and ninesix months ended SeptemberJune 30, 2020, respectively.
Litigation-related expenses. Litigation expenses decreased by $0.4 million, or 23% during the three months ended September 30, 2021 as compared to the three months ended September 30, 2020, and increased by $0.2 million, or 4% during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.2021. Litigation expense is primarily related to our ongoing litigation and settlement with NuVasive, Inc. and other legal activities.
Amortization of acquired intangible assets. AmortizationThe increase in amortization of acquired intangible assets is primarily includesdue to the amortization of intangible assets acquired in the EOS acquisition.
29
Transaction-related expenses. The increasesdecrease in transaction-related expenses for both the three and ninesix months ended SeptemberJune 30, 2021 are2022, is primarily due to third-party advisory and legal fees related to ourthe closing of the EOS acquisition of EOS, which closed on May 13, 2021, as well as costs supporting our ongoing integration activities.2021.
Restructuring expenses. The increasesdecrease in restructuring costsexpenses for both the three and nine months ended SeptemberJune 30, 2021 are primarily2022 is due to severance, social plan benefits and related taxes in connection with cost rationalization efforts as well asnon-recurring costs associated with the opening of our Memphis distribution center and closing costs related to our oldprior headquarters office.incurred during the three months ended June 30, 2021. The increase in restructuring expenses for the six months ended June 30, 2022 is due to severance, social plan benefits and related taxes in connection with cost rationalization efforts.
Total interest and other expense, net.net
|
| Three Months Ended |
|
| Change |
|
| Six Months Ended |
|
| Change |
| ||||||||||||||||||||
(in thousands, except %) |
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
|
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
| ||||||||
Interest and other expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Interest expense, net |
| $ | (1,435 | ) |
| $ | (2,394 | ) |
| $ | 959 |
|
|
| (40 | )% |
| $ | (2,891 | ) |
| $ | (4,332 | ) |
| $ | 1,441 |
|
|
| (33 | )% |
Other income (expense), net |
|
| 67 |
|
|
| (16 | ) |
|
| 83 |
|
|
| (519 | )% |
|
| 37 |
|
|
| (1,905 | ) |
|
| 1,942 |
|
|
| (102 | )% |
Total interest and other expense, net |
| $ | (1,368 | ) |
| $ | (2,410 | ) |
| $ | 1,042 |
|
|
| (43 | )% |
| $ | (2,854 | ) |
| $ | (6,237 | ) |
| $ | 3,383 |
|
|
| (54 | )% |
The increase duringdecrease in other income (expense), net for the three and nine months ended SeptemberJune 30, 20212022, as compared to the three and nine months ended SeptemberJune 30, 20202021, was primarily due to foreign currency gains. The decrease in other income (expense), net, during the six months ended June 30, 2022, as compared to the six months ended June 30, 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 offset by the gain on debt extinguishment fromand the PPP loan forgiveness, which were non-recurring expenses incurred during the six months ended June 30, 2021. The decrease in interest expense, net, during the three and six months ended June 30, 2022, was primarily due to lower interest expense relatedrates on the 2026 Notes compared to our indebtedness.the Term Loan that was repaid in full during the year ended December 31, 2021.
Income tax provision.provision Income
|
| Three Months Ended |
|
| Change |
|
| Six Months Ended |
|
| Change |
| ||||||||||||||||||||
(in thousands, except %) |
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
|
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
| ||||||||
Income tax provision |
| $ | 203 |
|
| $ | 43 |
|
| $ | 160 |
|
|
| 372 | % |
| $ | 332 |
|
| $ | 73 |
|
| $ | 259 |
|
|
| 355 | % |
The increase in the income tax provision for the three and ninesix months ended SeptemberJune 30, 2021 was negligible and remained consistent2022, as compared to the three and ninesix months ended SeptemberJune 30, 2020.2021, 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 was $223.9and cash equivalents were $107.5 million and $107.8$187.2 million at SeptemberJune 30, 20212022, and December 31, 2020,2021, 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.
3630
Summary of Cash Flows
|
| Six Months Ended June 30, |
| |||||
(in thousands) |
| 2022 |
|
| 2021 |
| ||
Cash (used in) provided by: |
|
|
|
|
|
| ||
Operating activities |
| $ | (52,050 | ) |
| $ | (35,110 | ) |
Investing activities |
|
| (27,817 | ) |
|
| (124,847 | ) |
Financing activities |
|
| 771 |
|
|
| 128,769 |
|
Effect of exchange rate changes on cash |
|
| (682 | ) |
|
| 4 |
|
Net decrease in cash and cash equivalents |
| $ | (79,778 | ) |
| $ | (31,184 | ) |
Operating Activities
We used cash of $52.1 million from operating activities for the six months ended June 30, 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.
Investing Activities
We used cash of $27.8 million in investing activities for the six months ended June 30, 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 $0.8 million of cash for the six months ended June 30, 2022, which is related to proceeds from financed insurance and proceeds from warrant exercises.
Debt and Commitments
As of SeptemberJune 30, 20212022, we had $316.3 million outstanding under the 2026 Notes. The 2026 Notes accrue interest at a rate of 0.75% paid, payable semi-annually payable 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 $14.4$13.0 million (€12.5 million) will mature on May 31, 2023.
We also assumed $5.5$5.2 million (€4.74.8 million) in other debts with the acquisition of EOS that becomeare due in the first quarter 2022.monthly and quarterly installments beginning in 2023 through maturity in 2027.
As of SeptemberJune 30, 2021,2022, we have made $48.3$51.2 million in Orthotec settlement payments and there remainswe have an outstanding balance of $9.2$6.5 million in Orthotec settlement payments (including accrued and futureimputed interest) to be paid by us.
We entered into a distribution agreement with a third-party provider in January 2020 in which we are obligated to certain minimum purchase requirements over a three-year period related to inventory and equipment leases. As of September 30, 2021, the minimum purchase commitment required by us under the agreement was $1.0 million to be paid over the remaining period.
With the acquisition of EOS, we assumed its inventory purchase commitment agreement with a third-party supplier. EOS isWe are obligated to certain minimum purchase commitment requirements through December 2025.2026. As of SeptemberJune 30, 2021,2022, the remaining minimum purchase commitment required by EOS under the agreement was $26.4$28.9 million.
Operating Activities
We used cash of $58.6 million from operating activities for the nine months ended September 30, 2021. During this period, net cash used in operating activities consisted primarily of inventory purchases, general working capital and settlement of operational payables and liabilities.
Investing Activities
We used cash of $137.8 million in investing activities for the nine months ended September 30, 2021 which is primarily related to our acquisition of EOS, including the purchase of OCEANEs, the purchase of surgical instruments to support our business growth and the commercial launch of new products, other investments, and the settlement of a forward contract.
Financing Activities
Financing activities provided $312.5 million of cash for the nine months ended September 30, 2021, primarily related to proceeds from the issuance of our 2026 Notes and the closing of the Private Placement on March 1, 2021, partially offset by cash paid for the full repayment of our obligations under Term Loan and Inventory Financing Agreement, purchase of capped calls, and our repurchase of common stock.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
3731
Contractual obligations and commercial commitments
TotalAs of June 30, 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 commercial commitments asAnalysis of September 30, 2021 are summarizedFinancial Condition and Results of Operations” in our Annual Report on Form 10-K for the following table (in thousands):fiscal year ended December 31, 2021.
|
| Payment Due by Year |
| |||||||||||||||||||||||||
|
| Total |
|
| 2021 (remainder) |
|
| 2022 |
|
| 2023 |
|
| 2024 |
|
| 2025 |
|
| Thereafter |
| |||||||
Senior Convertible Notes |
| $ | 316,250 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 316,250 |
|
Interest expense |
|
| 13,052 |
|
|
| 1,077 |
|
|
| 2,348 |
|
|
| 2,406 |
|
|
| 2,411 |
|
|
| 2,405 |
|
|
| 2,405 |
|
Note payable |
|
| 341 |
|
|
| 276 |
|
|
| 23 |
|
|
| 24 |
|
|
| 18 |
|
|
| — |
|
|
| — |
|
Finance lease obligations |
|
| 462 |
|
|
| 53 |
|
|
| 195 |
|
|
| 158 |
|
|
| 56 |
|
|
| — |
|
|
| — |
|
Facility lease obligations (1) |
|
| 41,629 |
|
|
| 784 |
|
|
| 4,413 |
|
|
| 4,621 |
|
|
| 4,635 |
|
|
| 4,602 |
|
|
| 22,574 |
|
Purchase commitments (2) |
|
| 27,421 |
|
|
| 1,755 |
|
|
| 4,602 |
|
|
| 6,305 |
|
|
| 6,448 |
|
|
| 8,311 |
|
|
| — |
|
Litigation settlement obligations, gross (3) |
|
| 9,165 |
|
|
| 700 |
|
|
| 4,400 |
|
|
| 4,065 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Guaranteed minimum royalty obligations |
|
| 2,475 |
|
|
| 75 |
|
|
| 320 |
|
|
| 320 |
|
|
| 320 |
|
|
| 320 |
|
|
| 1,120 |
|
Development services plans |
|
| 3,236 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,236 |
|
|
| — |
|
License agreement milestones (4) |
|
| 2,150 |
|
|
| 550 |
|
|
| 1,090 |
|
|
| 390 |
|
|
| 40 |
|
|
| 40 |
|
|
| 40 |
|
OCEANEs |
|
| 14,427 |
|
|
| — |
|
|
| — |
|
|
| 14,427 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Other (5) |
|
| 5,825 |
|
|
| — |
|
|
| 5,825 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total |
| $ | 436,433 |
|
| $ | 5,270 |
|
| $ | 23,216 |
|
| $ | 32,716 |
|
| $ | 13,928 |
|
| $ | 18,914 |
|
| $ | 342,389 |
|
|
|
|
|
|
|
|
|
|
|
Real Property Leases
On April 9, 2021, we entered into a new 7-year operating lease agreement for a new distribution center which consists of approximately 75,643 square feet of office and warehouse space in Memphis, Tennessee. The term of the new lease commenced on May 1, 2021, and will terminate on May 1, 2028, subject to two thirty-six-month options to renew which were not reasonably certain to be exercised. We expect to occupy a proportionate share of the building upon commencement of the lease on May 1, 2021 and we are expected to occupy 100% of the premises beginning in November 2022.renew. Base rent under the new building lease will be commensurate with our proportionate share of occupancy of the new building and will increase annually by 3.0% throughout the remainder of the lease.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 new lease agreement or New Building Lease, for a newour headquarters location which consists of 121,541 square feet of office, engineering, and research and development space in Carlsbad, California. The term of the New Building Leaselease commenced on February 1, 2021, and is expected towill terminate January 31, 2031, subject to two sixty-month options to renew. Base rent under the New Building Lease for the first twelve months of the term will be $0.2 million per month subject to full abatement during months two through ten, and thereafter will increaselease increases annually by 3.0% throughout the remainder of the lease.
38
Table of ContentsOff-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
Aside from newly implemented accounting policies related to leases discussed above under “Critical Accounting Policies and Estimates” and for 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 ninethree months ended SeptemberJune 30, 2021,2022, as compared to the recent accounting pronouncements described in the Company'sour Annual Report on Form 10-K for the year ended December 31, 2020,2021, that was filed with the SEC on March 5, 2021.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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3932
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, 20202021, 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.
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, 20202021 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 |
|
Commodity Price Risk
We purchase raw materialshave evaluated the information required under this item that are processed from commodities, such as titanium and stainless steel. These purchases expose us to fluctuationswas disclosed under Item 7A in commodity prices. Given the historical volatility of certain commodity prices, this exposure can impact our product costs. However, because our raw material prices comprise a small portion of our cost of revenue, we have not experienced any material impactAnnual Report on our results of operations from changes in commodity prices. A 10% change in commodity prices would not have had a material impact on our results of operationsForm 10-K for the threeyear ended December 31, 2021, and nine months ended September 30, 2021.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 the Company’sour disclosure controls and procedures (as defined in SEC Rules 13a - 15(e) and 15d - 15(e)) as of SeptemberJune 30, 2021.2022. Based on such evaluation, our management has concluded that as of SeptemberJune 30, 2021, the Company’s2022, 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 SeptemberJune 30, 20212022, 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 the Company’s 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 year of consolidation.
4033
PART II. OTHER INFORMATION
Item 1. Legal Proceedings Litigation
|
|
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 7 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.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, 2020,2021, filed with the SEC on March 5, 20212, 2022, except for those noted below:
The business combination combined two companies that previously operatedUnited States has recently experienced historically high levels of inflation. If the inflation rate continues to increase, such as independent public companies. The combined company will be required to devote significant management attention and resources to integrating our business practices and operations. In addition, we have incurred transaction-related and restructuring costs in connection with the business combination and will continue to incur such costs in connection with our integration. These expenses could, particularlyincreases in the near term, reduce the cost synergies that we achieve from the eliminationcosts of duplicative expenseslabor and the realization of economies of scale and cost synergies related to the integration of the businesses following the completion of the business combination, and accordingly, any net synergies may not be achieved in the near term or at all. These integration expenses may result in us taking significant charges against earnings following the completion of the business combination, which could adverselysupplies, it will likely affect our cash flows and operating results.
Our operations, both inside and outsideexpenses. Additionally, the United States are subject to risks inherentis experiencing an acute workforce shortage, which in conducting business globallyturn, has created a hyper-competitive wage environment that may increase our operating costs. To the extent inflation results in rising interest rates and under the laws, regulations and customs of various jurisdictions and geographies. Our operations outside the United States are subject to special risks and restrictions, including, without limitation: fluctuations in currency values and foreign-currency exchange rates; exchange control regulations; changes in local political or economic conditions; governmental pricing directives; import and trade restrictions; import or export licensing requirements and trade policy; restrictionshas other adverse effects on the ability to repatriate funds; and other potentially detrimental domestic and foreign governmental practices or policies affecting U.S. companies doing business abroad, including the United States Foreign Corrupt Practices Act and the trade sanctions laws and regulations administered by the United States Department of the Treasury’s Office of Foreign Assets Control. Acts of terror or warmarket, it may impair our ability to operate in particular countries or regions and may impede the flow of goods and services between countries. Customers in weakened economies may be unable to purchase our products, or it could become more expensive for them to purchase imported products in their local currency, or sell at competitive prices, and we may be unable to collect receivables from such customers. Further, changes in exchange rates mayadversely affect our net earnings, the book value of our assets outside the United States and our stockholders’ equity. Failure to comply with the laws and regulations that affect our global operations could have an adverse effect on our business, financial condition or results of operations.
41
|
|
On August 3, 2021,Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the Company’s Board of Directors authorizedthree months ended June 30, 2022, the Company to repurchase an aggregateissued unregistered equity securities as described below:
On each of up to $25.0 million ofApril 21, 2022 and May 18, 2022, the Company issued 10,000 restricted shares of the Company’s common stock. stock with a grant date fair values of $12.78 and $8.25, respectively, based on the market price of common stock on grant dates, to an independent sales agent for distribution and related services rendered to the Company.
On August 10, 2021May 11, 2022, the Company repurchased 1,806,358issued 25,000 restricted shares of itsthe Company's common stock with a grant date fair value of $7.43 based on the market price of common stock on grant date, to an independent sales agent for approximately $25.0 million.distribution and related services rendered to the Company.
Share repurchase activity duringThe issuances of the three months ended September 30, 2021foregoing 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 as follows (in thousands except per share amounts):
Period |
| Total Number of Shares Purchased(1) |
|
| Average Price Paid Per Share |
|
| Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program |
|
| Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plan or Program |
| ||||
July 1, 2021 - July 31, 2021 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
August 1, 2021 - August 31, 2021 |
|
| 1,806 |
|
| $ | 13.84 |
|
|
| — |
|
|
| — |
|
September 1, 2021 - September 30, 2021 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
Item 5. Other Information |
|
None.
42None.
34
Item 6. Exhibits
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.
Date:
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||