ATEC - Earnings call transcript Q4 2017

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good day, ladies and gentlemen, and welcome to the Alphatec Spine Fourth Quarter and Fiscal Year End 2017 Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Ms. Ruth The of Ruth Group. Carol Ms. now Ruth, you may begin.

Carol Ruth

statements on welcome you, XXXX Fourth Holdings Good are that current expectation Conference are SEC. filed with make and detailed operator. uncertainties in subject afternoon, to participants everyone Quarter remind We like and Alphatec call differ to on actual would the will cause forward-looking Thank Call. to the documents could and results based materially. Full These are Year to statements. that These uncertainties regularly

you and the this financial to non-GAAP U.S. and the found of During as with items the reported Reconciliations included amounts, may why to be as call, provide management's hear in can U.S. view company which GAAP information investors. supplemental or well all accordance to quantify is of measures. useful measures refer pro excluded forma are which tables in identify this in non-GAAP press release, GAAP

Joining Patrick Alphatec's us Rich; Financial on the Chief Officer, Officer, Jeff President and Chief Miles; Executive Terry Chief Black. be Operating and Chairman and call today will Officer,

the turn Rich. Terry? I'll Now over to call Terry

Terry Rich

drive to to closed ATEC. as with a continue Fiscal Thank I year organization. XXXX in you, new thank advancement solid excellent leadership for and everyone, this us innovative Financial business Welcome a we than Carol, the less to growth year We footing the Quarter Fourth and Results team you, today. Call. the significant with new am ATEC's taken pleased joining into strides transform and into Year to momentum have an on ATEC's

SafeOp shared the our the results private quarter fourth of afternoon, Dr. Surgical, incredibly of Pimenta appointment Luiz Chief of a news exciting and as Medical substantial reporting also we placement, acquisition to addition Officer. In this

have lot afternoon. to cover a We this

highlights forward are as through cover and move joined it Pat behind future. and financial initiatives fourth Miles to is we to neuromonitoring of the we over going outstanding team. shift be, new cover Then the prioritizing the should SafeOp the experts have our I'll call focus First, the I and walk rationale to where strategic quarter. acquisition the spine turn I'm ATEC the which the our of that will on

Black results will Finally, in detail. cover Jeff financial

begin last million continue financial fourth progress from commercial a to of execution quarter burn excellent on basis. progress Total less this quarter ATEC than $X.X channel. Perhaps responsibly. even quarter. Cash the revenue highlights $XXX,XXX sum, few continued will again growth. returning with the slightly In fourth Let's of business financial up we to was commitment behind transformation organizational the I a our scenes the substantially with XXXX. the is the The improvement transpiring of $XX deploy fourth capital the as of quarter on sales in of make from quarter. that we demonstrates of more update in we onboard million, indicative continuing improved capable the our the U.S. progress you approximately to make to fourth talent in sequential

transformational this of has challenges process the confronting team, invigorating. leadership new been a As

transition culture future. motivated We position. market continue the that doubt that team acknowledge have sustainable the is have for our our and line build strategy hard for This experienced to the in place, we and top united can into innovation improve the and that I no ahead, excellent execute to predictability a vastly passion but outcome-driven lies growth. work outlook the We an

that three the to major So prioritizing I we forward. will of an overview initiatives move are as now we turn

third, First, advantage. our make patient enhance innovation financial improves predictability, competitive performance second, new that product and drive culture outcomes,

with predictability. financial begin Let's

predictability. from with We by U.S. a transition our solutions driven fourth was a in at dedicated a end over improved driving into up solid to direct channel XX% transition in to Our decision the almost made network financial of significantly and - entirely channel into dedicated the X% ATEC reps quarter, to distribution vision dedicated for XXXX. sales progress by generated about commercial distributors XXXX, the of

associated As year top $XX in full create second that be relationships transitioning discontinue with the new our That each confidence begun XXXX which XXXX approximately to product innovation. dedicated or channel by initiative, to we value that line fruition. The somewhat outcomes simple and to the company execute me gives implant us revenue from to continue from into efforts say Early process offset to our to indicate transition. brings said, sales non-strategic is our behind progresses, will limited This the ability this are million. the beginning solutions transition discontinuing grow we have of revenue That reach to proud see visibility portion results relationships. negative is a I'm advancing distributor program to contracting renewed navigate strong to deliver as architect. spine better impacts Alphatec's this and manufacturer development overarching a intention

innovative and are that seamlessly process, treatment solutions products into the an We by go existing obsoleting be of to new decision pipeline use integrate technology complete experience Every this the the in of spine expedite maintain to specific all our guided and of development philosophies. our portfolio the team It to central the deep prowess. portfolio designing will simulating is intentionally these ways pathologies. to aim technologies made and product own

spirit be exciting of talent of that neuromonitoring how that to initiative value profound a ATEC And know grit We know of us can every an accountability, every and is of short, a will innovation high-performance Spine's how reassembling how construct of the throughout to of knowledge. SafeOp, of We us of many amassed. over new springboard the and culture for are prioritize a personally this are talent With because know thought inspiring To initiated spine spine today's are at firsthand. SafeOp process. atmosphere department to culture the much I the reignite most built just same the and by today. is The that direction that wealth of mission but and the turn building it companies. that innovative the a we've an predictable significant In alpha integrating results infusing largest spine that serve to call we competitive and at announced The to Pat experience We leaders neurophysiologic a collaboration. outcomes combination environment that pivotal. innovation years done the will with progressive at development end, into ago. is why expertise that resides product and for the ATEC importantly, performers drive what and surgeon This before. grew we is foster as leading not workforce we motivated to know integration transaction innovation of a we've new assemble to now create third that with better describe spine we advantage experience ATEC. wealth

Patrick Miles

Thanks, excited Terry. acquisition to the the everyone. afternoon, share SafeOp of news with incredibly I'm Good you today.

by the in team nerve access, does technology electrophysiological is nerves result there ATEC about and in members no injury. lateral retraction require objective nerves begin surgeries explaining ultimately cornerstone SafeOp's solutions well ago, nerves surgeons tools to provides that A risk to risk patient avoiding for the of employed decade invigorate spine nerve Technology to remains Neurophysiology our lateral are The at be when better spine of avoid surgery to is or with the but health neuromonitoring of minimally frequent known simply spine surgery. invasive injury make or technology will me Let complication in nerves during and safe predictably exist, retracted alerts injury. assist advanced Most nerves information so of of outcomes. neurophysiology surgery. rely automated reproducible. spine how on

as not same SSEP, to With not objective procedure combination both introducing is a announced only - technology, additional broadly technology integrates or are as in personnel. applies a the lateral result better but the vastly sophisticated surgery, immediate and drive standard to automated assessment avoidance, that uniquely decision-making to evoked surgeons today, spine automated to It safety nerve have spine. interoperatively. offer pioneer as nerve EMG, past. of health for information honored objective nerve to electromyography, the OR somatosensory every we potentials, and information or surgeon will obviate more It's the well a for need in that more drives with surgery is The type a team or just we in much that

Next, will our how the accelerate business. expand let me on combination

lateral our complete will technology solution. the First,

in spine can lastly, expect we technology current Additionally, the to clearance our received automated as in apply portfolio. into excited procedures. pull spine previously we through technology surgery. modality will SSEP the technology we advanced upon other solutions, in And integrate stated, as other utilize it the across automated broad I've that The XXXX. products configuration, FDA our the we're advanced Based differentiated

clearance EMGs to to receive We for early automated and our of this architecture XXXX. launch combined spine of as platform expect surgery part the year in our in QX

fit turn ATEC family. technology will and SafeOp will into team the I Finally, to

innovators, neurophysiologic market-making our welcome Through one ability am to ATEC in ATEC the assembled addition to We have which of argument Chief - Gharib, solutions. internal appointment, the expertise. know-how assembled experts. Pimenta, of I announced most I Rob Dr. share. expand O'Brien, and Richard key am that spine of we also without industry-leading team our a accelerate Medical Jim will Snow celebrated procedural a Today, industry-leading has is spine to create end-to-end it of to thrilled role This significantly and honored Luiz Officer.

the and now I'm to to ATEC from to develop him an $XXX improve electric, reversal again. get months decades back is you where ago is and of proud techniques complete I of two terms conclusion, we this Dr. motivation direction, popularize In an in was surgery, widely innovating lateral only XX is and closely new how spine exceptionally pioneering many Pimenta partnering technology wait know, to spine almost perceived around excitement developing stand over almost market. which him expertise. of ago. with I million credited As surgical absolutely can't company surgery. with And with started

foundation certainly have growth. for the laid We

look will does lead that that, incredibly Now call that outstanding for additional enable spine the greater us for I profound With integrity. future initiatives I to I prioritizing share confident growth our to this of much it in the vision against team ATEC future. new a turn growth. the the the progress team company Jeff. innovation we've will to and have sharing of are - you the sustained to will make assembled am and predictable excited positions over to well will command ultimately than continue have with that I'm forward an doubt the today. charge, we market I that no progress

Jeffrey Black

good Thank and afternoon, you, Pat, everybody.

more about raised ended $XX cash new capital We fourth As solid our key million expenses, We we progress Terry than and execution our which operating while mentioned, XXXX. $XX was making the year. all quarter We compared significantly, with initiatives. third financial was in in the reduced commercial million U.S. revenue, flat to during the in against quarter. improved essentially burn

than distribution in million a about $X XX% U.S. in sequential grew which third saw more to we revenue the increase from the our channel, from in XX% However, fourth commercial quarter. dedicated revenue quarter over of

primarily commercial discontinue Our transition $XXX.X was decision dedicated year-over-year of the to a to was to impacted $XX.X and year relationships revenue non-strategic channel. XXXX. million by Revenue U.S. in on million for XXXX a sales compared full basis our

quarter. to gross XX.X% - XX.X% the was XXXX, compared in for quarter margin the XX.X% XXXX. And margin gross full compared was our third to Our XX.X% U.S. in year the in it fourth

forward margins at gross we optimize to XXXX. remain continue our into this level and chain, to stabilized roughly we U.S. as Our expect it move we as have supply

exclude increased product expenses in of operating quarter. compared stock-based of quarter the increase expenses, operating the team, aggressive development reflects million across rationalization XXXX slight to restructuring which $XX.X in non-GAAP $XX.X This expansion the and were Our of expense our million leadership in functions. compensation quarters and fourth following third investment all

and as marketing. increase operating development $XX.X sets deploy less investments, growth-related non-GAAP percentage fourth we from the will were We in and sales and XXXX, the both ended and For you Overall, product $XX.X million $XX at in sales. level, in $X.X make absolutely XXXX, quarter, And a expect cash million, down the to operating use, a than And particularly expenses enter $XX significantly we million net to in increase year XXXX. of financing investments the our field. of million the $XXX,XXX cash expenses particularly should quarter quarter. our in quarter from in XX. of full development fourth product proceeds, XXXX, And compared instrument as in see result, down as to decreased additional with the burn as we cash in over expect third September fourth million additional

our Turning outlook. revenue to

We million $XX expect XXXX. to approximately year [indiscernible] achieve the for of full

continued revenue commercial sources. year. still certain half from beginning work these losses have revenue we we're and offset second shed on much more partnerships revenue to from see we and sustainable gains growth to As in this by revenue the And U.S. nonXcore do completing of distributor ramp to the expect while there's to predictable transition, relationships,

Some of by these decline Globus. revenue gains from our will supply agreement an in be our offset expected with

acquisition price note Now afternoon. a million me In SafeOp, $X.XX and we of million X.X to of an that receive stock, in let share. million X.X purchase common performance this shares additional upfront year per stock based SafeOp consideration X.X cash, eligible we stock of issued issued million subject future be also briefly paid turn and at milestones. to an announced of million exercise the $X convertible to to shares warrants will one SafeOp common for $XX shares

as warrant product up proceeds $XX cash $XX stock During And invest a XXXX, pull-through meaningful under for we begin agreement. the XXXX. one we of of from completed general million, from we'll strategically $XX.X a and expect beginning for in than into neuromonitoring team, the fund in will confidence finally, us. to our of raise $X comments. We independent and commercialization price announcement, care major with corporate be private million and institutional participation portfolio. our purchase our over capital earmarked to of ATEC commitments and to strategy institutional raise placement investors, with support a leadership proceeds the warrants up in believe revenue and million transform and Net this we million Terry investor, ATEC and to for $X.X spine placement of SafeOp further in with who the for will raise. existing this financial demonstrates for call true of now from I'll in was a well executive conjunction the see new coupled L-X new to preferred today's our acquisition back player. personal the this The our SafeOp, share turn integration into the purposes. And that of capital led Healthcare, closing development, more the directors accelerants million officers SafeOp we by existing our solution that from with investors investors, dedicated including health The new as remainder existing private additional exercise invested will

Terry Rich

The become we mission Thank transformation new U.S. you, spine springboard growth. XXXX well team the building at advance fastest-growing today, most value-creating ATEC And our underway on is our future is new a that initiatives spent ATEC. to platform respected, a We a the the outline that to is Jeff. the prioritizing mission, to company.

solutions be more predictable competitive that to surgery improve channel distribution and expand that a our outcomes innovative will financial an to capabilities. We drive culture performance, building patient acquisition a dramatically announced spine leadership can strengthening and that appointments are improve our We advantage. creating innovative

in future back the So needs to take is turn we exciting. incredibly I'll will and operator, closing, the is your The questions. now new the to us, call exceptionally outlook our and well-positioned market over deliver. ATEC

Operator

Brooks Street from O'Neil comes question Capital. first Our Instructions] [Operator you. Thank with Lake

Brooks O'Neil

you was today. Terry, little leadership and afternoon role the you've the and congratulations CEO? assuming of included was the Good Pat - assuming of in I Would discuss of just all hoping, role releases on more, accomplished. press the transition bit a that might President you

Terry Rich

Yes, Brooks. absolutely,

roles as a were I were there assumed. those were and we announced Pat different Executive investors And with talking that as that designations. folks, So think organization of the that the the joining were been lot had already by confused Chairman, when realistically, out analysts, we

Pat so I roles the drive carry. as clarity is this think as I and to what organization does well externally that And the additional throughout and

Brooks O'Neil

say you whether with resolving of in outstanding the any issues Can had any been good. progress That's Pat there's NuVasive?

Patrick Miles

this Brooks. is that something get And into it's we This want to on call. Yes. Pat, not

we in in we're that's a going celebratory mood, where we marketplace, the and fight we're think great about to belong. sit. And where I and feel we

Brooks O'Neil

the bit dedicated just to with little been that's with expansion the talk you what a you Can a seems good. XXXX regard advancing me it's of accomplish hope company? in distributors? growth about driving to central part That's and ball to mission, It at margin key to the and revenue

Terry Rich

Yes, absolutely, Brooks.

to achieve. provide guidance we've we how able of I really But some made you, this XXXX, tell progress. And to a look significant prepared point in given made we strides. a made. terms thing be it's So begin to the at year, can to much early dedicated lot we're percentage have in Last any to that of predict we not difficult

the two As believe process. remember, year, to that. year completely beginning don't you or relevant. I've may Whether that a think said this it's from to XX% three is we XX% I We get still

to relevant we representation, SafeOp help acquisition on of they're in add continue focused also exciting I move is think and today dedicated, continue right up whether people the like I us what's distributors. think attract things the Alphatec. that or that will more are quality the distributor of announcement to direct terms

couldn't more ability progress like things we're are to progress how making the excited our be and those going SafeOp about in continue So to we to affect areas.

Brooks O'Neil

a help hoping or forward, initiative the was primary I little that might SafeOp, things us sort you've of I pipeline bit other understand product beyond then and out for come least to the the should XXXX your past? see represents Alphatec in in And product spoken expect to going of we whether about you Great. at opinion, whether think

Patrick Miles

This here I we've team without organic think of building put don't take - an I'll Yes. the Thanks, like Pat. The is assembled you'd expectation that together one. a machine. Brooks.

one to that the payers address. we solutions so piece provides the And and know start is we that for us that Ultimately, believe they to proceduralize require to what capacity of have neurophysiology the things well-assembled surgeons doing. we're the the pathology that

team type desire of go a those to our to surgeons. the is here going of that directions. architect different is in so And multitude us And enable have with to we

hugely hugely who've the people appreciative And innovate. provided and we're confidence bullish, the we're of invested level so of for us to and

Brooks O'Neil

and you Thank you very accomplished. much Great. on guys congratulations all have

Patrick Miles

much. so Thanks

Operator

you. Thank

H.C. Wainwright. Swayampakula Our with next Ramakanth question comes from

Swayampakula Ramakanth

on Thank you. congratulations XXXX. Terry and Good afternoon,

Going into few XXXX, I have a questions.

start on Can what the interesting when synergies an it of of questions. few sale? comment and sort to we of SafeOp. from you add off, think there, acquisition So a follow-up How to let's start please we on I'll couple more - some it's does are thinking SafeOp? have And

Patrick Miles

understand This I few speaking, is that in a And capacity smaller great tell is the nerves. is would the nerve surgeons provide to synergies nerves spine distinction Pat. procedures you of there's to portfolio incisions that clinically type are of are our create is - way in our that that when you not of retract is health a where type product to it very and there capacity because yearning that exist don't information meaningful determine then information. hugely the is And our surgery what retract for.

to the relatively needs surgeon input currently they ourselves with fancy - unmet from students, what we so have friends, in And the that good we're are drive surgery. at our

to places the okay is screw of screws, nerves in device. pedicle, an And know know pedicle are, retraction is if they want they're nerve where when interbody that clinical think synergy, know if to about they someone a to when want the placing safely so they pedicle when want you the

to things exceedingly it when integrates procedure, a we're accomplish. of ultimately, what put these So well full into it together, creates and you trying all

Swayampakula Ramakanth

Okay.

you offer, do revenue this to So so Is a run? trying revenue or differently is have a stand on the help product understand else how to could are to I'm to help you trying technology just compared - that the trying because how, when in screw, expected say additional to this the run? the anybody on market? you're sale in does it Alphatec's on to pedicle - - how SafeOp that you

Patrick Miles

Yes.

value I think good you're of Alphatec dynamic I think have the a - you portfolio distinguish of attracts ultimately to which, good distributors. appreciative and This beyond is acquisition have surgeons else unique is question only not one. us does What portfolio. exactly value your provide and do proposition, is to right yourself product doing. and very the product dedicated a had And a provides point, value but everybody Terry's unique what earlier

integrate And into it see ultimately to so systems and and integrate we in these that as into our our the marriage you'll go feature apply design a systems. technology sets and this from on screws, pedicle development

will the element device element or interbody element And neurophysiology an will drive pedicle so drive neurophysiology a element. screw a

very, And so ultimately things married together become these very important.

Swayampakula Ramakanth

on of so a that it's is like, your other - to revenue should basically meritorious How soft, say? soft I to KPI In a see put forward trying the terms the a that? expanding looks what it you you're going be this to there be because cannot going management as how we're it can - what pure just Is on on really Is don't going you line? going portion? a you any this to SafeOp going acquisition like revenues to hard see like when are do bit or me How way I is, see how be - we number little to this as on do considering it. know, a

Patrick Miles

Yes.

gateway a here's the on lateral return of a distinguishes return versus to - is us evolve it procedure, was have When SafeOp on to entire or that continue the from then So neurophysiology. we've miss to specific to previously worked, and other say, what required players surgery the in revolutionize you procedures, places the a opportunities marketplace. a elements

drives, without relevance make it what we sure understand is to provide to as it we becomes sophisticated of important our have that because minds, profoundly to what consumed so be proper element. specific contribution the ultimately that to the in getting And dollar a internally

Swayampakula Ramakanth

personnel. the SafeOp, some I trade I was question does can Also, some of saying that it. How work? got it, get how the non-critical got commentary didn't apologize. one really on just surgery it. off There it more Okay,

trying or the to to trying to go to? sell amount is get the that Is you things dollar one to you're because are this, your lower? of So of total surgeon going that cost that

Patrick Miles

And of is is it in they doesn't to Where of that giving a is room, do is want And if that decision to we're want changes the the the you based the the what information. want make in dynamics - they surgeons objective to it have. objectivity to operating - OR heading based person OR information, immediate, one they upon a the OR. set have people upon the the information skill

If the It's is is wanting of want get surgeons so ability upon they based the predictability. type upon and you And you individuals. skill the what standardization. provide have that get to are different oftentimes standardization what dependent objective don't And individuals. information, the want they immediate, they of happens sets

to not that, to certain element. do circumstances, when I the to that, additional want provide surgeons the And want obviate need? think that of is The of In the talking the the the we if want overriding time gosh, start hospitals do element the surgeon they're we at not so what need. can overriding And but that's we obviate do is about, information required. personnel we value that

Swayampakula Ramakanth

Not looking Alphatec management what point at set of up? kind high a going to previous lens generalize organic to this a - has can on recently, of different inorganically is One while with to you of we a parcel part but forward? know come on to was. are your catch a the whole this terms for that of growth I the SafeOp questions. piece strategy I trying level question. you on, that compared going in more Two that Alphatec mean, a little be is data and wait strategy bit do one is management the of of this Okay. to part Or this strategy very

Patrick Miles

Yes.

that internally. is expertise have if the make with spine the we but the we're what previously think do so sure surgery. technologies of find we'll expertise doing will going go say, to more is you, spine be And I rewarded the I been have I be understanding be to surgery. what ultimately we'll first to don't we will - we're the clinical And don't opportunistic regard tell requirements can't we to excited. And internally, team have what internal And further it.

of and there's phenomenal to that to wherewithal, need of assemble company people absolutely the that a are our type have then we'll have that to know-how If over do opportunity come you types we with, build start it's in, as to the the we look of technologies familiar machine at organic and that.

Swayampakula Ramakanth

me last the on XXXX the pull is Okay. million. and And question on for What's just that guidance for push the $XX of number?

Jeffrey Black

This is Jeff.

the I'm you clarify I clarify can't So can just sorry, - the question? question.

Swayampakula Ramakanth

so for XXXX, I'm reported just $XXX at or yes. - XXXX. to trying No, so just at look I $XX million for million was looking the guidance we of

trying push that number. pull understand the and what's just to I'm So on

Jeffrey Black

understood. Yes, no,

U.S. going over is that and bring really piece on is of left business. lot to we to think growth quickly commercial will second play can that a new Terry's our on And some there's we I to of of the continue be I we're expectation there, think is upon I non-core the other that the dedicated right? the at that the distributors point, I grow is think XXXX And Globus mean, how timing what rate. run that dependent tailing half distribution manage off. partners

into We and just Globus know it'll off, have supply we tailing We visibility tail supply that, that. we a XXX% off. that's don't know their products international time, agreement. through over So

so think And I there's a lot there. play at

and, quickly approximately think the how dedicated range And of depend really upon really ramp-up XX. the Globus these we're So we I why can see going that's that to quickly to how - frankly, new start saying from it's tails is distributors. off

Swayampakula Ramakanth

question. one the more Globus on asking sorry, And tail-off, I'm

do tail-off, is can - insight a this sooner? or is the be something an you this slowly quarter-after-quarter gain visibility On Globus to going you start having

Jeffrey Black

continue to don't manage it's We do on six to that quarter - quarter-by-quarter. it'll tail some products as And register a these them. their supply generally to I in think visibility they have chain expect that kind expect we have start see that basis. begin to tail as that month will to be But we should visibility off. a to expect I to own with I pretty see they on markets, fair solid off have you think We but that international of because lumpy,

Swayampakula Ramakanth

Okay. Thank you very much.

Jeffrey Black

very much. you Thank

Operator

for Ladies conclude and portion any that of back like over the management remarks. turn would today's now gentlemen, call. to to call the does question-and-answer I closing

Terry Rich

the relay we Great. Thank you forward to continue in we change want ways, at the excitement our here to new very organization we Thank next call. the and look ATEC much. you. to Again, dramatic as

Operator

Ladies in conclude for today's does gentlemen, This you thank and conference. participating program. the

all You a and day. disconnect, may wonderful have

Alphatec (ATEC) 8 Mar 182017 Q4 Earnings call transcript