ATEC - Earnings call transcript Q1 2018

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Operator

Good afternoon, ladies and gentlemen, and welcome to the Alphatec Spine Inc.

First Quarter and Fiscal Year and 2018 Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Ms. Carol Ruth from Ruth Group.

Carol Ruth

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

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

Chairman Joining and us and Terry and Jeff Miles; CFO, on Rich; COO, President the Pat call Alphatec's be CEO, Black. today will

the Now over Miles. Pat? Pat to I'll turn call

Patrick Miles

today. need the have for XXXX I been positioned to I succeed. able been Carol. joined plan Execution Thanks Financial Thanks our proud team, been Conference joining X of has tools ATEC Call. revitalize Results Quarter much, to has we what already ATEC I the we and It us ATEC's am First since have are leadership exceptionally believe of months and to well accomplish. we to Welcome solid.

the the also most spine of sales, our that of We and and our industry's the broadening some decades product our only Enthusiasm we field best our of vision plans, are will results. will future in have that optimistic for our growth innovators generate about commercial the prolific continue how the be is marketing Total to will to of Not enhance continue revenue recognize applying years by cash the we're to distributor their value sales quarter are We proposition relationships. in non-dedicated the continued growth collective and likely increasingly attracting was create primarily financial Revenue But come. to talent, revenue first experience portfolio. the by challenging transforming $XX.X process we drive our exceptional. seasonality, and of to support our attracting the channel volume engineering sector million. driven surgeons. to advance some to core spine innovative organic for discontinuing of by lumpy growth. industry's know are across drive predictability results were experience secondarily, ATEC significant technology

business. driven sequentially metrics While about revenue improvement new results revenue in both in relationships indicating of been outpacing strong. have Conversion Revenue underlying core performance overall. surgeon are quarter the and several far the surgeon significant down, were new our XX% increased of year-over-year, our health by

will first the unprecedented the During outcomes. elevate we our Surgical, and with SafeOp improve substantially safety patient completed acquisition of quarter, successfully which procedural portfolio

will EMG overall SafeOp's and enable combines and pioneer submit to market's business. track us clearance, location, FDA nerve on nerve EMG. are that will which uniquely automated information, an to We need soon SSEP for the health technology platform, for technology accelerate especially our The platform

in used, capital We the supporting with balance for quarter. SafeOp the also initiatives. raise growth earmarked $XX were future funds to part, completed during million the fund The transaction our

First of guidance revenue meet quarter us million. full position results $XX to year

by lumbar second differentiated to energy. with will portfolio procedures. been The the ATEC widgets. surgeons most sales include strengthen sophistication our the I'll half implants straightening Historically, ATEC color collection on into portfolio. procedural an ATEC's focused biomechanical performance anticipate implants. each that the of family. sophistication individual are the the into while half of begin The ramp performance provide and release and manufactured the mean drivers, will initial revenue value better portfolio via growth, across utilize and focused procedurally to like we enhancing By transition and products the collection begin companies, US The procedure, we to instead continuing improve narrowly is ATEC product of ATEC force In well of distribution promote of on year, bone a implant building to that surgeons a in has our year. and material of is begin number interbody team and how new sold multiple transforming overall ATEC spine revitalizing within new shown underway portfolio. cervical proposition that manage second continue new that commercial engage of dedication Terry increasing We describing to a the am the expect porous integrating Alphatec, the product I will the the I expected non-differentiated products of they're which requirements. titanium often

are drives core portfolio revenue developing growth updated include upgrades, the per and procedure, the channel the SafeOp future as of effect procedures. a We XXXX. sales and as currently portfolio to ATEC our spine as solutions more which platform additions more compounding addition We transforming anticipate neuromonitoring a on new well products will generates in

machine worked patient end, an I thrilled to am and spine of influence experience To talent defining have of welcome Kelli outcomes. Executive to clinical capable to leadership to validation. our and the to in immensely VP as efforts. that contribute Many have organic has innovation add continue will Strategies. team Howell We create Kelli Clinical on and she of our in with validating improved seen past had significant Her us the

bringing market and to regulatory of products acceptance to the last in and months. that, I spine have call the the growing product added hires to ATEC XX clinical over almost the expediently, have We Collectively, turn will products driving experience new development, market and new With market share. the operations, Terry. six teams supporting over people deep in

Terry Rich

that growth on you afternoon upon well revenue Pat for other thank underway. I'll revitalization Good today. expand is and joining touched the the drivers. portfolio us

That commercial mix XX% dedicated from significantly generated to dedicated about are with beginning under our XX%. from termination in distributors relationships. vision and offset distribution revenue our sales US the losses is of agents First, the quarter drove XX% by revenue validated. up is last of the product making We and are we our the The and first transition, to year. distributors of about being last network created nonstrategic by gains from quarter of the

volume see Alphatec's accomplish. percentage distributors, to have new quarter what and our this continue top are trying the some of with revenue of in of line solid growth signing present conversion of relationships. from higher The to new, while the but testament engagement puts they to A dedicated, the experience results, driven distribution expect driver on an come last decisions is our the drive. continues surgeon the our major that second a efforts. distribution ATEC year, of year beginning increasing to We non-dedicated are and terminated These XX of revenue first takes to dedicated the transformation our to half Since we almost year in of we have lumpiness channel. insight is into final transition

front, proud visits ATEC number that the engagement of headquarters quarter. the am the has share to surgeon to On I for fifth increased consecutive

all surgeon the visits XXXX visits XXXX. alone exceeded year recorded of entire fact, surgeon quarter the first of of in during In the

two are performance. conversion first surgeon was new leading These in strong. of indicators key the Additionally, quarter future

Alphatec and increased our of driven XX%, was performance driven by far largely legacy performance mentioned, This solutions. being strong revenue outpacing about is overall. surgeons by Pat revenue interest As level

and this our year believe team. course is surgeon product improvements surgeon With the Jeff. US are portfolio. confident into growth not into a I'm the that ultimately, reflecting that, over solidly conversion. increasing I'll translate well underlying dramatic driving company. innovation So our achieve over on team that that this the that of our testament growing the the building engagement is fastest respected, are turn of vision most we call the yet are revenue we will We Several improved key the progress track of to spine to becoming metrics to into

Jeffrey Black

afternoon, million the future revenue Thank $XX.X ended we first quarter quarter and of in business. progress against our million growth the first everybody. to you, in compared of In we drove initiatives, and with our XXXX, commercial the US to invest good $XX.X key We began Terry, margin expect at the first will level fourth it XX% move we impacts this in distribution seasonality of much progress we of the of the XXXX. in was roughly quarter obscured as we're and XXXX. quarter, in forward gross transition US remain the The and making.

the based $XX.X Our the stock restructuring non-GAAP million in compensation, fourth expenses operating of quarter to related million quarter and in compared XXXX. XXXX million gain expenses, were a $X.X transaction first settlement, of which expenses, exclude a $XX.X contract the on

and X of and cost enhanced integration reflects related of this expense clinical transaction all development, legal investment marketing Following functions, and quarters operating product regulatory the planned SafeOp rationalization and to increase support. fees in initiatives, across development aggressive

as and XXXX. the will warrant investments over related development expect We operating XXXX, result, placement a make in expenses cash our of private sales our In quarter, course continue financing growth net and product to compared $XX.X and and particularly to raised proceeds to from the we of million. marketing, first increase

and million for in cash ended payment the of million of expenses, acquisition SafeOp with the related $XX.X Following $XX.X quarter of $XX.X to million we first end XXXX. our at compared the

which million million for is Net that $X and of first has the first in sheet paid quarter, warrant March debt time cash is from includes $X balance proceeds In $X.X growth decade, in This XX proceeds exercises, the a SafeOp, about cash in strategy. balance. to cash ATEC million we generated execute was not our service. our April almost in in reflected had a use, addition, financing which cash of the our

million down against high in $X credit Our was first to debt unusually pay quarter our net a due service revolving the facility.

service, management the continued usage in reflecting quarter cash business. even was the Excluding the operating investments million, increase debt with cash in $X.X in careful

past the burn. to Over XX course manage we've cash the months, continued of aggressively

year our during excluding just was million. first quarter As $X.X operating ago, debt perspective, under burn, the of XXXX, service, a

continue instruments resources in product investments to field. will deploy and as cash into responsibly that's development We we the even accelerate

$XX to XXXX. continue of We for approximately of total the full expect million revenue year

expect new of of product gains losses from as second contribute nonstrategic driven engagement, the ramp the releases commercial that revenue growth. initial year of relationships. The the slate distribution increasingly partners and to will surgeon to increased the in surgeon We have offset also US half half second planned termination by revenue growth we conversion

making inflection We solid of expect under by We to the we supply quarters. be of progress back decline call scenes ATEC. turn behind agreement. here look forward international a achieving comments. some I'll revenue We're to closing for Pat to in non-US the gains transpire in the over the believe coming revenue that continue growth at our offset point now to will these

Patrick Miles

to we are Thank in and continues both build, you, Jeff. internally the increasingly the field future. at about momentum, The and ATEC, optimistic

are we strong portfolio experiencing and by have distribution expansion is that impact driven executing. surgeon the and is the our transformation to are by we confidence conversion the in that by Our upgrade engagement beginning

solid conviction questions. almost support first tier and ATEC establish well a is work innovative long-term for leading rock growth, decade accountability. been we'll to built industry and greater. execute assured is I'll the And callback vision the respect of as enough and has market deliver. time operator, never culture and against take on thank your now We to to foundation prowess the has exceptionally your become foundation to for plan. Alphatec The player a a and spine positioned a now that future talent, turn in cash ATEC over Our to top sustained needs spine we a growth the you market this

Operator

Lake line the Street [Operator Instructions] from Your comes of Capital. from Brooks first O'Neil question

Your line is open.

Brooks O'Neil

sort with all relationships building Good previous you point maybe are new distributor or was identify anecdotally you saw I beginning change your be and and might territory talk to for distributor. situations to geographies? in talk information. a new two you perhaps of, and about to able you one where involved. parties see the to you have distributors hoping no what, leading from guys, afternoon about thank those in any what that need But are Obviously, your the you

Terry Rich

as lot a we've it's changing Brooks, of we because very of had distributor changes, within out this even we're is made And typically and hospitals. interesting so just a yes, the number Terry. not question. Appreciate overlap one

surgeons, is came we're our we're surgeons that more so than average new with seeing the those those broader more former as higher non-dedicated, and partners what and geographies, on revenue in that a well. average, And bringing over from distributors have have much reps work

we and about very Again, approvals the to that, gaining as cases, transition go time different well. but continues than excited seeing experience takes we to some based we things, So on what in these it we're like, continue make we're more would transactions. very hospital

Brooks O'Neil

a verbally in significance - detail the also I helpful. sort of formally of just couple - to this you behind again hear done over of helps Great, over. know it Describe Could a SafeOp little that's you've and it times, very and and strategy bit I acquisition. but me the

Patrick Miles

there's and The challenging. of engage the so Pat. make value compel changes tell problem. you, requirement where we a tell the nerve, And say, hey, to would it how was objectively, could ability virtually, the very you - of or of that either you a distinction, and are degrading going completely we us someone we virtuous the proposition legacy it Brooks, over about surgeon in and is, very, brings is we that to have nerve our Alphatec this would have value health when that I can portfolio say, smaller time for the the to little the incision, of utility if a products that is kind what of type SafeOp had, to is had

so often, of together is what work surgery information a the of outcomes. because to and are deliver the so looking products them in room will becomes we and distinguish to really conduit for all it surgeons operating key to really the kind procedure in openly our information architect us driver provides more And ability this and patient

Brooks O'Neil

I or really I that for are relatively Pat, recognize, conditions biggest I'm expert, not just most focused are spine see Could and again apologize that Great I there appreciate opportunity on so you you that. procedures a Alphatec? particular But that. the you for talk -

Patrick Miles

procedures spine whereby part max is the few Yeah, in there surgery, retraction. are nerve there is, great

issues And a so to be or is if retract after ability of laryngeal hoarse at the spine, the someone's if deal spine spine, to you to retracting front they minimize dysphagia ability The the cervical you swallowing so dystonia, surgery, big becomes go a meaning not access often have look deal. nerve. to the after or

retracted long the notify that, much. - it's to or ability surgeon been it our nerve since you've so, been you And this you've a time on too

that's fusion, you if you them the nerve anterior and surgery we procedures so other measure creation. is there ton surgery move means information TLIF from lateral well a different there's everything look we to decompressing which And are spine the about is no of of as elements, to objective as is application if that than ACDF, which across where going and engaging all discectomy have time. to them provide, the value move And in, as are well as cervical

Brooks O'Neil

That's really Thank you helpful. much. very

Operator

[Operator Lee Your of comes from next Instructions] question line the Sean at H.C. Wainwright.

Your line is open.

Sean Lee

questions. for you quick XX% total my quarter XX% have XX% up to question. the of thank guys, afternoon taking compared mentioned Good a I just that and you last guys dedicated make sales One, from the revenue now two ago. year distributors

over little a that year? to this you the close that a but company - understand up give to as on as more color XXX% to ramp - ultimate we I for get you goal possible, do have While expect the to can could is how you -

Terry Rich

ramp pull distributors as we're over new as to over, identified as Yes, as negotiate trying of far going distributors, this the It's we dedicated, from many Sean, through. are well so and the some were that we're to that get it's able be on. identify how we've we new become that current to brought a ramp seeing because we with to difficult bringing those thing currently of distributors the the

to to a thing to very say So consider here pace of ahead really suggested process. we track well not suggest it but pace is it's I are three year if that you two the becomes on from we say, achieve I'd that that. beginning if think to on a difficult well this have fair that we're

Sean Lee

rough the is the a on sounds a on second question What little give like regulatory timing market. to still what My very wondering could done It I'm new be steps helpful. SafeOp color exciting EMG. the - get and technology. was of for to process you the just process? That a more device kind needs to

Patrick Miles

quarter. The to Yes, the is so and that is hope should then straightforward. really to front is It And it refine and verify clearance, readably really a submit the deliver Pat. and start of in. functionality of the little by on the to the a - regulatory EMG fourth this every we quarter element be opportunity middle XXX(k), XXX(k) process expect we

EMG. part predicate there great automated in real, unique the cleared, are so And is, great. for and The a is so value is elements that's automated SSEP, already the which

fact so relatively believe that be should are the straight. And confident or in the we road

Sean Lee

the for that's all I have. answers Great, thank you and

Patrick Miles

Great.

Operator

wonderful concludes a I showing further for and and you am your conference. this no Thank this Ladies have day. at questions time. gentlemen, participation, today's

may disconnect. all You

Patrick Miles

much. very Thanks

Alphatec (ATEC) 13 May 182018 Q1 Earnings call transcript