ATEC - Earnings call transcript Q3 2018

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Operator

Good afternoon, everyone, and welcome to Alphatec's Third Quarter 2018 Conference Call. We would like to remind everyone that participants on the call will make forward-looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to differ materially. These uncertainties are detailed in documents filed regularly with the SEC.

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

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

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

Pat Miles

which results seasonal and continued welcome, pleased for testament second the everyone. U.S. The the a revenue transformation. demonstrate of our weakness spine. quarter growth the the XXXX. sequential commercial up quarter, Rishi, Total our Thanks, X% million, to third quarter We're $XX results strength of to in is report given to third was compared historical

see progress growth, path to to by major continue our solid accomplishments. accelerated several on evidenced as We

year-over-year business began relationships for Our the achieved of first we in reducing process U.S. revenue nonstrategic distributor time since growth commercial XXXX. the

on the started making Secondly, Alpha portfolio new ATEC its our releases. product team mark with

obtained growth, detail we refinancing go term industry $XX a competitor up free next from financial will Jeff of over an debt new the will that demographics revenue the years. million Terry loan into X on with will the and provide a independence in Additionally, moment.

the now domestic basis. compared both XX% XXXX approximately anticipated fourth million guidance $XX reflects revenue to Turning greater previous how growth sequential the of clarity updating our million and million. progress of than our We greater to $XX to remainder guidance. guidance will guidance into a have are quarter year-over-year of the on This and year to $XX of range

that with focused been leading industry's pure-play drove been Alphatec. much the the innovation resides team the broader has at spine rewarded companies. that decade, commitment now Their Over growth The the exceeded have of market. past innovators has revenue the

proven excited track cervical know-how spine differentiated of and and experience into technologies the effort. ATEC I'm record employment businesses, a our a highly like and add with particularly biologics drive us, our two cervical to the integrating team. of came rest Mark, tremendous to procedural addition to building biologics deep to in Mark and He of be us of Ojeda, to meaningful quickly We asset Mark the opportunity segments ATEC. lead move an to multiple incredibly has the that will innovation because market. continue industry-leading environment nimbly. to solutions allows profound Mark about the has of

on that that compelling clinical focused creating are surgeon know our to end, To We purely stakeholders. all we X adoption. sales channel initiatives revitalizing key distinction, market spine, value we our applying are will are help mold. prioritizing Those we a expertise for create and that

remains interoperative limited physical improve players are that surgery Let equipment me capital first we describe vast. huge robotics clinical opportunity information footprints and are distinction. an The space. drive creating OR, addressing will decision-making. need in that Surgeons better spine yearn that for demand to how already the severely Other market with

relevant, real-time more Our better, small information. will Alpha answer a platform Informatics, that Bluetooth-enabled is deliver

into are systems, to we seamlessly we'll access elegant, Additionally, enable and next-generation disruptive approach. regardless integrate Alpha developing that of biologics solutions implants minimally Informatics

developed to by Informatics by be of neuromonitoring are products we or third advanced, set which our in Currently, SafeOp, during will XX% Alpha future and first revenue automated that over submitted before the generated XXXX. launched we The of powered FDA quarter. the is

XX market. to delivered to that bring on shift We in starts XXXX. products next-generation be track with launches we Alpha That expect as forward mix going to

Let me exciting discuss several front. that developments on

thoracolumbar In The very become designed has signature. interbody performance column restore integrity and biomechanical of the improve system implant OsseoScrew kind imaging growth, XXX(k) implants, technology posterior of system, redefine tumors. implant internationally. the a The With collection OsseoScrew clearance domestically. all in devices to patients expandable bone advanced identity first the successfully debut utilize to better And released of that fixation thousands expandable received of quarter, have enhance designed market. which has with in will been the that of been the received. can next-generation column, improved used and well we quarter, porous of innovative help posterior Alpha we implants procedures September, During exuberance the spinal anterior its manage the this third been we our an deliver titanium procedure-specific with in about its it our think -- fixation

Alpha on shift be to disruptive excited toward system. fixation and spine expanded as as minimally distinguish week's in substantially and open proceduralization. integrates itself a strong our foundation equally next-generation systems the track next will of ATEC offering into procedure we with are release seamlessly techniques, We another serve will With comprehensive thoracolumbar that

XX XXXX to each industry releasing new intend to Looking and lead beyond, by year. we X to in products innovation the

products as the products growth each while greater these surgeon ATEC drive compound increasing Our into of will adoption number sold procedure. potential

companies Our will that by of a being belief if not few, meaningful other level capable ignored any, surgeons. that, over With of Terry. the is will innovation, are that hand to smaller I driving call that fact

Terry Rich

you, everyone. Thank good and Pat, afternoon

first to It's sales business early growth began from begin revenue to commercial distributor nonstrategic losses XXXX. with growth As adoption we expanding process that and Pat exciting revenue outpace mentioned, channel reducing since revenue the transition. see year-over-year the the associated surgeon our time achieved of our in relationships U.S. for dedicated

our to channel. revitalizing Now turn sales I'll our strategic priority, second

to the driven network revenue we of of by driven at continue almost the distributors first XX% percentage commercial portion distribution more the our the sales with We Year-to-date, X U.S. end from of has of dedicated partners dedicated clinically compared In the to the up quarter, by last revenue to tripled focused, dedicated higher-volume, expanded XXXX. year. partner XX%, quarters and direct third teams.

winning move the share continue innovation. through ongoing desire also ATEC and by of leveraging field sales about on both excitement the solidify to to We sales our team focused companies talent market leadership the in to

The has record track third spine teams Wilson of look by additions Each of Emory adoption when accomplish the Rooney, of portfolio. driving to highly Darrell backed surgeon Zabel proven high-performance experience of will team. bring they I innovation. to a forward without and the and decades a seeing benefit building Mason quarter what of differentiated them

Our team's third considering meaningful and us priority and strategic recognize surgeons is driving complex clinical legacy with differentiation. limited endeavor of the distinction. to The partnering adoption surgeon ATEC wholeheartedly today deliver a believe our ability portfolio, portfolio's who are the

educational the third quarter. record visited in surgeons number of during and As driving, a a surgeon channel ATEC result programs is the interest our of to that participate our sales conviction enhanced that headquarters

is of conversion relationships strong accelerating. both new Importantly, and these

relationships revenue accelerated to new ramp in year. overall revenue quarter this substantially quarter growth. each surgeon to Third attributable the new customers surgeon Also, of continued has outpace

Jeff. clear the demonstrating I'll against to call growth. over initiatives now accelerate are We that the we progress and turn will organization believe this reposition

Jeff Black

Thank you, Terry, good and afternoon, everybody.

$XX second sequential Third sequentially. the in gross our in revenue overall was of commercial revenue And growth X% with revenue the U.S. XX.X% significantly in quarter growth. million, about distribution outpacing U.S. channel compared was quarter up quarter, achieved XX%, expectations. our line to dedicated margin third XX.X%

adjustments, exclude across all were Our expense in to second fair And the continue transaction-related functions, stock-based G&A. and restructuring, we quarter. non-GAAP expenses, compensation, business particularly $XX.X compared which rationalization value quarter the $XX million third to operating million in expenses drive

costs, over million litigation-related increased as past time, have investing relatively result, and that relative compensation stock-based at the to accelerated particularly quarters. ended X marketing. we the in of our cash. G&A operating But we're in our has the flat expect We commercial and to been expenses over areas quarter And drive growth, $XX same business sales a product the third development just and Excluding XXXX. with

our or purchase I'm to final sorry, March $X SafeOp purchase Our for price retired for our million acquisition adjustments in first we've and payment cash now quarter burn -- principal price term XXXX the in which shareholders full. included loan, $XXX,XXX our in cash on payments

total Excluding our quarter $X.X service operating usage SafeOp debt the million. shareholder was in cash payments, and

Squadron million XX financial only term additional capital from today, roughly retired from also pushes financing frees proceeds on months. the that This an out we reduces million new not of amortization X% and the and financing but announced dependence it competitor, cost debt from we us loan. our our by Capital a $XX.X With by $XX

reduced Our million $XX investments. service the enhancing significantly cash our years, will X by almost for flexibility next growth-related over debt requirements critical time be a during

to for pleased Pat partnering turn now long-term be with closing comments. Squadron, to are strategic We'll We investment. call over a the

Pat Miles

at Thanks, Jeff. my I first year recently celebrated anniversary ATEC.

in laid the SafeOp opportunity value spine to of market ATEC that with of already us. look the over we needs market clinical X this decision-making I said has the the in to across begun know-how collective the have made my When to has over to just year, And technology I the a this in I'm past progress proud unprecedented spine the new increased have year, procedures. I ATEC. and conviction of we course groundwork We distinction. of create In interoperative all As started, create exceedingly the drive information real-time the acquired automated back front transformation. team enable year,

We over revenue FDA made adoption, Alpha XXXX. that launch are XX the sales revenue of channel, derived on that improved in to expediently increase the solutions the have group. meaningful Those and new surgeon track multiple generated driving the to relationships successfully efforts the by year. great doubling the in course We worked is past of surgeon strides dedicated nearly with percentage clear the transforming and tripping in have new the from channel a products

I innovation is the The what grow a new at team year Spine's on very is track we've organization forefront of still drive is improving create machine no within As The this organic to revenue when it of record a spine has this machine, set. spine undercurrent clinical accomplished lot But palpable sustainable the of to capable result, ATEC a there at that a growth. X why focus an secret of and sequentially. relentless launching solutions to there's look will market. begun expertise distinction. confirms in stage begun XX repositioning greatest for of enthusiasm absolutely surgery a each work do. has year, to Certainly,

just to we for and back are the will profound that to innovation We is operator, pioneer take absolutely now questions. ripe market a beginning over I'll your the turn in call it.

Operator

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

open. Your line is

Brooks O'Neil

I'm accomplished the so you've future. far. all on excited Congratulations about

the question, just SafeOp from surgeons, I first within the acquisition OR, my to your discuss Alpha your equipment? while was going a change that spine is you use how hoping little So bit of Informatics they operation your might

Pat Miles

think yearning very Brooks. immediately for see we information, It's, that when that's Yes, they're it. information I yearning and is what available much. for surgeons need Thanks are they

able are about if to tell We'll their the platform, a set in the Alpha they heading are small things so approach, a the toward will invasive And nerve that of visually enough great real also keep be can to it. see Informatics surgeon root. course feature where minimally and will a and to don't tell so you we hey, neurophysiology, using redirect they surgeons, to one you're be incision that that have be time in able first

able in of the recordings this Additionally, that and to will long we'll much. suggest retracting been information hey, tell to there's too would you're suggest of objective or some nerve monitoring retracting changes surgeons, be the that that be he's too there been

surgeons is few make real the there's that spine information nerve what can so in not so And do want is And techniques of where time they very in what room. is retracted. operating in changes type

goes really procedures. across applicability the So many

Brooks O'Neil

That's very helpful.

system, So I real communicating an location, neuromonitoring the at time, in during information I OR a to technician procedure. that to Is there's remote doing doctor whereas a in direct have in a a and just it'll sitting world, way, the that right? with physician your today's some sense the be with want clarify,

Pat Miles

situations. trust and a Yes, want the the neurophysiologist itself without beauty available that it technology sure to be this is think We or neurophysiology strongly, a partner But that a that in, avails that's if with great I a deal make surgeon for has piece of neurophysiologist. used really technology the a a of strong all can equipment he with feels relationship right. is of to, has

Brooks O'Neil

sense. That makes helpful. That's very

there, So Just on us that. are you are you just a coming sense understand at XX Are you're all in if for with Alpha some help launches marketplace more the QX? could today? where as as as. Are give us they there where well

Pat Miles

Thanks. are running we them. at I'll Like tell you.

fixation parts thoracolumbar these one we week. fun Alpha out is system systems the are next-generation So these where of launches. going next huge a things involved is in there have thousands literally And of

next out MIS, system go And so an we'll open have week. fixation an

market released in now. porous We have will of titanium month. OsseoScrew And implants a have release the few form we'll more before year-end. the Alpha in a number here implants in next

the the we year, you what sprinting So is and end at I would this best. group are that tell does this of

can't regard with and forthcoming. I so date assembled more we've be what's clearly And enthusiastic to what to

Operator

Next [Operator of Scott from comes question from Instructions] line Gambill Gardner the Financial.

Your line is open.

Scott Gambill

a Do hear everybody. there? out guys to little bit an happen Hello of echo

Jeff Black

don't. We

Scott Gambill

No? new Okay. the little, like the my just of guidance It's It timing these Was through get you million. you then. that right. kind part end, low question All launches? maybe I of of year. had on it's of us range a a looks just end and $XX some I'll pulled because for the gave a now, $XX product million, it.

Pat Miles

timing many the additions a of that of the a we've these lumpy say the clarity and little Yes, terms been I where a they'd guys we contribute. force. so out are get of, when sales in been, terms lumpiness Scott, is And making has to in bit bit, little this it's exactly Pat. would

are at to things Alphas and other we're trying get running these approvals nature. things that The of and hospital

little we're being upon the just So hospital a if approval, make bit some that drag of there's want the just thoughtful. line in to top sure a based we of

Scott Gambill

if okay. other on I year, thoughts right I could just your I operating Makes total The see are they've climbed know my just and that. of have Yes, maybe maybe vision a if and is sense. that gradually works I losses. loss, only guys certain the I'm how because bit But it's company get this little share that. question when build to internally. looking a wanted about you the at of towards I now could profitability wondering for know you the you might doing have target

Jeff Black

to forward I Scott, not at any But not, the think about We're that, on for the provide profitability. is new Yes, business. going sure, X will way the are releasing this in this of we'll is scale think business point, to start we, intent once Jeff. continue XX start guidance to invest scale see in we to we R&D But to leverage with operating to products. the

G&A see over the So see scale down expenses We'll in a line. come certainly time. we'll as percentage sales

line You'll see that keep hard and actually we've G&A tried to taken a flat. pretty relatively core

revenue leverage So I is with the it we scale to line. think about continued way R&D as that operating think investment the in

Scott Gambill

I that year? Okay. something should scaling next be Would that anticipate

Jeff Black

think sure into start and marketing that you'll think I Yes, I get this the right really have launch. it's next seeing investment making Alphas new year it. sales about we But ultimately, in and commercial development and XX product

that So is XXXX. XXXX benefit I really you start seeing think the and when later probably in of scale

Scott Gambill

Thanks that's Okay a great. lot Jeff.

Jeff Black

Thank you. bet. You

Operator

time. [Operator showing conference further would the turn back Instructions] now to I questions am at Pat this I no Miles. to like

Pat Miles

participated Thanks look Rishi. being and on we much, in next has everybody Thanks Appreciate quarter. the touch who Take forward care. call, to much.

Operator

Thank conference. this and and you participation, day. today's for wonderful concludes a have gentlemen, Ladies your

all now may You disconnect.

Alphatec (ATEC) 10 Nov 182018 Q3 Earnings call transcript