ATEC - Earnings call transcript Q1 2020

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Operator

Good afternoon, everyone, and welcome to Alphatec's First Quarter 2020 Financial Results and Recent Corporate Highlights Announcement. 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 the US GAAP as well as non-GAAP or pro forma measures. items to tables can release, is included and all measures the found which useful non-GAAP views quantify financial management's supplemental in excluded to of investors. US this be GAAP in identify of Reconciliations why provide information and the press

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

Alphatec will Pat Miles, CEO of to the Chairman over Spine. call turn Now, I and

Patrick Miles

Thanks, Michelle. Thanks, the for call. everyone, joining

take are into a really get Before the prepared family want to with presentation, remarks minute I to because I some I listening ATEC the know many in.

of during over or despite say extreme everyone focus thanks the this crisis first we separated. so for productivity cash salary sick donation stock months. I for paid two how forward preserve by the and am through I engagement So, want past the business for proud being all, other your of each to or of the continued forgoing base payroll, driving time on support to

I ahead. Alpha Regulatory a supported. customers can missed of Surgeries completed. key filings has been Recruitment have hasn't pushed business have been continued. talent evaluations beat. have and you, the tell fully

this is we'll challenge where believe it, than which exit I entered what we companies. great distinguishes stronger

and committed to to been are you. You've our we mission committed completely

in project can to continues happen pick way, work methodical and as to increasing will see surgery presence an our in but clearly, You is volume expect that safe. a everyone soon the workplace to starting up, ensure it

the expanding And the impacted have is in and COVID, the absolutely interest been could going We palpable. channel business, is strong not community which I be by from With reflected into bullish. respect saw results. certainly to our distribution while outlook more momentum surgeon our QX we on our crisis,

signs strong. see of volumes. And by surgical come confident recovery, recovery predict back we'll I full it's when way it early will too in to I'm am while encouraged

our a but strengthen employee valuable runway. key sheet decisions balance preserving back areas, most on necessary base, made strategic focus taken pull have to to maintaining with We've our keen and initiatives. our and development certain We on momentum steps critical asset, our secure in spend

secured recently forward. extending runway Squadron to focus the the needed we commitment million moving Capital, $XX from on an We additional business

We to remain our happen. in innovation resources to that team commitment the we a it. unwavering have to And market bring and that make needs a

So, QX I the make just I to XXXX I didn't want anything jump miss sure scorecard. before into

you company momentum. see start be to clearly, optimistic. has like have strong you When to revenue year-over-year things So, growth, the XX%

from ago was to new year and which product, a XXXX. less that of XX% XX% XX% year fiscal really compares Additionally, than in in QX

seen guys the distribution XX% strategic within distance are is distribution. with revenue the us. our a growth going And was reminder go to strategic that

case to revenue our QX that's business. XX% from year-over-year You what is new confidence in our that really per And XXXX. average up XX% speaks also saw the And growth. devices and from

is this a talk up. really, continue a many sixth into X.X meaning that revenue convoyed tick product we double-digit quarter. sell lot growth and surgery, consecutive year-over-year was QX. our in how categories to in It We sales, about see And

market the where And we go our balance the relates the is focus going. we're as we really business the that going revenue talk to to really and our so, sheet update, when areas about momentum, it of through see status spine EOS,

going going priority did really surgeon force. continue we one penchant is have is you remind hear foremost business that thing And our a And our room. of And one us guess, thing you'll first is that for so, in the to is, to clinical operating – adoption focus. that And to to remain we creating really we're compel going and sales I revitalize in same the continue is continue QX. we're to we're our to distinction, and

continued And see releases XX products. virtually. year in design of out of XXXX this meetings so, you're new earnest you'll going The see still what to X in is, us to

So, with as the for of over surgeons made of time engage us thrilled us. slowdown well. a period this candidly A them lot were to

continued. submissions Regulatory

So, to that create palpable. tell relates clinical capacity you it our distinction, as will to is I momentum

As we to we used continue compelling it more to products continue to Alpha per surgeon see evaluate relates adoption, our and products and more procedure.

to inner – retractors gratifying with fixation body very or systems. it's our so, used system with our And see used SafeOp

come really And see so, into fruition. you strategy the to start procedural

I Also got the know exceedingly Savvy revitalizing ATEC. of well. is to the at tell force. recruiting distributors is spine you, our that sales going future

volume how can see when been our my a their that so, come customer. distributors serve solution the best way. And the of that to they question, And lot it's themselves we're run oftentimes, ask I of have that distributors clearly is to. entertaining focus And

of elevate of also We're versed aptitude online of what clinically. and doing trying calls the engage to sales number them force during a terms slowdown the and our keep we're them to with in whatnot

changed clearly, to relates what we're So, there. transitioning we've as EOS, directions over doing it to

So, really collaborations. proposing alternative

we resulting So, has terminating believe believe transaction. clinical decision. the been in we there drove our really do But material that a the the in still that thesis adverse event

really in surgery. of equipment. pushed concern near-term was our you capital delve realize kind of the in generation acquisition it and preparedness If you'll out focus elective cash from check, is really and hospitals channel in And that the from

But, it our comment, to the the confidence undermined clinical hasn't in again, original back collaboration.

we're that needs. And both we're other arrangements type doing really is, companies' of so, what strategic meets exploring collaborative

I would change. that's big so, And a say,

we're I'm going any you this what's spine in sure into opined from market, the that view over I've our information. you, provide tell new jump got to to on To is going on and everybody

concrete it's early way encouraged judgment. the still too but to recovery, totally make We're by any

spine we we see see starting the come and surgery back on procedures. to elective enthusiasm So,

the probably through that thing thing to And revenue way hospitals surgery. one The non-elective And orthopedics that closest we we in know spine. generate is need is surgery generate elective the revenue. to is

But volume uncertainty upon still that volumes. to again, expedient procedural exists. return don't to long based a And into so, want of we're the get seeing discussion an

I with turn over that, to Black it review to financials. Jeff the will So,

Jeff Black

focus you, important Pat. minutes sheet. and Thank and I'll a with runway. to our cash couple speak start on it's area, key that's starting a think balance And specifically that spend of We to just

ended our draw first early quarter we million credit cash. facility with a existing on with April $XX.X in made in So, We the Squadron.

So, the forma cash we ended quarter million $XX.X on pro a in with basis.

revolver part We draw also $XX pay-off and be facility for with MidCap a as letter remaining will the those with will Squadron. available a recently expansion proceeds executed of to commitment our million the needed. of A

we runway the We end credit this close financing us, removed the at this absolutely execute to is by of plans. We've to We've years the to facility right two also all our financing believe need of extended May. provides the XXXX. we by entire on covenants, maturity for growth and the financial right time expect

base mentioned, We've as toward employee also decisions containment made product preserving an maintaining some development on Pat the with the initiatives. organization, eye key cost again, and across

And finally, QX litigation. burn important in litigation patent prior cash was transaction-related expenditures. it's over really related think we to atypically Recall to due and QX, to that elevated note quarters high in that, our was our litigation

the that first saw So, impact we quarter. cash in

saw distribution channel. On XX% strategic year-over-year our from to growth We revenue.

and just mentioned, Importantly, case the per in the increases higher. which but products a is per driving case as mix continued volume, not Pat complexity case, in of increase this revenue is more surgical

we where – we legacy to at this a actually, perform level be distribution level point. continues channel our expected the And above to at

Gross expected. margin has held steady, as

continue a from legacy and on drag bit excess see a We to of obsolescence margin products.

in this products. expect normalize to start transition this to continue new we XXXX We'll to as We through XXXX. see continue to

And continue once E&O normalizes, we'll margin our gross but will maintain believe we to that mid-term variations driven the margins range. be in primarily mix, in mid-XX% product by

A and little bit OpEx. about the P&L

line profile Our and expectations in we make build new product OpEx our sales year-over-year, with as to investments again, continue non-GAAP remains out strategic our consistent channel. in development

for on think, I to rates strategic below the the run line hold essentially we It's last we quarters XXXX company. continue when the G&A. and pivot of flat XX importantly, the started been

that, closing comments. Pat over call to for With turn I'll the back

Patrick Miles

Thanks, Jeff.

know going that it to that's remain business You've we innovation. stewarding do like great surgeries. through spine fixated and got on a we're We to feel better

think prepared. returning and the spine surgeries," of that the of the we volume least I we're So, is "elective spine know return will is and probably and surgery

So, thank happy to now attention for much take and questions. your you very

Operator

[Operator Instructions].

question of Brooks line Street. with the from first Lake O'Neil comes Our

is line ahead. go Please open. Your

Brooks O'Neil

the Or again? differently, ultimately is said pent-up of or some permanently cases doing you you're of very forward. I and you Thank And look done have the expect and business much. moving you the business ORs comments those do to sense good open afternoon, gone all kind Appreciate at hospitals spine postponed the when up the do you to and guys. curious, just opening as spine surgeries, away demand? the get some business there keep was growing

Patrick Miles

Brooks. Yeah, This Pat. is

it's talk have And hours Saturdays lot solutions lot spine hear hospitals working surgery about and think to OR audience. you of postponed. a the that broader clear I Sundays avail these and abundantly on a a of to and increasing been

I would absolutely. so, say, And

are speaking a of there. surgeons is in lot confidence hospital, heck out to people the the think until But a off just is I affirmed. insurance affirmed, is holding pent-up there their in of demand

Brooks O'Neil

year, to to fairly That's reestablish of COVID do momentum, the think, done, if launch about Great. year what put to anything, all you your just can original SafeOp, to second of hope place? late kind Alpha I what question, And the in when a get has obviously, you the to then, plan or disruption last Informatix you are there related helpful. plans in and very talk release to the try

Patrick Miles

things that are that ask for Yeah. when question, question. to many Thanks the There mind so you Brooks. come

the of has one in team the is proud development of I'm that the downtime. think that awesome the I product team things so been about

has the And beauty launched to And the then ceasing middle we the of the you software-based up a late product clearly, The evolve March. system after volume momentum last system. see year. system. But and the so, of month in month is is, the cases we in ticked continue

sophistication create So, the that to continue opportunity is thing in to significant.

so, them. And of proud super

was a room. it to acquisition provide was information providing And confident ago. I've tell continue to I to is the what us whatever you'll see distinguishing for such element got regard This information. that the two years am us surgery to to right so with operating into you. that choreograph is

information across but the look platform you provides. you what and valuable landscape Informatix are that limited Alpha start few the companies providing footprint are the to when look doing, the at And companies

And so, into integrating gets. continuing bullish do we every procedure us terms in anyway, traction commercial of the to that and and type about evolve kind it exceedingly of that of that excited

Brooks O'Neil

going from heard That's read situation. myself, great. it at But Totally it I comments your the get they're you think do with And be more it perspective. not hope then I'll jilted and least just the to take about ways and still over. find mad ask guys? a and team? Or they to how I'll one collaborate this you anymore? my EOS you to turn going EOS is system partner do to

Patrick Miles

want – think guess most to I technology, the their say, I that and to real there's don't value what probably I've provides. got I'm Yeah. like in to I I that disappointed, speak technology Brooks. that

prepared the back the collaboration of going hasn't at around kind thesis presentation so, to And our clinical the comment all. is, of changed

to The company a both small being is, and best how look at are becomes companies as problem have cash king, served. you

And is leadership excellent, – guys. great think there so, a I there the is and is relationship there with the

to bullish it put And I collaborate. can together. opportunity our we so, I'm on hope

the hasn't it suggestion is of pandemic than companies. But be think interest collaboration I a it's what And different serve I got both think, false. to things, went we that changed a will into. the

steward what spine a help so, means of trying they us surgery. that. is sorts. We feel can to collaboration great like that And And do we're do

Brooks O'Neil

you the said at where just now? how with Jeff, covenants. rate the is on debt us Great. you're can the that what you have you You I availability about just feel capital it new I had for on terms? addition Squadron can Thanks the feel how update and one about now, right recognizing of with Jeff. more But Squadron lied. us and right no lot. you refresh what a question

Jeff Black

removed the absolutely we Brooks. need feel, like the execute I same. right the base, the are maintain maintain plus by is runway two this interests Yeah. said, LIBOR to I years, the product initiatives. financial Thanks, employee The XX% financing us think time. at covenants. right go It X%, business gives XX% and our in Look, maturity we floor, development terms this We've It's extended ceiling. terms of

capital available So, well business. execute with we to we're feel positioned the this here to continue

Brooks O'Neil

Great. helpful. and Thank you very very much

Operator

with you. comes Matthew line our Thank next And from question the of Piper O'Brien Sandler.

is open. line go Your Please ahead.

Matthew O'Brien

taking Afternoon. me. Thanks for for questions. the Three

all performance of spine growth. at of leading was First, Can of starters, just deconstruct among some just the that really where QX, good, back of you kind in looking terms of kind side that saw just metric? things, there, with And growth specifically revenue further on how improvement to the is then, that that Pat, of go much came per there from? case you

Patrick Miles

ability the Yeah. really Deconstructing and the of I utility the I kind would questions. confidence the the Thanks biggest of revenue, to say, that. of it driver, the more think, more for devices the terms I devices and devices was things new the the more in ultimately is with attracting cosmic confidence. surgeons utilize that wish do complex new than and gain then

up I think think will I've procedural things I tell year, aspirations. really like integrated that that you, by start significantly. element end mean, will kind convoyed to the really pick I got our all get of when met tell to – I the of toward don't have we you, And of the these the

think is, some seems is doing.' and then what there a bunch look, I competent a it adept. that 'hey, are these guys bringing on of like are see so, And clinically lot It distributors

wish more Jeff I that. to run. it I'll so, relates it let the comment was than as he I'm that anything And there's missing thinks if

Jeff Black

categories case I'd and using of if by for surgeons increasing business, the it's terms break per – onboard, And increasing To complex confidence in Yeah. parts really that across more actually that. increasing the more the it more increase, that And it's using existing complexities ability board. volumes, case. doing because actually volumes, to inspired on you're just constructs. try point, coming out product every to add Pat's surgeons surgeon are the new more then, doing – certainly a case more level we

that all for the driver the board three across So, increase really is in those of categories.

Matthew O'Brien

the hear. And to of looking maybe great far Okay. little end in did the And see quarter. us April slowdowns? this are think see you what look as forward how looking now, what Again, back feeling? or and rest then, as May very we procedural days Well, to as bit, forward about in March that's did early towards you a you here help of

Patrick Miles

Yeah.

after March. the second slowdown in a pipe literally, abrupt Jeff half saw XX,XXX-foot we in let I I'll which the So, provide is, color, relatively of

And somebody we what go. cases saw would go a is those if being that ahead elective. mostly there or done drop cases cases case foot what would and was myelopathic and trauma weren't is, had so, or Like, happen

the was was And I so, slow. pretty same again, still thing. very type April And it think reflective of

and saw but whatnot, was ASCs it some a You cervical slowdown. cases profoundly doing

try so, really And any not quantify going to to of it.

on. I I think what's say would we're there's that going too on much uncertainty. bullish

think really of lot the terms there in this I replicate a half kind already to and coming of the there companies a everything of in back of have back is a being pickup other bullishness quarter. what communicated,

Matthew O'Brien

Okay.

Jeff Black

Yeah.

we going your average to daily mid-March, seeing started seasonally when sales Just think approach in that, average add about QX and being to right, highest the sales, fourth the quarter, you volumes. the quarter daily pandemic into

encouraging. was So, that

Matthew O'Brien

Okay.

Thanks. helpful. it. That's got Okay,

the calls. a by the larger the don't. support a of this Is little Or this of share as forward this they share-taking pay more the all or the competitors spine there to one coming from – things, successful thinking be companies Squadron, more lot opportunity it of A take be XXXX? But coming to then, bit a just QX the And about out cutting ones year than if realize people smaller smaller a bit maybe on even a whatever on I've players? lot but bigger side been out may opportunity well, are cash your into are distracted got last from these of asking you've of lot Okay. already. you've this, looking got just of is

Patrick Miles

the you out the phenomenal. because the we especially heel. Yeah. from their tell I love recruiting that is And the would meaning companies, recruiting dynamics dynamics, are there that big with their lethargy oftentimes big companies Achilles' people taking

where a surgery. development interest product in is what of And part when new a is, do here start they seen I we've of the of from is great guys we've this toward so, continued evolution our what commitment I seen these And created knew this are we're ton over. think saying, perspective because pandemic machine the spine doing how we've

we evolve we in is absolutely went so, the of than will that how this comment out And better real.

interest kind us. you, for been interest serve surgeons good of do there a got coming XX my I look, to otherwise our been again, who has company And my the so, align a over I the surgeon what has and lot of serving next and and with who's to time tell very I want to his to years way salespeople want because, that And they this think be patients. of I've

Matthew O'Brien

All so much. helpful. Very Thanks right.

Operator

comes of Thank Canaccord. you. And from Kyle the our Rose next question line with

Your line Please is ahead. go open.

Kyle Rose

taking Thank And you for afternoon, everybody. the questions. very Great. good much

calls to So, further there. Maybe us question take of one the to we've volumes March on second touch specifically of the kind – prior varying I to saw with just half for April. and in wanted range procedure understand in a of XX% companies step, the And just XX% into of you dynamics other see April. month help heard sizes, the than decline Matt's

as when business? number the that guess, look first May understand at kind help far perspective? in of one, or us how go-forward your And that's XX then, a from two, I what's maybe fair month happened So, of of kind is number as and XX looking you the days

Jeff Black

Yeah, Kyle. This is Jeff.

to of starting them frankly, to will, April. where even those We volumes decrease in into first average in abrupt pretty we earlier also the shutdown, crisis volumes. for that my March of saw or or half April, response, I be if daily going in first a say momentum we'll beyond to terms saw the speak great think expect week of second are in you April, But we volumes.

much So, expected spot ended April we we to. in a than better

So, early recovery, we're signs of very optimistic.

Kyle Rose

guess, about And trauma complex of cases. ASCs. the understand those dynamic about around more we done the cases maybe we type think done, being and types encouraging the the same trends of when obviously, tag the of seen in? We're I we've then, more are month carry anything getting of the of more being about the hearing that types some are recovery We're done? for larger What seen, the obviously, are side simple Okay. don't you've of what But, about but with cases. And I hearing some when the think cases price April. emergent, of they

us So, of procedural maybe it a mix how as a that perspective perspective help understand much and versus is how weakness as might change? far

Patrick Miles

I view. think everybody at relatively this, correct on from our has been least

of lot cervical going a single two think cases I and at level ASCs. on

a invasive a that way. think be bloodless I on can going stuff lot relatively minimally of done in

to of – think be of terms in it, done. utilized. ICU I stuff, very are describe being so, you that And really I it's which relatively a kind segment And not levels a of relatively short number straightforward, unlikely few think becomes how the non-complex so beds number

you it's I what think So, described.

Kyle Rose

And then, Jeff. Okay. for one

about the in you staying mid-XX% Jeff, range. think, I the outlook medium-term margin talked

sure we as will make about perspective a how heard and I near-term correctly. margin to the that ebb that think and progresses? should wanted recovery Just flow type capture gross Does how from of that the headwinds kind of any

Jeff Black

Yeah.

mid-XXs, about we target with decrease to be us. margin of a XXXX into still in think, drag E&O efficient that is I I you're as going particularly this overhead. we would see say, volumes, our good But less in clearly, feel the behind going absorption will

overhead in temporary in to So, or over you very may overhead less a good that because mid-term, if see we very I will, mid-XX% absorption feel But the absorb the near-term. less target. about think volume still you blip,

Kyle Rose

new XX%? last power increase you there. the channel be the that of understand launch opportunity again. kind for the then, just distribution product XX% it? into are question the I'll the just respect also talk where hop your your the versus a of And in just Obviously, Can on about Maybe talent. sales? queue then, of how into an trying kind the driver using much is [ph]? distribution then And and future Are just accounts, real of but to SafeOp that I'm seems now maybe to just physicians business how has then you to existing in about within now? convoyed me and open you Okay. far with up combined it the value have talk Is that existing to users

Patrick Miles

a Yeah. question. It's great

phase. are We early profoundly in a

of for you appreciate, opportunity you provided would are less training. and technical train these say into really I a will. we're of fair As or if XX% take for us time to downtime to it, relatively kind devices do has us This amount everybody. an

These they than what things end the bring up want, but taking that extraordinary. more value ever time is you

system think people to is And you pedicle start lateral SSEP. what the to stimulated screw into regard evolving different regard so, it simply pedicle off with is EMG they're EMG starting when then which and it of integrating utility to utility, about into type very our the and with the with are InVictus, screw stimulated our doing

So, a it's walk. really kind of

early stages likely of But experience in we're into so, group. very our been phenomenal. the than has with less penetrated XX% clinical it of that kind And the walk,

candidly, a technology. unique And it's

of going with as and to a we kind continue so, adjuncts. receptivity a lot is bullish acceptance other And be, this seeing way in really terms into hospitals from me especially the procedural to of makes surgeons what and from we're very assemble of

ultimately the be surgery. will information SafeOp we whole just Informatix. be Alpha into of thing into a will And provide part elements number substantial how so, go will There that of

Kyle Rose

Great. taking Thank the for very you much question.

Patrick Miles

Kyle. Thanks,

Operator

Arthur from H.C. question of you. our with And Wainwright. Thank comes He next the line

Your go line Please is open. ahead.

Yu He

taking Hi. Arthur Thanks question. everyone. Sean for two is questions. This I for Lee. my afternoon, have Good

on what them? color with would alternative of US, option First us guys one kind is exploring regarding collaboration you give the you could other more

Patrick Miles

prefer into that's that announce or commercial are nature. in concrete. type because of It's relationships Yeah. to it nothing I to not would more nothing non-acquisition get there's

in it's probably that's so, I'd And deeply early just as such as stage. it, an into because get

Yu He

have COVID-XX application. the Thanks seen from impact you for submitted you product slowdown your guys color. regulatory side, new the From I side, noticed additional regulatory or to thanks. any on have additional the approval? And Okay,

Patrick Miles

I've brag our team really on you are let got to to regulatory tell outstanding. date. haven't And me one we they second – as

so, as And as outstanding shoring to we our going I that up be continue part the is of rest launch as products. we're to portfolio a of think it new

have I in, moving expected, and and along haven't seen as an we think submissions so, they're so much really of several And impact.

Yu He

great. very you. great. Thank That's you Okay, much. Thank

Operator

Thank for you. to And over I'd the questions. any conference Miles showing to I'm further no Pat remarks. like back closing And turn

Patrick Miles

Just everybody's interest really appreciate in ATEC.

We are really creating safe we'll and everybody a monster and going can't be And this more on. pandemic stronger. from excited about hopefully, what's return

thanks So, much.

Operator

Ladies Thank conference for and concludes today's participating. gentlemen, this call. you

now You may disconnect.

Patrick Miles	Chairman and Chief Executive Officer
Jeff Black	Executive Vice President and Chief Financial Officer
Brooks O'Neil	Lake Street Capital Markets
Matthew O'Brien	Piper Sandler & Co.
Kyle Rose	Canaccord Genuity
Yu He	H.C. Wainwright & Co.

Alphatec (ATEC) 11 May 202020 Q1 Earnings call transcript