Alphatec Spine Sales and Profit Dip in Q2

Carlsbad, Calif.-based Alphatec Holdings Inc., the parent company of Alphatec Spine Inc., a provider of spinal fusion technologies, reported dips in revenue and profit for the second quarter for fiscal 2015.

“The first half of this year we have been making significant changes to our business and investing in transforming our commercial model, which we believe will position us for a stronger second half of 2015 and 2016,” said Mike O’Neill, chief financial officer.  “Based on our first half results, as well as our expectations for full ramp up of our commercial expansion, we are revising our full-year guidance for both revenue and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization).  While our corporate transformation is taking us longer than we anticipated, we remain confident in our plans and the entire Alphatec team continues to execute against each of our strategic pillars.”

Sales for the second quarter of 2015 (ended June 30) were $46.6 million as reported, down 12.3 percent compared to $53.2 million reported for the second quarter of 2014, or down 5.6 percent on a constant currency basis.  Consolidated revenues were impacted by $3.6 million in the second quarter due to declines in the valuation of the Japanese yen and euro against the U.S. Dollar.

U.S. sales for the second quarter of 2015 were $27.2 million, down 21.1 percent, compared to $34.5 million reported for the second quarter of 2014.
International net revenues for the second quarter of 2015 were $19.4 million, up 4 percent compared to $18.6 million for the second quarter of 2014, or up 23 percent on a constant currency basis. 
Consolidated gross profit and gross margin for the second quarter of 2015 were $27.5 million and 59 percent, respectively, compared to $36.1 million and 67.9 percent, respectively, for the second quarter of 2014. 

Gross profit declined 23.8 percent from the second quarter of 2015 primarily as a result of lower U.S. sales volume, foreign currency translation effects and global geographic mix, the company reported.

Total operating expenses for the second quarter of 2015 were $30.4 million, reflecting a decrease of approximately $3.9 million compared to the second quarter of 2014, and down 4.5 percent, primarily due to lower commission expenses as a result of lower U.S. sales volume, as well as savings in marketing, research and developemnt, and general and administrative functions. 

GAAP net loss for the second quarter of 2015 was $3.9 million or 4 cents per share (basic and diluted), compared to a net loss of $2.9 million, or 3 cents, per share (basic and diluted) for the second quarter of 2014. 

Adjusted EBITDA in the second quarter of 2015 was $3.8 million, or 8 percent of revenues, compared to $7.7 million, or 14.4 percent of revenues reported in the second quarter of 2014.  Second quarter 2015 adjusted EBITDA represents net income excluding effects of interest, taxes, depreciation, amortization and stock-based compensation. 

Company officials reported an “operational transformation initiative” is underway with a goal to “significantly improve underlying cost structure” in the next two to three years. Part of the initiative will be a new approach to the company’s manufacturing structure.

According to a financial statement, the transformation will “significantly improve” the company’s cost structure and balance sheet by “strategically outsourcing manufacturing and distribution,” with an estimated completion by end of 2015. 

“Partnering with outsourced manufacturing and distribution suppliers will allow us to repurpose cash into higher value activities such as integrated design, faster product delivery cycle times, and efficient distribution of our products and instruments,” said Neill. “We are confident in this approach as we’ve been successfully using these partners to manufacture both our implants and instruments for several years, including Arsenal Degen and Arsenal CBX. Expanding our relationship through this outsourcing initiative will allow us to reach our operational transformation goals quickly and efficiently.”

“During the last twelve months, Alphatec has embarked on an overall company transformation to accelerate global growth and increase profitability,” said Jim Corbett, president and CEO of Alphatec Spine. “While our Q2 performance reflects the significant work we still have ahead of us, we have established a solid foundation for our strategic plans. I, together with the senior leadership team, am confident that we now have both the strategy and the structure to compete more effectively and broadly in the spinal fusion market.”