Alphatec Holdings Announces Third Quarter 2015 Revenue and Financial Results

“Q3 marks a turning point for Alphatec where we are beginning to see early results from our overall company transformation,” said Jim Corbett, President and Chief Executive Officer of Alphatec Spine. “First of all, our competitive product portfolio and pipeline is stronger than it has ever been. Second, we remain on schedule with improving our underlying cost structure by outsourcing both manufacturing and distribution. And, now, our commercial transformation is well-underway and gaining momentum both in the U.S. and internationally and we expect that to continue into Q4 and 2016. Through the execution of each of our strategic pillars, we are building a stronger, more competitive company – one that we believe is poised to gain share and generate profitable growth in the future.”

Quarter Ended September 30, 2015

• Consolidated net revenues for the third quarter of 2015 were $43.0 million as reported, down 15.7% compared to $51.0 million reported for the third quarter of 2014, or down 10.4% on a constant currency basis. Consolidated revenues were impacted by $2.7 million in the third quarter due to declines in the valuation of the Japanese Yen and Euro against the U.S. Dollar.

• U.S. net revenues for the third quarter of 2015 were $27.4 million, down 21.3%, compared to $34.8 million reported for the third quarter of 2014.

• International net revenues for the third quarter of 2015 were $15.6 million, down 3.7% compared to $16.2 million for the third quarter of 2014, or up 13.2% on a constant currency basis.

• Consolidated gross profit and gross margin for the third quarter of 2015 were $28.5 million and 66.2%, respectively, compared to $36.3 million and 71.2%, respectively, for the third quarter of 2014.

• Gross profit declined 21.6% from the third quarter of 2014 primarily as a result of lower U.S. sales volume, foreign currency translation effects and global geographic mix.

• Gross margin declined 5.0 percentage points compared to a strong quarter for gross margin in third quarter 2014. The decline over prior year is primarily attributable to unfavorable variation in global regional and product mix, as well as currency effects, and lower milestones and royalties in the third quarter 2014.

Total operating expenses for the third quarter of 2015 were $193.4 million, reflecting an increase of $158.9 million compared to the third quarter of 2014. This variance is driven primarily by non-cash, goodwill and intangible asset impairment charges totaling $165.2 million and restructuring expenses totaling $335 thousand, offset by savings in R&D and G&A functions, as well as lower commission expenses as a result of lower U.S. sales volume. The Company is required to test for goodwill impairment according to specific accounting standards annually, or on an interim basis in the case of specific circumstances. Due to the decline of the Company’s market capitalization during the third quarter, the Company was required to perform a valuation of its goodwill and intangible assets, which resulted in a $165.2 million non-cash impairment charge. As this is a non-cash charge, this does not affect the ongoing operations of the Company.

When adjusted for non-recurring impairment, restructuring and IPR&D expenses, total operating expenses for the third quarter of 2015 would be $27.6 million, reflecting an improvement of 18.7%, or approximately $6.4 million, compared to the third quarter of 2014, and an improvement of 9.2% sequentially.

GAAP net loss for the third quarter of 2015 was $160.3 million or ($1.61) per share (basic and diluted), compared to a net loss of $3.0 million, or ($0.03) per share basic and ($0.04) diluted for the third quarter of 2014. GAAP net loss for Q3 was unfavorably impacted by $165.2 million of non-cash impairment charges, as well as favorable $6.3 million of warrant fair-value adjustments attributable to our underlying stock price. Non-GAAP EPS, when adjusted for the non-cash, goodwill impairment charges and restructuring expenses, was ($0.00) per share (basic), compared to ($0.1) per share (basic) for the third quarter of 2014.

Adjusted EBITDA in the third quarter of 2015 was $5.3 million, or 12.2% of revenues, compared to $8.2 million, or 16.1% of revenues reported in the third quarter of 2014. Third quarter 2015 adjusted EBITDA represents net income excluding effects of interest, taxes, depreciation, amortization, stock-based compensation and other non-recurring expense items such as in-process research and development expense, asset impairments and restructuring expenses.

Cash and cash equivalents were $10.5 million at September 30, 2015, compared to $8.9 million reported at June 30, 2015. Additionally, the Company has reported $3.5 million of restricted cash, which must be used for future payment obligations associated with the Orthotec settlement.

About Alphatec Spine

Alphatec Spine, Inc., a wholly owned subsidiary of Alphatec Holdings, Inc., is a global medical device company that designs, develops, manufactures and markets spinal fusion technology products and solutions for the treatment of spinal disorders associated with disease and degeneration, congenital deformities and trauma. The Company’s mission is to improve lives by delivering advancements in spinal fusion technologies. The Company and its affiliates market products in the U.S. and internationally via a direct sales force and independent distributors.

Additional information can be found at www.alphatecspine.com.

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Forward Looking Statements

This press release may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainty. Such statements are based on management’s current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Alphatec Spine cautions investors that there can be no assurance that actual results or business conditions will not differ materially from those projected or suggested in such forward-looking statements as a result of various factors. Forward looking statements include the references to Alphatec Spine’s 2015 revenue guidance and 2015 adjusted EBITDA guidance; the success of the Company’s initiatives to drive global sales growth and expand its geographical sales coverage, including without limitation the Company’s ability to realize $3.0 million in new revenues in the fourth quarter of 2015 based on the Company’s U.S. sales expansion efforts, increase margins and increase operating efficiencies; and the success of the Company in achieving its three strategic pillars, and the Company’s ability to implement a plan that will ensure that it competes more effectively in the marketplace, expands global participation, and improves operations through the Company’s plan to outsource manufacturing and distribution. The important factors that could cause actual operating results to differ significantly from those expressed or implied by such forward-looking statements include, but are not limited to: the uncertainty of success in developing new products or products currently in Alphatec Spine’s pipeline, including the products discussed in this press release; the uncertainties in the Company’s ability to execute upon its strategic operating plan to outsource manufacturing and distribution; the uncertainties regarding the ability to successfully license or acquire new products, and the commercial success of such products; failure to achieve acceptance of Alphatec Spine’s products by the surgeon community, including Battalion, Alphatec Neocore, Arsenal Deformity and Arsenal CBX; failure to successfully implement outsourcing, streamlining and lean activities to create anticipated savings; failure to obtain FDA clearance or approval or international regulatory approvals for new products, including the products discussed in this press release, or unexpected or prolonged delays in the process; continuation of favorable third party payor reimbursement for procedures performed using the Company’s products; unanticipated expenses or liabilities or other adverse events affecting cash flow or the Company’s ability to successfully control its costs or achieve profitability; uncertainty of additional funding; the Company’s ability to compete with other competing products and with emerging new technologies; product liability exposure; an unsuccessful outcome in any litigation in which the Company is a defendant; patent infringement claims; claims related to the Company’s intellectual property and the Company’s ability to meet its financial obligations under its credit agreements and the Orthotec settlement agreement. The words “believe,” “will,” “should,” “expect,” “intend,” “estimate” and “anticipate,” variations of such words and similar expressions identify forward-looking statements, but their absence does not mean that a statement is not a forward-looking statement. Please refer to the risks detailed from time to time in Alphatec Spine’s SEC reports, including its Annual Report Form 10-K for the year ended December 31, 2014, filed on February 27, 2015 with the Securities and Exchange Commission, as well as other filings on Form 10-Q and periodic filings on Form 8-K. Alphatec Spine disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, unless required by law.