UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20202021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 000-52024
ALPHATEC HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware |
| 20-2463898 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
5818 El1950 Camino RealVida Roble
Carlsbad, CA 92008
(Address of principal executive offices, including zip code)
(760) 431-9286
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common stock, par value $.0001 per share | ATEC | The NASDAQ Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☐ |
| Accelerated filer | ☒ |
Non-accelerated filer | ☐ |
| Smaller reporting company | ☒ |
Emerging growth company | ☐ |
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒
As of November 02, 2020,July 30, 2021, there were 78,425,275100,117,176 shares of the registrant’s common stock outstanding.
ALPHATEC HOLDINGS, INC.
QUARTERLY REPORT ON FORM 10-Q
SeptemberJune 30, 20202021
Table of Contents
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Item 1. |
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| Notes to Condensed Consolidated Financial Statements (unaudited) |
| 9 |
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Item 2. |
| Management's Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 5. |
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Item 6. |
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2
PART I. FINANCIAL INFORMATION
Item 1. | Financial Statements |
ALPHATEC HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for par value data)
|
| September 30, 2020 |
|
| December 31, 2019 |
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||||
Assets |
| (Unaudited) |
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| (Unaudited) |
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Current assets: |
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Cash |
| $ | 15,678 |
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| $ | 47,113 |
|
| $ | 76,581 |
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| $ | 107,765 |
|
Accounts receivable, net |
|
| 24,270 |
|
|
| 16,150 |
|
|
| 33,743 |
|
|
| 23,527 |
|
Inventories, net |
|
| 42,144 |
|
|
| 34,854 |
|
|
| 86,715 |
|
|
| 46,001 |
|
Prepaid expenses and other current assets |
|
| 3,321 |
|
|
| 9,880 |
|
|
| 8,108 |
|
|
| 5,439 |
|
Withholding tax receivable from Officer |
|
| 934 |
|
|
| — |
|
|
| 1,076 |
|
|
| 1,076 |
|
Current assets of discontinued operations |
|
| 335 |
|
|
| 321 |
|
|
| 136 |
|
|
| 352 |
|
Total current assets |
|
| 86,682 |
|
|
| 108,318 |
|
|
| 206,359 |
|
|
| 184,160 |
|
Property and equipment, net |
|
| 27,681 |
|
|
| 19,722 |
|
|
| 66,051 |
|
|
| 36,670 |
|
Right-of-use asset |
|
| 1,530 |
|
|
| 1,860 |
|
|
| 26,604 |
|
|
| 1,177 |
|
Goodwill |
|
| 13,897 |
|
|
| 13,897 |
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| 45,189 |
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| 13,897 |
|
Intangibles assets, net |
|
| 24,283 |
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|
| 25,605 |
| ||||||||
Intangible assets, net |
|
| 92,981 |
|
|
| 24,720 |
| ||||||||
Other assets |
|
| 549 |
|
|
| 493 |
|
|
| 3,786 |
|
|
| 541 |
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Noncurrent assets of discontinued operations |
|
| 55 |
|
|
| 53 |
|
|
| 57 |
|
|
| 58 |
|
Total assets |
| $ | 154,677 |
|
| $ | 169,948 |
|
| $ | 441,027 |
|
| $ | 261,223 |
|
Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
| $ | 13,910 |
|
| $ | 7,772 |
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| $ | 29,812 |
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| $ | 17,599 |
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Accrued expenses |
|
| 30,980 |
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|
| 26,416 |
| ||||||||
Current portion of long-term debt |
|
| 1,672 |
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|
| 489 |
| ||||||||
Accrued expenses and other current liabilities |
|
| 43,455 |
|
|
| 35,264 |
| ||||||||
Contract liability |
|
| 20,392 |
|
|
| — |
| ||||||||
Short-term debt |
|
| 10,988 |
|
|
| 4,167 |
| ||||||||
Current portion of operating lease liability |
|
| 1,208 |
|
|
| 1,314 |
|
|
| 2,777 |
|
|
| 885 |
|
Current liabilities of discontinued operations |
|
| 395 |
|
|
| 399 |
|
|
| 141 |
|
|
| 397 |
|
Total current liabilities |
|
| 48,165 |
|
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| 36,390 |
|
|
| 107,565 |
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|
| 58,312 |
|
Long-term debt, less current portion |
|
| 65,764 |
|
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| 53,448 |
| ||||||||
Long-term debt |
|
| 55,789 |
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| 37,999 |
| ||||||||
Operating lease liability, less current portion |
|
| 56 |
|
|
| 925 |
|
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| 25,413 |
|
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| 41 |
|
Other long-term liabilities |
|
| 9,038 |
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|
| 11,951 |
|
|
| 15,143 |
|
|
| 11,388 |
|
Redeemable preferred stock, $0.0001 par value; 20,000 shares authorized at September 30, 2020 and December 31, 2019; 3,319 shares issued and outstanding at September 30, 2020 and December 31, 2019 |
|
| 23,603 |
|
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| 23,603 |
| ||||||||
Commitments and contingencies (Note 6) |
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Redeemable preferred stock, $0.0001 par value; 20,000 shares authorized at June 30, 2021 and December 31, 2020; 3,319 shares issued and outstanding at June 30, 2021 and December 31, 2020 |
|
| 23,603 |
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| 23,603 |
| ||||||||
Stockholders' equity: |
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Series A convertible preferred stock, $0.0001 par value; 15 shares authorized at September 30, 2020 and December 31, 2019; 0 shares issued and outstanding at September 30, 2020 and December 31, 2019 |
|
| — |
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| — |
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Series B convertible preferred stock, $0.0001 par value; 45 shares authorized at September 30, 2020 and December 31, 2019; 0 shares issued and outstanding at September 30, 2020 and December 31, 2019 |
|
| — |
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| — |
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Common stock, $0.0001 par value; 200,000 authorized; 64,752 shares issued and 64,562 outstanding at September 30, 2020, net of 190 unvested shares; and 61,718 shares issued and 61,400 shares outstanding, net of 318 unvested shares at December 31, 2019 |
|
| 6 |
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| 6 |
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Common stock, $0.0001 par value; 200,000 authorized; 100,184 shares issued and 100,049 shares outstanding at June 30, 2021; and 82,294 shares issued and 82,104 shares outstanding at December 31, 2020 |
|
| 10 |
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| 8 |
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Treasury stock, 2 shares, at cost |
|
| (97 | ) |
|
| (97 | ) |
|
| (97 | ) |
|
| (97 | ) |
Additional paid-in capital |
|
| 623,162 |
|
|
| 606,558 |
|
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| 914,659 |
|
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| 770,764 |
|
Shareholder note receivable |
|
| (5,000 | ) |
|
| (5,000 | ) |
|
| (1,800 | ) |
|
| (4,000 | ) |
Accumulated other comprehensive income |
|
| 1,181 |
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|
| 1,088 |
|
|
| (151 | ) |
|
| 1,204 |
|
Accumulated deficit |
|
| (611,201 | ) |
|
| (558,924 | ) |
|
| (699,107 | ) |
|
| (637,999 | ) |
Total stockholders’ equity |
|
| 8,051 |
|
|
| 43,631 |
|
|
| 213,514 |
|
|
| 129,880 |
|
Total liabilities and stockholders’ equity |
| $ | 154,677 |
|
| $ | 169,948 |
|
| $ | 441,027 |
|
| $ | 261,223 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
3
ALPHATEC HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share amounts)
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
|
| 2020 |
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| 2019 |
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| 2020 |
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| 2019 |
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| 2021 |
|
| 2020 |
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| 2021 |
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| 2020 |
| ||||||||
Revenue: |
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Revenue from U.S. products |
| $ | 40,052 |
|
| $ | 28,051 |
|
| $ | 97,956 |
|
| $ | 77,099 |
| ||||||||||||||||
Revenue from products and services |
| $ | 61,885 |
|
| $ | 28,834 |
|
| $ | 105,601 |
|
| $ | 57,904 |
| ||||||||||||||||
Revenue from international supply agreement |
|
| 1,111 |
|
|
| 1,150 |
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|
| 2,951 |
|
|
| 3,976 |
|
|
| 364 |
|
|
| 795 |
|
|
| 769 |
|
|
| 1,840 |
|
Total revenue |
|
| 41,163 |
|
|
| 29,201 |
|
|
| 100,907 |
|
|
| 81,075 |
|
|
| 62,249 |
|
|
| 29,629 |
|
|
| 106,370 |
|
|
| 59,744 |
|
Cost of revenue |
|
| 11,926 |
|
|
| 9,268 |
|
|
| 29,797 |
|
|
| 25,688 |
|
|
| 21,184 |
|
|
| 8,787 |
|
|
| 33,447 |
|
|
| 17,871 |
|
Gross profit |
|
| 29,237 |
|
|
| 19,933 |
|
|
| 71,110 |
|
|
| 55,387 |
|
|
| 41,065 |
|
|
| 20,842 |
|
|
| 72,923 |
|
|
| 41,873 |
|
Operating expenses: |
|
|
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Research and development |
|
| 4,379 |
|
|
| 3,800 |
|
|
| 11,800 |
|
|
| 10,413 |
|
|
| 7,839 |
|
|
| 4,237 |
|
|
| 13,640 |
|
|
| 8,406 |
|
Sales, general and administrative |
|
| 35,985 |
|
|
| 26,954 |
|
|
| 91,021 |
|
|
| 72,738 |
|
|
| 60,659 |
|
|
| 26,468 |
|
|
| 101,085 |
|
|
| 54,051 |
|
Litigation-related |
|
| 1,560 |
|
|
| 604 |
|
|
| 5,507 |
|
|
| 4,427 |
| ||||||||||||||||
Litigation-related expenses |
|
| 1,167 |
|
|
| 1,304 |
|
|
| 4,502 |
|
|
| 3,947 |
| ||||||||||||||||
Amortization of acquired intangible assets |
|
| 172 |
|
|
| 172 |
|
|
| 516 |
|
|
| 526 |
|
|
| 1,208 |
|
|
| 172 |
|
|
| 1,380 |
|
|
| 344 |
|
Transaction-related |
|
| 2 |
|
|
| — |
|
|
| 4,093 |
|
|
| — |
| ||||||||||||||||
Restructuring |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 60 |
| ||||||||||||||||
Transaction-related expenses |
|
| 4,771 |
|
|
| (181 | ) |
|
| 5,783 |
|
|
| 4,091 |
| ||||||||||||||||
Restructuring costs |
|
| 1,173 |
|
|
| — |
|
|
| 1,331 |
|
|
| — |
| ||||||||||||||||
Total operating expenses |
|
| 42,098 |
|
|
| 31,530 |
|
|
| 112,937 |
|
|
| 88,164 |
|
|
| 76,817 |
|
|
| 32,000 |
|
|
| 127,721 |
|
|
| 70,839 |
|
Operating loss |
|
| (12,861 | ) |
|
| (11,597 | ) |
|
| (41,827 | ) |
|
| (32,777 | ) |
|
| (35,752 | ) |
|
| (11,158 | ) |
|
| (54,798 | ) |
|
| (28,966 | ) |
Interest and other expense, net: |
|
|
|
|
|
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|
|
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|
|
|
|
|
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Interest expense, net |
|
| (2,762 | ) |
|
| (2,919 | ) |
|
| (8,668 | ) |
|
| (6,947 | ) |
|
| (2,394 | ) |
|
| (3,032 | ) |
|
| (4,332 | ) |
|
| (5,906 | ) |
Loss on debt extinguishment |
|
| — |
|
|
| — |
|
|
| (1,555 | ) |
|
| — |
| ||||||||||||||||
Other expense, net |
|
| (6 | ) |
|
| (7 | ) |
|
| (6 | ) |
|
| (19 | ) |
|
| (16 | ) |
|
| (1,555 | ) |
|
| (1,905 | ) |
|
| (1,555 | ) |
Total interest and other expense, net |
|
| (2,768 | ) |
|
| (2,926 | ) |
|
| (10,229 | ) |
|
| (6,966 | ) |
|
| (2,410 | ) |
|
| (4,587 | ) |
|
| (6,237 | ) |
|
| (7,461 | ) |
Loss from continuing operations before taxes |
|
| (15,629 | ) |
|
| (14,523 | ) |
|
| (52,056 | ) |
|
| (39,743 | ) | ||||||||||||||||
Net loss before taxes |
|
| (38,162 | ) |
|
| (15,745 | ) |
|
| (61,035 | ) |
|
| (36,427 | ) | ||||||||||||||||
Income tax provision |
|
| 40 |
|
|
| 20 |
|
|
| 140 |
|
|
| 122 |
|
|
| 43 |
|
|
| 60 |
|
|
| 73 |
|
|
| 100 |
|
Loss from continuing operations |
|
| (15,669 | ) |
|
| (14,543 | ) |
|
| (52,196 | ) |
|
| (39,865 | ) | ||||||||||||||||
Loss from discontinued operations, net of applicable taxes |
|
| — |
|
|
| (24 | ) |
|
| — |
|
|
| (106 | ) | ||||||||||||||||
Net loss |
| $ | (15,669 | ) |
| $ | (14,567 | ) |
| $ | (52,196 | ) |
| $ | (39,971 | ) |
| $ | (38,205 | ) |
| $ | (15,805 | ) |
| $ | (61,108 | ) |
| $ | (36,527 | ) |
Net loss per share, basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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| ||||||||||||||||
Continuing operations |
| $ | (0.24 | ) |
| $ | (0.26 | ) |
| $ | (0.82 | ) |
| $ | (0.81 | ) | ||||||||||||||||
Discontinued operations |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | (0.00 | ) | ||||||||||||||||
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|
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| ||||||||||||||||
Net loss per share, basic and diluted |
| $ | (0.24 | ) |
| $ | (0.26 | ) |
| $ | (0.82 | ) |
| $ | (0.81 | ) |
| $ | (0.39 | ) |
| $ | (0.25 | ) |
| $ | (0.66 | ) |
| $ | (0.58 | ) |
Shares used in calculating basic and diluted net loss per share |
|
| 64,761 |
|
|
| 55,736 |
|
|
| 63,669 |
|
|
| 49,252 |
| ||||||||||||||||
Weighted-average shares outstanding, basic and diluted |
|
| 98,541 |
|
|
| 63,713 |
|
|
| 92,912 |
|
|
| 63,140 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
4
ALPHATEC HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
(In thousands)
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Net loss |
| $ | (15,669 | ) |
| $ | (14,567 | ) |
| $ | (52,196 | ) |
| $ | (39,971 | ) |
| $ | (38,205 | ) |
| $ | (15,805 | ) |
| $ | (61,108 | ) |
| $ | (36,527 | ) |
Foreign currency translation adjustments related to continuing operations |
|
| 18 |
|
|
| (37 | ) |
|
| 93 |
|
|
| 56 |
| ||||||||||||||||
Foreign currency translation adjustments |
|
| 1,697 |
|
|
| 6 |
|
|
| (1,355 | ) |
|
| 75 |
| ||||||||||||||||
Comprehensive loss |
| $ | (15,651 | ) |
| $ | (14,604 | ) |
| $ | (52,103 | ) |
| $ | (39,915 | ) |
| $ | (36,508 | ) |
| $ | (15,799 | ) |
| $ | (62,463 | ) |
| $ | (36,452 | ) |
See accompanying notes to unaudited condensed consolidated financial statements.
5
ALPHATEC HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
(In thousands)
|
| Common stock |
|
| Series A Convertible Preferred Stock |
|
| Series B Convertible Preferred Stock |
|
| Additional paid-in |
|
| Shareholder note |
|
| Treasury |
|
| Accumulated other comprehensive |
|
| Accumulated |
|
| Total stockholders’ |
|
| Common stock |
|
| Additional paid-in |
|
| Shareholder note |
|
| Treasury |
|
| Accumulated other comprehensive |
|
| Accumulated |
|
| Total stockholders’ |
| ||||||||||||||||||||||||||||||||
|
| Shares |
|
| Par Value |
|
| Shares |
|
| Par Value |
|
| Shares |
|
| Par Value |
|
| capital |
|
| receivable |
|
| stock |
|
| income (loss) |
|
| deficit |
|
| equity |
|
| Shares |
|
| Par Value |
|
| capital |
|
| receivable |
|
| stock |
|
| income (loss) |
|
| deficit |
|
| equity |
| ||||||||||||||||||||
Balance at January 1, 2019 |
|
| 43,368 |
|
| $ | 4 |
|
|
| 4 |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
| $ | 523,525 |
|
| $ | (5,000 | ) |
| $ | (97 | ) |
| $ | 1,064 |
|
| $ | (501,922 | ) |
| $ | 17,574 |
| ||||||||||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,565 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,565 |
| ||||||||||||||||||||||||||||||||
Distributor equity incentives |
|
| 15 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 42 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 42 |
| ||||||||||||||||||||||||||||||||
Common stock issued for conversion of Series A preferred stock |
|
| 1,858 |
|
|
| — |
|
|
| (4 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||
Recognition of beneficial conversion feature - SafeOp Convertible Notes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 242 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 242 |
| ||||||||||||||||||||||||||||||||
Common stock issued for stock option exercises |
|
| 8 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14 |
| ||||||||||||||||||||||||||||||||
Common stock issued for vesting of restricted stock awards, net of shares repurchased for tax liability |
|
| 442 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (183 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (183 | ) | ||||||||||||||||||||||||||||||||
Issuance of common stock for acquisition of SafeOp - Milestone 2 |
|
| 887 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,889 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,889 |
| ||||||||||||||||||||||||||||||||
Foreign currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 75 |
|
|
| — |
|
|
| 75 |
| ||||||||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12,968 | ) |
|
| (12,968 | ) | ||||||||||||||||||||||||||||||||
Balance at March 31, 2019 |
|
| 46,578 |
|
| $ | 4 |
|
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
| $ | 528,094 |
|
| $ | (5,000 | ) |
| $ | (97 | ) |
| $ | 1,139 |
|
| $ | (514,890 | ) |
| $ | 9,250 |
| ||||||||||||||||||||||||||||||||
Balance at January 1, 2021 |
|
| 82,104 |
|
| $ | 8 |
|
| $ | 770,764 |
|
| $ | (4,000 | ) |
| $ | (97 | ) |
| $ | 1,204 |
|
| $ | (637,999 | ) |
| $ | 129,880 |
| ||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,140 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,140 |
|
|
| — |
|
|
| — |
|
|
| 3,889 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,889 |
|
Distributor equity incentives |
|
| 45 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 138 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 138 |
|
|
| — |
|
|
| — |
|
|
| 129 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 129 |
|
Common stock issued for warrant exercises |
|
| 255 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 723 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 723 |
|
|
| 2,019 |
|
|
| — |
|
|
| 756 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 756 |
|
Common stock issued for employee stock purchase plan and stock option exercises |
|
| 278 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 664 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 664 |
|
|
| 69 |
|
|
| — |
|
|
| 210 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 210 |
|
Common stock issued for vesting of restricted stock awards, net of shares repurchased for tax liability |
|
| 217 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||
Issuance of common stock warrants |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13,664 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13,664 |
| ||||||||||||||||||||||||||||||||
Common stock issued for vesting of restricted stock awards, net of shares retained for tax liability |
|
| 379 |
|
|
| — |
|
|
| (1,717 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,717 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Shareholder note receivable |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,100 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,100 |
| ||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 18 |
|
|
| — |
|
|
| 18 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,052 | ) |
|
| — |
|
|
| (3,052 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12,436 | ) |
|
| (12,436 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (22,903 | ) |
|
| (22,903 | ) |
Balance at June 30, 2019 |
|
| 47,373 |
|
| $ | 4 |
|
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
| $ | 545,423 |
|
| $ | (5,000 | ) |
| $ | (97 | ) |
| $ | 1,157 |
|
| $ | (527,326 | ) |
| $ | 14,161 |
| ||||||||||||||||||||||||||||||||
Balance at March 31, 2021 |
|
| 84,571 |
|
| $ | 8 |
|
| $ | 774,031 |
|
| $ | (2,900 | ) |
| $ | (97 | ) |
| $ | (1,848 | ) |
| $ | (660,902 | ) |
| $ | 108,292 |
| ||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,411 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,411 |
|
|
| — |
|
|
| — |
|
|
| 11,187 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,187 |
|
Common stock issued for conversion of Series A preferred stock |
|
| 97 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||
Distributor equity incentives |
|
| 15 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 40 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 40 |
|
|
| — |
|
|
| — |
|
|
| 94 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 94 |
|
Common stock issued for employee stock purchase plan and stock option exercises |
|
| 356 |
|
|
| — |
|
|
| 1,479 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,479 |
| ||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued for vesting of performance and restricted stock awards, net of shares retained for tax liability |
|
| 1,125 |
|
|
| — |
|
|
| (5,687 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,687 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued for warrant exercises |
|
| 333 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 600 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 600 |
|
|
| 1,576 |
|
|
| — |
|
|
| 1,729 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,729 |
|
Common stock issued for employee stock purchase plan and stock option exercises |
|
| 26 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 102 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 102 |
| ||||||||||||||||||||||||||||||||
Common stock issued for vesting of performance and restricted stock awards, net of shares repurchased for tax liability |
|
| 286 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (30 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (30 | ) | ||||||||||||||||||||||||||||||||
Issuance of common stock warrants |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||
Issuance of common stock for public offering, net of offering costs of $3,689 |
|
| 12,535 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 53,972 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 53,974 |
| ||||||||||||||||||||||||||||||||
Issuance of common stock for public offering, net of offering costs of $6,200 |
|
| 12,421 |
|
|
| 2 |
|
|
| 131,826 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 131,828 |
| ||||||||||||||||||||||||||||||||||||||||||||||||
Shareholder note receivable |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,100 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,100 |
| ||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (37 | ) |
|
| — |
|
|
| (37 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,697 |
|
|
| — |
|
|
| 1,697 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (14,567 | ) |
|
| (14,567 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (38,205 | ) |
|
| (38,205 | ) |
Balance at September 30, 2019 |
|
| 60,665 |
|
| $ | 6 |
|
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
| $ | 603,518 |
|
| $ | (5,000 | ) |
| $ | (97 | ) |
| $ | 1,120 |
|
| $ | (541,893 | ) |
| $ | 57,654 |
| ||||||||||||||||||||||||||||||||
Balance at June 30, 2021 |
|
| 100,049 |
|
| $ | 10 |
|
| $ | 914,659 |
|
| $ | (1,800 | ) |
| $ | (97 | ) |
| $ | (151 | ) |
| $ | (699,107 | ) |
| $ | 213,514 |
|
6ALPHATEC HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
(In thousands)
|
| Common stock |
|
| Series A Convertible Preferred Stock |
|
| Series B Convertible Preferred Stock |
|
| Additional paid-in |
|
| Shareholder note |
|
| Treasury |
|
| Accumulated other comprehensive |
|
| Accumulated |
|
| Total stockholders’ |
|
| Common stock |
|
| Additional paid-in |
|
| Shareholder note |
|
| Treasury |
|
| Accumulated other comprehensive |
|
| Accumulated |
|
| Total stockholders’ |
| ||||||||||||||||||||||||||||||||
|
| Shares |
|
| Par Value |
|
| Shares |
|
| Par Value |
|
| Shares |
|
| Par Value |
|
| capital |
|
| receivable |
|
| stock |
|
| income (loss) |
|
| deficit |
|
| equity |
|
| Shares |
|
| Par Value |
|
| capital |
|
| receivable |
|
| stock |
|
| income (loss) |
|
| deficit |
|
| equity |
| ||||||||||||||||||||
Balance at January 1, 2020 |
|
| 61,400 |
|
| $ | 6 |
|
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
| $ | 606,558 |
|
| $ | (5,000 | ) |
| $ | (97 | ) |
| $ | 1,088 |
|
| $ | (558,924 | ) |
| $ | 43,631 |
|
|
| 61,400 |
|
| $ | 6 |
|
| $ | 606,558 |
|
| $ | (5,000 | ) |
| $ | (97 | ) |
| $ | 1,088 |
|
| $ | (558,924 | ) |
| $ | 43,631 |
|
Cumulative effect of change in accounting principle |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (81 | ) |
|
| (81 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (81 | ) |
|
| (81 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,630 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,630 |
|
|
| — |
|
|
| — |
|
|
| 3,630 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,630 |
|
Distributor equity incentives |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 70 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 70 |
|
|
| — |
|
|
| — |
|
|
| 70 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 70 |
|
Common stock issued for warrant exercises |
|
| 1,390 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,158 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,158 |
|
|
| 1,390 |
|
|
| — |
|
|
| 1,158 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,158 |
|
Common stock issued for employee stock purchase plan and stock option exercises |
|
| 76 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 83 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 83 |
| ||||||||||||||||||||||||||||||||
Common stock issued for vesting of restricted stock awards, net of shares repurchased for tax liability |
|
| 394 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (408 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (408 | ) | ||||||||||||||||||||||||||||||||
Common stock issued for stock option exercises |
|
| 76 |
|
|
| — |
|
|
| 83 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 83 |
| ||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued for vesting of restricted stock awards, net of shares retained for tax liability |
|
| 394 |
|
|
| — |
|
|
| (408 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (408 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 69 |
|
|
| — |
|
|
| 69 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 69 |
|
|
| — |
|
|
| 69 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (20,722 | ) |
|
| (20,722 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (20,722 | ) |
|
| (20,722 | ) |
Balance at March 31, 2020 |
|
| 63,260 |
|
| $ | 6 |
|
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
| $ | 611,091 |
|
| $ | (5,000 | ) |
| $ | (97 | ) |
| $ | 1,157 |
|
| $ | (579,727 | ) |
| $ | 27,430 |
|
|
| 63,260 |
|
| $ | 6 |
|
| $ | 611,091 |
|
| $ | (5,000 | ) |
| $ | (97 | ) |
| $ | 1,157 |
|
| $ | (579,727 | ) |
| $ | 27,430 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,608 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,608 |
|
|
| — |
|
|
| — |
|
|
| 3,608 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,608 |
|
Distributor equity incentives |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 51 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 51 |
|
|
| — |
|
|
| — |
|
|
| 51 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 51 |
|
Common stock issued for warrant exercises |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued for employee stock purchase plan and stock option exercises |
|
| 202 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 722 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 722 |
|
|
| 202 |
|
|
| — |
|
|
| 722 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 722 |
|
Common stock issued for vesting of performance and restricted stock awards, net of shares repurchased for tax liability |
|
| 387 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (164 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (164 | ) | ||||||||||||||||||||||||||||||||
Issuance of common stock warrants, net |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,974 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,974 |
| ||||||||||||||||||||||||||||||||
Common stock issued for vesting of restricted stock awards, net of shares retained for tax liability |
|
| 387 |
|
|
| — |
|
|
| (164 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (164 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock warrants |
|
| — |
|
|
| — |
|
|
| 2,974 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,974 |
| ||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| 6 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (15,805 | ) |
|
| (15,805 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (15,805 | ) |
|
| (15,805 | ) |
Balance at June 30, 2020 |
|
| 63,849 |
|
| $ | 6 |
|
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
| $ | 618,282 |
|
| $ | (5,000 | ) |
| $ | (97 | ) |
| $ | 1,163 |
|
| $ | (595,532 | ) |
| $ | 18,822 |
|
|
| 63,849 |
|
| $ | 6 |
|
| $ | 618,282 |
|
| $ | (5,000 | ) |
| $ | (97 | ) |
| $ | 1,163 |
|
| $ | (595,532 | ) |
| $ | 18,822 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,761 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,761 |
| ||||||||||||||||||||||||||||||||
Common stock issued for conversion of Series A preferred stock |
|
| 39 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||
Distributor equity incentives |
|
| 34 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 293 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 293 |
| ||||||||||||||||||||||||||||||||
Common stock issued for warrant exercises |
|
| 68 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||||||
Common stock issued for employee stock purchase plan and stock option exercises |
|
| 24 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 70 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 70 |
| ||||||||||||||||||||||||||||||||
Common stock issued for vesting of performance and restricted stock awards, net of shares repurchased for tax liability |
|
| 548 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (244 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (244 | ) | ||||||||||||||||||||||||||||||||
Foreign currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 18 |
|
|
| — |
|
|
| 18 |
| ||||||||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (15,669 | ) |
|
| (15,669 | ) | ||||||||||||||||||||||||||||||||
Balance at September 30, 2020 |
|
| 64,562 |
|
| $ | 6 |
|
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
| $ | 623,162 |
|
| $ | (5,000 | ) |
| $ | (97 | ) |
| $ | 1,181 |
|
| $ | (611,201 | ) |
| $ | 8,051 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
7
ALPHATEC HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
|
| Nine Months Ended September 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (52,196 | ) |
| $ | (39,971 | ) |
| $ | (61,108 | ) |
| $ | (36,527 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 7,804 |
|
|
| 5,354 |
|
|
| 10,394 |
|
|
| 5,056 |
|
Stock-based compensation |
|
| 12,687 |
|
|
| 7,566 |
|
|
| 15,970 |
|
|
| 8,143 |
|
Amortization of debt discount and debt issuance costs |
|
| 3,133 |
|
|
| 2,332 |
|
|
| 1,292 |
|
|
| 2,376 |
|
Amortization of right-of-use asset |
|
| 871 |
|
|
| 678 |
| ||||||||
Amortization of right-of-use assets |
|
| 1,950 |
|
|
| 527 |
| ||||||||
Provision for doubtful accounts |
|
| 79 |
|
|
| 190 |
|
|
| 12 |
|
|
| 22 |
|
Provision for excess and obsolete inventory |
|
| 5,429 |
|
|
| 6,451 |
|
|
| 4,317 |
|
|
| 3,434 |
|
Deferred income tax benefit |
|
| — |
|
|
| 2 |
| ||||||||
Beneficial conversion feature from convertible notes |
|
| — |
|
|
| 242 |
| ||||||||
Loss on disposal of instruments |
|
| 281 |
|
|
| 478 |
|
|
| 689 |
|
|
| 144 |
|
Accretion to contingent consideration |
|
| — |
|
|
| 289 |
| ||||||||
Loss on extinguishment of debt |
|
| 1,555 |
|
|
| — |
|
|
| — |
|
|
| 1,555 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
| ||||||||
Accounts receivable, net |
|
| (8,199 | ) |
|
| (526 | ) | ||||||||
Inventories, net |
|
| (12,720 | ) |
|
| (10,751 | ) | ||||||||
Other |
|
| 1,991 |
|
|
| — |
| ||||||||
Changes in operating assets and liabilities, net of effects of acquisition: |
|
|
|
|
|
|
|
| ||||||||
Accounts receivable |
|
| (1,261 | ) |
|
| (3,657 | ) | ||||||||
Inventories |
|
| (15,195 | ) |
|
| (10,047 | ) | ||||||||
Prepaid expenses and other current assets |
|
| (2,286 | ) |
|
| 263 |
|
|
| 1,515 |
|
|
| (1,061 | ) |
Other assets |
|
| (53 | ) |
|
| 127 |
|
|
| 145 |
|
|
| — |
|
Other long-term assets |
|
| — |
|
|
| (2,864 | ) | ||||||||
Accounts payable |
|
| 4,246 |
|
|
| 3,541 |
|
|
| 3,797 |
|
|
| 5,883 |
|
Accrued expenses and other |
|
| 4,561 |
|
|
| 3,313 |
| ||||||||
Accrued expenses and other current liabilities |
|
| (506 | ) |
|
| (2,549 | ) | ||||||||
Lease liability |
|
| (975 | ) |
|
| 2,528 |
|
|
| (26 | ) |
|
| (644 | ) |
Other long-term liabilities |
|
| (3,901 | ) |
|
| (3,296 | ) |
|
| 914 |
|
|
| (2,800 | ) |
Net cash used in operating activities |
|
| (39,684 | ) |
|
| (24,054 | ) |
|
| (35,110 | ) |
|
| (30,145 | ) |
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
| (12,868 | ) |
|
| (10,437 | ) | ||||||||
Cash received from sale of assets |
|
| 27 |
|
|
| — |
| ||||||||
Purchase of property and equipment |
|
| (36,028 | ) |
|
| (6,978 | ) | ||||||||
Acquisition of business, net of cash acquired |
|
| (62,133 | ) |
|
| — |
| ||||||||
Purchase of OCEANE |
|
| (21,097 | ) |
|
| — |
| ||||||||
Cash paid for investments |
|
| (3,000 | ) |
|
| — |
| ||||||||
Settlement of forward contract |
|
| (2,589 | ) |
|
| — |
| ||||||||
Net cash used in investing activities |
|
| (12,841 | ) |
|
| (10,437 | ) |
|
| (124,847 | ) |
|
| (6,978 | ) |
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from public offering, net |
|
| — |
|
|
| 53,974 |
| ||||||||
Proceeds from sale of common stock, net |
|
| 1,204 |
|
|
| 2,073 |
| ||||||||
Proceeds from public offering |
|
| 131,828 |
|
|
| — |
| ||||||||
Net cash (paid) received from common stock exercises |
|
| (3,044 | ) |
|
| 1,379 |
| ||||||||
Borrowings under lines of credit |
|
| 42,455 |
|
|
| 81,723 |
|
|
| — |
|
|
| 42,455 |
|
Repayments under lines of credit |
|
| (56,615 | ) |
|
| (81,161 | ) |
|
| — |
|
|
| (56,615 | ) |
Principal payments on capital lease obligations |
|
| (24 | ) |
|
| (22 | ) |
|
| (2 | ) |
|
| (18 | ) |
Proceeds from issuance of term debt, net |
|
| 34,012 |
|
|
| 9,700 |
|
|
| — |
|
|
| 33,921 |
|
Principal payments on term loan and notes payable |
|
| (24 | ) |
|
| (3,068 | ) |
|
| (13 | ) |
|
| (24 | ) |
Net cash provided by financing activities |
|
| 21,008 |
|
|
| 63,219 |
|
|
| 128,769 |
|
|
| 21,098 |
|
Effect of exchange rate changes on cash |
|
| 82 |
|
|
| 61 |
|
|
| 4 |
|
|
| 75 |
|
Net (decrease) increase in cash |
|
| (31,435 | ) |
|
| 28,789 |
| ||||||||
Net decrease in cash |
|
| (31,184 | ) |
|
| (15,950 | ) | ||||||||
Cash at beginning of period, including discontinued operations |
|
| 47,113 |
|
|
| 29,054 |
|
|
| 107,765 |
|
|
| 47,113 |
|
Cash at end of period, including discontinued operations |
| $ | 15,678 |
|
| $ | 57,843 |
|
| $ | 76,581 |
|
| $ | 31,163 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 4,931 |
|
| $ | 4,342 |
|
| $ | 3,476 |
|
| $ | 3,534 |
|
Cash paid for income taxes |
| $ | 186 |
|
| $ | 102 |
|
| $ | 225 |
|
| $ | 166 |
|
Supplemental disclosure of noncash investing and financing activities: |
|
|
|
|
|
|
|
| ||||||||
Common stock issued for achievement of SafeOp contingent consideration |
| $ | — |
|
| $ | 2,889 |
| ||||||||
Common stock warrants issued with term loan draw |
| $ | 2,986 |
|
| $ | 13,664 |
| ||||||||
Supplemental disclosure of noncash investing activities: |
|
|
|
|
|
|
|
| ||||||||
Common stock issued with term loan draw |
| $ | — |
|
| $ | 2,986 |
| ||||||||
Purchases of property and equipment in accounts payable |
| $ | 1,881 |
|
| $ | 1,297 |
|
| $ | 591 |
|
| $ | 2,290 |
|
Recognition of lease liability |
| $ | 23,159 |
|
| $ | — |
|
See accompanying notes to unaudited condensed consolidated financial statements.
8
ALPHATEC HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The Company and Basis of Presentation
The Company
Alphatec Holdings, Inc. (the “Company”), through its wholly owned subsidiaries, Alphatec Spine, Inc. (“Alphatec Spine”) and, SafeOp Surgical, Inc. (“SafeOp”), and EOS imaging S.A. (“EOS”), is a medical technology company that designs, develops, and markets technology for the treatment of spinal disorders.disorders associated with disease and degeneration, congenital deformities, and trauma. The Company markets its products in the U.S. and internationally via independent sales agents and a direct sales force.
On March 8, 2018, the Company completed its acquisition of SafeOp, pursuant to a reverse triangular merger of SafeOp into a newly created wholly owned subsidiary of the Company, with SafeOp being the surviving corporation and a wholly-owned subsidiary of the Company.
On September 1, 2016, the Company completed the sale of its previous international distribution operations and agreements (collectively, the “International Business”) to Globus Medical Ireland, Ltd., a subsidiary of Globus Medical, Inc., and its affiliated entities (collectively “Globus”). As a result of this transaction, the International Business has been excluded from continuing operations for all periods presented in this Quarterly Report on Form 10-Q and isprevious international distribution transactions are reported as discontinued operations.operations in the condensed consolidated financial statements. See Note 45 for additional information on the divestiture of the International Business.previous international distribution business.
Recent Developments
On May 13, 2021, the Company acquired a controlling interest in EOS, pursuant to the Tender Offer Agreement (the “Tender Offer Agreement”) it entered on December 16, 2020, and subsequently purchased the remaining issued and outstanding ordinary shares for a 100% interest in the company. EOS, which now operates as a wholly owned subsidiary of the Company, is a global medical device company that designs, develops and markets innovative, low dose 2D/3D full body and weight-bearing imaging, rapid 3D modeling of EOS patient X-ray images, web-based patient-specific surgical planning, and integration of surgical plan into the operating room that collectively bridge the entire spectrum of care from imaging to post-operative assessment capabilities for orthopedic surgery. See Note 3 for additional information on the business combination.
Basis of Presentation and Principles of Consolidation
The accompanying condensed consolidated balance sheet as of December 31, 2019, which has been derived from audited financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company translates the unaudited interimfinancial statements of its foreign subsidiaries using end-of-period exchange rates for assets and liabilities and average exchange rates during each reporting period for results of operations. All intercompany balances and transactions have been eliminated during consolidation.
The accompanying condensed consolidated financial statements have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) andpursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) related. Pursuant to a quarterly report on Form 10-Q. Certainthese rules and regulations, the Company has condensed or omitted certain information and note disclosuresfootnotes it normally includedincludes in its annual auditedconsolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, althoughgenerally accepted accounting principles in the Company believes that the disclosures made in this Quarterly Report on Form 10-Q are adequate to make the information not misleading.United States of America (“GAAP”). The unaudited interim condensed consolidated financial statements reflect all adjustments, including normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of the financial position and results of operations for the periods presented. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2019,2020, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20192020 that was filed with the SEC on March 17, 2020.5, 2021. Operating results for the three and ninesix months ended SeptemberJune 30, 20202021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020,2021, or any other future periods.
Liquidity
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. At each reporting period, the Company evaluates whether there are conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within twelve months after the date the condensed consolidated financial statements are issued. The Company’s evaluation entails analyzing prospective operating budgets and forecasts for expectations of the Company’s cash needs and comparing those needs to the current cash and cash equivalent balances, and availability under existing credit facilities.
The Company’s capital requirements over the next twelve months will depend on many factors, including the ability to achieve anticipated revenue, manage operating expense and the timing of required investments in inventory and instrument sets to support its customers.
On October 16, 2020, the Company closed a public offering (the “Offering”) in which it issued and sold a total 13,142,855 shares of its common stock, including overallotment shares, at a price to the public of $8.75 per share. The net proceeds to the Company from the Offering were approximately $107.7 million. The Company’s working capital at September 30, 2020 was $38.5 million (including cash of $15.7 million) which, along with proceeds from the Offering, the Company expects to be able to fund its operations through at least one year subsequent to the date the condensed consolidated financial statements are issued.
9
The COVID-19 Pandemic
The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. In late 2019, a novel strain of Coronavirus, COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 has spread globally to all countries, including to the United States. The global spread of the virus has led to unprecedented restrictions on, and disruptions in business and personal activities, which include preventive and precautionary measures that governments, communities, business partners, and the Company have taken and continue to take to manage the impact and mitigate any further spread of the virus. To date, the Company has taken steps to help keep its workforce healthy and safe and is assessing and updating its plans on an ongoing basis, as new information related to the virus and its impact become available.
The Company's future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and uncertain demand, and the impact of any further initiatives or programs that the Company may undertake to address financial and operations challenges faced by its customers. As of the date of issuance of these condensed consolidated financial statements, the extent to which the pandemic may materially impact the Company's financial condition, liquidity, or results of operations is uncertain. The Company intends to continue to actively monitor the pandemic and take the necessary and required steps to identify and mitigate any adverse impacts on, or risks to, the Company’s business operations posed by the spread of COVID-19.
Reclassification
Certain amounts in the condensed consolidated financial statements for the three and ninesix months ended SeptemberJune 30, 20192020 have been reclassified to conform to the current period’s presentation. The adjustment did notThese reclassifications were immaterial and had no impact prior period net loss.on previously reported results of operations or accumulated deficit.
2. Summary of Significant Accounting Policies
The Company’s significant accounting policies are described in Note 2 to its audited consolidated financial statements for the year ended December 31, 2019,2020, which are included in the Company’s Annual Report on Form 10-K that was filed with the SEC on March 17, 2020.5, 2021. Except as discussed below, these accounting policies have not changed during the ninesix months ended SeptemberJune 30, 2020.2021.
Transaction-related (Credits) ExpensesRevenue Recognition
The Company expensed certain costs relatedrecognizes revenue from products sales in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“Topic 606”). This standard applies
9
to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the terminated tender offerperformance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.
Sales are derived primarily from the sale of spinal implant products to hospitals and medical centers through direct sales representatives and independent distributor agents, and now includes imaging equipment and related services with the acquisition of EOS Imaging,EOS. Revenue is recognized when obligations under the terms of a contract with customers are satisfied, which occurs with the transfer of control of products to customers, either upon shipment of the product or delivery of the product to the customer depending on the shipping terms, or when the products are used in a surgical procedure (implanted in a patient). Revenue from the sale of imaging equipment is recognized as each distinct performance obligation is fulfilled and control transfers to the customer, beginning with shipment or delivery, depending on the terms. Revenue from other distinct performance obligations, such as maintenance on imaging equipment, training services, and other imaging related services, is recognized in the period the service is performed, and makes up less than 10% of the Company’s total revenue. Revenue is measured based on the amount of consideration expected to be received in exchange for the transfer of the goods or services specified in the contract with each customer. In certain cases, the Company does offer the ability for customers to lease its imaging equipment primarily on a non-sales type basis, but such arrangements are immaterial to total revenue in the periods presented. The Company generally does not allow returns of products that have been delivered and will recognize such revenue when the Company concludes there is not a risk of significant revenue reversal in future periods for the expected consideration in the transaction. Costs incurred by the Company associated with sales contracts with customers are deferred over the performance obligation period and recognized in the same period as the related revenue, with the exception of contracts that complete within one year or less, in which case the associated costs are expensed as incurred. Payment terms for sales to customers may vary but are commensurate with the general business practices in the country of sale.
To the extent that the transaction price includes variable consideration, such as discounts, rebates, and customer payment penalties, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Estimates of variable consideration and determination of whether to include third-party advisory fees, legal feesestimated amounts in the transaction price are based largely on an assessment of our anticipated performance and commitment feesall information that is reasonably available, including historical, current, and forecasted information.
The Company records a contract liability, or deferred revenue, when it has an obligation to provide a product or service to the customer and payment is received or due in advance of its performance. When the Company sells a product or service with a future performance obligation, revenue is deferred on the unfulfilled performance obligation and recognized over the related performance period. Generally, the Company does not have observable evidence of the standalone selling price related to its future service obligations; therefore, the Company estimates the selling price using an expected cost plus a margin approach. The transaction financing arrangements.price is allocated using the relative standalone selling price method. The use of alternative estimates could result in a different amount of revenue deferral. The Company recognized $3.4 million of revenue from its contract liabilities during the three and six months ended June 30, 2021.
The opening and closing balances of the Company’s contract liability are as follows:
Balance at January 1, 2021 |
| $ | — |
|
Contract liability assumed from EOS |
|
| 21,196 |
|
Payments received |
|
| 2,586 |
|
Revenue recognized |
|
| (3,390 | ) |
Balance at June 30, 2021 |
| $ | 20,392 |
|
Fair Value Measurements
The carrying amount of financial instruments consisting of cash, trade accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses, accrued compensation and current portion of long-termshort-term debt included in the Company’s condensed consolidated financial statements are reasonable estimates of fair value due to their short maturities. Based on the borrowing rates currently available to the Company for loans with similar terms, management believes the fair value of long-term debt approximates its carrying value.
Authoritative guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
| Level 1: |
|
| Level 2: | Inputs other than |
| Level 3: | Unobservable inputs |
The following table presents information related to the Company’s liabilities measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020 (in thousands):
| June 30, 2021 |
| |||||||||||||
Liabilities: | Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Liability classified equity award (1) | $ | — |
|
|
| — |
|
|
| 4,404 |
|
| $ | 4,404 |
|
Foreign currency forward contract |
| — |
|
|
| 151 |
|
|
| — |
|
|
| 151 |
|
Total | $ | — |
|
|
| 151 |
|
|
| 4,404 |
|
| $ | 4,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2020 |
| |||||||||||||
Liabilities: | Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Liability classified equity award (1) | $ | — |
|
|
| — |
|
|
| 4,108 |
|
| $ | 4,108 |
|
Foreign currency forward contract |
| — |
|
|
| 878 |
|
|
| — |
|
|
| 878 |
|
Total | $ | — |
|
|
| 878 |
|
|
| 4,108 |
|
| $ | 4,986 |
|
(1) | A portion of this award is being accreted over the requisite service period. |
The Company doesdid not maintainhave any financialtransfers of assets thatand liabilities between the levels of the fair value measurement hierarchy during the periods presented.
On March 16, 2021, the Company entered into 2 foreign currency forward contracts, with a notional amount of $8.0 million total ($4.0 million each) or €6.7 million total (€3.3 million each) to mitigate the foreign currency exchange risk related to its EOS subsidiary. The contracts are considered to be Level 1,not designated as hedging instruments. The Company classified the derivative liabilities within Level 2 orof the fair value hierarchy as observable inputs are available for the full term of the derivative instruments. The fair value of the forward contracts was developed using a market approach based on publicly available market yield curves and the term of the contracts. The Company recognized a nominal loss from the change in fair value of the contracts during the six months ended June 30, 2021. The loss on the change in fair value of the contracts was recorded as other expense on the condensed consolidated statement of operations.
On December 18, 2020, the Company entered into a foreign currency forward contract, with a notional amount of $117.9 million (€95.6 million) to mitigate the foreign currency exchange risk related to the Tender Offer Agreement, denominated in Euros ("EUR"). The contract is not designated as a hedging instrument. The Company classified the derivative liability within Level 3 instruments2 of the fair value hierarchy as observable inputs are available for the full term of Septemberthe derivative instrument. The fair value of the forward contract was developed using a market approach based on publicly available market yield curves and the term of the contract. On March 2, 2021, the foreign currency forward contract was settled for €95.6 million ($115.3 million). The Company recognized a $1.7 million loss from the change in fair value of the contract during the six months ended June 30, 2020. 2021. The loss on the contract settlement was recorded as other expense on the condensed consolidated statement of operations and the cash settlement is included in investing activities in the condensed consolidated statement of cash flows for the six months ended June 30, 2021.
During the second quarter of 2019, the Company issued a liability classified equity award to one of its executive officers. The award will be earned over a 4 year4-year vesting period and upon a specific market condition. As the award will be settled in cash, settled, it is
11
classified as a liability within Level 3 of the fair value hierarchy as the Company is using a probability-weighted income approach, utilizing significant unobservable inputs including the probability of achieving the specified market condition with the valuation updated at each reporting period. The full fair value of the cash settled award was $1.6$4.4 million as of SeptemberJune 30, 20202021 and is being recognized ratably as the underlying service period is provided.
10
The following table provides a reconciliation of liabilities measured at fair value using significant unobservable inputs (Level 3) for the ninethree and six months ended SeptemberJune 30, 20202021 (in thousands):
|
| Level 3 Liabilities |
|
| Level 3 Liabilities |
| ||
Balance at January 1, 2020 |
| $ | 266 |
| ||||
Balance at January 1, 2021 |
| $ | 1,668 |
| ||||
Vested portion of liability classified equity award |
|
| 107 |
|
|
| 258 |
|
Change in fair value measurement |
|
| (238 | ) |
|
| 199 |
|
Balance at March 31, 2020 |
| $ | 135 |
| ||||
Balance at March 31, 2021 |
| $ | 2,125 |
| ||||
Vested portion of liability classified equity award |
|
| 39 |
|
|
| 283 |
|
Change in fair value measurement |
|
| 102 |
|
|
| (68 | ) |
Balance at June 30, 2020 |
| $ | 276 |
| ||||
Vested portion of liability classified equity award |
|
| 63 |
| ||||
Change in fair value measurement |
|
| 201 |
| ||||
Balance at September 30, 2020 |
| $ | 540 |
| ||||
Balance at June 30, 2021 |
| $ | 2,340 |
|
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In November 2019,August 2020, the Financial Accounting Standards Board (“FASB”)FASB issued Accounting StandardsStandard Update (“ASU”) 2019-08,No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”), which simplifies the accounting for convertible instruments. The guidance removes certain accounting models that separate the embedded conversion features from the host contract for convertible instruments. ASU 2020-06 allows for a modified or full retrospective method of transition. This update is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, and early adoption is permitted. The Company early adopted ASU 2020-06 on January 1, 2021, electing the modified transition method that allows for a cumulative-effect adjustment in the period of adoption. There were no changes to the condensed consolidated financial statements as of January 1, 2021 as a result of the adoption.
In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848), which refines the scope of Topic 848 and provides clarification surrounding certain optional expedients and exceptions for contract modifications and hedge accounting that apply to contracts affected by the discounting transition. Under ASU 2021-01, modifications related to reference rate reform would not be considered an event that requires reassessment of previous accounting conclusions. The guidance also amends the expedients and exceptions in Topic 848 to tailor the existing guidance towards derivative instruments impacted by the discounting transition. The amendments in ASU 2021-01 are effective immediately for all entities and entities may choose to apply the amendments retrospectively as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively to new modifications from any date within an interim period that includes or is subsequent to January 7, 2021. There has been no effect to the condensed consolidated financial statements to date as a result of the adoption.
Recently Issued Accounting Pronouncements
In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Revenue from Derivatives and Hedging—Contracts with Customers (Topic 606), whichin Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The guidance clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (i.e. warrants) that remain equity classified after a modification or exchange and provides guidance that clarifies whether an entity must measureissuer should account for a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as (1) an adjustment to equity and, classify share-based payment awards granted to a customer by applyingif so, the related earnings per share (EPS) effects, if any, or (2) an expense and, if so, the manner and pattern of recognition. The new guidance in Topic 718. Accounting Standard Codification (“ASC”) 2019-08 is effective for annual reportingand interim periods beginning after December 15, 2019,2021, and early adoption is permitted, including adoption in an interim reporting periods within those annual reporting periods.period. The Company adopteddoes not intend to early adopt the guidance effective January 1,standard and is in the process of assessing the impact, if any, on its consolidated financial statements and related disclosures.
3. Business Combination
The Company recognizes assets acquired, liabilities assumed, and any noncontrolling interest at fair value at the date of acquisition.
On December 16, 2020, the Company entered into the Tender Offer Agreement with EOS, pursuant to which the Company agreed to commence a public tender offer (the “Offer”) to purchase all of the issued and outstanding ordinary shares, nominal value €0.01 per share (collectively, the “EOS Shares”) for a cash offer of €2.45 per EOS Share, and outstanding convertible bonds of EOS (“OCEANEs”) for a cash offer of €7.01 per OCEANE, which included accrued but unpaid interest. On May 13, 2021 (the “Initial Offer Period”), the Company substantially completed the Offer, pursuant to which the Company purchased 59% of the issued and outstanding EOS Shares and 53% of the OCEANEs for $66.5 million in cash pursuant to the Offer. In addition, prior to the closing of the Initial Offer Period, the Company had also acquired 30% of the issued and outstanding EOS Shares and 4% of the OCEANEs on the open market for $25.0 million in cash. After the completion of the Initial Offer Period, the Company held a controlling financial interest in EOS representing 89% of issued and outstanding EOS Shares and 57% of OCEANEs, equal to approximately 80% of the capital and voting rights of EOS on a fully diluted basis. The Offer was reopened on May 17, 2021 to purchase the remaining EOS Shares for $8.5 million, ultimately resulting in the acquisition of 100% of EOS Shares and 57% of the OCEANEs as of June 2, 2021. As of June 2, 2021, the total cash paid to acquire 100% of the EOS Shares and 57% of the OCEANEs was $100.0 million.
EOS, which now operates as a wholly owned subsidiary of the Company, is a global medical device company that designs, develops and markets innovative, low dose 2D/3D full body and weight-bearing imaging, rapid 3D modeling of EOS patient X-ray images, web-based patient-specific surgical planning, and integration of surgical plan into the operating room that collectively bridge the entire spectrum of care from imaging to post-operative assessment capabilities for orthopedic surgery. The Company plans to integrate this technology into its procedural approach to spine surgery in order to better inform and better achieve spinal alignment objectives in surgery.
The Company is still in the process of finalizing the purchase price allocation given the timing of the acquisition and the size and scope of the assets and liabilities subject to valuation. While the Company does not expect material changes in the outcome of the valuation, certain assumptions and findings that were in place at the date of acquisition may result in changes in the purchase price allocation. The allocation of the purchase price to the assets acquired and liabilities assumed based on their fair values were as follows:
(in thousands) | As of May 13, 2021 |
| |
Cash paid for purchase of EOS Shares in Initial Offer Period | $ | 46,908 |
|
Cash paid for purchase of OCEANEs in Initial Offer Period |
| 19,620 |
|
Total cash paid in Initial Offer Period |
| 66,528 |
|
Fair value of investment in EOS Shares held before the Initial Offer Period |
| 23,549 |
|
Fair value of investment in OCEANEs held before the Initial Offer Period |
| 1,477 |
|
Total fair value of investment in EOS held before the Initial Offer Period |
| 25,026 |
|
Fair value of noncontrolling interest acquired subsequent to Initial Offer Period |
| 8,454 |
|
| $ | 100,008 |
|
|
|
|
|
Cash and cash equivalents | $ | 16,778 |
|
Accounts receivable |
| 9,083 |
|
Inventory |
| 26,531 |
|
Other current assets |
| 4,422 |
|
Property, plant and equipment, net |
| 1,650 |
|
Right-of-use asset |
| 4,341 |
|
Goodwill |
| 31,822 |
|
Definite-lived intangible assets: |
|
|
|
Developed technology |
| 56,000 |
|
Customer relationships |
| 9,500 |
|
Trade names |
| 6,000 |
|
Other noncurrent assets |
| 395 |
|
Contract liabilities |
| 21,196 |
|
Long-term debt |
| 15,297 |
|
Other liabilities assumed |
| 30,021 |
|
Total identifiable net assets | $ | 100,008 |
|
The cash paid for the purchase of EOS exceeded the fair value of the net tangible and identifiable intangible assets acquired as part of the acquisition. As a result, the Company recorded goodwill in connection with the acquisition. Goodwill primarily consists of
13
expected revenue synergies resulting from the combination of product portfolios and cost synergies related to elimination of redundant facilities and functions associated with the combined entity. Goodwill recognized in this transaction is not deductible for tax purposes. The intangible assets acquired will be amortized on a cumulative adjustmentstraight-line basis over useful lives of $0.1ten years, seven years and ten years for technology-based, customer-related, and trade name related intangible assets, respectively. The estimated fair values of the intangible assets acquired were primarily determined using the income approach based on significant inputs that were not observable in the market.
Acquisition costs of $4.8 million to accumulated deficitand $5.8 million were recognized during the three and six months ended June 30, 2021, respectively, as transaction-related expenses on the condensed consolidated statements of operations as incurred. The Company’s results of operations for the three and six months ended June 30, 2021 included the operating results of EOS since the date of acquisition, of $6.1 million of revenue and net loss of $7.2 million in the condensed consolidated statement of operations.
The following table presents the unaudited pro forma results for the three and six months ended June 30, 2021 and 2020, which combines the historical results of operations of the Company and its wholly owned subsidiaries as though the companies had been combined as of January 1, 2020.
In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill The pro forma information is presented for informational purposes only and Other—Internal-Use Software (Subtopic 350-40), which aligns the accounting for cloud computing implementation costs with that of costs to develop or obtain internal-use software, meaning such costs that are partis not indicative of the application development stage are capitalized as an asset and amortized overresults of operations that may have been achieved if the term ofacquisition had taken place at such time. The unaudited pro forma results presented include non-recurring adjustments directly attributable to the arrangement, otherwise, such costs are expensed as incurred. It also clarifies the classification of amountsbusiness combination, including $3.1 million in amortization charges for acquired intangible assets, a $2.0 million adjustment related to capitalized implementation costs in the financial statements. ASC 2018-15 is effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within those annual reporting periods. Early adoption is permitted. The Company adopted the guidance effective January 1, 2020. It did not have a material impact on the Company’s condensed consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other, which eliminates the requirement to calculate the impliedincreased fair value of goodwillacquired inventory and $14.1 million in acquisition related expenses. The unaudited pro forma results include IFRS to measure a goodwill impairment charge. Instead, entities will record an impairment charge based onU.S. GAAP adjustments for EOS historical results and adjustments for accounting policy alignment, which were materially similar to the excessCompany. Any differences in accounting policies were adjusted to reflect the accounting policies of a reporting unit’s carrying amount over its fair value. The standard has tiered effective dates, starting in 2020 for calendar-year public business entities that meet the definition of an SEC filer. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company adopted the guidance effective January 1, 2020 as part of its process to assess impairment of Goodwill.
Recently Issued Accounting Pronouncements
The Company has evaluated all recent accounting pronouncements issued by the Financial Accounting Standards Board in the form of Accounting Standards Updates through the date these condensed consolidated financial statements were available to be issued and found no recent accounting pronouncements issued, but not yet effective that when adopted would have a material impact on the financial statements of the Company.unaudited pro forma results presented.
11
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
(in thousands, except per share amounts) | 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Total revenue | $ | 64,077 |
|
| $ | 36,314 |
|
| $ | 115,064 |
|
| $ | 70,525 |
|
Net loss |
| (40,016 | ) |
|
| (20,711 | ) |
|
| (61,215 | ) |
|
| (58,726 | ) |
Net loss per share, basic and diluted | $ | (0.41 | ) |
| $ | (0.33 | ) |
| $ | (0.66 | ) |
| $ | (0.93 | ) |
3.
4. Select Condensed Consolidated Balance SheetSheets Details
Accounts Receivable, net
Accounts receivable, net consist of the following (in thousands):
|
| September 30, 2020 |
|
| December 31, 2019 |
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||||
Accounts receivable |
| $ | 24,604 |
|
| $ | 16,436 |
|
| $ | 34,064 |
|
| $ | 23,887 |
|
Allowance for doubtful accounts |
|
| (334 | ) |
|
| (286 | ) |
|
| (321 | ) |
|
| (360 | ) |
Accounts receivable, net |
| $ | 24,270 |
|
| $ | 16,150 |
|
| $ | 33,743 |
|
| $ | 23,527 |
|
Inventories, net
Inventories, net consist of the following (in thousands):
|
| September 30, 2020 |
|
| December 31, 2019 |
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||||
Raw materials |
| $ | 5,184 |
|
| $ | 5,822 |
|
| $ | 10,439 |
|
| $ | 6,064 |
|
Work-in-process |
|
| 1,387 |
|
|
| 1,578 |
|
|
| 2,333 |
|
|
| 1,982 |
|
Finished goods |
|
| 64,025 |
|
|
| 51,669 |
|
|
| 107,360 |
|
|
| 67,892 |
|
|
|
| 70,596 |
|
|
| 59,069 |
|
|
| 120,132 |
|
|
| 75,938 |
|
Less reserve for excess and obsolete finished goods |
|
| (28,452 | ) |
|
| (24,215 | ) |
|
| (33,417 | ) |
|
| (29,937 | ) |
Inventories, net |
| $ | 42,144 |
|
| $ | 34,854 |
|
| $ | 86,715 |
|
| $ | 46,001 |
|
Property and Equipment, net
Property and equipment, net consist of the following (in thousands, except as indicated):
|
| Useful lives (in years) |
|
| September 30, 2020 |
|
| December 31, 2019 |
|
| Useful lives (in years) |
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||||||
Surgical instruments |
|
| 4 |
|
| $ | 67,012 |
|
| $ | 58,502 |
|
|
| 4 |
|
| $ | 106,472 |
|
| $ | 76,669 |
|
Machinery and equipment |
|
| 7 |
|
|
| 6,562 |
|
|
| 6,038 |
|
|
| 7 |
|
|
| 9,757 |
|
|
| 6,562 |
|
Computer equipment |
|
| 3 |
|
|
| 4,206 |
|
|
| 3,594 |
|
|
| 3 |
|
|
| 4,060 |
|
|
| 4,206 |
|
Office furniture and equipment |
|
| 5 |
|
|
| 1,380 |
|
|
| 1,297 |
|
|
| 5 |
|
|
| 3,219 |
|
|
| 1,380 |
|
Leasehold improvements |
| various |
|
|
| 1,761 |
|
|
| 1,761 |
|
| various |
|
|
| 688 |
|
|
| 1,761 |
| ||
Construction in progress |
| n/a |
|
|
| 862 |
|
|
| 496 |
|
| n/a |
|
|
| 1,535 |
|
|
| 2,738 |
| ||
|
|
|
|
|
|
| 81,783 |
|
|
| 71,688 |
|
|
|
|
|
|
| 125,731 |
|
|
| 93,316 |
|
Less accumulated depreciation and amortization |
|
|
|
|
|
| (54,102 | ) |
|
| (51,966 | ) |
|
|
|
|
|
| (59,680 | ) |
|
| (56,646 | ) |
Property and equipment, net |
|
|
|
|
| $ | 27,681 |
|
| $ | 19,722 |
|
|
|
|
|
| $ | 66,051 |
|
| $ | 36,670 |
|
Total depreciation expense was $2.3$5.0 million and $6.5$8.4 million for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, and $1.8$2.2 million and $4.8$4.2 million for the three and ninesix months ended September 30, 2019, respectively. At both SeptemberJune 30, 2020, and December 31, 2019, assets recorded under capital leases of $0.1 million were included in the machinery and equipment balance.respectively. Amortization of assets under capital leases is included in depreciation expense.
12
Intangible Assets, net
Intangible assets, net consist of the following (in thousands, except as indicated):
|
| Remaining Avg. Useful lives (in years) |
|
| September 30, 2020 |
|
| December 31, 2019 |
|
| Remaining Avg. Useful lives (in years) |
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||||||
Developed technology |
|
| 9 |
|
| $ | 26,976 |
|
| $ | 26,976 |
| ||||||||||||
Intellectual property |
|
| — |
|
|
| 1,004 |
|
|
| 1,004 |
| ||||||||||||
Developed product technology |
|
| 10 |
|
| $ | 90,445 |
|
| $ | 35,376 |
| ||||||||||||
License agreements |
|
| 1 |
|
|
| 5,536 |
|
|
| 5,536 |
|
|
| 1 |
|
|
| 5,536 |
|
|
| 5,536 |
|
Trademarks and trade names |
|
| — |
|
|
| 792 |
|
|
| 792 |
|
|
| 9 |
|
|
| 6,692 |
|
|
| 792 |
|
Customer-related |
|
| 3 |
|
|
| 7,458 |
|
|
| 7,458 |
|
|
| 5 |
|
|
| 16,800 |
|
|
| 7,458 |
|
Distribution network |
|
| 2 |
|
|
| 4,027 |
|
|
| 4,027 |
|
|
| 2 |
|
|
| 4,027 |
|
|
| 4,027 |
|
In process research and development |
|
| 19 |
|
|
| 8,800 |
|
|
| 8,800 |
|
|
| 7 |
|
|
| 1,128 |
|
|
| 1,278 |
|
|
|
|
|
|
|
| 54,593 |
|
|
| 54,593 |
| ||||||||||||
Total gross amount |
|
|
|
|
| $ | 124,628 |
|
| $ | 54,467 |
| ||||||||||||
Less accumulated amortization |
|
|
|
|
|
| (30,310 | ) |
|
| (28,988 | ) |
|
|
|
|
|
| (31,647 | ) |
|
| (29,747 | ) |
Intangible assets, net |
|
|
|
|
| $ | 24,283 |
|
| $ | 25,605 |
|
|
|
|
|
| $ | 92,981 |
|
| $ | 24,720 |
|
During the six months ended June 30, 2021, in connection with the Company’s acquisition of EOS, as further described in Note 3, the Company recorded additions to definite-lived intangible assets and goodwill in the amount of $71.5 million and $31.8 million, respectively. The intangible assets acquired will be amortized on a straight-line basis over weighted-average useful lives of ten years for product technology, nine years for trade name related intangible assets, and five years for customer-related intangible assets.
Total amortization expense attributed to intangible assets was $0.4$1.5 million and $1.3$1.9 million for the three and ninesix months ended SeptemberJune 30, 2020, and2021, respectively. The Company recognized a $0.2 million impairment loss related to certain intellectual property within sales, general and $0.5 millionadministrative expense on its condensed consolidated statement of operations for the three and ninesix months ended SeptemberJune 30, 2019, respectively.
Developed technology and in2021. In process research and development intangibles are expected to begin amortizing when the relevant products reach full commercial launch.
Future amortization expense related to intangible assets as of SeptemberJune 30, 20202021 is as follows (in thousands):
Year Ending December 31, |
|
|
|
|
|
|
|
|
Remainder of 2020 |
| $ | 537 |
| ||||
2021 |
|
| 1,888 |
| ||||
Remainder of 2021 |
| $ | 5,330 |
| ||||
2022 |
|
| 1,888 |
|
|
| 9,550 |
|
2023 |
|
| 1,888 |
|
|
| 9,550 |
|
2024 |
|
| 1,785 |
|
|
| 9,447 |
|
2025 |
|
| 8,862 |
| ||||
Thereafter |
|
| 16,297 |
|
|
| 50,242 |
|
|
| $ | 24,283 |
|
| $ | 92,981 |
|
Accrued Expenses
Accrued expenses consist of the following (in thousands):
|
| September 30, 2020 |
|
| December 31, 2019 |
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||||
Commissions and sales milestones |
| $ | 6,928 |
|
| $ | 5,299 |
|
| $ | 11,477 |
|
| $ | 7,038 |
|
Payroll and payroll related |
|
| 8,924 |
|
|
| 7,949 |
|
|
| 13,764 |
|
|
| 13,552 |
|
Litigation settlement obligation - short-term portion |
|
| 4,400 |
|
|
| 4,400 |
|
|
| 4,000 |
|
|
| 4,000 |
|
Professional fees |
|
| 2,049 |
|
|
| 3,945 |
|
|
| 2,971 |
|
|
| 3,551 |
|
Royalties |
|
| 3,284 |
|
|
| 1,981 |
|
|
| 3,406 |
|
|
| 2,293 |
|
Interest |
|
| 669 |
|
|
| 155 |
|
|
| 109 |
|
|
| 619 |
|
Administration fees |
|
| 1,408 |
|
|
| 442 |
| ||||||||
Accrued manufacturing expense |
|
| 1,094 |
|
|
| — |
| ||||||||
Other |
|
| 4,726 |
|
|
| 2,687 |
|
|
| 5,226 |
|
|
| 3,769 |
|
Total accrued expenses |
| $ | 30,980 |
|
| $ | 26,416 |
|
| $ | 43,455 |
|
| $ | 35,264 |
|
13
Other Long-Term Liabilities
Other long-term liabilities consist of the following (in thousands):
|
| September 30, 2020 |
|
| December 31, 2019 |
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||||
Litigation settlement obligation - long-term portion |
| $ | 8,126 |
|
| $ | 10,712 |
|
| $ | 5,795 |
|
| $ | 7,634 |
|
Line of credit exit fee |
|
| — |
|
|
| 600 |
| ||||||||
Tax liabilities |
|
| 373 |
|
|
| 373 |
|
|
| 3,345 |
|
|
| 373 |
|
Royalties |
|
| 2,655 |
|
|
| 1,678 |
| ||||||||
Other |
|
| 539 |
|
|
| 266 |
|
|
| 3,348 |
|
|
| 1,703 |
|
Other long-term liabilities |
| $ | 9,038 |
|
| $ | 11,951 |
|
| $ | 15,143 |
|
| $ | 11,388 |
|
4.5. Discontinued Operations
In connection with the sale of the International Business,previous international distribution business, the Company entered into a product manufacture and supply agreement (the “Supply Agreement”) with Globus, pursuant to which the Company supplies to Globus certain of its implants and instruments, (the “Products”), previously offered for sale by the Company in international markets at agreed-upon prices for a minimum term of three years, with the option for Globus to extend the term for up to 2 additional twelve month periods subject to Globus meeting specified purchase requirements. During the second quarter of 2020, Globus notified the Company that it willwould exercise the option to extend the agreement for the second additional twelve-month period through August 2021.2021, at which time the Company expects that the Supply Agreement will expire and revenue from Globus will discontinue. In accordance with authoritative guidance, sales to Globus are reported under continuing operations as the Company has continuing involvement under the Supply Agreement. The Company recorded $1.1$0.4 million and $0.8 million and in revenue from the Supply Agreement in continuing operations for the three and six months ended June 30, 2021, respectively, and $0.4 million and $0.9 million in cost of revenue from the Supply Agreement in continuing operations for the three and six months ended June 30, 2021, respectively. The Company recorded $0.8 million in both revenue and cost of revenue from the Supply Agreement in continuing operations for the three months ended SeptemberJune 30, 2020 and $3.0$1.8 million in both revenue and $2.8 million in cost of revenue from the Supply Agreement in continuing operations for the ninesix months ended SeptemberJune 30, 2020. The Company recorded $1.2 million in revenue and $1.1 million in cost of revenue from the Supply Agreement in continuing operations for the three months ended September 30, 2019, and $4.0 million in revenue and $3.7 million in cost of revenue from the Supply Agreement in continuing operations for the nine months ended September 30, 2019.
5.6. Debt
MidCap Facility Agreement
On May 29, 2020, the Company repaid in full all amounts outstanding under the Amended Credit Facility with MidCap Funding IV, LLC (“MidCap”). The Company made a final payment of $9.6 million to MidCap, consisting of outstanding principal and accrued interest. All amounts previously recorded as debt issuance costs were recorded as part of loss on debt extinguishment on the Company’s condensed consolidated statement of operations for the nine monthsyear ended September 30,December 31, 2020.
Squadron Medical Credit Agreement
On November 6, 2018, the Company closedentered into a $35.0 million Term Loanterm loan with Squadron Medical Finance Solutions, LLC (“Squadron Medical”), a provider of debt financing to growing companies in the orthopedic industry. The debt bears interest at LIBOR plus 8% (10.0% as of September 30,term loan was subsequently amended on March 27, 2019, May 29, 2020) per annum. The credit agreement specifies a minimum interest rate of 10% and a maximum of 13% per year. In March 2019, the Company amended the Term LoanDecember 16, 2020 to expand the credit facility for up to anavailability of additional $30.0 million in secured financing. The Company took a draw of $10.0 million onterm loans, extend the expanded credit facility in June 2019 and, subsequently, took a draw of the remaining $20.0 million in April 2020. On May 29, 2020, the Company amended the Term Loan to expand the credit facility by an additional $35.0 million and maturity,
16
remove all financial covenant requirements. Additional draws underrequirements and, in the Term Loan are at the sole discretion of the Company up to an additional $35.0 million.December 16, 2020 amendment, incorporate a debt exchange. In June 2020, and in conjunction with the expanded credit facilityterm loan amendment on December 16, 2020, the Company entered into a debt exchange agreement whereby the Company exchanged $30.0 million of the Company’s outstanding debt obligations pursuant to the term loan dated as of November 6, 2018, as amended, for the issuance of 2,700,270 shares of the Company’s Common Stock to Squadron Capital LLC and a participant lender, based on a price of $11.11 per share. The debt exchange resulted in additional debt issuance costs of $3.8 million, calculated as the difference between the Company’s stock price on the date of issuance and the retirement of its working capital revolver with MidCap described above, the Company took a draw of $10.0 million. All future draws must be made by December 31, 2021.issuance price. The total principal outstanding under the Term Loanterm loan as of SeptemberJune 30, 2020 is $75.02021 was $45.0 million, with an additional $25.0$40.0 million in available borrowings. Under the terms of the amended facility, the maturity date on the entire
The term loan was extendedbears interest at LIBOR plus 8.0% per annum, subject to June 2025 with interest-onlya 9.0% floor and 12.0% ceiling. Interest-only payments are due monthly through November 2022, followeduntil December 2023 and joined by $1.0 million monthly principal payments of $1.0 million beginning December 2022 and2023. Any remaining principal amounts of the term loan will be due on June 30, 2026. In addition to paying interest on outstanding principal on the term loan, the Company will pay a lump-sum payment payablecommitment fee at maturitya rate of 1.0% per annum to Squadron Medical in June 2025.respect of the available borrowings under the term loan. As collateral for the Term Loan,term loan, Squadron Medical has a first lien security interest in substantially all assets except for accounts receivable.of the Company’s assets.
In connection with the initial 2018 financing, the Company issued initial warrants to Squadron Medical and a participant lender to purchase 845,000 shares of common stock at an exercise price of $3.15 per share. In conjunction with the first draw under the first amendment of the Term Loan,term loan in 2019, the Company issued warrants to Squadron warrantsMedical and the participant lender to purchase an additional 4,838,710 shares of the Company’s common stock at an exercise price of $2.17 per share. In connection with the second amendment of the Term Loan,term loan in May 2020, the Company issued warrants to Squadron Medical and the participant lender to purchase an additional 1,075,820 shares of the Company’s common stock at an exercise price of $4.88 per share. All of the warrants are exercisable immediately and were amended to have the same maturity date in May 2027. Total warrants outstanding to Squadron Medical and the participant lender are 6,759,530 as of SeptemberJune 30, 2020. The2021. At issuance, the warrants were valued utilizing the Monte-Carlo simulation model as described further in Note 1011 and are recorded within equity in accordance with authoritative accounting guidance and recorded as a debt discount.
14
The Company accounted for the March 27, 2019, May 29, 2020, and December 16, 2020 amendments of the Term Loanterm loan as debt modifications with continued amortization of the existing and inclusion of the new debt issuance costs amortized into interest expense utilizing the effective interest rate method. The Company determined that the $30.0 million pre-payment associated with the December 16, 2020 amendment should be accounted for as a partial extinguishment of the November 6, 2018 term loan, as amended. As a result of the partial extinguishment the Company elected as an accounting policy, and in accordance with authoritative guidance set forth by ASC 470-50-40-2, to write off a proportionate amount of the unamortized fees at the time the financing was partially settled in accordance with the terms of the term loan dated November 6, 2018, as amended. The unamortized debt issuance costs are allocated between the remaining original term loan balance and the portion of the term loan paid down on a pro-rata basis. At the time of prepayment, the Company recorded a loss on extinguishment of $6.1 million and capitalized $3.8 million in non-cash debt issuance closing costs.
As of SeptemberJune 30, 2020,2021, the debt is recorded at its carrying value of $59.3$33.1 million, net of issuance costs of $15.7$11.9 million, including all amounts that were paid to third parties to secure the debt and the fair value of the warrants issued. The total debt discount will be amortized into interest expense through the maturity of the debt utilizing the effective interest rate method.
Paycheck Protection Loan
On April 23, 2020, the Company received the proceeds from a loan in the amount of approximately $4.3 million (the “PPP Loan”) from Silicon Valley Bank, as lender, pursuant to the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan matures on April 21, 2022 and bears interest at a rate of 1.0% per annum. Commencing August 21, 2021, the Company is required to pay the lender equal monthly payments of principal and interest asand required to fully amortize by April 21, 2022 the principal amount outstanding on the PPP Loan as of the date prescribed by guidance issued by U.S. Small Business Administration (“SBA”). The PPP Loan is evidenced by a promissory note dated April 21, 2020 (the “Note”), which contains customary events of default relating to, among other things, payment defaults and breaches of representations and warranties. The PPP Loan may be prepaid by the Company at any time prior to maturity with 0no prepayment penalties.
All or a portion of the PPP Loan may be forgiven by the SBA upon application. The Company submitted its application for forgiveness of the loan in November 2020.2020, which was still under review by the SBA as of June 30, 2021. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the twenty-four-week period, beginning on the date of the loan approval. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100,000, prorated annually. Not more than 25% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25%. In the event the PPP Loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal. The Company used all of the proceeds from the PPP Loan to retain employees and maintain payroll. Although the Company has applied for loan forgiveness as afforded by the PPP, no 0
17
assurance can be provided that such loan forgiveness will be granted in whole or in part. As such,of June 30, 2021, $4.3 million of the PPP Loan iswas recorded as long-termshort-term debt on the Company’s condensed consolidated balance sheet.
Inventory Financing
TheIn November 2018, the Company hasentered into an Inventory Financing Agreement with a key inventory and instrument components supplier whereby the Company maywas originally permitted to draw up to $3.0 million for the purchase of inventory. In November 2020 and May 2021, the Company amended the Inventory Financing Agreement with the supplier to increase the available draw to $6.0 million and then to the current availability of $9.0 million for the purchase of inventory to accrue interest at a rate of LIBOR plus 8%8.0% subject to a 10%9.0% floor and 13%12.0% ceiling. All principal will become due and payable upon maturity on November 6, 2023 and all interest will be paid monthly. The outstanding obligation outstanding under the Inventory Financing Agreement as of SeptemberJune 30, 2021 was $7.5 million.
OCEANE Convertible Bonds
On May 31, 2018, EOS issued 4,344,651 OCEANE convertible bonds due May 2023 for aggregate gross proceeds of €29.5 million or $34.3 million. The OCEANEs are unsecured obligations of EOS, rank equally with all other unsecured and unsubordinated obligations of EOS, and pay interest at a rate equal to 6% per year, payable semiannually in arrears on May 31 and November 30 of each year, beginning November 30, 2018. Unless either earlier converted or repurchased, the OCEANEs will mature on May 31, 2023. Interest expense since the date of the EOS acquisition was $0.1 million for the three and six months ended June 30, 2021.
The OCEANEs are convertible by their holders into new EOS Shares or exchangeable for existing EOS Shares, at the Company’s option, at an initial conversion rate of 1 share per OCEANE, and the initial conversion rate is subject to customary anti-dilution adjustments. The OCEANEs are convertible at any time until the seventh business day prior to maturity or seventh business day prior to an earlier redemption of the OCEANE. If the number of shares calculated is not a whole number, the holder may request allocation of either the whole number of shares immediately below the number, and receive an amount in cash equal to the remaining fractional share value, or the whole number of shares immediately above the number, and pay an amount in cash equal to the remaining fractional share value. Holders of the OCEANEs have the option to convert all or any portion of such OCEANEs, regardless of any conditions, at any time until the close of seventh business day immediately preceding the maturity date. EOS has a right to redeem all of the OCEANEs at its option any time after June 20, 2021 at a cash redemption price equal to the par value of the OCEANEs plus accrued and unpaid interest if the product of the volume-weighted-average price of the shares and the conversion ratio as specified in the agreement in effect on each trading day exceeds 150% of the par value of each OCEANE on each of at least 20 consecutive trading days during any 40 consecutive trading days, if EOS redeems the OCEANEs when the number of OCEANEs outstanding is 15% or less of the number of OCEANEs originally issued, or the occurrence of a tender or exchange offer. OCEANE holders can redeem the notes upon the occurrence of an event of default or upon the occurrence of a change of control
If EOS undergoes a merger or demerger, the OCEANEs will be convertible into shares of the merged or new company or the beneficiary of such demerger. On May 13, 2021, EOS was acquired by the Company via a tender offer. The Company owned 100% of EOS and 57% of the OCEANEs as of June 30, 2021.
Although the acquisition of EOS constituted a change of control, the holders of the OCEANEs did not redeem or convert the OCEANEs. Therefore, the Company continued to classify the OCEANEs as long-term debt on its condensed consolidated balance sheet as of June 30, 2021.
The carrying value of the outstanding OCEANEs of $15.1 million (or €12.6 million) approximated the fair value as of June 30, 2021.
Other Debt Agreements
In January and April 2021, prior to the acquisition, EOS obtained 2 loan agreements under French state sponsored COVID relief initiatives(PGE – pret garanti par l’etat). Each loan contains a 12-month term , and 90% of the principal balance of each loan is state guaranteed. The cost of the state guaranty is 0.25% of the loan amount, and the loan carries an interest-free rate from the commercial banks (€3,266,667) and a 1.75% interest from the lender (€1,450,000). The loan capital and loan guaranty costs are payable in full at the end of the 12-month term or the loan may be extended up to 5 additional years. If the Company choses to extend the debt, the election must be made by the Company between month 8 and month 11. The extension will carry an interest rate at the banks’ refinancing cost, to be applied from year 2 to year 6 and an increased state guaranty cost (50 to 200 bps, as per a scale with company size and extension year). The Company has recorded the debt as short-term debt on the Company’s condensed consolidated balance sheet. The outstanding obligation under each loan as of June 30, 2021 is $0.5 million and $5.1 million (€0.4 million and €4.3 million).
18
Reference Rate Reform
In July 2017, the U.K.’s Financial Conduct Authority (“FCA”), which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. On November 30, 2020, was $3.0 million.ICE Benchmark Administration (the “IBA”), with the support of the United States Federal Reserve and the FCA, announced plans to consult on ceasing publication of USD LIBOR on December 31, 2021 for only the one week and two-month USD LIBOR tenors, and on June 30, 2023 for all other USD LIBOR tenors. Various central bank committees and working groups continue to discuss replacement of benchmark rates, the process for amending existing LIBOR-based contracts, and the potential economic impacts of different alternatives. The Alternative Reference Rates Committee has identified the Secured Overnight Financing Rate (“SOFR”), as its preferred alternative rate for USD LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions.
The Company is evaluating the potential impact of the replacement of the LIBOR benchmark interest rate including risk management, internal operational readiness and monitoring the FASB’s standard-setting process to address financial reporting issues that might arise in connection with the transition from LIBOR to a new benchmark rate.
Principal payments remaining on the Company's debt are as follows as of SeptemberJune 30, 20202021 (in thousands):
Year Ending December 31, |
|
|
|
|
Remainder of 2020 |
| $ | 241 |
|
2021 |
|
| 2,845 |
|
2022 |
|
| 2,949 |
|
2023 |
|
| 15,002 |
|
2024 |
|
| 12,018 |
|
2025 and thereafter |
|
| 50,000 |
|
Total |
|
| 83,055 |
|
Add: capital lease principal payments |
|
| 77 |
|
Less: unamortized debt discount and debt issuance costs |
|
| (15,696 | ) |
Total |
|
| 67,436 |
|
Less: current portion of long-term debt |
|
| (1,672 | ) |
Long-term debt, net of current portion |
| $ | 65,764 |
|
Remainder of 2021 |
| $ | 3,184 |
|
2022 |
|
| 7,816 |
|
2023 |
|
| 23,652 |
|
2024 |
|
| 12,018 |
|
2025 |
|
| 12,000 |
|
Thereafter |
|
| 20,000 |
|
Total |
|
| 78,670 |
|
Less: unamortized debt discount and debt issuance costs |
|
| (11,893 | ) |
Total |
|
| 66,777 |
|
Less: short-term debt |
|
| (10,988 | ) |
Long-term debt |
| $ | 55,789 |
|
15
Covenants
The Company’s various financing agreements include several event of default provisions, such as payment default, insolvency conditions and a material adverse effect clause, which could cause interest to be charged at a rate which is up to 5 percentage points above the rate effective immediately before the event of default or result in the lenders’ right to declare all outstanding obligations immediately due and payable. Furthermore, the credit agreements contain various covenants and compliance requirements with governmental regulations and maintenance of insurance, as well as prohibitions against certain specified actions, including acquiring any new equipment financings over a specified amount. The Company was in compliance with the covenants under the financing agreements at September 30, 2020.
6.7. Commitments and Contingencies
Leases
On December 4, 2019, theThe Company entered intodetermines if an arrangement is a lease agreement for a new headquarters location which will consist of 121,541 square feet of office, engineering,at inception by assessing whether there is an identified asset and research and development space in Carlsbad, California. The termwhether the contract conveys the right to control the use of the new lease is currently anticipated to commence during the first quarteridentified asset in exchange for consideration over a period of 2021 and terminate November 30, 2030.time. The Company will recognize arecognizes right-of-use assets (“ROU”ROU assets”) asset and liability upon taking control of the premises, which is currently anticipated to be the lease commencement date.
Operating Lease
The Company leases itsliabilities for office buildings and certain equipment under operating leaseswith lease terms of 1 year to 10 years, some of which expire on various dates through 2021.include options to extend and/or terminate the leases. Upon the Company’s adoption of ASU 2016-02, Leases (Topic 842) (“ASC 842”), as of January 1, 2019 the Company recognized a ROU asset and liability for its building lease, assuming a 10.5% discount rate. Any short-term leases defined as twelve months or less or month-to-month leases were excluded and continue to be expensed each month. Total costs associated with these short-term leases is immaterial to all periods presented.
The Company aggregates all lease and non-lease components for each class of underlying assets into a single lease component and variable charges for common area maintenance and other variable costs are recognized as expense as incurred. Total variable costs associated with leases for the three and ninesix months ended SeptemberJune 30, 20202021 were immaterial. The Company had an immaterial amount of financing leases as of June 30, 2021.
Operating Lease
The Company occupies approximately 121,541 square feet of office, engineering, and research and development space in Carlsbad, California. On December 4, 2019, the Company entered into a new 10-year operating lease that commenced on February 1, 2021 and will terminate on January 31, 2031, subject to two sixty-month options to renew which were not reasonably certain to be exercised. The Company recognized a $21.1 million ROU asset and $21.5 million lease liability on the condensed consolidated balance sheet upon taking control of the premises on the lease commencement date. Base rent under the building lease for the first twelve months of the term will be $0.2 million per month subject to full abatement during months two through ten, and thereafter will increase annually by 3.0% throughout the remainder of the lease.
On April 9, 2021, the Company entered into a new 7-year operating lease agreement for a new distribution center which consists of approximately 75,643 square feet of office and warehouse space in Memphis, Tennessee. The Company determines if an arrangement is aterm of the new lease at inception. The Company has operating leases for its buildingscommenced on May 1, 2021 and certain equipment with lease terms of one yearwill terminate on May 1, 2028, subject to 5.5 years, some of which includetwo thirty-six-month options to extend and/or terminate the lease. The exercise of lease renewal options is at the Company’s sole discretion andrenew which were not included in the calculation of the Company’s lease liability as the Company is not ablereasonably certain to determine without uncertainty if the renewal option will be exercised. The depreciable life of assets and leasehold improvements are limited to the expected term unless there isCompany recognized a transfer of title or purchase option reasonably certain of exercise. The Company’s lease agreements do not contain any variable lease payments, residual value guarantees or any restrictive covenants.
The Company’s$1.7 million ROU asset represents the right to use an underlying asset for the lease term and lease liabilities representliability upon taking control of the obligationpremises on the lease
19
commencement date. The Company is expected to make lease payments arising fromoccupy a proportionate share of the lease. Operating lease ROU assets and liabilities are recognized atbuilding upon commencement date of the lease or the ASC 842 adoption date, whicheveron May 1, 2021 and is later, based on the present value of lease payments over the lease term. When readily determinable, the Company uses the implicit rate in determining the present value of lease payments, or 10.5% asexpected to occupy 100% of the adoption date. When leases do not provide an implicit rate,premises beginning in November 2022. Base rent under the Company uses its incremental borrowing rate based onnew building lease will be commensurate with the information available atCompany’s proportionate share of occupancy of the lease commencement date or adoption date, includingnew building and will increase annually by 3.0% throughout the lease term. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis overremainder of the lease term.
lease.
Future minimum annual lease payments under such leases are as follows as of SeptemberJune 30, 20202021 (in thousands):
Undiscounted lease payments: |
|
|
|
| ||||
Year Ending December 31, |
|
|
|
| ||||
Remainder of 2020 |
| $ | 372 |
| ||||
2021 |
|
| 918 |
| ||||
Remainder of 2021 |
| $ | 857 |
| ||||
2022 |
|
| 40 |
|
|
| 4,340 |
|
2023 |
|
| 4,546 |
| ||||
2024 |
|
| 4,583 |
| ||||
2025 |
|
| 4,617 |
| ||||
Thereafter |
|
| 22,614 |
| ||||
Total undiscounted lease payments |
|
| 1,330 |
|
|
| 41,557 |
|
Less: present value adjustment |
|
| (66 | ) | ||||
Less: imputed interest |
|
| (13,367 | ) | ||||
Operating lease liability |
|
| 1,264 |
|
|
| 28,190 |
|
Less: current portion of operating lease liability |
|
| (1,208 | ) |
|
| (2,777 | ) |
Operating lease liability, less current portion |
| $ | 56 |
|
| $ | 25,413 |
|
As of September 30, 2020, theThe Company’s averageweighted-average remaining lease term is and weighted-average discount rate as of June 30, 2021 and December 31, 2020 are as follows:1.2 years. Rent expense under
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||
Weighted-average remaining lease term (years) |
|
| 9.04 |
|
|
| 0.7 |
|
Weighted-average discount rate |
|
| 8.5 | % |
|
| 10.5 | % |
Information related to the Company’s operating leases was $0.3 million for the three months ended September 30, 2020 and 2019, and $1.0 million for the nine months ended September 30,is as follows (in thousands):
16
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Rent expense |
| $ | 1,119 |
|
| $ | 331 |
|
| $ | 2,202 |
|
| $ | 658 |
|
Cash paid for amounts included in measurement of lease liabilities |
| $ | 495 |
|
| $ | 372 |
|
| $ | 875 |
|
| $ | 741 |
|
2020 and 2019. The Company paid $0.4 million and $1.1 million on its operating lease agreements for the three and nine months ended September 30, 2020, respectively, and $0.4 million and $1.0 million on its operating lease agreement for the three and nine months ended September 30, 2019, respectively.
Purchase Commitments
The Company entered into a distribution agreement with a third-party provider in January 2020 in which the Company is obligated to certain minimum purchase requirements related to inventory and equipment leases. As of SeptemberJune 30, 2020,2021, the minimum purchase commitment required by the Company under the agreement was $3.5$1.8 million to be paid over a three-year period. The Company also recognized aan ROU asset in the amount of $0.5 million related to the leased assets within the purchase agreement in the amount of $0.5 million for the nine months ended September 30, 2020. The ROU assetwhich is being amortized into rent expense through the lease term. An immaterial amountThe Company recognized $0.1 million and $0.2 million of rent expense pertaining to these assets was recognized for the three and ninesix months ended SeptemberJune 30, 2021, respectively, and did 0t recognize any rent expense pertaining to these assets for the three and six months ended June 30, 2020. The ROU asset related to the leased assets within the agreement on the Company’s condensed consolidated balance sheet was $0.4 million as of June 30, 2021.
With the acquisition of EOS, the company assumed its inventory purchase commitment agreement with a third-party supplier. EOS is obligated to certain minimum purchase commitment requirements through December 2025. As of June 30, 2021, the remaining minimum purchase commitment required by EOS under the agreement was $28.8 million.
Litigation
The Company is and may become involved in various legal proceedings arising from its business activities. While management is not aware of any litigation matter that in and of itself would have a material adverse impact on the Company’s consolidated results of operations, cash flows or financial position, litigation is inherently unpredictable, and depending on the nature and timing of a proceeding, an unfavorable resolution could materially affect the Company’s future consolidated results of operations, cash flows or financial position in a particular period. The Company assesses contingencies to determine the degree of probability and range of
20
possible loss for potential accrual or disclosure in the Company’s consolidated financial statements. An estimated loss contingency is accrued in the Company’s consolidated financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgments about future events. When evaluating contingencies, the Company may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. In addition, damage amounts claimed in litigation against the Company may be unsupported, exaggerated or unrelated to reasonably possible outcomes, and as such are not meaningful indicators of the Company’s potential liability.
In February 2018, NuVasive, Inc. filed suit against the Company in the United States District Court for the Southern District of California (NuVasive,(NuVasive, Inc. v. Alphatec Holdings, Inc. et al., Case No. 3:18-cv-00347-CAB-MDD (S.D. Cal.)), alleging that certain of the Company’s products (including components of its Battalion™ Lateral System), infringe, or contribute to the infringement of, U.S. Patent Nos. 7,819,801, 8,355,780, 8,439,832, 8,753,270, 9,833,227 (entitled “Surgical access system and related methods”), U.S. Patent No. 8,361,156 (entitled “Systems and methods for spinal fusion”), and U.S. Design Patent Nos. D652,519 (“Dilator”) and D750,252 (“Intervertebral Implant”). NuVasive seeks unspecified monetary damages and an injunction against future purported infringement.
In March 2018, the Company moved to dismiss NuVasive’s claims of infringement of its design patents for failure to state a cognizable legal claim. In May 2018, the Court ruled that NuVasive failed to state a plausible claim for infringement of the asserted design patents and dismissed those claims with prejudice. The Company filed its answer, affirmative defenses and counterclaims to NuVasive’s remaining claims in May 2018.
Also in March 2018, NuVasive moved for a preliminary injunction. In March 2018, the Court denied that motion without prejudice for failure to comply with the Court’s chambers rules. In April 2018, NuVasive again moved for a preliminary injunction. In July 2018, after a hearing on the matter in June 2018, the Court denied that motion on the grounds that NuVasive failed to establish either likelihood of success on the merits of its claims or that it would suffer irreparable harm absent the injunction.
In September 2018, NuVasive filed an Amended Complaint, asserting additional infringement claims of U.S. Patent Nos. 9,924,859, 9,974,531 and 8,187,334. The Company filed its answer, affirmative defenses and counterclaims to these new claims in October 2018. Also in October 2018, NuVasive moved to dismiss the Company’s counterclaims that NuVasive intentionally had misled the U.S. Patent and Trademark Office as a means of obtaining certain patents asserted against the Company. In January 2019, the Court denied NuVasive’s motion as to all but one of the Company’s counterclaims,counterclaim, but granted the Company leave to amend itsthat counterclaim to cure the dismissal. The Company amended that counterclaim in February 2019 and, that same month, NuVasive again moved to dismiss it. In March 2019, the Court denied NuVasive’s motion. NuVasive filed its Answer to the amended counterclaim in April 2019.
17
In December 2018, the Company filed a petition with the Patent Trial and Appeal Board (“PTAB”) challenging the validity of certain claims of the ’156 and ’334 Patents. In July 2019, PTAB instituted IPRInter Partes Review of the validity of asserted claims of the two patents at issue and held a hearing on the matter in April 2020. In July 2020, the PTAB ruled that all challenged claims of the ‘156 Patent were valid (not unpatentable) and ruled that several challenged claims of the ‘334 Patent were invalid, while finding that other challenged claims of the ‘334 Patent were valid. NuVasive and the Company have both appealed the PTAB’s written decision on the matter. The Company filed its Principal Brief on February 8, 2021. NuVasive filed its Principal Brief on April 21, 2021. The appeals are currently pending before the U.S. Court of Appeals for the Federal Circuit. No briefing or hearing schedule has been set.
In January 2020, NuVasive filed a Motion for Partial Summary Judgment of infringement and validity of the ’832, ’780 and ’270 Patents and the Company filed a Motion for Summary Judgment of non-infringement of all asserted claims and of invalidity of the ’832 Patent and for dismissal of NuVasive’s claim for lost profits and its allegations of assignor estoppel. In April 2020, the Court granted NuVasive’s Motion as to the alleged infringement of the ’832 Patent only and denied NuVasive’s Motion in all other respects. Also, in April 2020, the Court granted the Company’s Motion as to dismissal of the allegations of assignor estoppel and denied the Company’s Motion in all other respects.
In November 2020, NuVasive filed a Motion to Strike the Company’s Invalidity Contentions concerning the ’156 and ’334 Implant Patents. In April 2021, the Court denied NuVasive’s motion.
In January 2021, NuVasive filed a Motion for Partial Summary Judgment of infringement and validity of the ’156 and ’334 Implant Patents and the Company filed a Motion for Summary Judgment of invalidity of those same patents. These motions were argued to the Court on June 29, 2021 and are now pending before the Court. Trial is scheduledhas been set to take place in Junebegin December 6, 2021.
The Company believes that the allegations lack merit and intends to vigorously defend all claims asserted. A liability is recorded in the consolidated financial statements if it is believed to be probable that a loss has been incurred and the amount of the loss can be reasonably estimated. It is impossible at this time to assess whether the outcome of this proceeding will have a material adverse effect
21
on the Company’s condensed consolidated results of operations, cash flows or financial position. Therefore, in accordance with authoritative accounting guidance, the Company has not recorded any accrual for a contingent liability associated with this legal proceeding based on its belief that a liability, while possible, is not probable and any range of potential future charge cannot be reasonably estimated at this time.
Indemnifications
In the normal course of business, the Company enters into agreements under which it occasionally indemnifies third partiesthird-parties for intellectual property infringement claims or claims arising from breaches of contract, representations or warranties. In addition, from time to time, the Company provides indemnity protection to third partiesthird-parties for claims relating to past performance arising from undisclosed liabilities, product liabilities, environmental obligations, representations and warranties, and other claims. In these agreements, the scope and amount of remedy, or the period in which claims can be made, may be limited. It is not possible to determine the maximum potential amount of future payments, if any, due under these indemnities due to the conditional nature of the obligations and the unique facts and circumstances involved in each agreement.
In October 2017, NuVasive filed a lawsuit in Delaware Chancery Court against Mr. Miles, the Company’s Chairman and CEO, who was a former officer and board member of NuVasive. The Company itself was not initially a named defendant in this lawsuit; however, inon June 28, 2018, NuVasive amended its complaint to add the Company as a defendant. As of September 30, 2020, the Company has 0t recorded any liability on the condensed consolidated balance sheet related to this matter. InOn October 12, 2018, the Delaware Court ordered that NuVasive begin advancing a portion of the legal fees for Mr. Miles’ defense in the lawsuit, as well as Mr. Miles’ legal fees incurred in pursuing advancement of his fees, pursuant to an indemnification agreement between NuVasive and Mr. Miles. As of June 30, 2021, the Company has 0t recorded any liability on the condensed consolidated balance sheet related to this matter.
Royalties
The Company has entered into various intellectual property agreements requiring the payment of royalties based on the sale of products that utilize such intellectual property. These royalties primarily relate to products sold by Alphatec Spine and are based on fixed fees or are calculated either as a percentage of net sales or on a per-unit sold basis. Royalties are included on the accompanying condensed consolidated statements of operations as a component of cost of revenue. As of SeptemberJune 30, 2020,2021, the Company is obligated to pay guaranteed minimum royalty payments under these agreements of approximately $4.5$3.4 million through 20242026 and beyond.
7.8. Orthotec Settlement
On September 26, 2014, the Company entered into a Settlement and Release Agreement, dated as of August 13, 2014, by and among the Company and its direct subsidiaries, including Alphatec Spine, Inc., Alphatec Holdings International C.V., Scient'x S.A.S. and Surgiview S.A.S.; HealthpointCapital, LLC, HealthpointCapital Partners, L.P., HealthpointCapital Partners II, L.P., John H. Foster and Mortimer Berkowitz III; and Orthotec, LLC and Patrick Bertranou, (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the Company agreed to pay Orthotec, LLC $49.0 million in cash, including initial cash payments totaling $1.75 million, which the Company previously paid in March 2014, and an additional lump sum payment of $15.75 million, which the Company previously paid in April 2014. The Company agreed to pay the remaining $31.5 million in 28 quarterly installments of $1.1 million and 1 additional quarterly installment of $0.7 million, commencing October 1, 2014. The payments set forth above are guaranteed by Stipulated Judgments held against the Company, HealthpointCapital Partners, L.P., HealthpointCapital Partners II, L.P., HealthpointCapital, LLC, John H. Foster and Mortimer Berkowitz III and, in the event of a default, will be entered and enforced against these entities and/or individuals in that order. In September 2014, the Company and HealthpointCapital entered into an agreement for joint payment of settlement whereby HealthpointCapital has agreed to contribute $5.0 million to the $49.0 million settlement amount. In October 2020, HealthpointCapital began its $5.0 million contribution, which will be in the form of 5 quarterly payments.payments of varying amounts. The $5.0remaining $1.8 million isreceivable from HealthpointCapital, LLC continues to be classified within stockholders’ equity on the Company’s condensed consolidated balance sheet
18
dueto the related party nature with HealthpointCapital and its affiliates. Payments made by HealthpointCapital will beare recorded as a reduction to stockholder’s equity. See Note 1113 for further information.
As of SeptemberJune 30, 2020,2021, the Company has made installment payments in the aggregate of $43.9$47.2 million, with a remaining outstanding balance of $13.9$10.6 million (including interest). The Company has the right to prepay the amounts due without penalty. In addition, the unpaid balance of the amounts due accrues interest at the rate of 7% per year until the balance is paid in full. The accrued but unpaid interest will be paid in quarterly installments of $1.1 million (or the full amount of the accrued but unpaid interest if less than $1.1 million) following the full payment of the $31.5 million in quarterly installments described above. No additional interest will accrue on the accrued interest. The Settlement Agreement provides for mutual releases of all claims in the Orthotec, LLC v. Surgiview, S.A.S, et al. matter in the Superior Court of California, Los Angeles County and all other related litigation matters involving the Company and its directors and affiliates.
22
A reconciliation of the total net settlement obligation is as follows (in thousands):
|
| September 30, 2020 |
|
| December 31, 2019 |
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||||
Litigation settlement obligation - short-term portion |
| $ | 4,400 |
|
| $ | 4,400 |
|
| $ | 4,000 |
|
| $ | 4,000 |
|
Litigation settlement obligation - long-term portion |
|
| 8,126 |
|
|
| 10,712 |
|
|
| 5,795 |
|
|
| 7,634 |
|
Total |
|
| 12,526 |
|
|
| 15,112 |
|
|
| 9,795 |
|
|
| 11,634 |
|
Future Interest |
|
| 1,407 |
|
|
| 2,121 |
| ||||||||
Future interest |
|
| 838 |
|
|
| 1,199 |
| ||||||||
Total settlement obligation, gross |
|
| 13,933 |
|
|
| 17,233 |
|
|
| 10,633 |
|
|
| 12,833 |
|
Related party receivable - included in stockholders' equity |
|
| (5,000 | ) |
|
| (5,000 | ) |
|
| (1,800 | ) |
|
| (4,000 | ) |
Total settlement obligation, net |
| $ | 8,933 |
|
| $ | 12,233 |
|
| $ | 8,833 |
|
| $ | 8,833 |
|
8.
9. Business Segment and Geographic Information
The Company operates in 1 segment based upon the Company’s organizational structure, the way in which the operations and investments are managed and evaluated by the chief operating decision maker (“CODM”) as well as the lack of available discrete financial information at a level lower than the consolidated level. The Company shares common, centralized support functions which report directly to the CODM and decision-making regarding the Company’s overall operating performance and allocation of Company resources is assessed on a consolidated basis.
Net revenue and property, plant and equipment, net, by geographic region were as follows:
|
| Revenue |
|
| Property and equipment, net |
| ||||||||||||||||||
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
|
| June 30, |
|
| December 31, |
| ||||||||||||
(in thousands) |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||
United States |
| $ | 59,294 |
|
| $ | 28,834 |
|
| $ | 103,010 |
|
| $ | 57,904 |
|
| $ | 64,729 |
|
| $ | 36,670 |
|
International |
|
| 2,955 |
|
|
| 795 |
|
|
| 3,360 |
|
|
| 1,840 |
|
|
| 1,322 |
|
|
| — |
|
Total |
| $ | 62,249 |
|
| $ | 29,629 |
|
| $ | 106,370 |
|
| $ | 59,744 |
|
| $ | 66,051 |
|
| $ | 36,670 |
|
10. Net Loss Per Share
Basic earningsnet loss per share (“EPS”) is calculated by dividing the net income or loss available to common stockholders by the weighted averageweighted-average number of common shares outstanding for the period, without consideration forperiod. Diluted net loss per share attributable to common stock equivalents. Diluted EPSstockholders is computedcalculated by dividing the net incomeloss available to common stockholders by the weighted averagediluted weighted-average number of common shares outstanding for the period and the weighted average number of dilutive common stock equivalents outstanding for the period determined using the treasury-stock method. For purposes of this calculation, common stock subject to repurchase by the Company, convertible preferred stock, options, convertible notes and warrants are considered to be common stock equivalents and are only included in the calculation of diluted earnings per share when their effect is dilutive.period.
The following table presents the computation of basic and diluted net loss per share for continuing and discontinued operations (in thousands, except per share amounts):
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss, basic and diluted |
| $ | (15,669 | ) |
| $ | (14,567 | ) |
| $ | (52,196 | ) |
| $ | (39,971 | ) |
| $ | (38,205 | ) |
| $ | (15,805 | ) |
| $ | (61,108 | ) |
| $ | (36,527 | ) |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
| 64,884 |
|
|
| 56,010 |
|
|
| 63,845 |
|
|
| 49,528 |
| ||||||||||||||||
Weighted average unvested common shares subject to repurchase |
|
| (123 | ) |
|
| (274 | ) |
|
| (176 | ) |
|
| (276 | ) | ||||||||||||||||
Weighted average common shares outstanding - basic and diluted |
|
| 64,761 |
|
|
| 55,736 |
|
|
| 63,669 |
|
|
| 49,252 |
| ||||||||||||||||
Weighted-average common shares outstanding, basic and diluted |
|
| 98,541 |
|
|
| 63,713 |
|
|
| 92,912 |
|
|
| 63,140 |
| ||||||||||||||||
Net loss per share, basic and diluted: |
| $ | (0.24 | ) |
| $ | (0.26 | ) |
| $ | (0.82 | ) |
| $ | (0.81 | ) |
| $ | (0.39 | ) |
| $ | (0.25 | ) |
| $ | (0.66 | ) |
| $ | (0.58 | ) |
19
The anti-dilutive securities not included in diluted net loss per share were as follows (in thousands):
|
| As of September 30, |
|
| As of June 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Options to purchase common stock |
|
| 4,141 |
|
|
| 4,270 |
| ||||||||
Series A Convertible Preferred Stock |
|
| 29 |
|
|
| 67 |
| ||||||||
Options to purchase common stock and employee stock purchase plan |
|
| 3,659 |
|
|
| 4,167 |
| ||||||||
Unvested restricted share awards |
|
| 8,072 |
|
|
| 6,755 |
|
|
| 8,678 |
|
|
| 8,345 |
|
Series A Convertible Preferred Stock |
|
| 29 |
|
|
| 67 |
| ||||||||
Warrants to purchase common stock |
|
| 25,358 |
|
|
| 26,739 |
|
|
| 20,525 |
|
|
| 25,401 |
|
Total |
|
| 37,600 |
|
|
| 37,831 |
|
|
| 32,891 |
|
|
| 37,980 |
|
9. Stock Benefit11. Stock-Benefit Plans and Equity Transactions
Stock Benefit Plans
On June 17, 2020, the Company’s shareholders approved an amendment to the Company’s 2016 Equity Incentive Award Plan (the “2016 Equity Plan”), which increased the amount of shares of Common Stockcommon stock available for issuance under the 2016 Equity Plan by 7,000,000 shares. At SeptemberJune 30, 2020, 4,285,9242021, 3,827,639 shares of common stock remainedwere available for issuance under the 2016 Equity Incentive Award Plan.
Salary-to-Equity Conversion Program
On April 5, 2020,In 2007, the Company implemented a voluntary salary-to-equity conversion program for certain employees whose annual payroll costs exceed $100,000, includingadopted the Alphatec Holdings, Inc. 2007 Amended and Restated Employee Stock Purchase Plan (the “ESPP”), which first was amended in May 2017. On June 16, 2021, the Company’s executive officers. The program permitted each participant to makeshareholders approved a voluntary election to reduce the participant’s compensation rate through July 11, 2020 from 10% to 75%. In exchange for the compensation reduction, each participant was granted a restricted stock unit from the Company’s 2016 Equity Incentive Plan, equalsecond amendment to the dollarESPP which increased the amount of compensation reduction divided by the 30-day volume weighted average priceshares of the Company’s common stock as of close of market on April 3, 2020. The restricted stock units grantedavailable for purchase under the program fully vested on July 10, 2020. The temporary reduction in compensation toESPP by 500,000 shares. At June 30, 2021, 662,036 shares of common stock were available for purchase under the participants shall not be treated as a reduction in base annual salary rate for purposes of any other benefits plans in which the participants are enrolled or eligible to participate, including in any bonus plans of the Company. As the plan allows for a cash payment of the deferred amount in the event the employee separated from the Company prior to the completion date of the program, the amounts were recorded as a liability instrument through its settlement date with a corresponding fair value update at each reporting period. The full fair value of $0.9 million was reclassified into equity upon settlement of the program and issuance of the common stock. A stock compensation charge of $0.1 million and $0.9 million is recorded for the three and nine months ended September 30, 2020, respectively.ESPP.
Stock-Based Compensation
Total stock-based compensation for the three and nine months ended September 30, 2020 isperiods presented were as follows (in thousands):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Cost of revenues |
| $ | 139 |
|
| $ | 57 |
|
| $ | 374 |
|
| $ | 113 |
|
| $ | 235 |
|
| $ | 128 |
|
| $ | 330 |
|
| $ | 235 |
|
Research and development |
|
| 379 |
|
|
| 227 |
|
|
| 1,066 |
|
|
| 543 |
|
|
| 664 |
|
|
| 563 |
|
|
| 1,162 |
|
|
| 954 |
|
Sales, general and administrative |
|
| 4,026 |
|
|
| 3,319 |
|
|
| 11,247 |
|
|
| 6,910 |
|
|
| 10,597 |
|
|
| 3,884 |
|
|
| 14,478 |
|
|
| 6,954 |
|
Total |
| $ | 4,544 |
|
| $ | 3,603 |
|
| $ | 12,687 |
|
| $ | 7,566 |
|
| $ | 11,496 |
|
| $ | 4,575 |
|
| $ | 15,970 |
|
| $ | 8,143 |
|
20
Shares Reserved for Future Issuance
As of SeptemberJune 30, 2020,2021, the Company had reservedCompany’s shares of its common stock reserved for future issuance were as follows (in thousands):
Stock options outstanding |
|
|
|
|
Unvested restricted stock award |
|
|
|
|
Employee stock purchase plan |
|
|
|
|
Series A convertible preferred stock |
|
| 29 |
|
Warrants outstanding |
|
|
|
|
Authorized for future grant under the Distributor and Development Services plans |
|
|
|
|
Authorized for future grant under the Management Objective Strategic Incentive Plan |
|
| 345 |
|
Authorized for future grant under the Company equity plans |
|
|
|
|
Total |
|
|
|
|
Warrants Outstanding
2017 PIPE Warrants
The 2017 Common Stock Warrants (the “2017 PIPE Warrants”) have a five-year life and are exercisable by cash exercise only. During the three and six months ended June 30, 2021, there were 375,000 and 520,000 2017 PIPE Warrant exercises for total cash or by cashless exercise.proceeds of $0.8 million and $1.0 million, respectively. During the three months ended SeptemberJune 30, 2020, there were 0 2017 PIPE Warrant exercises. Duringexercises and during the ninesix months ended SeptemberJune 30, 2020 there were 125,000 2017 PIPE Warrant exercises for total cash proceeds of $0.3 million. During the three and nine months ended SeptemberAs of June 30, 2019, there were 300,000 and 418,8642021, 2,587,000 2017 PIPE Warrant exercises, for total cash proceeds of $0.6 million and $0.8 million, respectively. As of September 30, 2020, there were 3,255,554 2017 PIPE Warrants remained outstanding.
2018 PIPE Warrants
The 2018 Common Stock Warrants (the “2018 PIPE Warrants”) have a five-year life and are exercisable forby cash or by cashless exercise. During the three and six months ended SeptemberJune 30, 2021, there were 693,335 and 2,841,116 2018 PIPE Warrant exercises, respectively, for total cash proceeds of $1.0 million and $1.3 million, respectively. During the three months ended June 30, 2020, there were 136,0000 2018 PIPE Warrant exercises. Duringwarrant exercises and during the nine six months ended SeptemberJune 30, 2020 there were 1,670,5242,059,524 2018 PIPE Warrantwarrant exercises for total cash proceeds of $0.9 million. As of June 30, 2021, 8,538,569 2018 PIPE Warrants remained outstanding.
SafeOp Surgical Merger Warrants
In conjunction with the Company’s 2018 acquisition of SafeOp, the Company issued warrants to purchase 2,200,000 shares of common stock at an exercise price of $3.50 per share, which have a five-year life and are exercisable by cash or cashless exercise. There were 0 exercises during the three months ended June 30, 2021. During the three and ninesix months ended SeptemberJune 30, 2019,2021 there were 81,195 and 217,195 2018 PIPE969,932 SafeOp Surgical Merger Warrant exercises for total cash proceeds of $0.0$0.1 million. During the three and $0.6 million, respectively. A totalsix months ended June 30, 2020, there were 0 SafeOp Surgical Merger Warrant exercises during either period. As of 11,527,147 2018 PIPEJune 30, 2021, 1,194,943 SafeOp Surgical Merger Warrants remained outstanding as of September 30, 2020.outstanding.
Squadron Medical Warrants
As further described in Note 5,6, during the year ended December 31, 2018, in connection with the initial debt financing with Squadron Medical and a participant lender, the Company issued warrants to purchase 845,000 shares of common stock at an exercise price of $3.15 per share. An additional 4,838,710 warrants were issued at an exercise price of $2.17 per share during the second quarter of 2019, in conjunction with the Company’s draw on the expanded credit facility. In May 2020, an additional 1,075,820 warrants were issued at an exercise price of $4.88 per share in conjunction with the Company’s second amendment to the Squadron Medical debt for total warrants outstanding to Squadron Medical and the participant lender of 6,759,530. The warrants have a seven-year term and are immediately exercisable. Further inIn conjunction with the second amendment, the terminationexpiration dates for all existing Squadron warrants waswere extended to May 29, 2027 in order to align all outstanding warrant expiration dates. In accordance with authoritative accounting guidance, the warrants qualified for equity treatment upon issuance and were recorded as a debt discount to the face of the debt liability based on fair value to be amortized into interest expense over the life of the debt agreement. The fair value assigned to the warrant amendment was also allocated as a debt issuance cost and amortized into interest expense. As the warrants provide for partial price protection that allow for a reduction in the price in the event of a lower per share priced issuance, the warrants were valued utilizing a Monte Carlo simulation that considers the probabilities of future financings. The Monte Carlo model simulates the present value of the potential outcomes of future stock prices of the Company over the seven-year life of the warrants. The projection of stock prices is based on the risk-free rate of return and the volatility of the stock price of the Company and correlates future equity raises based on the probabilities provided. NaN Squadron Medical Warrants have been exercised as of June 30, 2021.
21Executive Warrants
In December 2017 the Company issued warrants to Mr. Patrick S. Miles, the Company’s Chairman and Chief Executive Officer, to purchase 1,327,434 shares of the Company’s common stock for $5.00 per share (the “Executive Warrants”). The warrants have a five-year term and are exercisable by cash or cashless exercise. The warrants issued to Mr. Miles were accounted for as share based compensation, and the fair value of the warrants of approximately $1.4 million were recognized in full in the statement of operations for the year ended December 31, 2017 as the warrants were immediately vested upon issuance. NaN Executive Warrants have been exercised as of June 30, 2021.
25
A summary of all outstanding warrants for common stock isas of June 30, 2021 were as follows:
|
| Number of Warrants |
|
| Strike Price |
| Expiration | ||
2017 PIPE Warrants* |
|
| 3,255,554 |
|
| $ | 2.02 |
| June 2022 |
2018 PIPE Warrants |
|
| 11,527,147 |
|
| $ | 3.50 |
| May 2023 |
SafeOp Surgical Merger Warrants |
|
| 2,185,099 |
|
| $ | 3.50 |
| May 2023 |
2018 Squadron Capital Warrants |
|
| 845,000 |
|
| $ | 3.15 |
| May 2027 |
2019 Squadron Capital Warrants |
|
| 4,838,710 |
|
| $ | 2.17 |
| May 2027 |
2020 Squadron Capital Warrants |
|
| 1,075,820 |
|
| $ | 4.88 |
| May 2027 |
Executive Warrants |
|
| 1,327,434 |
|
| $ | 5.00 |
| December 2022 |
Other* |
|
| 302,812 |
|
| $ | 3.85 |
| Various through May 2023 |
Total |
|
| 25,357,576 |
|
|
|
|
|
|
|
| Number of Warrants |
|
| Strike Price |
| Expiration | ||
2017 PIPE Warrants |
|
| 2,587,000 |
|
| $ | 2.00 |
| June 2022 |
2018 PIPE Warrants |
|
| 8,538,569 |
|
| $ | 3.50 |
| May 2023 |
SafeOp Surgical Merger Warrants |
|
| 1,194,943 |
|
| $ | 3.50 |
| May 2023 |
2018 Squadron Medical Warrants |
|
| 845,000 |
|
| $ | 3.15 |
| May 2027 |
2019 Squadron Medical Warrants |
|
| 4,838,710 |
|
| $ | 2.17 |
| May 2027 |
2020 Squadron Medical Warrants |
|
| 1,075,820 |
|
| $ | 4.88 |
| May 2027 |
Executive Warrants |
|
| 1,327,434 |
|
| $ | 5.00 |
| December 2022 |
Other(1) |
|
| 117,812 |
|
| $ | 2.87 |
| Various through May 2023 |
Total |
|
| 20,525,288 |
|
|
|
|
|
|
|
|
All outstanding warrants were deemed to qualify for equity classification under authoritative accounting guidance.
2017 Distributor Inducement Plan and 2017 Development Services Plan
Under the 2017 Distributor Inducement Plan, the Company is authorized to grant up to 1,000,000 shares of common stock to third-party distributors whereby, upon the achievement of certain Company sales and/or distribution milestones the Company may grant to a distributor shares of common stock or warrants to purchase shares of common stock. The warrants and restricted stock units issued under the plan are subject to time based or net sales basedsales-based vesting conditions. As of SeptemberJune 30, 2020, 370,0002021, 575,000 warrants were granted, and 51,500284,500 shares of restricted common stock were earned and issuedhave been granted under the 2017 Distributor Inducement Plan. As of June 30, 2021, 195,000 warrants and 84,500 restricted stock units have been earned or issued under the plan. Warrants granted under the plan as of SeptemberJune 30, 20202021 were not yet subject to expiration related to any time or sales basedsales-based vesting conditions. Expense recorded for the plan was $0.3 million and $0.4 million for the three months and nine months ended September 30, 2020, respectively, and $0.1 million and $0.3 million for the three and nine months ended September 30, 2019, respectively.
Under the 2017 Development Services Plan, the Company is authorized to grant up to 6,000,0007,000,000 shares of common stock to third-party individuals or entities whereby, upon the achievement of certain Company financial and commercial revenue milestones, future royalty payments for product and/or intellectual property development work may be paid in either cash or restricted shares of Company common stock at the election of the developer. Each common stock issuance is subject to net sales-based and other vesting provisions and satisfaction of applicable laws and market regulations regarding the issuance of restricted shares to such developers. As of September 30, 2020, theThe Company has entered into Development Services Agreements pursuant to which the Company may grant 5,169,000has granted 6,709,000 shares of restricted common stock under the 2017 Development Services Plan, subject to achievement of the performance criteria and vesting conditions as set forth in such Development Services Agreements. NoneAs of June 30, 2021, NaN of the grants arewere deemed probable of equity election as of September 30, 2020. In addition, 0 common stock elections or cash payouts have been made under the plan as of September 30, 2020.election.
2019 Management Objective Strategic Incentive Plan
Under the 2019 Management Objective Strategic Incentive Plan, the Company is authorized to grant up to 500,000 shares of common stock to third-party individuals or entities that do not qualify under the Company’s other existing equity plans, with a maximum grant of 50,000 shares per participant. As of SeptemberJune 30, 2020,2021, 130,000 restricted shares and a warrant to purchase up to 25,000 restricted common stock shares have been granted under the 2019 Management Objective Strategic Incentive Plan. Total expense for the plan was $0.1 for the three and nine months ended September 30, 2020.
10.12. Income Taxes
To calculate its interim tax provision, at the end of each interim period the Company estimates the annual effective tax rate, adjusted for discrete items arising in that quarter, and applies that rate to its ordinary quarterly earnings. In addition, the effect of changes in enacted tax laws or rates or tax status is recognized in the interim period in which the change occurs. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in foreign jurisdictions, permanent and temporary differences between book and tax amounts, and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or the tax environment changes.
2226
IntraperiodThe Company’s effective tax allocation rules require the Company to allocate the provision for income taxes between continuing operations and other categories of earnings, such as discontinued operations. In periods in which the Company has a year-to-date pre-tax lossrate from continuing operations was (.11%) percent and pre-tax income in other categories of earnings, such as discontinued operations,(.12%) percent for the Company must allocatethree and six months ended June 30, 2021, respectively, and (.38%) percent and (.27%) percent for the tax provision to the other categories of earnings,three and then record a related tax benefit in continuing operations.
The unrecognized tax benefits at Septembersix months ended June 30, 2020, and December 31, 2019 were $2.5 million for both periods, with 0 changes occurring during the year-to-date period. With the information currently available to the Company, it is reasonably possible there will not be a reversal to the tax reserves over the next twelve-month period. The Company recognizes interest and penalties related to uncertain tax positions as a component of the income tax provision. The Company is not currently under examination by the Internal Revenue Service, foreign, or state or local tax authorities.
For the three months ended September 30, 2020, the Company had an effective tax rate of 0% and recognized an immaterial amount of income tax provision from continuing operations.respectively. The Company’s effective tax rate differs from the federal statutory rate of 21% in each period primarily due to the Company’s net loss position.position and valuation allowance.
At December 31, 2019, the Company had federal and state net operating loss carryforwards of $205.2 million and $128.2 million, respectively, expiring at various dates beginning in 2019 and continuing through 2039. Net operating losses generated in years ending after December 31, 2017 can be carried forward indefinitely for federal and some state taxes. At December 31, 2019, the Company had state research and development tax credit carryforwards of $3.2 million. The state research and development tax credits do not have an expiration date and may be carried forward indefinitely.
Utilization of the net operating loss and tax credit carryforwards may become subject to annual limitations due to ownership change limitations that could occur in the future as provided by Section 382 and 383 of the Internal Revenue Code of 1986, as amended, as well as similar state provisions. These ownership changes may limit the amount of the net operating loss and tax credit carryforwards that can be utilized annually to offset future taxable income, if the Company experiences a cumulative change in ownership of more than 50% within a three-year testing period.
11.13. Related Party Transactions
In July 2016, the Company entered into a forbearance agreement with HealthpointCapital, LLC, HealthpointCapital Partners, L.P., and HealthpointCapital Partners II, L.P. (collectively, "HealthpointCapital"), pursuant to which HealthpointCapital, on behalf of the Company, paid $1.0 million of the $1.1 million payment due and payable by the Company to Orthotec on July 1, 2016 and agreed to not exercise its contractual rights to seek an immediate repayment of such amount. Pursuant to this forbearance agreement, the Company repaid this amount in September 2016. The Company and HealthpointCapital also entered into an agreement for joint payment of settlement whereby HealthpointCapital has agreed to contribute $5.0 million to the $49.0 million Orthotec settlement amount. In October 2020, HealthpointCapital began making its $5.0 million contribution, which will be in the form of 5 quarterly payments.
During the second quarter of 2018, HealthpointCapital Partners, L.P., and HealthpointCapital Partners II, L.P. distributed its holdings in the Company’s common stock to its limited partners. As a result, the fund is no longer a shareholder of the Company as of SeptemberJune 30, 20202021. The $5.0remaining $1.8 million receivable from HealthpointCapital, LLC continues to be classified within stockholders’ equity on the Company’s condensed consolidated balance sheetssheet due to the related party nature with HealthpointCapital affiliates. Payments made by HealthpointCapital will be recorded as a reduction to stockholder’s equity.
In November 2018, the Company entered into a Term Loan and Financing agreement with affiliates of Squadron Capital, LLC. The Term Loan was amended in March 2019, May 2020 and December 2020, as further described in Note 6. Squadron Capital, LLC was a lead investor in the private placement of shares of the Company’s common stock that was closed on March 1, 2021. David Pelizzon, President and Director of Squadron Capital, LLC, currently serves on the Company’s Board of Directors.
Included on the condensed consolidated balance sheet as of SeptemberJune 30, 20202021 is a $0.9$1.1 million officer receivable for settlement of a tax liability related to the vesting of restricted common stock. A corresponding liability for the same amount is also included within accrued expenses on the condensed consolidated balance sheet within the accrued expenses line item. Subsequent to September 30, 2020, a $0.6 million payment was remitted to settle the tax liability.sheet.
12.14. Subsequent Event
On October 16, 2020,
In July 2021, the Company closed an underwritten public offering (the “Offering”) of a total of 13,142,855 shares of its common stock. The shares were sold pursuant to a underwriting agreement dated October 13, 2020 (the “Underwriting Agreement”), between the Company and Morgan Stanley & Co. LLC and Cowen and Company, LLC, as representative of the several underwriters named therein, at a price to the public of $8.75 per share. The closing of the Offering included the issuance and sale of 1,714,285 shares of the Company’s common stock, included within the total number of shares above, pursuant to the full exercise of the underwriters’ option to purchase additional shares pursuant to the Underwriting Agreement. The net proceeds to the Companyreceived confirmation from the Offering were approximately $107.7 million, includingSBA that the net proceeds fromentire PPP Loan was forgiven. See Note 6 for further information on the overallotment shares and deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. The Company intends to use the net proceeds of the Offering for general corporate purposes, including working capital, capital expenditures and continued research and development with respect to products and technologies. A portion of the net proceeds of the Offering may also be used to fund possible investments in or acquisitions of complementary businesses, products, or technologies.PPP Loan.
2327
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
You should read the following management's discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto that appear elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”), on March 17, 2020.5, 2021. In addition to historical information the following management’s discussion and analysis of our financial condition and results of operations includes forward-looking information that involves risks, uncertainties, and assumptions. Our actual results and the timing of events could differ materially from those anticipated by these forward-looking statements as a result of many factors, such as those set forth under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20192020 and any updates to those risk factors filed from time to time in our subsequent periodic and current reports filed with the SEC.
Overview
We are a medical technology company focused on the design, development, and advancement of technology for better surgical treatment of spinal disorders. We are dedicated to revolutionizing the approach to spine surgery.surgery through clinical distinction. We have a broad product portfolio designed to address the majority of the U.S. market for fusion-based spinal disorder solutions. disorders. We are focused on developing new approaches that integrate seamlessly with the SafeOp Neural InformatiX System to safely and reproducibly treat the spine’s various pathologies and achieve the goals of spine surgery. Our ultimate vision is to be the standard bearer in spine.
We intend to drive growth by exploitingcapitalizing on our collective spine experience and investing in the research and development to continually differentiate our solutions and improve spine surgery. We believe our future success will be fueled by introducing market-shifting innovation to the spine market, and that we are well-positioned to capitalize on current spine market dynamics.
We market and sell our products in the U.S. through a network of independent distributors and direct sales representatives. An objective of our leadership team is to deliver increasingly consistent, predictable growth. To accomplish this, we have partnered more closely with new and existing distributors to create a more dedicated and loyal sales channel for the future. We have added, and intend to continue to add, new high-quality exclusive and dedicated distributors to expand future growth. We believe this will allow us to reach an untapped market of surgeons, hospitals, and national accounts across the U.S., as well as better penetrate existing accounts and territories.
Recent Developments
Acquisition of EOS
On May 13, 2021, we acquired a controlling interest in EOS imaging S.A. (“EOS”), pursuant to the Tender Offer Agreement (the “Tender Offer Agreement”) we entered on December 16, 2020, and we subsequently purchased the remaining issued and outstanding ordinary shares for a 100% interest in EOS. EOS, which now operates as our wholly owned subsidiary, is a global medical device company that designs, develops and markets innovative, low dose 2D/3D full body and weight-bearing imaging, rapid 3D modeling of EOS patient X-ray images, web-based patient-specific surgical planning, and integration of surgical plan into the operating room that collectively bridge the entire spectrum of care from imaging to post-operative assessment capabilities for orthopedic surgery. We plan to integrate this technology into our procedural approach to spine surgery in order to better inform and better achieve spinal alignment objectives in surgery.
COVID-19 Pandemic
Since the beginning of the COVID-19 pandemic, we have continuedseen volatility in sales trends since elective surgeries that use our products have been impacted to make progress invarying degrees, particularly more during the transitionearlier phases of the pandemic. Since the earlier phases of the pandemic, demand has since recovered to varying degrees as local conditions have improved and some geographies have re-opened following the development and administration of a vaccine to the general public, therefore allowing surgeons to resume surgeries.
We continue to monitor the impact of the COVID-19 pandemic on our sales channel since early 2017, drivingbusiness and recognize it may continue to negatively impact our business and results of operations during the percentremainder of sales contributed by our strategic distribution channel from approximately 89%2021 and 87% forbeyond. Given the three and nine months ended September 30, 2019 to 92% and 91% forpresent uncertainty surrounding the three and nine months ended September 30, 2020, respectively. We intendpandemic, we expect to continue to relentlessly drive toward a fully exclusive network of independent and direct sales agents. Consolidation withinsee volatility through at least the industry is helping facilitate the process, as large, seasoned agents continue to seek opportunities to re-enter the spine market by partnering with spine-focused companies that have broad, growing product portfolios.
Recent Developments
Follow-On Registered Public Offering
On October 16, 2020, we closed an underwritten public offering (the “Offering”) of a total of 13,142,855 shares of our common stock. The shares were sold pursuant to a underwriting agreement dated October 13, 2020 (the “Underwriting Agreement”), between the Company and Morgan Stanley & Co. LLC and Cowen and Company, LLC, as representativeremaining duration of the several underwriters named therein, at a pricepandemic as the impact on individual markets and responses to the public of $8.75 per share. The closing of the Offering included the issuanceconditions by state and sale of 1,714,285 shares of our common stock, included within the total number of shares above, pursuant to the full exercise of the underwriters’ option to purchase additional shares pursuant to the Underwriting Agreement. The net proceeds from the Offering were approximately $107.7 million, including the net proceeds from the overallotment shares and deducting underwriting discounts and commissions and estimated offering expenses payable by us.
COVID-19 Pandemic
Prior to the spread of COVID-19, we experienced year-over-year U.S. sales growth of over 30%, which was consistent with previously issued revenue guidance in January 2020. As the COVID-19 pandemic spread to Western Europe and the U.S., we experienced a significant decline in procedures from the last half of March 2020 through the month of April. During May procedure volumes began to increase and in the month of June sales and procedure volumes returned to near pre-pandemic levels.
The depth and extent to which the COVID-19 pandemic will impact individual marketslocal governments continues to vary. We expect procedure volumes to remain difficult to estimate as COVID-19 infections continue to spread and may cause additional strain on hospital resources and deferral of elective procedures.
2428
Capital markets and worldwide economies have also been significantly impacted by the COVID-19 pandemic, and it is possible that this could cause a local and/or global economic recession. Such economic recession could have a material adverse effect on our long-term business as hospitals curtail and reduce capital and overall spending. The COVID-19 pandemic and local actions, such as “shelter-in-place” orders and restrictions on our ability to travel and access our customers or temporary closures of the facilities of our suppliers and their contract manufacturers, could further significantly impact our sales and our ability to ship our products and supply our customers. Any of these events could negatively impact the number of procedures performed and have a material adverse effect on our business, financial condition, results of operations, or cash flows.
Revenue and Expense Components
The following is a description of the primary components of our revenue and expenses:
Revenue. We derive our revenue primarily from the sale of spinal surgery implants used in the treatment of spine disorders.disorders as well as the sale of medical imaging equipment which is used for surgical planning and post-operative assessment. Spinal implant products include pedicle screws and complementary implants, interbody devices, plates, and tissue-based materials. Medical imaging equipment includes our EOS full-body and weight-bearing x-ray imaging devices, and related services. Our revenue is generated by our direct sales force and independent distributors. Our products are requested directly by surgeons and shipped and billed to hospitals and surgical centers. Currently, most of our business is conducted with customers within markets in which we have experience and with payment terms that are customary to our business. We may defer revenue until the time of collection if circumstances related to payment terms, regional market risk or customer history indicate that collectability is not certain.
Cost of revenue. Cost of revenue consists of direct product costs, royalties, milestones and the amortization of purchased intangibles. Our product costs consist primarily of direct labor, overhead, and raw materials and components. The product costs of certain of our biologics products include the cost of procuring and processing human tissue. We incur royalties related to the technologies that we license from others and the products that are developed in part by surgeons with whom we collaborate in the product development process. Amortization of purchased intangibles consists of amortization of developed product technology.
Research and development expenses. Research and development expenses consist of costs associated with the design, development, testing, and enhancement of our products. Research and development expenses also include salaries and related employee benefits, research-related overhead expenses, fees paid to external service providers in both cash and equity, and costs associated with our Scientific Advisory Board and Executive Surgeon Panels.
Sales, general and administrative expenses. Sales, general and administrative expenses consist primarily of salaries and related employee benefits, sales commissions and support costs, depreciation of our surgical instruments, freight, regulatory affairs, quality assurance costs, professional service fees, travel, medical education, trade show and marketing costs, insurance and legal expenses.
Litigation-related expenses. Litigation-related expenses are costs incurred for our ongoing litigation, primarily with NuVasive, Inc.
Transaction-related (credits) expenses. Transaction-related (credits) expenses reflect the recognition of transaction expensesare certain costs incurred as part of the terminated tender offer related primarily to the EOS transaction.acquisition of EOS.
Restructuring expensesRestructuring. . Restructuring expenses consist ofare costs incurred related primarily to severance, social plan benefits and related taxes in connection with our historical cost rationalization efforts.
Loss on debt extinguishment. Loss on debt extinguishment is comprisedefforts, as well as costs associated with the opening of all amounts previously recorded as debt issuanceour Memphis distribution center and closing costs related to the MidCap facility that was repaidour old headquarters office in full.Carlsbad, California.
Total interest and other expense, net. Total interest and other expense, net includes interest income, interest expense, gains and losses from foreign currency exchanges and other non-operating gains and losses.
Income tax benefit.provision. Income tax benefitprovision from continuing operations primarily consists of releasean estimate of state and foreign income taxes based on enacted state and foreign tax rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in the valuation allowance from the SafeOp acquisition, partially offset by state taxes.of our deferred tax assets and liabilities, and changes in tax laws.
25
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. On an on-going basis, we evaluate our estimates and assumptions, including those related to revenue recognition, allowances for accounts receivable, inventories and intangible assets, stock-based compensation and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumption conditions.
Critical accounting policies are those that, in management’s view, are most important in the portrayal of our financial condition and results of operations. Aside from the changes disclosed in Note 2 to the Notes to Condensed Consolidated Financial Statements included in Item 1, Part I of this Quarterly Report on Form 10-Q, management believes there have been no material changes during the three months ended SeptemberJune 30, 20202021 to the critical accounting policies discussed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the year ended December 31, 20192020 filed with the SEC on March 17, 2020.5, 2021.
29
Results of Operations
The tables below set forth certain statements of operations data for the periods indicated (in thousands). Our historical results are not necessarily indicative of the operating results that may be expected in the future.
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from U.S. products |
| $ | 40,052 |
|
| $ | 28,051 |
|
| $ | 97,956 |
|
| $ | 77,099 |
|
Revenue from international supply agreement |
|
| 1,111 |
|
|
| 1,150 |
|
|
| 2,951 |
|
|
| 3,976 |
|
Total revenue |
|
| 41,163 |
|
|
| 29,201 |
|
|
| 100,907 |
|
|
| 81,075 |
|
Cost of revenue |
|
| 11,926 |
|
|
| 9,268 |
|
|
| 29,797 |
|
|
| 25,688 |
|
Gross profit |
|
| 29,237 |
|
|
| 19,933 |
|
|
| 71,110 |
|
|
| 55,387 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
| 4,379 |
|
|
| 3,800 |
|
|
| 11,800 |
|
|
| 10,413 |
|
Sales, general and administrative |
|
| 35,985 |
|
|
| 26,954 |
|
|
| 91,021 |
|
|
| 72,738 |
|
Litigation-related |
|
| 1,560 |
|
|
| 604 |
|
|
| 5,507 |
|
|
| 4,427 |
|
Amortization of acquired intangible assets |
|
| 172 |
|
|
| 172 |
|
|
| 516 |
|
|
| 526 |
|
Transaction-related |
|
| 2 |
|
|
| — |
|
|
| 4,093 |
|
|
| — |
|
Restructuring |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 60 |
|
Total operating expenses |
|
| 42,098 |
|
|
| 31,530 |
|
|
| 112,937 |
|
|
| 88,164 |
|
Operating loss |
|
| (12,861 | ) |
|
| (11,597 | ) |
|
| (41,827 | ) |
|
| (32,777 | ) |
Interest and other expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
| (2,762 | ) |
|
| (2,919 | ) |
|
| (8,668 | ) |
|
| (6,947 | ) |
Loss on debt extinguishment |
|
| — |
|
|
| — |
|
|
| (1,555 | ) |
|
| — |
|
Other expense, net |
|
| (6 | ) |
|
| (7 | ) |
|
| (6 | ) |
|
| (19 | ) |
Total interest and other expense, net |
|
| (2,768 | ) |
|
| (2,926 | ) |
|
| (10,229 | ) |
|
| (6,966 | ) |
Loss from continuing operations before taxes |
|
| (15,629 | ) |
|
| (14,523 | ) |
|
| (52,056 | ) |
|
| (39,743 | ) |
Income tax provision |
|
| 40 |
|
|
| 20 |
|
|
| 140 |
|
|
| 122 |
|
Loss from continuing operations |
|
| (15,669 | ) |
|
| (14,543 | ) |
|
| (52,196 | ) |
|
| (39,865 | ) |
Loss from discontinued operations, net of applicable taxes |
|
| — |
|
|
| (24 | ) |
|
| — |
|
|
| (106 | ) |
Net loss |
| $ | (15,669 | ) |
| $ | (14,567 | ) |
| $ | (52,196 | ) |
| $ | (39,971 | ) |
26
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Revenue by source |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from U.S. products |
| $ | 40,052 |
|
| $ | 28,051 |
|
| $ | 97,956 |
|
| $ | 77,099 |
|
Revenue from international supply agreement |
|
| 1,111 |
|
|
| 1,150 |
|
|
| 2,951 |
|
|
| 3,976 |
|
Total revenue |
| $ | 41,163 |
|
| $ | 29,201 |
|
| $ | 100,907 |
|
| $ | 81,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit by source |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from U.S. products |
| $ | 29,178 |
|
| $ | 19,853 |
|
| $ | 70,966 |
|
| $ | 55,087 |
|
Revenue from international supply agreement |
|
| 59 |
|
|
| 80 |
|
|
| 144 |
|
|
| 300 |
|
Total gross profit |
| $ | 29,237 |
|
| $ | 19,933 |
|
| $ | 71,110 |
|
| $ | 55,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit margin by source |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from U.S. products |
|
| 72.9 | % |
|
| 70.8 | % |
|
| 72.4 | % |
|
| 71.4 | % |
Revenue from international supply agreement |
|
| 5.3 | % |
|
| 7.0 | % |
|
| 4.9 | % |
|
| 7.5 | % |
Total gross profit margin |
|
| 71.0 | % |
|
| 68.3 | % |
|
| 70.5 | % |
|
| 68.3 | % |
|
| Three Months Ended June 30, |
|
| Increase (Decrease) |
|
| Six Months Ended June 30, |
|
| Increase (Decrease) |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| $ |
|
| % |
|
| 2021 |
|
| 2020 |
|
| $ |
|
| % |
| ||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from products and services |
| $ | 61,885 |
|
| $ | 28,834 |
|
| $ | 33,051 |
|
|
| 115 | % |
| $ | 105,601 |
|
| $ | 57,904 |
|
| $ | 47,697 |
|
|
| 82 | % |
Revenue from international supply agreement |
|
| 364 |
|
|
| 795 |
|
|
| (431 | ) |
|
| (54 | %) |
|
| 769 |
|
|
| 1,840 |
|
|
| (1,071 | ) |
|
| (58 | %) |
Total revenue |
|
| 62,249 |
|
|
| 29,629 |
|
|
| 32,620 |
|
|
| 110 | % |
|
| 106,370 |
|
|
| 59,744 |
|
|
| 46,626 |
|
|
| 78 | % |
Cost of revenue |
|
| 21,184 |
|
|
| 8,787 |
|
|
| 12,397 |
|
|
| 141 | % |
|
| 33,447 |
|
|
| 17,871 |
|
|
| 15,576 |
|
|
| 87 | % |
Gross profit |
|
| 41,065 |
|
|
| 20,842 |
|
|
| 20,223 |
|
|
| 97 | % |
|
| 72,923 |
|
|
| 41,873 |
|
|
| 31,050 |
|
|
| 74 | % |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
| 7,839 |
|
|
| 4,237 |
|
|
| 3,602 |
|
|
| 85 | % |
|
| 13,640 |
|
|
| 8,406 |
|
|
| 5,234 |
|
|
| 62 | % |
Sales, general and administrative |
|
| 60,659 |
|
|
| 26,468 |
|
|
| 34,191 |
|
|
| 129 | % |
|
| 101,085 |
|
|
| 54,051 |
|
|
| 47,034 |
|
|
| 87 | % |
Litigation-related expenses |
|
| 1,167 |
|
|
| 1,304 |
|
|
| (137 | ) |
|
| (11 | %) |
|
| 4,502 |
|
|
| 3,947 |
|
|
| 555 |
|
|
| 14 | % |
Amortization of acquired intangible assets |
|
| 1,208 |
|
|
| 172 |
|
|
| 1,036 |
|
|
| 602 | % |
|
| 1,380 |
|
|
| 344 |
|
|
| 1,036 |
|
|
| 301 | % |
Transaction-related expenses |
|
| 4,771 |
|
|
| (181 | ) |
|
| 4,952 |
|
|
| (2736 | %) |
|
| 5,783 |
|
|
| 4,091 |
|
|
| 1,692 |
|
|
| 41 | % |
Restructuring costs |
|
| 1,173 |
|
|
| — |
|
|
| 1,173 |
|
|
| 100 | % |
|
| 1,331 |
|
|
| — |
|
|
| 1,331 |
|
|
| 100 | % |
Total operating expenses |
|
| 76,817 |
|
|
| 32,000 |
|
|
| 44,817 |
|
|
| 140 | % |
|
| 127,721 |
|
|
| 70,839 |
|
|
| 56,882 |
|
|
| 80 | % |
Operating loss |
|
| (35,752 | ) |
|
| (11,158 | ) |
|
| (24,594 | ) |
|
| 220 | % |
|
| (54,798 | ) |
|
| (28,966 | ) |
|
| (25,832 | ) |
|
| 89 | % |
Interest and other expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
| (2,394 | ) |
|
| (3,032 | ) |
|
| 638 |
|
|
| (21 | %) |
|
| (4,332 | ) |
|
| (5,906 | ) |
|
| 1,574 |
|
|
| (27 | %) |
Other expenses |
|
| (16 | ) |
|
| (1,555 | ) |
|
| 1,539 |
|
|
| (99 | %) |
|
| (1,905 | ) |
|
| (1,555 | ) |
|
| (350 | ) |
|
| 23 | % |
Total interest and other expense, net |
|
| (2,410 | ) |
|
| (4,587 | ) |
|
| 2,177 |
|
|
| (47 | %) |
|
| (6,237 | ) |
|
| (7,461 | ) |
|
| 1,224 |
|
|
| (16 | %) |
Loss before taxes |
|
| (38,162 | ) |
|
| (15,745 | ) |
|
| (22,417 | ) |
|
| 142 | % |
|
| (61,035 | ) |
|
| (36,427 | ) |
|
| (24,608 | ) |
|
| 68 | % |
Income tax provision |
|
| 43 |
|
|
| 60 |
|
|
| (17 | ) |
|
| (28 | %) |
|
| 73 |
|
|
| 100 |
|
|
| (27 | ) |
|
| (27 | %) |
Net loss |
| $ | (38,205 | ) |
| $ | (15,805 | ) |
| $ | (22,400 | ) |
|
| 142 | % |
| $ | (61,108 | ) |
| $ | (36,527 | ) |
| $ | (24,581 | ) |
|
| 67 | % |
Three and NineSix Months Ended SeptemberJune 30, 2020 Compared2021 compared to the Three and NineSix Months Ended SeptemberJune 30, 20192020
Total revenue. TotalRevenue associated with our acquisition of EOS accounted for approximately 21% and 10% of the increase in total revenue was $41.2 million for the three and six months ended SeptemberJune 30, 20202021, respectively, compared to $29.2 millionthe same periods in 2020. Product volume for our business, excluding the EOS acquisition, increased our revenue by approximately 89% and 68% for the three and six months ended SeptemberJune 30, 2019, representing an increase of $12.0 million, or 41.1%. Total revenue was $100.9 million for the nine months ended September 30, 20202021, respectively, compared to $81.1 million for the nine months ended September 30, 2019, representing an increase of $19.8 million, or 24.4%.
Revenue from U.S. products was $40.1 million for the three months ended September 30, 2020 compared to $28.1 million for the three months ended September 30, 2019, representing an increase of $12.0 million, or 42.7%, and was $98.0 million for the nine months ended September 30, 2020 compared to $77.1 million for the nine months ended September 30, 2019, representing an increase of $20.9 million, or 27.1%. The increasesame periods in revenue from U.S. products was2020, primarily attributeddue to the continued expansion of our new product portfolio, increases in our surgeon user base, and progress related to the transformation of our sales network. For the three and nine months ended September 30, 2020, revenue related to new products represented approximately 72.0% and 64.0% of revenue from U.S. products, respectively, and in addition, resulted in a higher number of average product categories sold per case as well as increased product pull-through per case, as compared to the three and nine months ended September 30, 2019. Contributions from our strategic distribution channel also continue to increase as we continue to build strategic partnerships with new surgeons and distribution partners, resulting in the growth of our sales network distribution channel, and geographic footprint. As a result, revenue from strategic distribution for U.S. products for the three and nine months ended September 30, 2020 increased by 47% and 32%, respectively, as compared to the three and nine months ended September 30, 2019, as detailed further below (in thousands):.
|
| Three Months Ended September 30, |
|
| Increase (Decrease) |
|
| Nine Months Ended September 30, |
|
| Increase (Decrease) |
| ||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
|
| 2020 |
|
| 2019 |
|
| $ |
|
| % |
| ||||||||||||||||||||||||
U.S. revenue by distributor type: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic distribution |
| $ | 36,684 |
|
|
| 92 | % |
| $ | 24,954 |
|
|
| 89 | % |
| $ | 11,730 |
|
|
| 47 | % |
| $ | 89,000 |
|
|
| 91 | % |
| $ | 67,180 |
|
|
| 87 | % |
| $ | 21,820 |
|
|
| 32 | % |
Legacy and terminated distribution |
|
| 3,368 |
|
|
| 8 | % |
|
| 3,097 |
|
|
| 11 | % |
|
| 271 |
|
|
| 9 | % |
|
| 8,956 |
|
|
| 9 | % |
|
| 9,919 |
|
|
| 13 | % |
|
| (963 | ) |
|
| -10 | % |
Total U.S. revenue |
| $ | 40,052 |
|
|
| 100 | % |
| $ | 28,051 |
|
|
| 100 | % |
| $ | 12,001 |
|
|
| 43 | % |
| $ | 97,956 |
|
|
| 100 | % |
| $ | 77,099 |
|
|
| 100 | % |
| $ | 20,857 |
|
|
| 27 | % |
Revenue from the international supply agreement, which is attributed to sales to Globus under which we supply to Globus certain of its implants and instruments at agreed-upon prices for a minimum term of three years, was $1.1decreased by $0.4 million, foror 54%, during the three months ended SeptemberJune 30, 20202021 compared to $1.2 million for the three months ended SeptemberJune 30, 2019, representing a decrease of $0.1 million. Revenue2020, and decreased by $1.1 million, or 58%, during the six months ended June 30, 2021 compared to the six months ended June 30, 2020. The decreases in revenue from the international supply agreement was $3.0 million forduring the ninethree and six months ended SeptemberJune 30, 2021 compared to the three and six months ended June 30, 2020 comparedwere primarily due to $4.0 million for the nine months ended September 30, 2019, representing a decrease of $1.0 million.reduction in sales volume and orders from Globus. As part of the supply agreement, Globus had the option to extend the term for up to two additional twelve-month periods subject to Globus meeting specified purchase requirements. During the second quarter of 2020, Globus notified us that it would exercise the option to extend the agreement for the second additional twelve-month period through August 2021, at which time we expect that the international supply agreement will expire and revenue from Globus will discontinue.
27
CostTotal cost of revenue. Total Cost of revenue, was $11.9excluding EOS, increased by $6.8 million, or 77%, and by $10.0 million, or 56% during the three and six months ended June 30, 2021, respectively, as compared to the three and six months ended June 30, 2020, respectively. The increases are primarily due to increased product volume. Inventory expense associated with the purchase accounting of EOS accounted for approximately 20% and 10% of the total increases for the three and six months ended SeptemberJune 30, 2020 compared to $9.3 million2021, respectively. Cost of revenue associated with EOS operations accounted for approximately 44% and 21% of the increase for the three and six months ended SeptemberJune 30, 2019, representing an increase of $2.6 million, or 28.0%,2021, respectively, as compared to the three and $29.8 million for the ninesix months ended SeptemberJune 30, 2020, compared to $25.7 million for the nine months ended September 30, 2019, representing an increase of $4.1 million or 16.0%.respectively.
Cost of revenue from U.S. products forthe international supply agreement decreased by $0.4 million, or 55% during the three months ended SeptemberJune 30, 2020 was $10.9 million2021 as compared to $8.2 million for the three months ended SeptemberJune 30, 2019, representing an increase of $2.72020, and decreased by $0.9 million, or 32.9%. The increase is consistent with our revenue growth. Non-cash excess and obsolescence expense primarily related50% during the six months ended June 30, 2021 as compared to the phase out of older legacy products was $2.0 million for the threesix months ended SeptemberJune 30, 2020 compared to $2.3 million for the three months ended September 30, 2019, representing a decrease of $0.3 million, or 13.0%, and $5.4 million for the nine months ended September 30, 2020 compared to $6.7 million for the nine months ended September 30, 2019, representing a decrease of $1.3 million, or 19.4%.
Cost2020. The decreases in cost of revenue from the international supply agreement was $1.0 million forduring the three and six months ended SeptemberJune 30, 2021 as compared to the three and six months ended June 30, 2020 compared to $1.1 million for the three months ended September 30, 2019, representing a decrease of $0.1 million, or 9.1%, and $2.8 million for the nine months ended September 30, 2020 compared to $3.7 million for the nine months ended September 30, 2019, representing a decrease of $0.9 million, or 24.3%. The decreases were attributedprimarily due to a reduction in sales volumesvolume and related costs under the international supply agreement with Globus.
Gross profit. Gross profit was $29.2 million for the three months ended September 30, 2020 compared to $19.9 million for the three months ended September 30, 2019, representing an increase of $9.3 million, or 46.7% and $71.1 million for the nine months ended September 30, 2020 compared to $55.4 million for the nine months ended September 30, 2019, representing an increase of $15.7 million, or 28.3%.
Gross profit margin from U.S. product revenue increased by 2.1% and 1.0% for the three and nine months ended September 30, 2020, respectively, as compared to three and nine months ended September 30, 2019. The changes in gross margin from U.S. product revenue were primarily attributed to a reduction in non-cash excess and obsolescence expense, partially offset by increases in amortization expense related to our SafeOp neuromonitoring system and product mix.
Gross profit margin from international supply agreement decreased by 1.7% and 2.6% for the three and nine months ended September 30, 2020, respectively, as compared to three and nine months ended September 30, 2019. The changes in gross margin from international supply agreement were primarily related to the impact of fixed minimum royalty costs, product mix, and to a lesser extent, changes in average selling price for certain products.
Research and development expenses. Research and development expenses increased $0.6 million, or 15.8%The increases during the three and six months ended SeptemberJune 30, 20202021 as compared to the three and six months ended SeptemberJune 30, 2019 and increased $1.4 million, or 13.5% for the nine months ended September 30, 2020. The increase was2020 were primarily relateddue to personnel and new project costs, partially offset by decreases in other various researchcosts. Research and development initiatives. We expect researchexpense
30
associated with EOS accounted for approximately 18% and development expenses9% of the total increase for the three and six months ended June 30, 2021, respectively, as compared to increase in future periods as we continue to hire additional engineeringthe three and development talent and invest in our product pipeline.six months ended June 30, 2020, respectively.
Sales, general and administrative expenses. Sales, general and administrative expenses, excluding EOS, increased $9.0by $31.6 million, or 33.3%119%, and by $44.5 million, or 82%, during the three and six months ended SeptemberJune 30, 20202021, respectively, compared to the three and six months ended SeptemberJune 30, 20192020, respectively. The increases during the three and increased $18.3 million, or 25.2% for the ninesix months ended SeptemberJune 30, 20202021 compared to the ninethree and six months ended SeptemberJune 30, 2019. The increase was2020 were primarily relateddue to commissions, sales compensation, stock-based compensation,higher compensation-related costs and variable selling expenses associated with the increase in U.S. product revenue, and in addition to our continued investment in building our strategic distribution channel. Additionally, we have also increased our investment in our sales and marketing functions by increasing headcount to support the growth of our business. We expect our sales,Sales, general and administrative expenses to increase in absolute dollars and for variable selling expenses to increase in relation to expected increases in our U.S. product revenue. As we experience future revenue growth, we expect to achieve increased operating leverage on the fixed costs associated with our sales, generalEOS accounted for approximately 10% and administrative expenses.5% of the total increases for the three and six months ended June 30, 2021, respectively, as compared to the three and six months ended June 30, 2020, respectively.
Litigation expenses. Litigation expenses increaseddecreased by $1.0$0.1 million, or 166.7% for11% during the three months ended SeptemberJune 30, 20202021 as compared to the three months ended SeptemberJune 30, 20192020, and increased by $1.1$0.6 million, or 25.0% for14% during the ninesix months ended SeptemberJune 30, 20202021 as compared to the ninesix months ended SeptemberJune 30, 2019. The2020. Litigation expense is primarily related to our ongoing litigation with NuVasive, Inc. and fluctuations related to the timing of relatedother legal activities.
Amortization of acquired intangible assets. Amortization of acquired intangible assets remained consistentprimarily includes amortization of intangibles acquired in the EOS acquisition.
Transaction-related expenses. The increases in transaction-related expenses for both the three and ninesix months ended SeptemberJune 30, 2020 compared2021 are primarily due to third-party advisory and legal fees related to our acquisition of EOS, which closed on May 13, 2021.
Restructuring costs. The increases in restructuring costs for both the three and ninesix months ended SeptemberJune 30, 2019. The expense represents amortization in the period associated with general business assets, intellectual property, licenses2021 are primarily due to severance, social plan benefits and other assets obtained in acquisitions and licensing agreements.
28
Transaction-related (credits) expenses. Transaction-related (credits) expenses of $4.1 million for the nine months ended September 30, 2020 are attributed to advisory fees, legal fees, transaction financing commitment fees and other transaction-related costs incurredrelated taxes in connection with cost rationalization efforts as well as costs associated with the terminated EOS tender offer.opening of our Memphis distribution center and closing costs related to our old headquarters office.
Total interest and other expense, net. Total interest and other expense, net decreased $0.1 millionThe decreases during the three and six months ended SeptemberJune 30, 20202021 as compared to the three and six months ended SeptemberJune 30, 2019,2020 were primarily due to lower interest expense on maturingrelated to lower outstanding debt arrangements and decreases in amortization of debt issuance costs. Total interest and other expense, net increased $3.2 million during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019, primarily due to interest expense on new debt arrangements, additional draws on existing agreements and a loss on debt extinguishmentbalances, partially offset by foreign currency losses related to the payoff of the MidCap facility in the second quarter of 2020.forward contract settlement.
Income tax provisionprovision.. Income tax provision for the three and ninesix months ended SeptemberJune 30, 2020,2021 was negligible and remained consistent as compared to the three and ninesix months ended SeptemberJune 30, 2019. For the three and nine months ended September 30, 2020, we had an effective income tax rate of 0%, primarily due to our net loss position.2020.
Liquidity and Capital Resources
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplatesOur principal sources of liquidity are our existing cash and additional borrowings available under our Term Loan. Our liquidity and capital structure are evaluated regularly within the realization of assets and satisfaction of liabilities in the normal course of business At each reporting period, we evaluate whether there are conditions or events that raise substantial doubt about our ability to continue as a going concern within twelve months after the date the condensed consolidated financial statements are issued. Our evaluation entails analyzing prospective operating budgets and forecasts for expectationscontext of our cashannual operating and strategic planning process. We consider the liquidity necessary to fund our operations, which include working capital needs, investments in research and comparing those needs to the current cash and cash equivalent balances, and availability under existing credit facilities.
Our capital requirements over the next twelve months will depend on many factors, including the ability to achieve anticipated revenue, manage operating expense and the timing of requireddevelopment, investments in inventory and instrument sets to support our customers.
On October 16, 2020,customers, as well as other operating costs. Our future capital requirements will depend on many factors including our rate of revenue growth, the timing and extent of spending to support development efforts, the expansion of sales, marketing and administrative activities, and the timing of introductions of new products and enhancements to existing products. As current borrowing sources become due, we closedmay be required to access the Offering in whichcapital markets for additional funding. If we issued and sold a total 13,142,855 shares of our common stock, including overallotment shares, at a priceare required to access the public of $8.75 per share. The net proceeds to us from the Offering were approximately $107.7 million. Our working capital at September 30, 2020 was $38.5 million (including cash of $15.7 million) which, along with proceeds from the Offering,debt market, we expect to be able to fundsecure reasonable borrowing rates.
Cash was $76.6 million and $107.8 million at June 30, 2021 and December 31, 2020, respectively. The $31.2 million decrease in cash was primarily due to the open market purchase of outstanding EOS Shares and OCEANEs in connection with our acquisition of EOS and increased activity related to our inventory and instrument set builds, partially offset by the closing of the private placement on March 1, 2021, which generated proceeds of $131.8 million, net of offering costs.
Available borrowings under our Term Loan were $40.0 million at June 30, 2021 and December 31, 2020. We believe that our existing funds, cash generated from our operations through at least one year subsequentand our existing sources of and access to the date the condensed consolidated financial statementsfinancing are issued.adequate to satisfy our needs for working capital, capital expenditure and debt service requirements, and other business initiatives we plan to strategically pursue.
Squadron Credit Agreement, Paycheck Protection Loan and Other Debt and Commitments
On November 6, 2018, we closed a $35.0We have an $85.0 million Term Loan with Squadron a provider of debt financing to growing companies in the orthopedic industry.Medical which matures on June 30, 2026. The debtTerm Loan bears interest at LIBORLondon Interbank Offered Rate (“LIBOR”) plus 8% (10.0% as8.0% per annum (subject to a 9.0% floor and 12.0% ceiling). Interest-only payments are due monthly until December 2023 and joined by $1.0 million monthly principal payments beginning December 2023. Any
31
remaining principal amounts ofSeptember 30, 2020) per annum. The credit agreement specifies a minimum interest rate of 10.0% and a maximum of 13.0% per year. In March 2019, we expanded the credit facility with Squadron for up to an additional $30.0 million in secured financing. We took a draw of $10.0 million of the expanded credit facility in June 2019 and, subsequently, took a draw of the remaining $20.0 million in April 2020. On May 29, 2020, we entered into a second amendment to the Term Loan will be due on June 30, 2026. In addition to expand the credit facility by an additional $35.0 million and remove all financial covenant requirements. It is at our sole discretion to make drawspaying interest on outstanding principal on the additional $35.0 millionTerm Loan, we will pay a commitment fee at a rate of 1.0% per annum to Squadron Medical in respect of the unutilized Term Loan. In June 2020, we tookAs collateral for the Term Loan, Squadron Medical has a drawfirst lien security interest in all of $10.0 million used to retire the existing working capital revolver with MidCap. All future draws must be made by December 31, 2021. The total principalour assets. Our obligation outstanding under the Term Loan as of SeptemberJune 30, 2020 is $75.0 million with an additional $25.0 million in available borrowings. Under the terms of the amended facility, the maturity date on the entire term loan2021 was extended to June 2025 with interest-only payments due monthly through November 2022, followed by monthly principal payments of $1.0 million beginning December 2022 and a lump-sum payment payable at maturity in June 2025. As collateral for the Term Loan, Squadron has a first lien security interest in substantially all assets except for $45.0 million.accounts receivable.
On April 23, 2020, we received the proceeds from a loan in the amount of approximately $4.3 million (the “PPP Loan”) from Silicon Valley Bank, as lender, pursuant to the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan matures on April 21, 2022 and bears interest at a rate of 1.0% per annum. Commencing August 21, 2021, we are required to pay the lender equal monthly payments of principal and interest as required to fully amortize by April 21, 2022 the principal amount outstanding on the PPP Loan as of the date prescribed by guidance issued by the U.S. Small Business Administration (“SBA”). The PPP Loan is evidenced by a promissory note dated April 21, 2020, which contains customary events of default relating to, among other things, payment defaults and breaches of representations and warranties. We may prepay the PPP Loan at any time prior to maturity with no prepayment penalties.
All or a portion of the PPP Loan may be forgiven by the SBA upon application. We submitted our application for forgiveness of the loan in November 2020. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered
29
rent payments, covered mortgage interest and covered utilities during the twenty-four-week period, beginning on the date of loan approval. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100,000, prorated annually. Not more than 25% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25%. In the event the PPP Loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal. We used all of the proceeds from the PPP Loan to retain employees and maintain payroll. Although we have appliedWe submitted our application for loan forgiveness as afforded byin November 2020 and received confirmation from the SBA that the entire PPP we cannot provide assurance that such loan forgiveness will be grantedLoan was forgiven in whole or in part.July 2021.
We entered into an Inventory Financing Agreement whereby we may draw up to $3.0$9.0 million for the purchase of inventory to accrue interest at a rate of LIBOR plus 8%8.0% and also includes a 10%9.0% floor and 13%12.0% ceiling. All principal will become due and payable upon maturity on November 6, 2023 and all interest will be paid monthly. Should we elect to prepay the Squadron credit agreement,Term Loan, all amounts due under the Inventory Financing Agreement will become mandatorily due. Our obligation outstanding under the Inventory Financing Agreement as of SeptemberJune 30, 20202021 was $3.0$7.5 million.
We assumed $15.1 million (or €12.6 million) in OCEANEs debt with the acquisition of EOS. The OCEANEs bear interest at 6% per year, payable semiannually in arrears on May 31 and November 30 of each year. Unless either earlier converted or repurchased, the OCEANEs will mature on May 31, 2023.
We also assumed $5.6 million (or €4.7 million) in other debts with the acquisition of EOS that become due in the first quarter 2022.
As of SeptemberJune 30, 2020,2021, we have made $43.9$47.2 million in Orthotec settlement payments and there remains an aggregate amount of $13.9$10.6 million in Orthotec settlement payments (including accrued and future interest) to be paid by us.
We entered into a distribution agreement with a third-party provider in January 2020 in which we are obligated to certain minimum purchase requirements related to inventory and equipment leases. As of SeptemberJune 30, 2020,2021, the minimum purchase commitment required by us under the agreement was $3.5$1.8 million to be paid over a three-year period.
Our various debt agreements include several event of default provisions, such as payment default, insolvency conditions and a material adverse effect clause, which could cause interest to be charged at a rate which is up to five percentage points above the rate effective immediately before the event of default or result in our lenders’ rights to declare all outstanding obligations immediately due and payable We were in compliance with the covenants under the creditdebt agreements at SeptemberJune 30, 2020.2021.
Operating Activities
We used net cash of $39.7$35.1 million from operating activities for the ninesix months ended SeptemberJune 30, 2020.2021. During this period, net cash used in operating activities consisted primarily of our net loss adjustedcash used for $31.8 million of non-cash adjustments including amortization, depreciation, stock-based compensation, provision for excessinventory purchases and obsolete inventory, interest expense related to amortization of debt discount and issuance costs, debt extinguishment charges, loss on disposal of instruments, and $19.3 million use of cash related to general working capital and other assets.settlement of operational payables and liabilities.
Investing Activities
We used cash of $12.8$124.8 million in investing activities for the ninesix months ended SeptemberJune 30, 20202021 which is primarily forrelated to our acquisition of EOS, including the purchase of OCEANEs, the purchase of surgical instruments to support the commercial launch of new products.products, other investments, and the settlement of a forward contract.
Financing Activities
Financing activities provided $21.0$128.8 million of cash for the ninesix months ended SeptemberJune 30, 2020,2021, primarily related to $77.7 million of proceeds from the exerciseclosing of stock options or warrants, and borrowings under new and existing lines of credit,the Private Placement on March 1, 2021, partially offset by paymentsthe net impact of $56.7 million related to repaymentscash paid in connection with exercises of lines of credit.common stock for net exercise tax withholdings and cash received for stock option and warrant exercises.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
3032
Contractual obligations and commercial commitments
Total contractual obligations and commercial commitments as of SeptemberJune 30, 20202021 are summarized in the following table (in thousands):
|
| Payment Due by Year |
| |||||||||||||||||||||||||
|
| Total |
|
| 2020 (remainder) |
|
| 2021 |
|
| 2022 |
|
| 2023 |
|
| 2024 |
|
| Thereafter |
| |||||||
Paycheck Protection Program |
| $ | 4,270 |
|
| $ | — |
|
| $ | 2,344 |
|
| $ | 1,926 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Inventory financing |
|
| 2,978 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,978 |
|
|
| — |
|
|
| — |
|
Squadron Term Loan |
|
| 75,000 |
|
|
| — |
|
|
| — |
|
|
| 1,000 |
|
|
| 12,000 |
|
|
| 12,000 |
|
|
| 50,000 |
|
Interest expense |
|
| 32,901 |
|
|
| 2,002 |
|
|
| 7,985 |
|
|
| 7,912 |
|
|
| 7,221 |
|
|
| 5,743 |
|
|
| 2,038 |
|
Note payable for software agreements and insurance premiums |
|
| 714 |
|
|
| 235 |
|
|
| 479 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Capital lease obligations |
|
| 175 |
|
|
| 14 |
|
|
| 59 |
|
|
| 60 |
|
|
| 24 |
|
|
| 18 |
|
|
| — |
|
Facility lease obligations (1) |
|
| 31,684 |
|
|
| 551 |
|
|
| 1,741 |
|
|
| 2,977 |
|
|
| 3,025 |
|
|
| 3,116 |
|
|
| 20,274 |
|
Other purchase commitments and operating lease obligations |
|
| 3,534 |
|
|
| 331 |
|
|
| 3,203 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Litigation settlement obligations, gross (2) |
|
| 13,933 |
|
|
| 1,100 |
|
|
| 4,000 |
|
|
| 4,400 |
|
|
| 4,400 |
|
|
| 33 |
|
|
| — |
|
Guaranteed minimum royalty obligations |
|
| 4,541 |
|
|
| 113 |
|
|
| 918 |
|
|
| 918 |
|
|
| 918 |
|
|
| 918 |
|
|
| 756 |
|
License agreement milestones (3) |
|
| 2,450 |
|
|
| 10 |
|
|
| 530 |
|
|
| 690 |
|
|
| 490 |
|
|
| 490 |
|
|
| 240 |
|
Total |
| $ | 172,180 |
|
| $ | 4,356 |
|
| $ | 21,259 |
|
| $ | 19,883 |
|
| $ | 31,056 |
|
| $ | 22,318 |
|
| $ | 73,308 |
|
|
| Payment Due by Year |
| |||||||||||||||||||||||||
|
| Total |
|
| 2021 (remainder) |
|
| 2022 |
|
| 2023 |
|
| 2024 |
|
| 2025 |
|
| Thereafter |
| |||||||
Inventory financing |
| $ | 7,528 |
|
| $ | — |
|
| $ | — |
|
| $ | 7,528 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Squadron Medical Term Loan |
|
| 45,000 |
|
|
| — |
|
|
| — |
|
|
| 1,000 |
|
|
| 12,000 |
|
|
| 12,000 |
|
|
| 20,000 |
|
Interest expense |
|
| 19,806 |
|
|
| 3,541 |
|
|
| 4,799 |
|
|
| 4,737 |
|
|
| 3,522 |
|
|
| 2,416 |
|
|
| 791 |
|
Note payable |
|
| 880 |
|
|
| 815 |
|
|
| 23 |
|
|
| 24 |
|
|
| 18 |
|
|
| — |
|
|
| — |
|
Finance lease obligations |
|
| 503 |
|
|
| 94 |
|
|
| 195 |
|
|
| 158 |
|
|
| 56 |
|
|
| — |
|
|
| — |
|
Facility lease obligations (1) |
|
| 41,593 |
|
|
| 864 |
|
|
| 4,358 |
|
|
| 4,557 |
|
|
| 4,583 |
|
|
| 4,617 |
|
|
| 22,614 |
|
Purchase commitments (2) |
|
| 30,706 |
|
|
| 4,321 |
|
|
| 4,730 |
|
|
| 6,482 |
|
|
| 6,629 |
|
|
| 8,544 |
|
|
| — |
|
Litigation settlement obligations, gross (3) |
|
| 10,633 |
|
|
| 1,800 |
|
|
| 4,400 |
|
|
| 4,400 |
|
|
| 33 |
|
|
| — |
|
|
| — |
|
Guaranteed minimum royalty obligations & milestones (4) |
|
| 6,089 |
|
|
| 696 |
|
|
| 670 |
|
|
| 670 |
|
|
| 670 |
|
|
| 3,088 |
|
|
| 295 |
|
License agreement milestones (5) |
|
| 2,150 |
|
|
| 550 |
|
|
| 1,090 |
|
|
| 390 |
|
|
| 40 |
|
|
| 40 |
|
|
| 40 |
|
OCEANEs |
|
| 15,090 |
|
|
| — |
|
|
| — |
|
|
| 15,090 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Other (6) |
|
| 5,891 |
|
|
| — |
|
|
| 5,891 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total |
| $ | 185,869 |
|
| $ | 12,681 |
|
| $ | 26,156 |
|
| $ | 45,036 |
|
| $ | 27,551 |
|
| $ | 30,705 |
|
| $ | 43,740 |
|
(1) | Includes our new headquarters building lease |
(2) | Includes inventory purchase commitments with vendors, including commitments of $28.8 million assumed with our acquisition of EOS. |
(3) | Represents gross payments due to Orthotec, LLC pursuant to a Settlement and Release Agreement, dated as of August 13, 2014, by and among the Company and its direct subsidiaries, including Alphatec Spine, Inc., Alphatec Holdings International C.V., Scient'x S.A.S. and Surgiview S.A.S.; HealthpointCapital, LLC, HealthpointCapital Partners, L.P., HealthpointCapital Partners II, L.P., John H. Foster and Mortimer Berkowitz III; and Orthotec, LLC and Patrick Bertranou. In September 2014, the Company and HealthpointCapital entered into an agreement for joint payment of settlement whereby HealthpointCapital is obligated to pay $5.0 million of the settlement amount, |
(4) |
|
(5) |
|
(6) | Commitments representing cash repayments of state sponsored COVID relief initiatives at EOS. |
Real Property Leases
In January 2016,On April 9, 2021, we entered into a new 7-year operating lease agreement or the Building Lease, for a new distribution center which consists of approximately 75,643 square feet of office engineering, and research and developmentwarehouse space in Carlsbad, California withMemphis, Tennessee. The term of the new lease commenced on May 1, 2021 and will terminate on May 1, 2028, subject to two thirty-six-month options to renew which were not reasonably certain to be exercised. We expect to occupy a proportionate share of the building upon commencement of the lease term through July 31, 2021. Underon May 1, 2021 and we are expected to occupy 100% of the Building Leasepremises beginning in November 2022. Base rent under the new building lease will be commensurate with our monthly rent payable is approximately $105,000 per month duringproportionate share of occupancy of the first yearnew building and increaseswill increase annually by approximately $3,000 each year thereafter.3.0% throughout the remainder of the lease.
On December 4, 2019, we entered into a new lease agreement, or newNew Building Lease, for a new headquarters location which will consistconsists of 121,541 square feet of office, engineering, and research and development space in Carlsbad, California. The term of the newNew Building Lease commenced on February 1, 2021 and is currently anticipatedexpected to commence November 15, 2020 and terminate November 30, 2030,January 31, 2031, subject to two sixty monthsixty-month options to renew. Base rent under the New Building Lease for the first twelve months of the term will be $195,000$0.2 million per month subject to full abatement during months two through ten. Base rent for the second year of the term will be $244,115 per monthten, and thereafter will increase annually by 3%. At3.0% throughout the beginningremainder of each exercised option period, base rent will be adjusted to the market rental value, and thereafter will increase annually by 3% through the end of such option period.lease.
3133
Recent Accounting Pronouncements
Aside from newly implemented accounting policies related to leases discussed above under “Critical Accounting Policies and Estimates” and for the changes disclosed in Note 2 to the Notes to Condensed Consolidated Financial Statements (Unaudited) under the heading “Recent Accounting Pronouncements,” there have been no new accounting pronouncements or changes to accounting pronouncements during the three months ended SeptemberJune 30, 2020,2021, as compared to the recent accounting pronouncements described in the Company's Annual Report on Form 10-K for the year ended December 31, 2019,2020, that was filed with the SEC on March 17, 2020.5, 2021.
Forward Looking Statements
This Quarterly Report on Form 10-Q incorporates a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements regarding:
| • | our estimates regarding anticipated operating losses, future revenue, expenses, capital requirements, uses and sources of cash and liquidity, including our anticipated revenue growth and cost savings; |
| • | our ability to meet the affirmative and negative covenants under our credit |
| • | our ability to ensure that we have effective disclosure controls and procedures; |
| • | our ability to meet our obligations under the Supply Agreement with |
| • | our ability to meet, and potential liability from not meeting, the payment obligations under the Orthotec LLC settlement agreement; |
| • | our ability to maintain compliance with the quality requirements of the |
| • | our ability to market, improve, grow, commercialize and achieve market acceptance of any of our products or any product candidates that we are developing or may develop in the future; |
| • | our beliefs about the features, strengths and benefits of our products; |
| • | our ability to continue to enhance our product offerings, outsource our manufacturing operations and expand the commercialization of our products, and the effect of our strategy; |
| • | our ability to successfully integrate, and realize benefits from licenses and |
| • | the effect of any existing or future federal, state or international regulations on our ability to effectively conduct our business; |
| • | our estimates of market sizes and anticipated uses of our products; |
| • | our business strategy and our underlying assumptions about market data, demographic trends, reimbursement trends and pricing trends; |
| • | our ability to achieve profitability, and the potential need to raise additional funding; |
| • | our ability to maintain an adequate sales network for our products, including to attract and retain independent distributors; |
| • | our ability to enhance our U.S. distribution network; |
| • | our ability to increase the use and promotion of our products by training and educating spine surgeons and our sales network; |
| • | our ability to attract and retain a qualified management team, as well as other qualified personnel and advisors; |
| • | our ability to enter into licensing and business combination agreements with third parties and to successfully integrate the acquired technology and/or businesses; and |
• | other factors discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 or any document incorporated by reference herein or therein. |
Any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be wrong. They can be affected by inaccurate assumptions and/or by known or unknown risks and uncertainties. Many factors mentioned in our discussion in this Quarterly Report on Form 10-Q will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially from expected results.
3234
We also provide a cautionary discussion of risks and uncertainties under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20192020 and any updates to those risk factors filed from time to time in our subsequent periodic and current reports filed with the SEC. These are factors that we think could cause our actual results to differ materially from expected results. Other factors besides those listed there could also adversely affect us.
Without limiting the foregoing, the words “believe,” “anticipate,” “plan,” “expect,” “estimate,” “may,” “will,” “should,” “could,” “would,” “seek,” “intend,” “continue,” “project,” and similar expressions are intended to identify forward-looking statements. There are a number of factors and uncertainties that could cause actual events or results to differ materially from those indicated by such forward-looking statements, many of which are beyond our control, including the factors set forth under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20192020 and any updates to those risk factors filed from time to time in our subsequent periodic and current reports filed with the SEC. In addition, the forward-looking statements contained herein represent our estimate only as of the date of this filing and should not be relied upon as representing our estimate as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Interest Rate Risk
Other outstanding debt consists of various variable rate instruments, including debt outstanding under the Term Loan with Squadron.
Our borrowings under our credit facilities expose us to market risk related to changes in interest rates. As of SeptemberJune 30, 2020,2021, our outstanding floating rate indebtedness totaled $79.3$49.3 million. The primary base interest rate is the LIBOR rate. Assuming the outstanding balance on our floating rate indebtedness remains constant over a year, a 100-basis point increase in the interest rate would decrease pre-tax income and cash flow by approximately $0.8$0.5 million.
Commodity Price Risk
We purchase raw materials that are processed from commodities, such as titanium and stainless steel. These purchases expose us to fluctuations in commodity prices. Given the historical volatility of certain commodity prices, this exposure can impact our product costs. However, because our raw material prices comprise a small portion of our cost of revenue, we have not experienced any material impact on our results of operations from changes in commodity prices. A 10% change in commodity prices would not have had a material impact on our results of operations for the three and ninesix months ended SeptemberJune 30, 2020.2021.
Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in our reports that we file or submit pursuant tounder the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periodslines specified in the Securities and Exchange Commission’s, or SEC's,SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizesrecognized that any controls and procedures, no matter how well designed and operated, can only provide only reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management isnecessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we carried out an evaluation of the effectiveness of ourthe Company’s disclosure controls and procedures (as such term is defined in Exchange ActSEC Rules 13a-15(e)13a - 15(e) and 15d-15(e)15d - 15(e)) as of the end of the period covered by this report.June 30, 2021. Based on thissuch evaluation, our Company’s Chief Executive Officer and Chief Financial Officer havemanagement has concluded that ouras of June 30, 2021, the Company’s disclosure controls and procedures were effective at the reasonable level of assurance.
Previously Reported Material Weaknesses in Internal Control over Financial Reporting
As reported in in our Annual Report on Form 10-K for the year ended December 31, 2019, we identified deficiencies in our internal controls over financial reporting related to our revenue and inventory cycles whereby the review of sales orders and inventory transfers were not properly applied to a portion of orders during the year. We reported these deficiencies to the Audit Committee of our Board of Directors and a material weakness related to these deficiencies existed at December 31, 2019.
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Remediation of the Material Weakness during the first quarter 2020
The material weakness related to the lack of sufficient review over sales order and inventory transfers resulted in a reasonable possibility that a material misstatement of our revenue and inventory in the annual or interim financial statements may not be prevented or detected on a timely basis. To remediate the deficiencies described above and prevent similar deficiencies in the future, we developed and implemented a remediation plan during the first quarter of 2020 which included:
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Although we have implemented these remediation efforts, the deficiencies will not be considered fully remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Any actions we have taken or may take to remediate these deficiencies are subject to continued management review supported by testing, as well as oversight by the Audit Committee of our Board of Directors.
We cannot provide complete assurance that other material weaknesses or significant deficiencies will not occur in the future or that we will be able to remediate such weaknesses or deficiencies in a timely manner. The occurrence of such material weaknesses or our inability to remediate these deficiencies could impair our ability to accurately and timely report our financial position, results of operations or cash flows.effective.
Changes in Internal Control over Financial Reporting
Except as described above, thereThere have been no changes to our internal control over financial reporting during the three months ended SeptemberJune 30, 20202021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Despite most
Due to the timing of our employees working remotely due toacquisition of EOS, the current COVID-19 pandemic, we have not experienced any material impact to our internal control over financial reporting. We will continuereporting of the acquired company and its subsidiaries, including the portion of disclosure controls and procedures that related to monitor the COVID-19 situation to assess and minimize any impact on the design and operating effectiveness of our internal control over financial reporting. reporting, was excluded from the evaluation of the effectiveness of the Company’s disclosure controls and procedures as of the period covered by this report. This exclusion is in accordance with the general guidance issued by the Staff of the SEC that an assessment of a recent business combination may be omitted from management's report on internal control over financial reporting in the first year of consolidation.
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PART II. OTHER INFORMATION
Item 1. | Legal Proceedings |
Litigation
We are and may become involved in various legal proceedings arising from our business activities. While the Company has no material accruals for pending litigation or claims for which accrual amounts are not disclosed in the Company’s condensed consolidated financial statements, litigation is inherently unpredictable, and depending on the nature and timing of a proceeding, an unfavorable resolution could materially affect our future consolidated results of operations, cash flows or financial position in a particular period. We assess contingencies to determine the degree of probability and range of possible loss for potential accrual or disclosure in our condensed consolidated financial statements. An estimated loss contingency is accrued in our condensed consolidated financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgments about future events. When evaluating contingencies, we may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. In addition, damage amounts claimed in litigation against us may be unsupported, exaggerated or unrelated to reasonably possible outcomes, and as such are not meaningful indicators of our potential liability.
Refer to Note 6 to the Notes to Condensed Consolidated Financial Statements included in Item 1, Part I of this Quarterly Report on Form 10-Q for further information regarding the NuVasive, Inc. litigation.
Item 1A. | Risk Factors |
There have been no material changes to the risk factors described under Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019,2020, filed with the SEC on March 17, 20205, 2021 except for those noted below:
COVID-19The business combination combined two companies that previously operated as independent public companies. The combined company will be required to devote significant management attention and resources to integrating our business practices and operations. In addition, we have incurred transaction-related and restructuring costs in connection with the business combination and will continue to incur such costs in connection with our integration. These expenses could, particularly in the near term, reduce the cost synergies that we achieve from the elimination of duplicative expenses and the realization of economies of scale and cost synergies related to the integration of the businesses following the completion of the business combination, and accordingly, any net synergies may not be achieved in the near term or at all. These integration expenses may result in us taking significant charges against earnings following the completion of the business combination, which could adversely affect our cash flows and operating results.
In December 2019, a novel strainOur operations, both inside and outside the United States, are subject to risks inherent in conducting business globally and under the laws, regulations and customs of coronavirus, COVID-19, was reportedvarious jurisdictions and geographies. Our operations outside the United States are subject to have surfacedspecial risks and restrictions, including, without limitation: fluctuations in Wuhan, China. Since then, COVID-19 has spreadcurrency values and foreign-currency exchange rates; exchange control regulations; changes in local political or economic conditions; governmental pricing directives; import and trade restrictions; import or export licensing requirements and trade policy; restrictions on the ability to multiple countries,repatriate funds; and other potentially detrimental domestic and foreign governmental practices or policies affecting U.S. companies doing business abroad, including the United States Foreign Corrupt Practices Act and several European countries. To date, COVID-19 has had,the trade sanctions laws and regulations administered by the United States Department of the Treasury’s Office of Foreign Assets Control. Acts of terror or war may impair our ability to operate in particular countries or regions and may continueimpede the flow of goods and services between countries. Customers in weakened economies may be unable to purchase our products, or it could become more expensive for them to purchase imported products in their local currency, or sell at competitive prices, and we may be unable to collect receivables from such customers. Further, changes in exchange rates may affect our net earnings, the book value of our assets outside the United States and our stockholders’ equity. Failure to comply with the laws and regulations that affect our global operations could have an adverse impacteffect on our operations, supply chains, distribution channels and expenses as a resultbusiness, financial condition or results of operations.
Borrowings under certain of our funding arrangements bear an interest rate based on certain tenors of the preventive and precautionary measuresLondon interbank offered rate (“LIBOR”) plus a credit spread. In July 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that, we, our customers, other businesses, and governments are taking, includingafter 2021, it will stop compelling banks to submit rates for the deferralcalculation of elective medical procedures and diversionLIBOR. The discontinuation, reform, or replacement of capital and other resources. Due to these impacts and measures, we have experienced and may continue to experience significant and unpredictable reductionsLIBOR could result in the demand for our products as healthcare customers divert medical resources and priorities towards the treatment of the disease. For example, as COVID-19 reached a global pandemic level in the month of March 2020, we experienced significant decline in procedure volume in the U.S., as healthcare systems diverted resources to meet the increasing demands of managing COVID-19. In addition, the American College of Surgeons, U.S. surgeon general, and other public health bodies have recommended delaying elective surgeries during the COVID-19 pandemic, and surgeons and medical societies are evaluating the risks of minimally invasive surgeries in the presence of infectious diseases, which we expect will continue to negatively impact the usage of our products and procedures performed.
Due to the COVID-19 outbreak, we have experienced significant business disruptions, including restrictionsinterest rate increases on our ability to sell, distribute and service our products, temporary closures of our facilities and the facilities of our suppliers and their contract manufacturers, as well as reduction in access to our customers due to diverted resources and priorities and the business hours of hospitals as governments institute prolonged shelter-in-place and/or self-quarantine mandates. For example, our corporate headquarters located in California has instituted shelter-in-place orders applicable to our employees in that region. These unprecedented measures to slow the spread of the virus taken by local governments and health care authorities globally, including the deferral of elective medical procedures and social distancing measures, have had, and will continue to have, a significant negative impact on our operations and financial results.
As a result of the shelter-in-place orders implemented by state and local governments, we have instituted a remote work environment which has impacted our employees working at our California headquarters. The remote work environment makes us more susceptible to fraud, system interruptions and similar errors that from time to time result in lost funds or delayed transactions. To date, our email and computer systems have been subject to and are likely to continue to be the target of, fraudulent attacks, including attempts to cause us to improperly transfer funds or defraud our vendors into improperly transferring funds meant for us. These attacks have increased in frequency and sophistication. When a fraud is successfully perpetrated, funds transferred to a fraudulent recipient are often times not recoverable, and, in certain instances, we may be liable for those unrecovered funds. While we have greatly enhanced our automated and manual controls to mitigate this risk, there can be no assurance that such controls will prevent or detect such attempts, which may result in financial losses or other adverse consequencesfunding arrangements, which could be material to us.
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In addition, the COVID-19 pandemic has adversely affected, and may continue to adversely affect the economiesour cash flows and financial markets of many countries, which may result in a period of regional, national, and global economic slowdown or regional, national, or global recessions that could curtail or delay spending by hospitals and affect demand for our products as well as increased risk of customer defaults or delays in payments. COVID-19 and the current financial, economic, and capital markets environment, and future developments in these and other areas present material uncertainty and risk with respect to our performance, financial condition, volume of business, results of operations, and cash flows. Due to the uncertain scope and duration of the pandemic and uncertain timing of global recovery and economic normalization, we are unable to estimate the impacts on our operations and financialoperating results. As a result, we have withdrawn our full year 2020 financial and procedure guidance.
Our loans under the Paycheck Protection Program may not be forgiven or may subject us to challenges and investigations regarding our qualification for the loan.36
On April 23, 2020, we received a PPP Loan under the PPP, which was established under the Coronavirus Aid, Relief and Economic Security Act, known as the CARES Act, in the aggregate principal amount of approximately $4.3 million. Pursuant to section 1106 of the CARES Act, we may apply for and be granted forgiveness for all or a portion of the PPP Loan. Such forgiveness will be determined, subject to limitations, based on the use of the loan proceeds for qualifying expenses, which include payroll costs, rent, and utility costs over the allowable measurements period following the receipt of the loan proceeds.
The SBA continues to develop and issue new and updated guidance regarding the PPP Loan application process, including guidance regarding required borrower certifications and requirements for forgiveness of loans made under the program. We continue to track the guidance as it is released and assess and re-assess various aspects of its application as necessary. However, given the evolving nature of the guidance and our anticipated ability to use the loan proceeds for qualifying expenses, we cannot give any assurance that our PPP Loan will be forgiven in whole or in part.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
Item 5. | Other Information |
On November 4, 2020, we entered into an Amended and Restated Warrant to Purchase Common Stock (the “Amended Warrant”) with Patrick S. Miles. The Amended Warrant amends the Warrant to Purchase Common Stock that was issued to Mr. Miles on December 28, 2017 in connection with his acquisition of shares of our common stock to permit net exercise of the Warrant via cashless exercise provisions.None.
The foregoing description of the Amended Warrant contained in this Part II, Item 5 of our Quarterly Report on Form 10-Q does not purport to be complete and is qualified in its entirety by the full and complete terms of the Amended Warrant, a copy of which is attached hereto as Exhibit 4.1 and incorporated herein by reference.
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Item 6. | Exhibits |
Exhibit |
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31.1 |
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31.2 |
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| Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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101 |
| The following materials from the Alphatec Holdings, Inc. Quarterly Report on Form 10-Q for the Three and |
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| Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.INS) |
(1)Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on June 21, 2021. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ALPHATEC HOLDINGS, INC. | |
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| By: | /s/ Patrick S. Miles |
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| Patrick S. Miles |
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| Chairman and Chief Executive Officer |
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| (principal executive officer) |
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| By: | /s/ |
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| Executive Vice President and Chief Financial Officer |
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| (principal financial officer and principal accounting officer) |
Date: November 5, 2020August 3, 2021
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