2 0 2 2 A N N U A L R E P O R T
Revolutionizing the Approach to Spine Surgery
2 0 2 2 L E T T E R F R O M T H E C H A I R M A N & C E O
The momentum driven by the
clinical distinction we are
building is substantial.
F E L L O W S H A R E H O L D E R S ,
At ATEC, spine is our exclusive focus; our passion. We have assembled the greatest concentration of spine surgery
know-how in the industry, and together, we seek to perfect spine procedures by rethinking and redesigning the
technologies required from the ground up. The innovation that results from that process is being rapidly adopted
because,
like us, surgeons covet informatic and procedural sophistication that begets more predictable, more
reproducible care.
Pursuing the unmet clinical needs of spine surgery through a ground-up approach has led to the creation of distinct,
comprehensive procedures. Our flagship technology, the Prone TransPsoas (PTPTM) Procedure, was developed by
innovators who pioneered the first generation of lateral surgery, applying decades of experience to meaningfully
advance it. By integrating a more familiar patient position and SafeOp’sTM more advanced neuromonitoring, PTP
directly addresses some of the challenges that have limited adoption of traditional lateral surgery. Adoption of PTP
has been excellent among both seasoned lateral surgeons and those who haven’t previously operated laterally,
enabling us to both penetrate and expand the market for lateral surgery.
In 2022, we achieved $351 million in revenue and 44% growth, which contributed to a 4-year revenue CAGR of 40%.
The momentum driven by the clinical distinction we are building is substantial. Our ability to drive sector-leading
growth is consistent and sustainable because we take our mission – Revolutionizing the Approach to Spine Surgery –
seriously and personally.
I couldn’t be more enthusiastic about our ability to make the most of the opportunity in front of us. Our business is in
the operating room, where our best is yet to come!
2
2 0 2 2 L E T T E R F R O M T H E C H A I R M A N & C E O
100%
S P I N E
F O C U S
44%
2 0 2 3 R E V E N U E
G R O W T H
40%
4 - Y E A R R E V E N U E
C A G R
2022 HIGHLIGHTS
C L I N I C A L
D I S T I N C T I O N
M A R K E T
A D O P T I O N
F I N A N C I A L
R E F L E C T I O N
Launched more than 10 new products,
including our first expandable implant
Furthered lateral sophistication with
introduction of the Lateral TransPsoas (LTPTM)
and the orthogonal Midline
ALIFTM procedures
Advanced informational sophistication by
furthering the development of SafeOp and
EOS imaging and introducing the VEA mobile
app
Trained over 500 surgeons
Expanded surgeon users by over
20%
Increased average revenue per
procedure by 14%
Drove revenue growth of 39% in
established sales territories (same
store sales)
Delivered $351 million in total revenue,
including $48 million in EOS revenue
Improved adjusted EBITDA margin by 360
basis points
Committed to long-term financial targets
during on-site Investor Day
Secured revolver and strengthened balance
sheet
3
2 0 2 2 L E T T E R F R O M T H E C H A I R M A N & C E O
OUR BUSINESS IS IN THE
OPERATING ROOM.
OUR PRIORITIES
Our strategic priorities have been, and will
remain, consistent as we continue to strive
to
by
earn
revolutionizing
to spine
surgery. We are committed to creating
clinical
surgeon
adoption, and elevating our sales channel.
surgeons’
the
distinction,
confidence
compelling
approach
4
CREATE CLINICAL DISTINCTION
COMPEL SURGEON ADOPTION
ELEVATE THE SALES CHANNEL
1
2
3
2 0 2 2 L E T T E R F R O M T H E C H A I R M A N & C E O
CREATING CLINICAL
DISTINCTION
While others may view the spine market as commoditized, we see it as ripe for
innovation. Our opportunity to move spine surgery forward through informatic and
procedural innovation is vast because our view of “distinction” is different. Our 100%
spine focus enables a procedural investment thesis: an ability to invest in the elements
of surgery that drive predictability, including the objective information, access tools
and patient positioners that set ATEC procedures apart.
L A T E R A L S O P H I S T I C A T I O N
Unlike the rest of orthopedics, spine has been slow to adopt less invasive care,
including lateral spine surgery, due to the variability of outcomes and outdated
practices, such as taping patients to beds and adhering to nonspecific, subjective 20-
minute access guidelines. We are developing and integrating elegant technologies that
address these issues to reinvigorate the shift toward less invasive spine surgery. At the
heart of ATEC clinical distinction is lateral sophistication. We believe strongly in the
benefits of lateral surgery: quicker patient recovery times, shorter hospital stays and
reduced blood loss.* There is no team better equipped to spearhead the new
generation of lateral procedures: PTP and LTP.
In 2022, the momentum of PTP was robust. With new surgeon users continuing to
adopt and experienced users working their way up the procedural complexity curve,
lateral was, again, the greatest contributor to overall revenue growth. We applied
learnings from PTP to develop and introduce the Lateral TransPsoas (LTP) and Mid-Line
ALIF procedures. Built from the ground up, the procedures couple with SafeOp to
infuse our lateral portfolio with unparalleled optionality – the ability to address the
clinical requirements for every pathology and surgeon preference, regardless of
patient position.
There is no team better
equipped to spearhead the
new generation of lateral
procedures: PTP and LTP.
PPRROODDUUCCTT RREELLEEAASSEESS
PRODUCT RELEASES
2018 TO 2021
WE ARE IN PURSUIT OF THE
PERFECT PROCEDURE
* Data
* Data on file
on file
*Q4 result for each year
5
2 0 2 2 L E T T E R F R O M T H E C H A I R M A N & C E O
CREATING CLINICAL
DISTINCTION
ATEC has uniquely invested in
the technology and expertise that
can translate information into
clinical decision-making.
I N FOR M AT I O N A L
ECOSYST EM
I N F O R M A T I O N A L S O P H I S T I C A T I O N
Much of the opportunity to advance spine surgery will derive from
enabling technologies that objectively inform surgery with real-
time, surgeon-directed actionable information. ATEC has uniquely
invested in the technology and expertise that can translate
information into clinical-decision making.
Neuromonitoring is profoundly important in lateral surgery. Safe
access to the lumbar spine during lateral surgery requires
successful navigation across, and intraoperative protection of, the
lumbar plexus, an essential collection of nerves. Perhaps the
greatest limit to broad adoption of first-generation lateral was that
it failed to predictably meet this clinical need because the existing
monitoring technology was unable to objectively measure the
health of
these nerves during surgery. SafeOp Advanced
Neuromonitoring technology is designed to improve lateral surgery
by coupling automated EMGs with automated SSEPs to enable
real-time intraoperative information about (cid:271)(cid:381)(cid:410)(cid:346) the location and
the health of the patients’ nerves, bringing objectivity to archaic
“20-minute access” guidelines. We continue to apply learnings to
advance SafeOp, now a formidable monitoring standard in
lateral.
MOBILE ALIGNMENT APP
PREOP
PLANNING
ROD
providing
unprecedented
EOS imaging, technology acquired in 2021, is another pillar of ATEC
informational sophistication. EOS systems enable standing, full-
body, multi-planar, calibrated, 3D images that inform spine care.
By
the
technology equips surgeons with an objective understanding of
global alignment, the factor most correlated with successful long-
term outcomes.* As we execute to meet solid demand for EOS
that will set new
systems, we are stewarding development
standards for spine care, including automated alignment measures,
customized rod bending capabilities and spine’s first predictive
analytics.
information,
alignment
In 2022, we launched VEA Mobile Alignment, a mobile application
that quantifies alignment parameters. Further development will
integrate access to EOS images into the operating room.
Our pursuit to integrate unprecedented clinical information into
one ecosystem is testament to our procedural investment thesis.
ATEC alone is striving to serve (cid:258)(cid:367)(cid:367) of spine’s clinical requirements
– a strategy that will continue to attract the surgeons and sales
professionals that want to be part of what is next in spine.
6
EOS IMAGING
*Data on file.
2 0 2 2 L E T T E R F R O M T H E C H A I R M A N & C E O
COMPELLING SURGEON
ADOPTION
Our commitment to revolutionizing the approach to spine surgery through a procedural
strategy is fueling rapid surgeon adoption. Increasingly, surgeons recognize that ATEC
uniquely shares their desire for more sophisticated clinical experiences that beget more
predictable, reproducible patient outcomes.
It entails compelling new surgeon
Our opportunity to drive adoption is multi-faceted.
customers, building loyalty to inspire partnership in more of each surgeons’ cases, and
selling more product categories into each surgery.
We seek to create and deepen relationships with surgeon users through the ATEC
Experience, an outcomes-based training program offered at our headquarters in Carlsbad,
CA, a facility designed specifically to foster training and collaboration. In 2022, we hosted
over 500 surgeons primarily to engage new and existing surgeons on PTP, driving an over
20% increase in the number of surgeon users compared to 2021. As confidence in PTP
increases, surgeons generally apply ATEC procedures to more of their cases, driving
utilization higher.
Training and experience enable our surgeon users to move up the procedural complexity
curve, employing PTP to treat more complex pathologies like deformity, which requires
more products per case and generates more revenue per case. Revenue mix continues to
shift toward lateral procedures, which generate almost twice the revenue of our procedure
mix overall. We also released our first expandable implant in 2022, a technology
frequently required in posterior procedures, but for which we didn’t have a previous
solution. These dynamics contributed to an expansion of average product categories sold
per case to 2.3, up from 1.5 in 2018, and a 14% increase in average revenue per case
compared to last year.
21%
2022 GROWTH IN
SURGEON USER BASE
14%
2022 GROWTH IN
AVERAGE REVENUE PER
CASE
2.3
AVERAGE PRODUCT
CATEGORIES PER CASE
S U R G E O N E D U C A T I O N V I S I T S >500 SURGEONS
TRAINED IN 2022
2018
2019
2020
2021
2022
7
2 0 2 2 L E T T E R F R O M T H E C H A I R M A N & C E O
ELEVATING DISTRIBUTION
E X P A N D I N G O U R F O O T P R I N T
As we promote surgeon adoption through our commitment to moving spine
forward through informatic and procedural
innovation, we continue to attract
spine’s most clinically astute talent. Sales professionals covet rapid growth and want
to be part of a winning culture focused solely on spine. We are strategically
engaging significant interest in the field to fill gaps in our U.S. geographic coverage.
With less than 5% share of the U.S. market, we believe the opportunity is vast to
expand our footprint and compel surgeon users to capture the remaining 95%!
I N C R E A S I N G O P E R A T I V E I N F L U E N C E
While we continue to invest in the talent and training to create a clinically
sophisticated sales organization, the investments made beginning in 2018 to
In
transform and build exclusivity throughout the structure are beginning to lever.
2022, the exclusive territories with more than a year of tenure achieved revenue
growth of 39%, an exceptionally strong testament to the clinical excellence and
operative influence that we are building within our team. Charged with earning
share of existing surgeon users and better penetrating their territories, our sales
organization will continue to be a key contributor to both revenue growth and
operating leverage as we expand.
<5%
SHARE OF US SPINE MARKET AT
YEAR END 2022
39%
INCREASE IN REVENUE /
ESTABLISHED TERRITORY IN
2022
Sales professionals
covet rapid growth and want to be
part of a winning culture focused
solely on spine.
8
2 0 2 2 L E T T E R F R O M T H E C H A I R M A N & C E O
L O O K I N G F O R W A R D
THE STANDARD BEARER IN
SPINE
We are revolutionizing the approach to spine surgery. By applying
decades of clinical know-how to architect procedures that improve
spine surgery outcomes, we have achieved multiple years of sector-
leading growth, yet we are just getting started. As we influence
surgeries in operating rooms nationwide, we can’t help but
recognize spine’s persistent unmet needs - needs that the future of
ATEC innovation will seek to address.
As I look to the next few years, the momentum of PTP will continue
to be a significant driver of growth. The launch of the ATEC LTP and
midline ALIF procedures in 2023, coupled with our foray into
expandable implants will
sophistication,
enhancing our ability to penetrate and significantly expand that
market. Earning the confidence of surgeons with our distinctive
lateral procedures will continue to create a halo effect that drives
portfolio-wide adoption. Consequentially, our U.S. footprint will
increase in terms of breadth, depth and clinical excellence.
further ATEC lateral
Longer term, the hard work that is underway to set new standards
with EOS’ capabilities, including automated alignment reports and
surgical planning, patient-specific
rod bending, plan-specific
ordering, intraoperative recon-ciliation, and patient and practice
analytics will unleash the value of that technology. Over a similar
timeframe, the foundation we are laying to create a direct presence
in select international markets will begin to contribute to revenue.
The revenue growth we are generating has opened the door
to a new era of growth for our business – the ability to lever
the investments made toward becoming a profitable spine
company.
In 2022, we drove an adjusted EBITDA margin
expansion of 360 basis points. The improvement accelerated
in the second half of the year, positioning us well to execute
against the substantial operating leverage commitments we
have shared for 2023 and beyond.
A collective passion to make spine surgery better is absolutely
palpable within our facility in Carlsbad and that excitement
extends into the field. Surgeons and sales professionals alike
can’t help but notice who is winning in spine. My enthusiasm
for ATEC’s ability to succeed in this environment could not be
higher.
I like our chances!
Thank you for your continued support and confidence,
P A T M I L E S
P A T M I L E S
Chairman & Chief Executive Officer
9
(cid:62)(cid:55)(cid:43)(cid:44)(cid:54) (cid:51)(cid:36)(cid:42)(cid:40) (cid:44)(cid:49)(cid:55)(cid:40)(cid:49)(cid:55)(cid:44)(cid:50)(cid:49)(cid:36)(cid:47)(cid:47)(cid:60) (cid:47)(cid:40)(cid:41)(cid:55) (cid:37)(cid:47)(cid:36)(cid:49)(cid:46)(cid:64)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-K
(Mark One)
(cid:3) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2022
or
(cid:4) 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
(State or Other Jurisdiction of
Incorporation or Organization)
1950 Camino Vida Roble, Carlsbad,
California
(Address of Principal Executive Offices)
20-2463898
(I.R.S. Employer
Identification No.)
92008
(Zip Code)
(760) 431-9286
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of Each Class
Common Stock, par value $0.0001 per share
Trading Symbol(s)
ATEC
Name of Each Exchange on Which Registered
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:4) No (cid:3)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes (cid:4) No (cid:3)
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 (cid:3) No (cid:4)
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 (cid:3) No (cid:4)
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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in
Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
(cid:4)
(cid:4)
Accelerated filer
Smaller reporting company
Emerging growth company
(cid:3)
(cid:4)
(cid:4)
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. (cid:4)
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes Oxley Act (15 U.S.C. 7262 (b)) by the registered public accounting firm that prepared or issued
its audit report. (cid:3)
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing
reflect the correction of an error to previously issued financial statements. (cid:4)
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received
by any of the registrant’s executive o(cid:3)cers during the relevant recovery period pursuant to §240.10D-1(b). (cid:4)
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:4) No (cid:3)
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant (without admitting that any person whose shares are not
included in such calculation is an affiliate) computed by reference to the price at which the common stock was last sold as of the last business day of the
registrant's most recently completed second fiscal quarter (June 30, 2022), was approximately $477.5 million.
The number of outstanding shares of the registrant’s common stock, par value $0.0001 per share, as of February 23, 2023 was 111,109,933.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents (or parts thereof) are incorporated by reference into the following parts of this Form 10-K: Certain information required in Part III
of this Annual Report on Form 10-K is incorporated from the Registrant’s Proxy Statement for the 2023 Annual Meeting of Stockholders.
Auditor Firm Id:
Deloitte & Touche LLP
New York, New York, United States
Auditor Location:
Auditor Name:
34
ALPHATEC HOLDINGS, INC.
FORM 10-K—ANNUAL REPORT
For the Fiscal Year Ended December 31, 2022
Table of Contents
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Reserved
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Page
2
19
33
33
33
33
34
35
36
46
46
46
46
47
47
48
48
48
48
48
49
In this Annual Report on Form 10-K, the terms “we,” “us,” “our,” “Alphatec Holdings” and “Alphatec” mean
Alphatec Holdings, Inc., our subsidiaries and their subsidiaries. “Alphatec Spine” refers to our wholly-owned
operating subsidiary Alphatec Spine, Inc. “SafeOp” refers to our wholly owned operating subsidiary SafeOp Surgical,
Inc. “EOS” refers to our wholly owned operating subsidiary EOS imaging S.A.
[THIS PAGE INTENTIONALLY LEFT BLANK]
PART I
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K and, in particular, the description of our "Business" set forth in Item 1, the
"Risk Factors" set forth in this Item 1A and our "Management’s Discussion and Analysis of Financial Condition and
Results of Operations" set forth in Item 7 contain or incorporate 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 achieve profitability, and the potential need to raise additional funding;
our ability to ensure that we have effective disclosure controls and procedures;
our ability to meet, and potential liability from not meeting, any outstanding commitments and contractual
obligations;
our ability to maintain compliance with the quality requirements of the United States ("U.S.") Food and
Drug Administration ("FDA") and similar foreign regulatory requirements;
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 ability to continue to enhance our product offerings, and to commercialize and achieve market
acceptance of any of our products or product candidates;
the effect of any existing or future federal, state or international regulations on our ability to effectively
conduct our business;
our business strategy and our underlying assumptions about market data, demographic trends,
reimbursement trends and pricing trends;
our ability to maintain an adequate global sales network for our products, including to attract and retain
independent sales agents and direct sales representatives;
our ability to increase the use and promotion of our products by training and educating spine surgeons
and our global 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;
the impact of global economic and political conditions and public health crises on our business and
industry; and
other factors discussed elsewhere in this Annual Report on Form 10-K or any document incorporated by
reference herein or therein.
Any or all of our forward-looking statements in this Annual Report may turn out to be wrong. They can be
affected by inaccurate assumptions by known or unknown risks and uncertainties. Many factors mentioned in our
discussion in this Annual Report on Form 10-K will be important in determining future results. Consequently, no
forward-looking statement can be guaranteed. Actual future results may vary materially from expected results.
We also provide a cautionary discussion of risks and uncertainties under “Risk Factors” in Item 1A of this
Annual Report. 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.
1
Without limiting the foregoing, the words “believe,” “anticipate,” “plan,” “expect,” “may,” “could,” “would,”
“seek,” “intend,” 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 “Item 1A
Risk Factors.” 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, except as required by applicable law.
Item 1.
Business
We are a medical technology company focused on the design, development, and advancement of technology
for better surgical treatment of spinal disorders. Through our wholly owned subsidiaries, Alphatec Spine, Inc., SafeOp
Surgical, Inc. and EOS imaging S.A., our mission is to revolutionize the approach to spine surgery through clinical
distinction. We are focused on developing new approaches that integrate seamlessly with our expanding Alpha
InformatiX™ product platform to better inform surgery and to achieve the goal of spine surgery more predictably and
reproducibly. We have a broad product portfolio designed to address the spine’s various pathologies. Our ultimate
vision is to be the standard bearer in spine.
In 2018, we embarked on a business transformation that has replaced 100% of the executive team, 94% of our
Board of Directors, and over 90% of the remaining team with experienced professionals. Efforts that year founded our
Organic Innovation Machine™, our in-house product design, development and testing capabilities aimed at the
creation of clinical distinction, and furthered the strategic transition of our sales force to a more dedicated, clinically
astute team.
From 2019 through 2021, our focus was on building a foundation capable of supporting the organization as we
scale into a larger business. We developed and released several key elements of our approach-based portfolio,
including a comprehensive posterior fixation system and approach-specific IdentiTi implants. We also acquired and
integrated SafeOp, technology that integrates with our approaches to provide information about both the location and
the health of nerves intra-operatively. SafeOp became the informational backbone of the Prone TransPsoas (“PTP”)
approach, which we developed and launched in 2020 to advance lateral spine surgery. We invested in new
headquarters to substantially increase surgeon and sales training capacity and opened a distribution facility in
Memphis, TN to ensure predictable and expedient surgical support as we grow. We also acquired EOS imaging to
expand on the informational competitive advantage established with SafeOp. EOS systems enable full-body,
calibrated, 3D images that integrate throughout the arch of patient spine care to influence procedure planning and
improve and objectify the understanding of global alignment. As we execute against our vision for EOS technology,
we believe it will set new standards for spine care.
2
Our ability to leverage our collective spine experience, coupled with a willingness to invest in every component
of the advanced spine approaches that we bring to market has fueled market-leading growth in every year since early
2018.
Revenue from products and services was $350.9 million for the year ended December 31, 2022, representing an
increase of $108.6 million, or 45% compared to $242.3 million for the year ended December 31, 2021. We believe
our future success will continue to be propelled by the introduction and traction of the distinct procedures and
technologies that our procedural investment thesis engenders. We feel that Alphatec is well-positioned to continue to
capitalize on spine market dynamics.
Recent Developments
Term Loan
On January 6, 2023, we entered into a $150.0 million term loan (the "Braidwell Term Loan") with Braidwell
Transaction Holdings, LLC. The Braidwell Term Loan provides for an initial term loan of $100.0 million which was
funded on the closing date. We have the option to draw an additional $50.0 million within 18 months of the closing
date. The Braidwell Term Loan matures in January 2028. Borrowings under the Braidwell Term Loan bear interest at
an annual rate equal to Term Secured Overnight Financing Rate, a rate per annum equal to the secured overnight
financing rate for such SOFR business day ("Term SOFR") plus 5.75%. The outstanding portion of the term loan is
secured by substantially all of our assets with the priority interest of the lenders in the Braidwell Term Loan and the
Revolving Credit Facility, as defined below, subject to terms of a customary intercreditor agreement.
Revolving Credit Facility
In September 2022, we entered into a revolving credit facility (the “Revolving Credit Facility”) with entities
affiliated with MidCap Financial Trust (“MidCap”). The Revolving Credit Facility provides up to $50.0 million in
borrowing capacity based on a borrowing base. The borrowing base is calculated based on certain accounts receivable
and inventory assets. We may request a $25.0 million increase in the Revolving Credit Facility for a total commitment
of up to $75.0 million. The Revolving Credit Facility matures on the earlier of September 29, 2027, or 90 days prior
to the final maturity date of any of our unsecured Senior Convertible Notes (the "2026 Notes").
The outstanding loans bear interest at the sum of Term SOFR, plus 3.5% per annum. Interest on borrowings is
due monthly. The loan agreements include an unused line fee, which is calculated as 0.50% per annum of either the
unused Revolving Credit Facility or a minimum balance. Upon the Revolving Credit Facility’s maturity, any
outstanding principal balance, unpaid accrued interest, and all other obligations under the Revolving Credit Facility
will be due and payable.
The Revolving Credit Facility contains a lockbox arrangement clause requiring us to maintain a lockbox bank
account. If the revolving loan availability is less than 30% of the revolving loan limit for five consecutive business
days, or if we are in default, MidCap will apply funds collected from our lockbox account to reduce the outstanding
balance of the Revolving Credit Facility.
The outstanding loans are secured by substantially all of our assets with the priority interest of the lenders in the
Braidwell Term Loan and the Revolving Credit Facility subject to terms of a customer intercreditor agreement. The
loan agreements and other ancillary documents contain customary representations and warranties and affirmative and
negative covenants. Under the loan agreements, we are required to maintain a minimum level of liquidity. The loan
agreements also include certain events of default, and upon the occurrence of such events of default, all outstanding
loans under the Revolving Credit Facility may be accelerated and/or the lenders’ commitments terminated.
Strategy
Our vision is to be the standard bearer in spine. By leveraging our team’s extensive spine experience to create
clinically distinct solutions that improve surgical outcomes, we believe that we are positioned to continue to earn share
of the U.S. spine market, becoming the partner of choice for spine surgeons, hospitals, healthcare systems, and payors.
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To achieve our vision and build long-term value, we continue to prioritize the following three vital initiatives:
1. Create Clinical Distinction
We are committed to continuing to invest in the development, launch, and promotion of approaches and
technologies intended to revolutionize spine surgery. We have developed, and continue to seek to develop, next-
generation surgical approaches that advance spine care with seamlessly integrated access systems, implants,
positioners, biologics and enabling technologies uniquely designed to beget objective decision-making and to more
successfully address the core spine pathologies.
During the year ended December 31, 2022, we continued to drive adoption of the PTP approach, while securing
over 40% growth in the EOS opportunity pipeline and executing against developmental initiatives that will further
EOS' spine capabilities. We advanced the medialized MIS posterior approach with the Sigma Medialized Access
System and the Calibrate PSX Expandable Interbody Implant System, our first expandable interbody implant system.
Our pursuit to perfect our procedures inspired the launch of over 10 new technologies during the year ended December
31, 2022. As a result, our comprehensive portfolio now boasts over 90 products across various product categories, of
which more than half were launched between July 2018 and December 2022.
With the expansion and increasing capabilities of our product portfolio, we continue to drive year-over-year
growth in the number of product categories used per surgery, average revenue per surgery and revenue per surgeon.
Aggregate product categories used per surgery expanded to 2.2 for the full-year 2022, compared to 2.0 in the prior
year. For the full year 2022, average revenue per surgery expanded 25% and revenue per surgeon increased 17%
compared to 2021.
Looking to 2023 and beyond, we intend to continue to pioneer spine innovation. As such, we expect continued
growth in the number of products sold into each surgery, revenue per surgery, and revenue per surgeon.
2. Compel Surgeon Adoption
An integral part of our strategy is to compel surgeon adoption of the innovation that we have and will continue
to introduce. Central to inspiring surgeon interest is the “ATEC Experience”, an outcomes-based educational program
for visiting surgeons facilitated at our headquarters in Carlsbad, CA. The program provides an interactive learning
environment tailored to surgeon needs through both a peer-to-peer and subject matter expert approach. We leverage
our state-of-the-art, 7-station cadaveric lab to enable visiting surgeons to gain deep practical experience with our
procedural solutions and educate participants on our role in shaping innovation.
The surgeon relationships we are creating through that educational program continue to drive strong growth,
evidenced by both the increase in surgeon participation in the program and the continued growth of surgeon adoption.
Over 400 new and existing surgeons participated in the ATEC Experience in 2022, driving growth in our surgeon user
base in 2022 and positioning us well for future growth as we cultivate the surgeon relationships we are creating.
Revenue attributable to new surgeon customers has continued to contribute meaningfully to revenue growth overall.
Surgeon utilization is also expanding as we earn surgeon confidence and foster surgeon training programs that extend
the application of our procedural solutions to increasingly complex spine care.
3. Elevate Distribution
We market and sell our products through a strategic network of independent sales agents and direct sales
representatives.
To deliver consistent, predictable growth, we have added, and intend to continue to add, clinically astute and
exclusive independent sales agents and direct sales representatives to reach untapped surgeons, hospitals, and national
accounts and better penetrate existing accounts and territories. We believe the opportunity to expand our strategic
sales network is vast, with approximately one third of U.S. territories, including many of the U.S.' most significant
spine markets, still under- or completely unrepresented.
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With our acquisition of EOS in 2021, we aligned EOS’ U.S.-based capital sales team with our regional sales
teams and leadership. The EOS sales team will continue to focus on hospital administrators now with the benefit of
leads generated by our strategic sales team and enhanced service support.
As we seek to optimize sales productivity, we continually work to upgrade our sales team training and education
efforts. That, coupled with the clinical distinction-fueled increase in surgeon adoption drove 39% growth in revenue
per established territory in 2022, marking the beginnings of our ability to lever years of investment to elevate our sales
channel.
In 2022, we enhanced the expertise within our Memphis distribution facility which opened in 2021. With
expedient, flexible access to nearby distribution centers, we believe the facility will ensure centralized surgical support
as we grow.
We are in the nascent stages of building an international footprint. In 2022, we commenced a process that will
secure regulatory approvals for Australia and Japan and invested in a team and support structure to foster sales in New
Zealand. Looking forward, we intend to focus our international investments in economically attractive markets with
strong surgeon influence and reasonable regulatory pathways where we believe we can build a direct sales team with
the sophistication of our U.S. network.
Spine Anatomy
The spine is the core of the human skeleton and provides important structural support and alignment while
remaining flexible to allow movement. The spine is a column of 33 bones that protects the spinal cord and provides
the main support for the body. Each bony segment of the spine is referred to as a vertebra (two or more are called
vertebrae). The spine has five regions containing groups of similar bones, listed from top to bottom: seven cervical
vertebrae in the neck, twelve thoracic vertebrae in the mid-back (each attached to a rib), five lumbar vertebrae in the
lower back, five sacral vertebrae fused together to form one bone called the sacrum, which sits in the pelvis, and four
coccygeal bones fused together that form the tailbone. At the front of each vertebra is a block of bone called the
vertebral body. Vertebrae are stacked on top of each other and separated from each other through a cushioning
intervertebral disc in the front, and bony joints in the back, which create the stability and mobility needed for sitting,
standing, and walking. Strong muscles and bones, flexible tendons and ligaments, and sensitive nerves contribute to
a healthy spine. Pain can be caused when any of these structures is affected by strain, injury, or disease.
The Alphatec Solution
Our procedural investment thesis is unique. Unlike most of our peers, we take a holistic approach to the
procedures that we bring to market, willingly investing not just in the highest dollar components of the procedure, but
also in the clinically distinct technology that can enhance clinical predictability and reproducibility. As a result, our
procedures uniquely incorporate the technology engendered by that thesis: objective information capable of informing
the entire continuum of spine patient care and integrated, ergonomic patient positioning and surgical access
technology.
Our principal offerings include comprehensive procedural solutions designed and developed to specifically meet
the requirements of the various spine approaches that treat conditions ranging from degenerative disc disease to
complex deformity and trauma. Depending on the approach, our solutions may comprise objective and automated
pre-, intra-, and post-operative information, positioners, access systems, interbody implants, fixation systems, and
various biologics offerings; all designed to more predictably improve patient outcomes by achieving the three goals
of spine surgery: (1) decompression, (2) stabilization, and (3) alignment.
To deliver on our goal of driving above-market revenue growth, we continue to leverage investments made to
equip the sales channel with a clinically distinct portfolio and to build a strong pipeline of innovation that will compel
surgeon adoption well into the future. While new products launched since new management took over in late 2017
accounted for less than 10% of total revenue in 2018, that percentage increased to 91% in 2022.
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Our flagship approach, the PTP approach, was designed and released in 2020 to directly address the known
challenges that limited earlier adoption of the technique by the team that created the original lateral approach for spinal
fusion. Engineered to leverage the benefits achieved by lateral spinal fusion procedures, such as reduced blood loss,
shorter hospital stays, and quicker recovery times, PTP treats a wide range of patient pathologies and, to date, surgeons
have performed over 5,500 PTP procedures.
Compared to a standard lateral procedure, the PTP approach positions the patient in a prone (face down)
position, allowing simultaneous access to the spine laterally (from the side) and posteriorly (from the back), all while
in a more familiar surgical position and offering a more streamlined approach. Single-position lateral surgery in the
prone position minimizes unnecessary patient repositioning, enhances time efficiencies, provides surgeons with
increased optionality, and achieves spinal alignment objectives more reproducibly.
The PTP procedure is enabled through a combination of purposefully-developed technologies that address the
unique challenges of approaching the spine laterally while prone. One such challenge, and probably the greatest limit
to earlier adoption of lateral approaches overall, is the need to safely and predictably navigate across the lumbar plexus,
an essential collection of nerves, to access the lumbar spine during surgery. Key to our PTP approach is the integration
of SafeOp Advanced Neuromonitoring, a proprietary technology that couples automated electromyographic (“EMG”)
and somatosensory evoked potential (“SSEP”) monitoring. SafeOp technology, as a result, is designed to uniquely
beget real-time, surgeon-directed intra-operative information about both the location and the health of the patient’s
nerves, enhancing the predictability and reproducibility of lateral approach outcomes.
Our Technology
Positioners
We have developed approach-specific patient positioning systems that integrate with our other access systems,
providing for a more rigid construct and enhanced reproducibility. The PTP Patient Positioning System™, for
example, was developed specifically for the PTP procedure as an adjunct to the Sigma™-PTP Access System.
Designed to maximize the positional effects of having the patient in a prone position while streamlining operating
room setup, PTP enables a single-position surgery. Key features include bi-lateral structural support to minimize
patient movement, adjustable side paddle position to accommodate varying patient habitus, an integrated bed-rail
system and compatibility with the Jackson frame. In addition, the system’s ultra-radiolucent carbon fiber frame is
designed to help enhance fluoroscopic visibility and its coronal bending mechanism is designed to create reproducible
access to L4-5 and upper lumbar regions.
Access Systems
We have differentiated surgical access instruments that are designed to maximize patient outcomes through
enhanced visibility and rigidity, intuitive orthogonality, and approach-specific exposure. We offer several split-blade
retractors which allow for direct, illuminated visualization and freedom of maneuverability within the operative
corridor. Our retractors also provide for stable positioning by attaching directly to the surgical table. We also offer
procedure-specific access systems, including our Sigma-ALIF Access System which allows for custom anterior
abdominal exposure through freehand placement of dissecting blades and connection to a ringed frame. The Sigma-
ALIF Access System provides an unobstructed working corridor with custom features to enable an ALIF approach in
either supine or lateral decubitus.
EOS Imaging
Our EOS imaging system provides unbiased, high-quality, and calibrated full-body imaging that enables a
precise 3D model of patients’ skeletal systems and provides valuable diagnostic and surgical planning capabilities.
The integration of our approach-specific solutions into EOS’ 3D surgical planning platform is expected to better
inform surgery and enhance the predictability of outcomes by allowing surgeons to more effectively assess patients’
full-body alignment, establish surgical objectives, and simulate surgery with optimized implants.
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Alpha InformatiX
Our Alpha InformatiX ("AIX") product platform comprises the SafeOp Neural InformatiX System and the
VEA™ alignment mobile application.
The SafeOp Neural InformatiX System was the first advanced technology to launch from the AIX product
platform. SafeOp is a patented technology that automates both EMG and SSEP monitoring. As a result, the system
can provide surgeons with objective, real-time, and actionable information about both nerve location and nerve health
intra-operatively on a small, easy-to-use tablet platform. Integration of the information with our advanced access,
implant, and fixation technologies equips surgeons with procedural solutions designed to enhance safety, efficiency,
and reproducibility.
The VEA mobile alignment application is designed to more quickly quantify alignment parameters on a mobile
device. Further development is aimed at enabling broad EOS image access for the integration of intraoperative
solutions.
Implants and Fixation Systems
Our portfolio of specialized spinal implants and fixation systems are designed to specifically meet the
requirements of each approach. Available in varying shapes, sizes, and lordosis options, our spinal implants include
implants made from allograft, PEEK, and porous titanium. We offer NanoTec™ surface modifications to our
interbody systems to increase the surface area for cell adhesion and proliferation. Customization can be enhanced with
our lordotic expandable intervertebral body fusion system, Calibrate™ PSX, which was released in 2022. We also
offer several standalone implants designed to provide for height restoration and stabilization in one integrated solution.
Invictus™ is our next-generation comprehensive spinal fixation solution, designed to treat the range of
pathologies, with intraoperative adaptability and surgical predictability through an open, minimally invasive (“MIS”),
or hybrid approach. The sophistication of the Invictus Posterior Fixation System continues to expand. The commercial
release of Invictus OCT in early 2021 extended the system’s proficiencies to include the occiput and cervical spine,
creating a single system capable of addressing the entire spine from occiput to ilium with familiar and consistent
instrument design, simplified screw insertion, and intraoperative adaptability. The launch of Invictus OsseoScrew®
later in 2021 advanced the system with the first and only expandable screw commercially available in the U.S.
OsseoScrew has been designed to optimize fixation and address fixation failure in compromised bone.
Biologics
We have a variety of biologics designed to facilitate the process of spinal fusion. Our biologics offerings consist
of several allograft (donated human tissue) options, including 3D ProFuse® Osteoconductive Bioscaffold, and a family
of AlphaGRAFT® products. 3D ProFuse® Osteoconductive Bioscaffold is highly compressible when hydrated,
allowing for ease of handling and better endplate-to-endplate contact. Our AlphaGRAFT Demineralized Bone Matrix
(“DBM”) consists of demineralized human tissue that is available in gel, putty, and fiber forms. AlphaGRAFT DBM
Fibers combine the regenerative capacity of interconnected fibers with the maximum availability of growth factors
endogenous to bone. Composed of 100% demineralized fibers, AlphaGRAFT DBM Fibers offer moldable, cohesive
handling characteristics. AlphaGRAFT Cellular Bone Matrix (“CBM”) is a growth factor-enriched cellular bone
matrix (“CBM”) that exhibits the angiogenic, osteoinductive, and mitogenic growth factors necessary for bone growth.
AlphaGRAFT CBM may be delivered in granular, fiber, or structural form. We also offer BioCORE® Moldable
Bioactive Graft which is a synthetic mineral-collagen composite matrix that can be molded to fit the bone defect. Our
Amnioshield® Amniotic Tissue Barrier is an allograft for spinal surgical barrier applications. The composite amniotic
membrane is intended to act as a biological barrier and provide an excellent dissection plane.
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Products and Technologies Under Development
Internally Developed Products and Technologies
We are expanding our portfolio of products and technologies to enhance clinical outcomes across multiple
pathologies, regardless of a surgeon’s preferred surgical approach. We expect to launch 8-10 new products during
2023.
Research and Development
Our research and development team seeks to better meet the requirements of each surgical approach and design
and release new products that increase our penetration of the U.S. spine market. We are focused on developing
technology platforms and products that span the largest market segments addressing degenerative and deformity spine
pathologies. We have transformed our development process by focusing our programs and leveraging integrated teams
to reduce the time frame from product concept to market commercialization. We also collaborate with surgeon partners
to design products that are intended to enhance the clinical experience, simplify surgical techniques, and reduce overall
costs, while improving patient outcomes. Most of our product development efforts are fully integrated in a singular
location, our Carlsbad headquarters, which allows us to bring products from concept to market rapidly responding to
surgeon and patient needs. Our resources include a technology advancement cell for rapid prototyping, a cadaveric
lab, and mechanical testing laboratory.
Sales and Marketing
We market and sell our products through a sales force consisting of dedicated and non-dedicated independent
sales agents and dedicated employee direct sales representatives. We employ a team of area vice presidents, sales
directors, and regional business managers, who are responsible for overseeing the sales channel process in their
territories. Although surgeons in the U.S. typically make the ultimate decision to use our products, we generally
invoice the hospital for the products that are used and pay commissions to the sales representative, or the sales agent
based on payment received from the hospital. We compensate our direct sales employees through salaries and
incentive bonuses based on performance measures.
We evaluate and select our distribution partners and sales employees based upon their expertise in selling spinal
devices, reputation within the surgeon community, geographical coverage, and established sales network.
We market our products at various industry conferences, organized surgical training courses, and in industry
trade journals and periodicals.
Surgeon Training and Education
We focus our surgeon training efforts on delivering critical technical skills needed to perform the entire spinal
fusion procedure through a peer-to-peer approach for qualified surgeon customers. Well-timed surgeon education
programs drive customer conversion and loyalty by focusing on delivering value through improved clinical outcomes.
We devote significant resources to training and education and are committed to a culture of scientific excellence and
ethics.
We believe that one of the most effective ways to introduce and build market demand for our products is by
training and educating spine surgeons, independent sales agents, and direct sales representatives on the benefits and
use of our products. Sales training programs are a platform for learning and organizational development, ensuring the
sales force is clinically competitive and considered an essential resource to all stakeholders. We focus on cross-
functional collaboration and alignment to deliver timely and relevant programs to meet surgeon and representative
needs and positively impact the business.
Our training and education programs are designed to support new product introductions to the market as well
as ongoing portfolio advancement. Our resources are nimble and responsive and include field-based engagements to
supplement our core curriculum. We believe this is an effective way to increase overall surgeon adoption of our new
products.
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We believe that surgeons, independent sales agents, and direct sales representatives will become exposed to the
merits and distinguishing features of our products through our training and education programs, and that such exposure
will increase the use and promotion of our products. With a focus on the entire procedure, we expect to build awareness
of the breadth of our product offering. We are conscientious in the pursuit of delivering value to all stakeholders. Our
goal is to provide surgeon education programs, coupled with a growing and comprehensive sales training platform
that create a sustainable competitive advantage for our organization.
Manufacture and Supply
We rely on third-party suppliers for the manufacture of all our implants and instruments. Outsourcing implant
manufacturing reduces our need for capital investment and reduces operational expense. Additionally, outsourcing
provides expertise and capacity necessary to scale up or down based on demand for our products. We select our
suppliers to ensure that all of our products are safe, effective, adhere to all applicable regulations, are of the highest
quality, and meet our supply needs. We employ a rigorous supplier assessment, qualification, and selection process
targeted to suppliers that meet the requirements of the FDA, and International Organization for Standardization
(“ISO”), and quality standards supported by internal policies and procedures. Our quality assurance process monitors
and maintains supplier performance through qualification and periodic supplier reviews and audits.
The raw materials used in the manufacture of our non-biologic products are principally titanium, titanium alloys,
stainless steel, cobalt chrome, ceramic, allograft, and PEEK. With the exception of PEEK, none of our raw material
requirements is limited to any significant extent by critical supply. We are subject to the risk that Invibio, one of a
limited number of PEEK suppliers, will be unable to supply PEEK in adequate amounts and in a timely manner. We
believe our supplier relationships, alternative product offerings, vendor-managed inventory, and quality processes will
support our potential capacity needs for the foreseeable future.
With respect to biologics products, we are FDA-registered and licensed in the states of California, New York,
and Florida, the only states that currently require licenses. Our facility and the facilities of the third-party suppliers we
use are subject to periodic unannounced inspections by regulatory authorities and may undergo compliance inspections
conducted by the FDA and corresponding state and foreign agencies. Because our biologics products are processed
from human tissue, maintaining a steady supply can sometimes be challenging. We have not experienced significant
difficulty in locating and obtaining the materials necessary to fulfill our production requirements and we have not
experienced a meaningful disruption to sales orders.
Competition
Although we believe that our current broad product portfolio and development pipeline is differentiated and has
numerous competitive advantages, the spinal implant industry is highly competitive, subject to rapid technological
change, and significantly affected by new product introductions. We believe that the principal competitive factors in
our market include:
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improved outcomes for spine pathology procedures
ease of use, quality, and reliability of product portfolio
effective and efficient sales, marketing, and distribution
quality service and an educated and knowledgeable sales network
technical leadership and superiority
surgeon services, such as training and education
responsiveness to the needs of surgeons
acceptance by spine surgeons
product price and qualification for reimbursement
speed to market
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Both our currently marketed products and any future products we commercialize are subject to intense
competition. We believe that our most significant competitors are Medtronic (Sofamor Danek), Johnson & Johnson
(DePuy Spine), Stryker, NuVasive, Zimmer Biomet, Globus Medical, and others, many of which have substantially
greater financial resources than we do. In addition, these companies may have more established distribution networks,
entrenched relationships with physicians and greater experience in developing, launching, marketing, distributing, and
selling spinal implant products.
Some of our competitors also provide non-operative therapies for spine disorder conditions. While these non-
operative treatments are considered to be an alternative to surgery, surgery is typically performed in the event that
non-operative treatments are unsuccessful. We believe that, to date, these non-operative treatments have not caused a
material reduction in the demand for surgical treatment of spinal disorders.
Intellectual Property
We rely on a combination of patent, trademark, copyright, trade secret and other intellectual property laws,
nondisclosure agreements, proprietary information ownership agreements, and other measures to protect our
intellectual property rights. We believe that in order to have a competitive advantage, we must develop, maintain, and
enforce the proprietary aspects of our technologies. We require our employees, consultants, co-developers, sales
agents and advisors to execute agreements governing the ownership of proprietary information and use and disclosure
of confidential information in connection with their relationship with us. In general, these agreements require these
individuals and entities to agree to disclose and assign to us all inventions that were conceived on our behalf, or which
relate to our property or business and to keep our confidential information confidential and only use such confidential
information in connection with our business.
Patents. As of December 31, 2022, we and our affiliates owned, or we exclusively owned 196 issued U.S.
patents, 39 pending U.S. patent applications and 234 issued or pending foreign patents. We own multiple patents
relating to unique aspects and improvements for several of our products. Patents for individual products extend for
varying periods according to the date of filing or grant and legal term of patents in various countries where a patent is
issued. We do not believe that the expiration of any single patent is likely to significantly affect our intellectual
property position.
Trademarks. As of December 31, 2022, we and our affiliates owned 26 registered U.S. trademarks and 19
registered trademarks outside of the U.S.
Government Regulation
Our products are subject to extensive regulation by the FDA and other U.S. federal and state regulatory bodies
and comparable authorities in other countries. Our products are subject to regulation under the Federal Food, Drug
and Cosmetic Act (“FDCA”), and in the case of our tissue products, also under the Public Health Service Act
(“PHSA”). To ensure that our products are safe and effective for their intended use, the FDA regulates, among other
things, the following activities that we or our partners perform and will continue to perform:
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product design and development;
product testing;
non-clinical and clinical research;
product manufacturing;
product labeling;
product storage;
premarket clearance or approval;
advertising and promotion;
product marketing, sales and distribution;
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import and export; and
post-market surveillance, including reporting deaths or serious injuries related to products and certain
product malfunctions.
Government Regulation—Medical Devices
FDA’s Premarket Clearance and Approval Requirements. Unless an exemption applies, each medical device
we wish to commercially distribute in the U.S. will require either FDA clearance of a premarket notification requesting
permission for commercial distribution under Section 510(k) of the FDCA, also referred to as a 510(k) clearance, or
approval of a premarket approval application, (“PMA”). The information that must be submitted to the FDA in order
to obtain clearance or approval to market a new medical device varies depending on how the medical device is
classified by the FDA. Under the FDCA medical devices are classified into one of three classes - Class I, Class II or
Class III-depending on the degree of risk associated with the use of the device and the extent of manufacturer and
regulatory controls deemed to be necessary by the FDA to reasonably ensure their safety and effectiveness.
Class I devices are those with the lowest risk to the patient for which safety and effectiveness can be reasonably
assured by adherence to a set of regulations, referred to as General Controls, which require compliance with the
applicable portions of the FDA’s Quality System Regulation (“QSR”), facility registration and product listing,
reporting of adverse events and malfunctions, and appropriate, truthful and non-misleading labeling and promotional
materials. Some Class I devices also require 510(k) clearance by the FDA, though most Class I devices are exempt
from the premarket notification requirements. Class II devices are those that are subject to the General Controls, as
well as Special Controls, which can include performance standards, product-specific guidance documents and post-
market surveillance. Manufacturers of most Class II devices are required to submit to the FDA a premarket notification
under Section 510(k) of the FDCA. Class III devices include devices deemed by the FDA to pose the greatest risk
such as life-supporting or life-sustaining devices, or implantable devices, in addition to those deemed not substantially
equivalent following the 510(k) process. The safety and effectiveness of Class III devices cannot be reasonably assured
solely by compliance with the General Controls and Special Controls described above. Therefore, these devices must
be the subject of an approved PMA. Both 510(k)s and PMAs are subject to the payment of user fees at the time of
submission for FDA review.
If the FDA determines that the device is not “substantially equivalent” to a predicate device following
submission and review of a 510(k) premarket notification, or if the manufacturer is unable to identify an appropriate
predicate device and the new device or new use of the device presents a moderate or low risk, the device sponsor may
either pursue a PMA approval or seek reclassification of the device through the de novo process. Our current products
on the market in the U.S. include Class II spinal implants and instruments marketed under 510(k) premarket clearance,
as well as Class I 510(k) exempt spinal instruments and devices.
510(k) Clearance Pathway. To obtain 510(k) clearance, we must submit a premarket notification demonstrating
that the proposed device is substantially equivalent to a device legally marketed in the U.S. A predicate device is a
legally marketed device that is not subject to premarket approval, i.e., a device that was legally marketed prior to May
28, 1976 (pre-amendments device) and for which a PMA is not required, a device that has been reclassified from Class
III to Class II or I, or a device that was found substantially equivalent through the 510(k) process. To be “substantially
equivalent,” the proposed device must have the same intended use as the predicate device, and either have the same
technological characteristics as the predicate device or have different technological characteristics and not raise
different questions of safety or effectiveness than the predicate device. Clinical data is sometimes required to support
substantial equivalence.
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The FDA’s goal is to review and act on each 510(k) within 90 days of submission, but on average the process
usually takes approximately six months. It may take less time depending on the type of device and it may take longer
if the FDA requests additional information. Most 510(k)s do not require supporting data from clinical trials, but the
FDA may request such data. If the FDA agrees that the device is substantially equivalent, it will grant clearance to
commercially market the device.
After a device receives 510(k) clearance, any modification that could significantly affect its safety or
effectiveness, or that would constitute a new or major change in its intended use, will require a new 510(k) clearance
or, depending on the modification, require premarket approval. The FDA requires each manufacturer to determine
whether the proposed change requires the submission of a 510(k) or PMA, but the FDA can review any such decision
and can disagree with a manufacturer’s determination. If the FDA disagrees with a manufacturer’s determination, the
FDA can require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or PMA
is obtained. If the FDA requires us to seek a new 510(k) clearance or PMA for any modifications to a previously
cleared product, we may be required to cease marketing or recall the modified device until we obtain this clearance or
approval. Also, in these circumstances, we may be subject to significant fines or penalties. We have made and plan to
continue to make enhancements to our products for which we have not submitted 510(k)s or PMAs, and we will
consider on a case-by-case basis whether a new 510(k) or PMA is necessary.
The FDA began to consider proposals to reform its 510(k) marketing clearance process in 2011, and such
proposals could include increased requirements for clinical data and a longer review period. Specifically, in response
to industry and healthcare provider concerns regarding the predictability, consistency and rigor of the 510(k)
regulatory pathway, the FDA initiated an evaluation of the 510(k) program, and as part of the Food and Drug
Administration Safety and Innovation Act (“FDASIA”), Congress reauthorized the Medical Device User Fee
Amendments with various FDA performance goal commitments and enacted several “Medical Device Regulatory
Improvements” and miscellaneous reforms, which are further intended to clarify and improve medical device
regulation both pre- and post-clearance and approval. Further, in December 2016, the 21st Century Cures Act (“Cures
Act”) was signed into law. The Cures Act, among other things, is intended to modernize the regulation of devices and
spur innovation but its ultimate implementation is unclear.
Premarket Approval Pathway. Class III devices require PMA approval before they can be marketed, although
some pre-amendment Class III devices for which the FDA has not yet required a PMA are cleared through the 510(k)
process. The PMA process is generally more complex, costly and time consuming than the 510(k) process. A PMA
must be supported by extensive data including, but not limited to, extensive technical information regarding device
design and development, preclinical and clinical trials, manufacturing, and labeling information to demonstrate to the
FDA’s satisfaction the safety and effectiveness of the device for its intended use. The PMA application must provide
valid scientific evidence that demonstrates to the FDA’s satisfaction reasonable assurance of the safety and
effectiveness of the device for its intended use. Following receipt of a PMA, the FDA determines whether the
application is sufficiently complete to permit a substantive review. If the FDA accepts the application for review, it
has 180 days under the FDCA to complete its review of the PMA, although in practice, the FDA’s review often takes
significantly longer, and can take up to several years. During this review period, the FDA may request additional
information or clarification of information already provided, and the FDA may issue a major deficiency letter to the
applicant, requesting the applicant’s response to deficiencies communicated by the FDA. Also, during the review
period, an advisory panel of experts from outside the FDA may be convened to review and evaluate the application
and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not accept the
panel’s recommendation. In addition, the FDA will conduct a preapproval inspection of the manufacturing facility to
ensure compliance with quality system regulation ("QSR"). The PMA process can be expensive, uncertain, and
lengthy, and a number of devices for which FDA approval has been sought by other companies have never been
approved by the FDA for marketing.
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Clinical Trials. Clinical trials are almost always required to support a PMA and are sometimes required for a
510(k). All clinical investigations of investigational devices to determine safety and effectiveness must be conducted
in accordance with the FDA’s investigational device exemption (“IDE”), regulations which govern investigational
device labeling, prohibit promotion of the investigational device, and specify an array of recordkeeping, reporting,
and monitoring responsibilities of study sponsors and study investigators. If the device is determined to present a
“significant risk” to human health, the manufacturer may not begin a clinical trial until it submits an IDE application
to the FDA and obtains approval of the IDE from the FDA. The IDE must be supported by appropriate data, such as
animal and laboratory testing results, showing that it is safe to test the device in humans and that the testing protocol
is scientifically sound. In addition, the study must be approved by, and conducted under the oversight of, an
Institutional Review Board (“IRB”), for each clinical site. The IRB is responsible for the initial and continuing review
of the IDE and may pose additional requirements for the conduct of the study. If an IDE application is approved by
the FDA and one or more IRBs, human clinical trials may begin at a specific number of investigational sites with a
specific number of patients, as approved by the FDA. If the device presents a non-significant risk to the patient, a
sponsor may begin the clinical trial after obtaining approval for the trial by one or more IRBs without separate approval
from the FDA, but must still follow abbreviated IDE requirements, such as monitoring the investigation, ensuring that
the investigators obtain informed consent, and labeling and record-keeping requirements. A clinical trial may be
suspended by FDA, the sponsor, or an IRB at any time for various reasons, including a belief that the risks to the study
participants outweigh the benefits of participation in the trial. Even if a clinical trial is completed, the results may not
demonstrate the safety and efficacy of a device to the satisfaction of the FDA or may be equivocal or otherwise not
be sufficient to obtain approval of a device. We are not currently undertaking any FDA IDE trials, as all of our existing
products are FDA-cleared through the 510(k) pathway. It is possible, however, that future device development may
require IDE clinical trial for approval.
Pervasive and Continuing FDA Regulation. After a device is placed on the market, numerous FDA and other
regulatory requirements continue to apply. These include:
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registration and listing requirements, which require manufacturers to register all manufacturing facilities
and list all medical devices placed into commercial distribution;
the QSR, which requires manufacturers, including third-party contract manufacturers, to follow stringent
design, testing, control, supplier/contractor selection, documentation, record maintenance and other
quality assurance controls, during all aspects of the manufacturing process and to maintain and investigate
complaints;
labeling regulations and unique device identification requirements;
advertising and promotion requirements;
restrictions on sale, distribution, or use of a device;
FDA prohibitions against the promotion of products for uncleared or unapproved (“off-label”) uses;
medical device reporting obligations, which require that manufacturers submit reports to the FDA of
device may have caused or contributed to a death or serious injury or malfunctioned in a way that would
likely cause or contribute to a death or serious injury if it were to reoccur;
medical device correction and removal reporting regulations, which require that manufacturers report to
the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed
by the device or to remedy a violation of the FDCA that may present a risk to health;
device tracking requirements; and
other post-market surveillance requirements, which apply when necessary to protect the public health or
to provide additional safety and effectiveness data for the device.
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Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which
may include any of the following:
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warning letters and untitled letters;
fines, injunctions, consent decrees, and civil penalties;
recalls, withdrawals, administrative detention, or seizure of products;
operating restrictions, partial suspension, or total shutdown of production;
withdrawals of 510(k) clearances or PMA approvals that have already been granted;
refusal to grant 510(k) clearance or PMA approvals of new products; and/or
criminal prosecution.
Our facilities, records and manufacturing processes are subject to periodic announced and unannounced
inspections by the FDA to evaluate compliance with applicable regulatory requirements.
Regulation of Human Cells, Tissues, and Cellular and Tissue-based Products. Certain of our products are
regulated as human cells, tissues, and cellular and tissue-based products (“HCT/Ps”). Section 361 of the PHSA
authorizes the FDA to issue regulations to prevent the introduction, transmission or spread of communicable disease.
HCT/Ps regulated as “361” HCT/Ps are subject to requirements relating to registering facilities and listing products
with the FDA, screening and testing for tissue donor eligibility, or Good Tissue Practice, when processing, storing,
labeling, and distributing HCT/Ps, including required labeling information, stringent record keeping, and adverse
event reporting, among other applicable requirements and laws. If the HCT/P is minimally manipulated, is intended
for homologous use only and meets other requirements, the HCT/P will not require 510(k) clearance, PMA approval,
a Biologics License Applications, or other premarket authorization from the FDA before marketing.
Environmental Matters
Our facilities and operations are subject to extensive federal, state, and local environmental and occupational
health and safety laws and regulations. These laws and regulations govern, among other things, air emissions;
wastewater discharges; the generation, storage, handling, use and transportation of hazardous materials; the handling
and disposal of hazardous wastes; the cleanup of contamination; and the health and safety of our employees. Under
such laws and regulations, we are required to obtain permits from governmental authorities for some of our operations.
If we violate or fail to comply with these laws, regulations or permits, we could be fined or otherwise sanctioned by
regulators. We could also be held responsible for costs and damages arising from any contamination at our past or
present facilities or at third-party waste disposal sites. We cannot completely eliminate the risk of contamination or
injury resulting from hazardous materials, and we may incur material liability as a result of any contamination or
injury.
Compliance with Certain Applicable Statutes
We are subject to various federal and state laws pertaining to healthcare fraud and abuse, including anti-kickback
laws, false claims laws, criminal health care fraud laws, physician payment transparency laws, data privacy and
security laws, and foreign corrupt practice laws. Violations of these laws are punishable by criminal and/or civil
sanctions, including, in some instances, fines, imprisonment and, within the U.S., exclusion from participation in
government healthcare programs, including Medicare, Medicaid and Veterans Administration health programs. These
laws are administered by, among others, the U.S. Department of Justice, the Office of Inspector General of the
Department of Health and Human Services and state attorneys general. Many of these agencies have increased their
enforcement activities with respect to medical device manufacturers in recent years.
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The federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, offering,
receiving, or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an
individual, or the furnishing, arranging for or recommending a good or service, for which payment may be made in
whole or part under federal healthcare programs, such as the Medicare and Medicaid programs. The Anti-Kickback
Statute is broad and prohibits many arrangements and practices that are lawful in businesses outside of the healthcare
industry. For example, the definition of “remuneration” has been broadly interpreted to include anything of value,
including, gifts, discounts, the furnishing of supplies or equipment, credit arrangements, payments of cash, waivers of
payments, ownership interests and providing anything at less than its fair market value. In addition, among other
things, the Patient Protection and Affordable Health Care Act, as amended by the Health Care and Education
Reconciliation Act (collectively referred to as “ACA”), amends the intent requirement of the federal Anti-Kickback
Statute. Pursuant to the ACA, a person or entity no longer needs to have actual knowledge of the Anti-Kickback
Statute or specific intent to violate it. Furthermore, the ACA provides that the government may assert that a claim
including items or services resulting from a violation of the Anti-Kickback Statute constitutes a false or fraudulent
claim for purposes of the federal False Claims Act.
In implementing the Anti-Kickback Statute, the Department of Health and Human Services Office of Inspector
General (“OIG”), has issued a series of regulations, known as the safe harbors, which began in July 1991. These safe
harbors set forth provisions that, in circumstances where all the applicable requirements are met, will assure healthcare
providers and other parties that they will not be prosecuted under the Anti-Kickback Statute. The failure of a
transaction or arrangement to fit precisely within one or more safe harbors does not necessarily mean that it is illegal
or that prosecution will be pursued. However, conduct and business arrangements that do not fully satisfy all
requirements of an applicable safe harbor may result in increased scrutiny by government enforcement authorities
such as the OIG. Penalties for violations of the Anti-Kickback Statute include criminal penalties and civil sanctions
such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other federal healthcare programs.
Many states have anti-kickback laws that are similar to the federal law, some of which apply to the referral of patients
for healthcare items or services reimbursed by any source, and may also result in penalties, fines, sanctions for
violations, and exclusions from state or commercial programs.
We have entered into various agreements with certain surgeons that perform services for us, including some
who make clinical decisions to use our products. Some of our referring surgeons own our stock, which they may have
received from us as consideration for services performed. We frequently review these arrangements to determine
whether they are in compliance with applicable laws and regulations. In addition, physician-owned distribution
companies (“PODs”) have become decreasingly involved in the sale and distribution of medical devices, including
products for the surgical treatment of spine disorders. In many cases, these distribution companies enter into
arrangements with hospitals that bill Medicare or Medicaid for the furnishing of medical services, and the physician-
owners are among the physicians who refer patients to the hospitals for surgery. On March 26, 2013, the OIG issued
a Special Fraud Alert entitled “Physician-Owned Entities,” (the “Fraud Alert”), in which the OIG concluded, among
other things, that PODs are “inherently suspect under the anti-kickback statute” and that PODs present “substantial
fraud and abuse risk and pose dangers of patient safety.” Since 2013, the OIG has further increased its scrutiny of
PODs and the Department of Justice has brought several high-profile cases against physician owners.
The federal False Claims Act prohibits persons from knowingly filing or causing to be filed a false or fraudulent
claim to, or the knowing use of false statements to obtain payment from, the federal government. Private suits filed
under the False Claims Act, known as qui tam actions, can be brought by individuals on behalf of the government.
These individuals, sometimes known as “relators” or, more commonly, as “whistleblowers,” may share in any amounts
paid by the entity to the government in fines or settlement. The number of filings of qui tam actions has increased
significantly in recent years, causing more healthcare companies to have to defend a False Claim Act action. If an
entity is determined to have violated the federal False Claims Act, it may be required to pay up to three times the
actual damages sustained by the government, plus civil penalties of between $12,537 and $25,076 for each separate
false claim and may be subject to exclusion from Medicare, Medicaid, and other federal healthcare programs. Various
states have also enacted similar laws modeled after the federal False Claims Act which apply to items and services
reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.
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The Health Insurance Portability and Accountability Act (“HIPAA”) created two new federal crimes: healthcare
fraud and false statements relating to healthcare matters. The healthcare fraud statute prohibits knowingly and willfully
executing a scheme to defraud any healthcare benefit program, including private payors. The ACA changed the intent
requirement of the healthcare fraud statute to such that a person or entity no longer needs to have actual knowledge of
this statute or specific intent to violate it. A violation of this statute is a felony and may result in fines, imprisonment
or possible exclusion from Medicare, Medicaid, and other federal healthcare programs. The false statements statute
prohibits knowingly and willfully falsifying, concealing, or covering up a material fact or making any materially false,
fictitious, or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items, or
services. A violation of this statute is a felony and may result in similar sanctions.
ACA also includes various provisions designed to significantly strengthen fraud and abuse enforcement in
addition to those changes discussed above. Among these additional provisions include increased funding for
enforcement efforts and new “sunshine” provisions to require us to report and disclose to the Centers for Medicare
and Medicaid Services (“CMS”), any payment or “transfer of value” made or distributed to physicians or teaching
hospitals. These sunshine provisions also require certain group purchasing organizations, including physician-owned
distributors, to disclose physician ownership information to CMS. We and other device manufacturers are required to
collect and annually report specific data on payments and other transfers of value to physicians and teaching hospitals.
There are various state laws and initiatives that require device manufacturers to disclose to the appropriate regulatory
agency certain payments or other transfers of value made to physicians, and in certain cases prohibit some forms of
these payments, with the risk of fines for any violation of such requirements.
HIPAA also includes privacy and security provisions designed to regulate the use and disclosure of “protected
health information” (“PHI”), which is health information that identifies a patient and that is held by a health care
provider, a health plan or health care clearinghouse. We are not directly regulated by HIPAA, but our ability to access
PHI for purposes such as marketing, product development, clinical research or other uses is controlled by HIPAA and
restrictions placed on health care providers and other covered entities. HIPAA was amended in 2009 by the Health
Information Technology for Economic and Clinical Health Act (“HITECH”) which strengthened the rule, increased
penalties for violations, and added a requirement for the disclosure of breaches to affected individuals, the government,
and in some cases the media. We must carefully structure any transaction involving PHI to avoid violation of HIPAA
and HITECH requirements.
Almost all states have adopted data security laws protecting personal information including social security
numbers, state issued identification numbers, credit card or financial account information coupled with individuals’
names or initials. We must comply with all applicable state data security laws, even though they vary extensively, and
must ensure that any breaches or accidental disclosures of personal information are promptly reported to affected
individuals and responsible government entities. We must also ensure that we maintain compliant, written information
security programs or run the risk of civil or even criminal sanctions for non-compliance as well as reputational harm
for publicly reported breaches or violations.
If any of our operations are found to have violated or be in violation of any of the laws described above and
other applicable state and federal fraud and abuse laws, we may be subject to penalties, among them being civil and
criminal penalties, damages, fines, exclusion from government healthcare programs, and the curtailment or
restructuring of our operations.
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Third-Party Reimbursement
In the U.S., healthcare providers generally rely on third-party payors, principally private insurers, and
governmental payors such as Medicare and Medicaid, to cover and pay for all or part of the cost of a spine surgery in
which our medical devices are used. We expect that sales volumes and prices of our products will depend in large part
on the continued availability of reimbursement from such third-party payors. These third-party payors may deny
reimbursement if they determine that a device used in a procedure was not medically necessary in accordance with
cost-effective treatment methods, as determined by the third-party payor, or was used for an unapproved indication.
Particularly in the U.S., third-party payors continue to carefully review, and increasingly challenge, the prices charged
for procedures and medical products. Medicare coverage and reimbursement policies are developed by CMS, the
federal agency responsible for administering the Medicare program, and its contractors. CMS establishes these
Medicare policies for medical products and procedures and such policies are periodically reviewed and updated. While
private payors vary in their coverage and payment policies, the Medicare program is viewed as a benchmark. Medicare
payment rates for the same or similar procedures vary due to geographic location, nature of the facility in which the
procedure is performed (i.e., teaching or community hospital) and other factors. We cannot provide assurance that
government or private third-party payors will cover and provide adequate payment for the procedures in which our
products are used. ACA and other reform proposals contain significant changes regarding Medicare, Medicaid, and
other third-party payors.
In addition, other legislative changes have been proposed and adopted since the ACA was enacted. These
changes include the Budget Control Act of 2011, which resulted in reductions to Medicare payments to providers of
2% per fiscal year, which went into effect on April 1, 2013 and will stay in effect through 2025 unless additional
Congressional action is taken, as well as, the American Taxpayer Relief Act of 2012, which, among other things,
further reduced Medicare payments to several types of providers, including hospitals and imaging centers, and
increased the statute of limitations period for the government to recover overpayments to providers from three to five
years. An expansion in government’s role in the U.S. healthcare industry may lower reimbursements for procedures
using our products, reduce medical procedure volumes, and adversely affect our business and results of operations,
possibly materially.
We believe that the overall escalating cost of medical products and services has led to, and will continue to lead
to, increased pressures on the healthcare industry to reduce the costs of products and services. We cannot assure that
government or private third-party payors will cover and provide adequate payment for the procedures using our
products. In addition, it is possible that future legislation, regulation, or reimbursement policies of third-party payors
will adversely affect the demand for procedures using our products or our ability to sell our products on a profitable
basis. The unavailability or inadequacy of third-party payor coverage or reimbursement could have a significant
adverse effect on our business, operating results, and financial condition.
Human Capital
As of December 31, 2022, we had 705 employees worldwide. Approximately 518 employees were located in
the U.S. and 187 employees were located outside of the U.S. Of our U.S. employees, 347 were based in our Carlsbad,
CA headquarters, covering all of the following functional areas: sales, customer service, marketing, clinical education,
advanced manufacturing, quality assurance, regulatory affairs, research and development, human resources, finance,
legal, information technology, and administration.
Our workforce is highly educated and diverse, which we believe is important for our continued success as a
leading innovator in the medical device market. We employ a number of strategies to best enable us to attract, retain,
and engage our team members. To build a steady and diverse pipeline of talent, we have a robust recruiting program,
which is focused on attracting and retaining the talent we believe is necessary to help achieve our strategy and mission.
Further, we employ recruiting processes that mitigate unconscious biases and promote diverse candidate pools. Our
employee base is comprised of men, women, underrepresented individuals, individuals with disabilities, and protected
veterans.
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To attract and retain employees, we offer competitive, performance-based compensation and benefits,
opportunities for discounted equity ownership, employee recognition programs, career development opportunities,
and access to continual growth through in-house live trainings, as well as support and reimbursement for external
trainings and educational programs. In addition, to further expand employee enrichment and engagement, we
periodically survey our employees regarding their satisfaction levels. We use these survey results to determine how
we can continue to create work environments that energize our employees and enable them to develop and maintain a
positive working culture. We completed a survey in December 2022, in which over 90% of respondents indicated a
willingness to recommend the Company to friends and family as a desirable place to work. High employee satisfaction
is also reflected in our high employee engagement and low undesired turnover, which was approximately 6% for 2022.
We have never experienced a work stoppage due to labor difficulties and believe that our relations with our
employees are good. We currently have no employees working under collective bargaining agreements.
Health and Wellness
We offer various health and wellness programs to promote a healthy and active lifestyle for our employees. In
addition to our health and wellness program offerings, our corporate headquarters includes indoor and outdoor
workout spaces, which our employees are able to access throughout the day, as well as various fitness and workout
classes. We have provided health and wellness initiatives throughout the year to promote the continued wellbeing of
our employees, as well as opportunities for our employees to participate in community volunteer and clean-up
programs to foster camaraderie within our employee base.
Corporate and Available Information
We are a Delaware corporation incorporated in March 2005. Our principal executive office is located at 1950
Camino Vida Roble, Carlsbad, California 92008 and our telephone number is (760) 431-9286. Our Internet address is
www.atecspine.com. We are not including the information contained on our website as a part of, or incorporating it
by reference into, this Annual Report on Form 10-K.
We file our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all
amendments to those reports, electronically with the Securities and Exchange Commission ("SEC"). We make these
reports available to you free of charge through the Investor Relations section of our website as soon as reasonably
practicable after such materials have been electronically filed with, or furnished to, the SEC. The public can also
obtain any documents that we file with the SEC at http://www.sec.gov.
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Item 1A. Risk Factors
Investing in our common stock involves a high degree of risk. You should carefully consider the following risk
factors and all other information contained or incorporated by reference in this Annual Report on Form 10-K. The
risks and uncertainties described below are not the only risks faced by the Company. Additional risks and uncertainties
that we are unaware of, or that we currently deem immaterial may become important factors that affect us. If any of
such risks or the risks described below occur, either alone or taken together occur, our business, financial condition
or results of operations could be materially and adversely affected. In that case, the trading price of our common
stock could decline, and you may lose some or all of your investment.
Risks Related to Our Business and Industry
Our business plan relies on certain assumptions pertaining to the market for our products that, if incorrect, may
adversely affect our growth and profitability.
We allocate resources based on assumptions about trends in the development of and treatment for spine disorders
and the resulting demand for our products. Our assumptions may not be accurate. Increasing awareness and use of
non-invasive treatments and other shifts in technologies and treatments, emergence of new materials and acceptance
of emerging technologies and procedures could adversely affect demand for our products. If our assumptions prove
to be incorrect or if alternative treatments to those we offer gain further acceptance, then demand for our products
could be significantly less than we anticipate and we may not be able to achieve or sustain growth or profitability.
We operate in a highly competitive market segment, face competition from large, well-established medical device
companies with significant resources, and may not be able to compete effectively.
The market in which we operate is highly competitive, subject to rapid technological change and affected by
new products and market activities of industry participants. Our competitors include numerous large and well-
capitalized companies such as Medtronic Sofamor Danek, a subsidiary of Medtronic; Depuy Spine, a subsidiary of
Johnson & Johnson; Stryker; NuVasive; Zimmer Biomet; and Globus Medical. Several of our competitors enjoy
competitive advantages over us, including:
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more established relationships with healthcare providers, distribution networks and healthcare payers;
broader product offerings and intellectual property portfolios, better name recognition, and more
recognizable product trademarks;
greater resources for product research and development, clinical data, patent litigation, and launching,
marketing, distributing and selling our products; and
greater experience in obtaining and maintaining FDA and other regulatory clearances or approvals for
products and product enhancements.
In addition, at any time our current competitors or new industry participants may develop alternative treatments,
products or procedures for the treatment of spine disorders that compete directly or indirectly with our products,
including ones that may be superior to our spine surgery products. For these reasons, we may not be able to compete
successfully against our existing or potential competitors. Any such failure could lead us to further modify our strategy,
lower our prices, increase our sales commissions and could have a significant adverse effect on our business, financial
condition and results of operations.
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A significant percentage of our revenues are derived from sales of our systems that include polyaxial pedicle screws.
Net sales of our systems that include polyaxial pedicle screws represented approximately 42% and 47% our net
sales for the years ended December 31, 2022 and 2021, respectively, and are expected to continue to be significant in
the future. A decline in sales of these systems for any reason would have a significant adverse impact on our business,
financial condition and results of operations. We rely on third-party licenses related to our polyaxial pedicle screw
systems in order to use various proprietary technologies that are material to these systems, including the enforceability
of the intellectual property rights in such technologies. Certain of our licenses may be terminated upon specific
conditions. Our rights under each of the licenses are subject to our continued compliance with the terms of the license,
including certain diligence, disclosure and confidentiality obligations and the payment of royalties and other fees.
Because of the complexity of our product and the patents we have licensed, determining the scope of the license and
related obligations can be difficult and can lead to disputes between us and the licensor. An unfavorable resolution of
such a dispute could lead to an increase in the royalties payable pursuant to the license or termination of the license.
Any action that would prevent us from manufacturing, marketing and selling these systems or increase the costs
associated with these systems would have a significant adverse effect on our business, financial condition and results
of operations.
Our reliance on sales agents could affect our ability to market our products efficiently and profitably.
The development of a large distribution network may be expensive and time consuming. Because of the intense
competition for their services, we may be unable to recruit or retain qualified independent sales agents. Like us, some
of our competitors enter into exclusive distribution agreements. Further, we may not be able to enter into agreements
with independent sales agents on commercially reasonable terms. Even if we do enter into agreements with new
independent sales agents, it may take 90 to 120 days or even longer for new sales agents to reach full operational
effectiveness. Some sales agents may not generate revenue as quickly as we expect, may not commit the necessary
resources to effectively market and sell our products and may not ultimately be successful in selling our products. Our
business, financial condition and results of operations will be materially adversely affected if we do not attract and
retain new sales agents or if the marketing and sales efforts of our sales agents are unsuccessful.
To be commercially successful, we must convince the spine surgeon community that our products are an attractive
alternative to competitive products.
In order for us to sell our products, spine surgeons must be convinced that our products are superior to competing
products. Acceptance of our products depends on educating the spine surgeon community as to the distinctive
characteristics, perceived benefits, safety and cost-effectiveness of our products compared to competitive products
and on training spine surgeons in the proper application of our products. If we are not successful in convincing the
spine surgeon community of the merit of our products, our sales will decline, and we will be unable to increase or
achieve and sustain growth or profitability. Additionally, if surgeons are not properly trained, they may misuse or
ineffectively use our products, which may result in unsatisfactory patient outcomes, patient injury, negative publicity
or lawsuits against us, any of which could have a significant adverse effect on our business, financial condition and
results of operations.
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We rely on a limited number of third parties to manufacture and supply our products. Any problems experienced
by these manufacturers could result in a delay or interruption in the supply of our products until such manufacturer
cures the problem or until we locate and qualify an alternative source of supply.
We rely on third party manufacturers of our implants, instruments, imaging equipment and spare parts. We
currently rely on a limited number of third parties and any prolonged disruption in the operations of our third-party
suppliers could have a negative impact on our ability to supply products to customers. We may suffer losses as a result
of business interruptions that exceed coverage under our manufacturer’s insurance policies. Other events beyond our
control could also disrupt our product development and commercialization efforts until such events can be resolved
or we can put in place third-party contract manufacturers to assume this manufacturing role. In addition, if we are
required to change manufacturers for any reason, we will be required to verify that the new manufacturer maintains
facilities and procedures that comply with quality standards and with all applicable regulations and guidelines. Delays
associated with the verification of a new manufacturer or the re-verification of an existing manufacturer could
negatively affect our ability to develop products or supply products to customers in a timely manner. Any disruption
in the manufacture of our products by our third-party suppliers could have a material adverse impact on our business,
financial condition and results of operations.
We depend on third-party suppliers, and in one case a single supplier, for key raw materials and the loss of any of
these third-party suppliers, or their inability to supply us with adequate raw materials, could harm our business.
We rely on a number of suppliers and in one case on a single source vendor, Invibio, to provide the raw materials
used in the production of our products. We have a supply agreement with Invibio, pursuant to which it supplies us
with PEEK, a biocompatible plastic that we use in some of our spacers. Invibio is one of a limited number of companies
approved to distribute PEEK in the U.S. for use in implantable devices. We depend on a limited number of sources of
human tissue for use in our biologics products. Our supply of human tissue from our current suppliers and our current
inventory of biologics products may not be available at current levels or may not be sufficient to meet our needs. Our
dependence on a single third-party PEEK supplier and the challenges we may face in obtaining adequate supplies of
biologics products involve several risks, including limited control over pricing, availability, quality and delivery
schedules. Any supply interruption in a limited or sole sourced component or raw material could materially harm our
ability to source manufactured products until a new source of supply could be found. We may be unable to find a
sufficient alternative supply channel in a reasonable time period or on commercially reasonable terms, if at all, which
would have a significant adverse effect on our business, financial condition and results of operations.
If we or our suppliers fail to comply with applicable regulations, the manufacture of our products could be delayed.
We and our suppliers are subject to extensive regulation by the FDA and other regulatory agencies both inside
and outside of the U.S. The FDA, and other regulatory agencies, audit compliance with some of these regulations. If
significant non-compliance issues arise or if a corrective action plan is not sufficient, the manufacture or sale of our
products may be limited until such problems are corrected to the regulatory body’s satisfaction, which could have a
material adverse effect on our business, financial condition and results of operations. Further, our products could be
subject to recall if the regulatory body determines, for any reason, that our products are not safe or effective. Any
recall or additional regulatory approval or clearance requirements could result in delays, costs associated with
modification of a product, loss of revenue and potential operating restrictions imposed by the regulatory body, all of
which could have a material adverse effect on our business, financial condition and results of operations.
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Demand for our products, and prices at which customers and patients are willing to pay for our products depend
upon the ability of our customers to obtain adequate third-party coverage and reimbursement product purchases.
Sales of our products depend in part on the availability of adequate coverage and reimbursement from third-
party payers, principally Medicare, Medicaid and private health insurance plans, to pay for all or a portion of the costs
and fees associated with the use of our products. While procedures using our currently marketed products are eligible
for reimbursement in the U.S., if surgical procedures utilizing our products are performed on an outpatient basis, it is
possible that private payers may no longer provide reimbursement for the procedures using our products without
further supporting data on the procedure. Any delays in obtaining, or an inability to obtain, adequate coverage or
reimbursement for procedures using our products could significantly affect the acceptance of our products and have a
significant adverse effect on our business. Additionally, third-party payers continue to review their coverage policies
carefully for existing and new therapies and can, without notice, deny coverage for treatments that include the use of
our products. Our business would be negatively impacted if there are any changes that reduce reimbursement for our
products.
Operation of our business internationally is subject to our continued compliance with the laws and regulations of
each country in which we operate, as well as the business and legal customs in those jurisdictions and geographies.
Our operations, both inside and outside the U.S., are subject to risks inherent in conducting business globally
and under the laws, regulations and customs of various jurisdictions and geographies. Our operations outside the U.S.
are subject to special risks and restrictions, including, without limitation: fluctuations in currency 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 repatriate funds; and other potentially detrimental domestic and foreign
governmental practices or policies affecting U.S. companies doing business abroad, including the U.S. Foreign
Corrupt Practices Act and the trade sanctions laws and regulations administered by the U.S. 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 impede 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
U.S. and our stockholders’ equity. Failure to comply with the laws and regulations that affect our global operations
could have an adverse effect on our business, financial condition, or results of operations.
Consolidation in the healthcare industry could lead to price concessions or exclusion of some suppliers from some
markets, which could have an adverse effect on our business, financial condition or results of operations.
Continued consolidation in the healthcare industry is expected to increase competition among providers of
products and services to industry participants. This in turn has resulted and will likely continue to result in greater
pricing pressures and the exclusion of certain suppliers from important market segments as GPOs, independent
delivery networks and large single accounts continue to use their market power to consolidate purchasing decisions
for some of our customers. We expect that market demand, government regulation, third-party reimbursement policies
and societal pressures will continue to impact the worldwide healthcare industry, resulting in further business
consolidations and alliances among our customers, which may reduce competition, exert further downward pressure
on the prices of our products and may adversely impact our business, financial condition or results of operations.
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We may be subject to or otherwise affected by federal and state healthcare laws, including fraud and abuse, health
information privacy and security, and disclosure laws, and could face substantial penalties if we are unable to fully
comply with such laws.
Although we do not provide healthcare services, submit claims for third-party reimbursement, or receive
payments directly from any third-party payers for our products or the procedures in which our products are used,
healthcare regulation significantly impacts our business. Healthcare fraud and abuse, health information privacy and
security, and disclosure laws potentially applicable to our operations include:
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the federal Anti-Kickback Statute, as well as state analogs, which prohibits, among other things,
knowingly and willfully soliciting, receiving, offering or providing remuneration, intended to induce the
purchase or recommendation of an item or service reimbursable under a federal (or state or commercial)
healthcare program (such as the Medicare or Medicaid programs);
federal and state bans on physician self-referrals, which prohibits, subject to exceptions, physician
referrals of Medicare and Medicaid patients to an entity providing certain “designated health services” if
the physician or its immediate family member has any financial relationship with the entity;
false claims laws that prohibit, among other things, knowingly presenting, or causing to be presented,
claims for payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent;
The Health Insurance Portability and Accountability Act ("HIPAA"), and its implementing regulations,
which created federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit
program or making false statements relating to healthcare matters;
the state and federal laws “sunshine” provisions that require detailed reporting and disclosures to the CMS
and applicable states of any payments or “transfer of value” made or distributed to prescribers and other
health care providers, and for certain states prohibit some forms of these payments, require the adoption
of marketing codes of conduct, require the reporting of marketing expenditures and pricing information
and constrain relationships with physicians and other referral sources;
the Health Information Technology for Economic and Clinical Health Act (“HITECH”), which impose
restrictions on uses and disclosures of protected health information and civil and criminal penalties for
non-compliance and require the reporting of breaches to affected individuals, the government and in some
cases the media in the event of a violation; and
a variety of state-imposed privacy and data security laws which require the protection of personal
information beyond health information and which require reporting to state officials in the event of breach
or violation and which impose both civil and criminal penalties.
If our operations, or those of our independent sales agents violate any of such laws or any regulations that may
apply to us, we may be subject to civil and criminal penalties, damages, fines, exclusion from federal healthcare
programs and/or the curtailment or restructuring of our operations. If the healthcare providers, sales agents or other
entities with which we do business are found to violate applicable laws, they may be subject to sanctions, which could
also have a negative impact on us. Any penalties, damages, fines, curtailment or restructuring of our operations could
adversely affect our ability to operate our business and our financial results.
Sales and marketing practices in the healthcare industry have been the subject of increased scrutiny from
governmental agencies, and we believe that this trend will continue. Prosecutorial scrutiny and governmental oversight
over the retention of healthcare professionals as consultants has affected and may continue to affect how medical
device companies retain healthcare professionals as consultants. Our efforts to detect and prevent noncompliance with
applicable laws may not be effective in protecting us from governmental investigations or other actions or lawsuits
stemming from a failure to comply with these laws or regulations. Any action against us for violation of these laws,
even if we successfully defend against them, could cause us to incur significant legal expenses and divert our
management’s attention from the operation of our business.
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If we fail to timely obtain governmental clearances or approvals for our future products or modifications to our
products, our ability to commercially distribute and market our products could suffer.
Our products are subject to extensive governmental regulations. The clearance and approval process,
particularly with the FDA, can be costly and time consuming, and such clearances or approvals may not be granted
on a timely basis, if at all. In particular, the FDA permits commercial distribution of most new medical devices only
after receiving 510(k) clearance, or approval of a PMA. The FDA may make its 510(k) clearance process more
restrictive and increase the time or expense required to obtain clearances or could make it unavailable for some of our
products. A PMA must be submitted if the device cannot be cleared through the 510(k) process or is not exempt from
premarket review by the FDA and must be supported by extensive data, including results of preclinical studies and
clinical trials, manufacturing and control data and proposed labeling, to demonstrate to the FDA’s satisfaction the
safety and effectiveness of the device for its intended use. The PMA process is more costly and uncertain than the
510(k) clearance process. In addition, any modification to a 510(k)-cleared device that could significantly affect its
safety or effectiveness, or that would constitute a major change in its intended use, design or manufacture, requires a
new 510(k) clearance or possibly a PMA.
Commercial distribution and marketing of any of our products or product modifications will be delayed until
regulatory clearance or approval is obtained which may take significantly longer than anticipated. Governmental
authorities can delay, limit or deny clearance or approval of a device for many reasons, including:
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our inability to demonstrate to the satisfaction of the applicable regulatory authority that our products are
safe or effective for their intended uses, or that the clinical and other benefits of the device outweigh the
risks;
disagreement of the applicable regulatory authority with the design or implementation of our clinical trials
or the interpretation of data from pre-clinical studies or clinical trials;
serious and unexpected adverse effects experienced by participants in our clinical trials;
data from our pre-clinical studies and clinical trials may be insufficient to support clearance or approval,
where required;
our manufacturing process or facilities we use may not meet applicable requirements; or
approval policies or regulations of the applicable regulatory authorities change significantly in a manner
rendering our clinical data or regulatory filings insufficient for clearance or approval.
Delays in obtaining regulatory clearances and approvals may delay or prevent commercialization of products
we develop, require us to perform costly tests or studies, diminish any competitive advantages that we might otherwise
have obtained and reduce our ability to generate revenues.
If we choose to acquire new and complementary businesses, products or technologies, we may be unable to complete
these acquisitions or successfully integrate them in a cost-effective and non-disruptive manner.
Our success depends in part on our ability to continually enhance and broaden our product offering.
Accordingly, we have pursued and intend to pursue the acquisition of complementary businesses, products or
technologies. We do not know if we will be able to successfully complete any acquisitions or successfully integrate
any acquired business. Our ability to successfully grow through acquisitions depends upon our ability to identify,
negotiate, complete and integrate suitable acquisition targets. These efforts could be expensive and time consuming,
disrupt our ongoing business and distract management. If we are unable to integrate any future or recently acquired
businesses, products or technologies effectively, our business, financial condition and results of operations will be
materially adversely affected.
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We are dependent on our senior management team, sales and marketing team, engineering team and key surgeon
advisors, and the loss of any of them could harm our business.
Our continued success depends in part upon the continued availability and contributions of our senior
management, sales and marketing team and engineering team and the continued participation of our key surgeon
advisors. We compete for personnel and advisors with other companies and organizations, many of which have greater
name recognition and resources than we do. Changes to our senior management team, sales and marketing team,
engineering team and key surgeon advisors, or our inability to attract or retain other qualified personnel or advisors,
could have a significant adverse effect on our business, financial condition and results of operations.
Security breaches, loss of data and other disruptions could compromise sensitive information related to our
business, prevent us from accessing critical information or expose us to liability, which could adversely affect our
business and our reputation.
We regularly collect and store sensitive data, including legally protected patient health and personally
identifiable information, intellectual property information, and proprietary business information. We manage and
maintain our applications and data utilizing on-site systems. The secure processing, storage, maintenance and
transmission of this critical information is vital to our operations and business strategy, and we devote significant
resources to protecting such information. Although we take measures to protect sensitive information from
unauthorized access or disclosure, our information technology and infrastructure may be vulnerable to attacks by
hackers, viruses, breaches or interruptions. Any such security incidents could compromise our networks and the
information stored there could be accessed by unauthorized parties, disclosed, lost or stolen. Any such security
incidents could also result in legal claims or proceedings, liability under laws that protect the privacy of personal
information, government enforcement actions and regulatory penalties. Unauthorized access, loss or disclosure could
also interrupt our operations and result in damage to our reputation, each of which could adversely affect our business.
Nearly all of our operations are currently conducted in locations that may be at risk of damage from fire,
earthquakes or other natural disasters.
We conduct nearly all of our business activities in or near known wildfire areas and earthquake fault zones. We
have taken precautions to safeguard our facilities, including obtaining property and casualty insurance, and
implementing health and safety protocols. We have developed an information technology disaster recovery plan.
However, any future natural disaster could cause substantial delays in our operations, damage or destroy our
equipment or inventory and cause us to incur additional expenses. A disaster could seriously harm our business,
financial condition and results of operations. Our insurance against earthquakes, fires, and other natural disasters
would not be adequate to cover a total loss of our facilities, may not be adequate to cover our losses in any particular
case and may not continue to be available to us on acceptable terms, or at all.
Public health crises, political crises, and other catastrophic events or other events outside of our control may impact
our business.
A natural disaster (such as tsunami, power shortage, or flood), public health crisis (such as a pandemic or
epidemic), political crisis (such as terrorism, war, political instability or other conflict), or other events outside of our
control that may occur and may adversely impact our business and operating results. Moreover, these types of events
could negatively impact surgeon or patient spending in the impacted region(s), which could adversely impact our
operating results. We monitor such events and take actions that we deem reasonable given the circumstances. In the
future other types of crises, may create an environment of business uncertainty around the world, which may hinder
sales and/or supplies of our products nationally and internationally.
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Alphatec Holdings is a holding company with no operations, and unless it receives dividends or other payments
from its subsidiaries, it will be unable to fulfill its cash obligations.
As a holding company with no business operations, Alphatec Holdings’ material assets consist only of the
common stock of its subsidiaries, dividends and other payments received from time to time from its subsidiaries, and
the proceeds raised from the sale of debt and equity securities. Alphatec Holdings’ subsidiaries are legally distinct
from Alphatec Holdings and have no obligation, contingent or otherwise, to make funds available to Alphatec
Holdings. Alphatec Holdings will have to rely upon dividends and other payments from its subsidiaries to generate
the funds necessary to fulfill its cash obligations. Alphatec Holdings may not be able to access cash generated by its
subsidiaries in order to fulfill cash commitments. The ability of Alphatec Spine, SafeOp, or EOS to make dividend
and other payments to Alphatec Holdings is subject to the availability of funds after taking into account its
subsidiaries’ funding requirements, the terms of its subsidiaries’ indebtedness and applicable state laws.
If we fail to properly manage our anticipated growth, our business could suffer.
While we intend to continue to pursue growth in our business, such anticipated growth is expected to place
significant demands on our managerial, operational and financial resources and systems. Our management may need
to divert a disproportionate amount of its attention from day-to-day activities to managing these anticipated growth
activities. If we do not manage our anticipated growth effectively, the quality of our products, our relationships with
physicians, sales agents and hospitals, and our reputation could suffer, which would have a significant adverse effect
on our business, financial condition and results of operations.
If we decrease prices for our goods and services and we are unable to compensate for such reductions through
changes in our product mix or reductions to our expenses, our results of operations will suffer.
We may be forced to decrease prices for our goods and services due to pricing pressure exerted by our customers
in response to increased cost containment efforts from managed care organizations and other third-party payers and
increased market power of our customers as the medical device industry consolidates. If we are unable to offset such
price reductions through changes in our product mix or reductions in our expenses, our business, financial condition,
results of operations and cash flows will be adversely affected.
Risks Related to Our Financial Results, Credit and Certain Financial Obligations and Need for Financing
We may need to raise additional funds in the future and such funds may not be available on acceptable terms, if at
all.
At December 31, 2022, our principal sources of liquidity consisted of cash and cash equivalents of $84.7 million,
accounts receivable, net, cash from operations and available borrowings under the Revolving Credit Facility. We
believe that our current sources of liquidity will be sufficient to fund our planned expenditures and meet our
obligations for at least 12 months subsequent to the date the consolidated financial statements are issued. If needed,
we will seek additional funds from public and private equity or debt financings, borrowings under the Revolving
Credit Facility, new debt facilities or other sources to fund our projected operating requirements. Our capital
requirements will depend on many factors, including:
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the revenues generated by sales of our products;
the costs associated with expanding our sales and marketing efforts;
the expenses that we incur from the manufacture of our products by third parties and that we incur from
selling our products;
the costs of developing new products or technologies;
the cost of obtaining and maintaining FDA or other regulatory approval or clearance for our products and
products in development;
the cost of filing and prosecuting patent applications and defending and enforcing our patent and other
intellectual property rights;
the number and timing of acquisitions and other strategic transactions;
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the costs and any payments we may make related to our pending litigation matters;
the costs associated with increased capital expenditures; and
the costs associated with our employee retention programs and related benefits.
As a result of these factors, we may need to raise additional funds and such funds may not be available on
favorable terms, if at all. In addition, rules and regulations of the SEC may restrict our ability to conduct certain types
of financing activities or may affect the timing of and the amounts we can raise by undertaking such activities.
Furthermore, if we issue additional equity or debt securities to raise additional funds, our existing stockholders
may experience dilution and the new equity or debt securities may have rights, preferences and privileges senior to
those of our existing stockholders. In addition, if we raise additional funds through collaboration, licensing or other
similar arrangements, it may be necessary to relinquish valuable rights to our potential products or proprietary
technologies, or to grant licenses on terms that are not favorable to us. If we cannot raise funds on acceptable terms,
we may not be able to repay debt or other liabilities, develop or enhance our products, execute our business plan, take
advantage of future opportunities, or respond to competitive pressures or unanticipated customer requirements. Any
of these events could adversely affect our ability to achieve our development and commercialization goals and have a
significant adverse effect on our business, financial condition and results of operations.
Covenants in our loan documents and indenture may restrict our business and operations and if we do not
effectively manage our covenants, our financial condition and results of operations could be adversely affected.
The loan agreements we entered into in connection with our Revolving Credit Facility and the Braidwell Term
Loan as well as the indenture governing our 2026 Notes contain certain affirmative, operating or financial covenants.
These covenants could adversely affect our ability to operate our business, our liquidity or our results of operations,
and our inability to comply with any of these covenants could result in a default under the applicable loan agreement
or indenture, which could result in an increase the applicable interest rate or all amounts borrowed under the applicable
debt instrument, together with accrued interest and other fees, to become due and payable or, with respect to our
Revolving Credit Facility, could result in MidCap refusing to make further extensions of credit to it. If our
indebtedness under the Revolving Credit Facility, the Braidwell Term Loan or the 2026 Notes were to be accelerated,
if the amount of interest owing under such debt or, in the case of the Revolving Credit Facility, if MidCap refuses to
make further extensions of credit to us, we may not have sufficient cash available to repay the amounts due, and we
may be forced to seek an amendment to the applicable loan terms or obtain alternative financing, which may not be
available to us on acceptable terms, if at all. In addition, if we are unable to repay outstanding borrowings when due
or upon an event of default, in the case of the Revolving Credit Facility and Braidwell Term Loan, the lender would
also have the right to proceed against the collateral, including substantially all of our assets, granted to secure the
indebtedness under the debt obligation. If the applicable lender proceeds against the collateral, such assets would no
longer be available for use in our business, which would have a significant adverse effect our business, financial
condition and results of operations.
We have a history of net losses, we expect to continue to incur net losses in the near future, and we may not achieve
or maintain profitability.
We have typically incurred net losses since our inception. As of December 31, 2022, we had an accumulated
deficit of $934.5 million. We have incurred significant net losses since inception and have relied on our ability to fund
our operations through revenues from the sale of our products and equity and debt financings. Successful transition to
profitability is dependent upon achieving a level of revenues adequate to support our cost structure. This may not
occur and, unless and until it does, we will continue to need to raise additional capital. We may seek additional funds
from public and private equity or debt financings, borrowings under new debt facilities or other sources to fund our
projected operating requirements. However, we may not be able to obtain further financing on reasonable terms or at
all. If we are unable to raise additional funds on a timely basis, or at all, we would be materially adversely affected.
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A sudden and significant economic downturn or volatility in the economy in the U.S. and our other major markets
could have a material adverse impact on our business, financial condition, results of operations, or cash flows.
We operate primarily in the U.S. but also globally and as a result our business and revenues are impacted by
domestic and global macroeconomic conditions. A weakening of economic conditions, including from a worsening
of the ongoing labor shortage or rising in inflation, could lead to increased costs to our business and reductions in
demand for our products. Weakened economic conditions or a recession could reduce the amounts that customers are
willing or able to spend on our products. Furthermore, a high percentage of our expenses, including those related to
inventory, capital investments, and operating costs are generally fixed in nature in the short term. If we are not able to
timely and appropriately adapt to changes resulting from a weak or uncertain economic environment, our business,
financial condition, results of operations and cash flows could be adversely impacted.
Adverse economic conditions in the U.S. may negatively affect our business, financial condition or results of
operations.
The U.S. has recently experienced historically high levels of inflation. If the inflation rate remains high or
continues to increase, such as increases in the costs of labor and supplies, it will likely affect our expenses.
Additionally, the U.S. is experiencing an acute workforce shortage, which in turn, has created a hyper-competitive
wage environment that may increase our operating costs. To the extent inflation results in rising interest rates and has
other adverse effects on the market, it may adversely affect our business, financial condition or results of operations.
Our quarterly financial results could fluctuate significantly.
Our quarterly financial results are difficult to predict and may fluctuate significantly from period to period,
particularly because our sales prospects are uncertain. The level of our revenues and results of operations at any given
time will be based primarily on the following factors:
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acceptance of our products by spine surgeons, patients, hospitals and third-party payers;
demand and pricing of our products, and the mix of our products sold, because profit margins differ among
our products;
timing of new product offerings, acquisitions, licenses or other significant events by us or our competitors;
our ability to grow and maintain a productive sales and marketing organization and independent sales
agent network;
regulatory approvals and legislative changes affecting the products we may offer or those of our
competitors;
the effect of competing technological and market developments;
levels of third-party reimbursement for our products;
interruption in the manufacturing or distribution of our products or our ability to produce or obtain
products of satisfactory quality or in sufficient quantities to meet demand; and
changes in our ability to obtain FDA, state and international approval or clearance for our products.
In addition, until we have a larger base of spine surgeons using our products, occasional fluctuations in the use
of our products by individual surgeons or small groups of surgeons will have a proportionately larger impact on our
revenues than for companies with a larger customer base.
We cannot begin to commercialize any products that we seek to introduce in the U.S. without FDA approval or
clearance. As a result, it will be difficult for us to forecast demand for these products with any degree of certainty.
Any shortfalls in revenue or earnings from levels expected by our stockholders or by industry analysts could have a
significant adverse effect on the trading price of our common stock in any given period.
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Risks Related to Our Intellectual Property, Regulatory Penalties and Litigation
If our patents and other intellectual property rights do not adequately protect our products, we may lose market
share to our competitors and be unable to operate our business profitably.
Our success depends significantly on our ability to protect our proprietary rights in the technologies used in our
products. We rely on patent protection, as well as a combination of copyright, trade secret and trademark laws, and
confidentiality and other contractual restrictions to protect our proprietary technology. These legal means afford only
limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage.
For example, our pending patent applications may not result in issued patents. The U.S. Patent and Trademark Office
(“PTO”) may deny or require significant narrowing of claims in our pending patent applications, and patents issued
as a result of the pending patent applications, if any, may not provide us with significant commercial protection or be
issued in a form that is advantageous to us. We could also incur substantial costs in proceedings before the PTO. These
proceedings could result in adverse decisions as to the priority of our inventions and the narrowing or invalidation of
claims in issued patents. Issued patents could subsequently be successfully challenged by others and invalidated or
rendered unenforceable, which could limit our ability to prevent competitors from marketing and selling related
products. In addition, our pending patent applications include claims to aspects of our products and procedures that
are not currently protected by issued patents.
Both the patent application process and the process of managing patent disputes can be time consuming and
expensive. Competitors may design around our patents or develop products that provide outcomes that are comparable
to our products but fall outside of the scope of our patent protection. Although we have entered into confidentiality
agreements and intellectual property assignment agreements with certain of our employees, consultants and advisors
as one of the ways we seek to protect our intellectual property and other proprietary technology, such agreements may
not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information in
the event of unauthorized use or disclosure or other breaches of the agreements. In the event a competitor infringes
upon one of our patents or other intellectual property rights, enforcing those patents and rights may be difficult and
time consuming. Even if successful, litigation to defend our patents against challenges or to enforce our intellectual
property rights could be expensive and time consuming and could divert management’s attention from managing our
business. Moreover, we may not have sufficient resources to defend our patents against challenges or to enforce our
intellectual property rights.
The medical device industry is characterized by patent and other intellectual property litigation and we could
become subject to litigation that could be costly, result in the diversion of management’s time and efforts, require
us to pay damages, and/or prevent us from marketing our existing or future products.
The medical device industry is characterized by extensive litigation and administrative proceedings over patent
and other intellectual property rights. Determining whether a product infringes a patent involves complex legal and
factual issues, the determination of which is often uncertain. Our competitors may assert that our products, components
of those products, methods of using those products, or methods we employ to manufacture or process those products
are covered by patents held by them. In addition, they may claim that their patents have priority over ours because
their patents were filed first. Because patent applications can take many years to issue, there may be applications now
pending of which we are unaware, which may later result in issued patents that our products may infringe. There could
also be existing patents that one or more components of our products may be inadvertently infringing, of which we
are unaware. As the number of participants in the market for spine disorder devices and treatments increases, the
possibility of patent infringement claims against us also increases.
Any such claim against us, even those without merit, may cause us to incur substantial costs, and could place a
significant strain on our financial resources, divert the attention of management from our core business and harm our
reputation. If the relevant patents are upheld as valid and enforceable and we are found to infringe, we could be
required to pay substantial damages and/or royalties and we could be prevented from selling our products unless we
obtain a license or redesign our products to avoid infringement. Any such license may not be available on reasonable
terms, if at all, and we may be unable to redesign our products to not infringe those patents, and any such redesign, if
possible, may be costly. If we fail to obtain any required licenses or make any necessary changes to our products, we
may have to withdraw existing products from the market or may be unable to commercialize one or more of our
products, either of which could have a significant adverse effect on our business, financial condition and results of
operations. We may lose market share to our competitors if we fail to protect our intellectual property rights.
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In addition, we enter into agreements with spine surgeons to develop new products. As consideration for product
development activities rendered pursuant to these agreements, in some instances we have agreed to pay royalties on
products developed by cooperative involvement between us and such surgeons. The surgeons with whom we have
entered into such an arrangement might claim to be entitled to a royalty even if we do not believe that such products
were developed by cooperative involvement between us and such surgeons. Any such claim, even those without merit,
may cause us to incur substantial costs, and could place a significant strain on our financial resources, divert the
attention of management from our core business and harm our reputation.
If we become subject to product liability claims, we may be required to pay damages that exceed our insurance
coverage.
Our business exposes us to potential product liability claims that are inherent in the manufacture and sale of
medical devices for spine surgery procedures. Spine surgery involves significant risk of serious complications,
including paralysis and even death. We carry product liability insurance. However, our product liability insurance
coverage may be inadequate to satisfy liabilities we might incur. Any product liability claim brought against us could
result in the increase of our product liability insurance rates or our inability to secure coverage in the future on
commercially reasonable terms. If our product liability insurance proves to be inadequate to pay a damage award, we
may have to pay the excess out of our cash reserves, which could harm our financial condition. If longer-term patient
results and experience indicate that our products or any component of our products cause tissue damage, motor
impairment or other adverse effects, we could be subject to significant liability. Even a meritless or unsuccessful
product liability claim could harm our reputation in the industry, lead to significant legal fees and result in the diversion
of management’s attention from managing our business. If a product liability claim or series of claims is brought
against us in excess of our insurance coverage limits, our business could suffer and our financial condition, results of
operations and cash flow could be materially adversely impacted.
Because biologics products entail a potential risk of communicable disease to human recipients, we may be the
subject of product liability claims regarding our biologics products.
Our biologics products may expose us to additional potential product liability claims. The development of
biologics products entails the risk of transmitting disease to human recipients, and substantial product liability claims
may be asserted against us. In addition, successful product liability claims made against one of our competitors could
cause claims to be made against us or expose us to a perception that we are vulnerable to similar claims. Even a
meritless or unsuccessful product liability claim could harm our reputation in the industry, lead to significant legal
fees and result in the diversion of management’s attention from managing our business.
Any claims relating to our improper handling, storage or disposal of biological, hazardous and radioactive
materials could be time consuming and costly.
The manufacture of certain of our products, including our biologics products, involves the controlled use of
biological, hazardous and/or radioactive materials and waste. Our business and facilities and those of our suppliers
are subject to laws and regulations governing the use, manufacture, storage, handling and disposal of these materials
and waste. Although we believe that our safety procedures comply with legally prescribed standards, we cannot
completely eliminate the risk of accidental contamination or injury from these materials. In the event of an accident,
we could be held liable for damages or penalized with fines, which could exceed our resources and insurance. We
may incur significant expenses in the future relating to any failure to comply with applicable laws and regulations,
which could have a significant negative impact on our business, financial condition and results of operations.
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Risks Related to Our Common Stock
Our stock price may fluctuate significantly, particularly if holders of substantial amounts of our stock attempt to
sell, and holders may have difficulty selling their shares based on trading volumes of our stock.
The market price of our common stock is likely to be highly volatile and may fluctuate substantially due to
many factors, including those described elsewhere in this “Risk Factors” section and the following:
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volume and timing of orders for our products;
quarterly variations in our or our competitors’ results of operations;
our announcement or our competitors’ announcements regarding new or enhanced products, product
enhancements, significant contracts, number of sales agents, number of hospitals and spine surgeons using
products, acquisitions, and collaborative or strategic investments;
announcements of technological or medical innovations for the treatment of spine pathology;
changes in earnings estimates or recommendations by securities analysts;
our ability to develop, obtain regulatory clearance or approval for, and market new and enhanced products
on a timely basis;
changes in healthcare policy in the U.S., including changes in governmental regulations or in the status
of our regulatory approvals, clearances or applications, and changes in the availability of third-party
reimbursement in the U.S.;
product liability claims or other litigation involving us, including disputes or other developments with
respect to intellectual property rights;
sales of large blocks of our common stock, including sales by our executive officers, directors and
significant stockholders;
changes in accounting principles; and
general market conditions and other factors, including factors unrelated to our operating performance or
the operating performance of our competitors.
We may become involved in securities class action litigation that could divert management’s attention and harm
our business.
The stock market in general, the NASDAQ Global Select Market and the market for medical device companies
in particular, has experienced price and volume fluctuations that have often been unrelated or disproportionate to the
operating performance of those companies. In the past, following periods of volatility in the market price of a particular
company’s securities, the company becomes subject to securities class action litigation. We may become involved in
this type of litigation. Litigation is often expensive and diverts management’s attention and resources, which could
materially harm our financial condition, results of operations and business.
Securities analysts may not provide coverage of our common stock or may issue negative reports, which may have
a negative impact on the market price of our common stock.
Securities analysts may not provide research coverage of our common stock. The trading market for our common
stock may be affected in part by the research and reports that analysts publish about our business. If one or more of
the analysts who elects to cover us downgrades our stock, our stock price could likely decline rapidly. If one or more
of these analysts ceases coverage of us, we could lose visibility in the market, which in turn could cause our stock
price to decline.
31
Because of their significant stock ownership, our executive officers, directors and principal stockholders will be
able to exert control over us and our significant corporate decisions.
Based on shares outstanding at February 23, 2023, our executive officers, directors and stockholders holding
more than 5% of our outstanding common stock and their affiliates, in the aggregate, beneficially own approximately
30% of our outstanding common stock. As a result, these persons will have the ability to impact significantly the
outcome of all matters requiring stockholder approval, including the election and removal of directors and any merger,
consolidation, or sale of all or substantially all of our assets. This concentration of ownership may harm the market
price of our common stock by delaying, deferring or preventing our change in control, causing us to enter into
transactions or agreements that are not in the best interests of all of our stockholders, or reducing our public float held
by non-affiliates.
Anti-takeover provisions in our organizational documents and change of control provisions in some of our
employment agreements and agreements with sales agents, and in some of our outstanding debt agreements, as
well as the terms of our redeemable preferred stock, may discourage or prevent a change of control, even if an
acquisition would be beneficial to our stockholders, which could affect our stock price adversely.
Certain provisions of our amended and restated certificate of incorporation and restated by-laws could
discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable,
including transactions in which our stockholders might otherwise receive a premium for their shares. These provisions
also could limit the price that investors might be willing to pay in the future for shares of our common stock, thereby
depressing the market price of our common stock. Stockholders who wish to participate in these transactions may not
have the opportunity to do so. Furthermore, these provisions could prevent or frustrate attempts by our stockholders
to replace or remove our management. These provisions:
•
•
•
•
•
•
allow the authorized number of directors to be changed only by resolution of our Board of Directors;
allow vacancies on our Board of Directors to be filled only by resolution of our Board of Directors;
authorize our Board of Directors to issue, without stockholder approval, blank check preferred stock that,
if issued, could operate as a “poison pill” to dilute the stock ownership of a potential hostile acquirer to
prevent an acquisition that is not approved by our Board of Directors;
require that stockholder actions must be effected at a duly called stockholder meeting and prohibit
stockholder action by written consent;
establish advance notice requirements for stockholder nominations to our Board of Directors and for
stockholder proposals that can be acted on at stockholder meetings; and
limit who may call stockholder meetings.
These provisions may frustrate or prevent attempts by our stockholders to replace or remove our current
management by making it more difficult for stockholders to replace members of our Board of Directors, which is
responsible for appointing our management. In addition, because we are incorporated in Delaware, we are governed
by the provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders
owning in excess of 15% of our outstanding voting stock to merge or combine with us.
Some of our agreements provide for accelerated vesting of benefits, including full vesting of restricted stock
and options, upon a change of control, or extends the term of the agreement upon a change in control and make it
more difficult for us or our successor to terminate the agreement. These provisions may discourage or prevent a change
of control.
In addition, in the event of a change of control, we would be required to redeem all outstanding shares of our
redeemable preferred stock for an aggregate of $29.9 million, at the price of $9.00 per share. Further, our amended
and restated certificate of incorporation permits us to issue additional shares of preferred stock. The terms of our
redeemable preferred stock or any new preferred stock we may issue could have the effect of delaying, deterring or
preventing a change in control.
32
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an
“ownership change,” generally defined as a cumulative change in its equity ownership by “5-percent shareholders” of
greater than 50 percentage points (by value) over a three-year period, the corporation’s ability to use its pre-change
net operating loss carryforwards (“NOLs”), and certain other pre-change tax attributes (such as research tax credits)
to offset its post-change taxable income and taxes may be limited. We have completed multiple rounds of financing
and entered into transactions which may subject us to the Section 382 limitations. We may also experience ownership
changes in the future. As a result, our ability to use our NOLs and research and development credits to offset our U.S.
federal taxable income and taxes may be subject to limitations, which could potentially result in increased future tax
liability to us. In addition, similar rules may also apply at the state level, and there may be periods during which the
use of NOLs is suspended or limited, which could accelerate or permanently increase state taxes owed.
We could be subject to changes in our tax rates, new tax legislation or additional tax liabilities.
We are subject to taxes in the U.S. and foreign jurisdictions. Significant judgment is required to determine and
estimate our worldwide tax liabilities. Due to economic and political conditions, tax rates in various jurisdictions may
be subject to significant change. Our effective income tax rates have been, and could in the future be, adversely
affected by changes in tax laws or interpretations of those tax laws; by stock-based compensation and other non-
deductible expenses; by changes in the mix of earnings in countries with differing statutory tax rates; or by changes
in the valuation of our deferred tax assets and liabilities.
Our tax returns and other tax matters also are subject to examination by the U.S. Internal Revenue Service and
other tax authorities and governmental bodies. We regularly assess the likelihood of an adverse outcome resulting
from these examinations to determine the adequacy of our provision for taxes. We cannot guarantee the outcome of
these examinations. If our effective tax rates were to increase, particularly in the U.S., or if the ultimate determination
of our taxes owed is for an amount in excess of amounts previously accrued, our financial condition, operating results
and cash flows could be adversely affected.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
Our corporate office is located in Carlsbad, California. The table below provides selected information regarding
the leased principal properties used in our operations.
Location
Carlsbad, California
Memphis, Tennessee
Paris, France
Use
Corporate headquarters
Distribution facility
Office facilities
Item 3.
Legal Proceedings
Approximate
Square
Footage
121,541
75,643
15,156
For a description of our material legal proceedings, refer to Note 7 of our Notes to Consolidated Financial
Statements included in this Annual Report on Form 10-K, which is incorporated herein by reference.
Item 4.
Mine Safety Disclosures
Not applicable.
33
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
PART II
Equity Securities
Market Information
Our common stock is traded on The NASDAQ Global Select Market under the symbol “ATEC.”
Stockholders
As of February 23, 2023, there were approximately 365 holders of record of an aggregate 111,109,933
outstanding shares of our common stock.
Dividend Policy
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available
funds and any future earnings for use in the operation and expansion of our business and do not anticipate paying any
cash dividends in the foreseeable future.
Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended December 31, 2022, the Company issued unregistered equity securities as
described below:
On October 3, 2022, October 18, 2022, and November 14, 2022 the Company issued 625, 100 and 1,250
restricted shares of the Company’s common stock with a grant date fair values of $13.47, $13.47, and $12.18,
respectively, based on the market price of common stock on grant dates, to an independent sales agent for distribution
and related services rendered to the Company.
The issuances of the foregoing securities were made in reliance on the exemption from registration provided by
Section 4(a)(2) of the Securities Act of 1933, as amended, as there was no general solicitation and the transactions did
not involve a public offering.
Purchases of Equity Securities
Under the terms of our 2016 Equity Incentive Plan and our Amended and Restated 2005 Employee, Director
and Consultant Stock Plan, as amended, which we refer to collectively as the Stock Plans, and prior to the expiration
of the Stock Plans in May 2026, we are permitted to award shares of restricted stock to our employees, directors, and
consultants. These shares of restricted stock are subject to a lapsing right of repurchase by us. We may exercise this
right of repurchase in the event that a restricted stock recipient’s employment, directorship or consulting relationship
with us terminates prior to the end of the vesting period. If we exercise this right, we are required to repay the purchase
price paid by or on behalf of the recipient for the repurchased restricted shares. Repurchased shares are returned to the
Stock Plans and are available for future awards under the terms of the Stock Plans.
There were no repurchases of common stock during the year ended December 31, 2022.
Stock Performance Graph
The following graph compares the cumulative total stockholder return data on our common stock with the
cumulative return of two indices: (i) The Nasdaq Stock Market Composite Index, and (ii) The Nasdaq Medical
Equipment Index over the five-year period ending December 31, 2022. The graph assumes that $100 was invested on
December 31, 2017 in our common stock and in each of the comparative indices, and the reinvestment of any
dividends. The stock price performance on the following graph is not necessarily indicative of future stock price
performance.
34
The following graph and related information shall not be deemed "soliciting material" or deemed to be "filed"
with the SEC, nor shall such information be incorporated by reference into any future filing, except to the extent that
we specifically incorporate it by reference into such filing.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG ALPHATEC HOLDINGS, INC.,
THE NASDAQ COMPOSITE INDEX
AND THE NASDAQ MEDICAL EQUIPMENT INDEX
*$100 invested on December 31, 2017 in stock or index, including reinvestment of dividends.
Item 6.
Reserved
35
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with
the financial statements and the notes to those statements appearing elsewhere in this Annual Report on Form 10-K.
A discussion regarding our financial condition and results of operations for 2022 compared to 2021 is presented
under “Results of Operations” further below in this Item 7. For discussion regarding our financial condition and the
results of operations for 2021 compared to 2020, refer to Part II, Item 7 Management’s Discussion and Analysis of
Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31,
2021.
Some of the information contained in this discussion and analysis or set forth elsewhere in this report include
the identification of certain trends and other statements that may predict or anticipate future business or financial
results that are subject to important factors that could cause our actual results to differ materially from those
indicated. See “Item 1A Risk Factors” included elsewhere in this Annual Report on Form 10-K.
Overview
We are a medical technology company focused on the design, development, and advancement of technology
for better surgical treatment of spinal disorders. Through our wholly owned subsidiaries, Alphatec Spine, Inc., SafeOp
Surgical, Inc. and EOS imaging S.A., our mission is to revolutionize the approach to spine surgery through clinical
distinction. We are focused on developing new approaches that integrate seamlessly with our expanding Alpha
InformatiX™ product platform to better inform surgery and to achieve the goal of spine surgery more predictably and
reproducibly. We have a broad product portfolio designed to address the spine’s various pathologies. Our ultimate
vision is to be the standard bearer in spine.
Our ability to leverage our collective spine experience, coupled with a willingness to invest in every component
of the advanced spine approaches that we bring to market has fueled market-leading growth in every year since early
2018. We believe our future success will continue to be propelled by the introduction and traction of the distinct
procedures and technologies that our procedural investment thesis engenders.
We market and sell our products through a network of independent sales agents and direct sales representatives.
To deliver consistent, predictable growth, we have added, and intend to continue to add, clinically astute and exclusive
sales team members to reach untapped surgeons, hospitals, and national accounts and better penetrate existing accounts
and territories.
Recent Developments
Term Loan
On January 6, 2023, we entered into the Braidwell Term Loan. The Braidwell Term Loan provides for an initial
term loan of $100.0 million which was funded on the closing date. We have the option to draw an additional $50.0
million within 18 months of the closing date. The Braidwell Term Loan matures in January 2028. Borrowings under
the Braidwell Term Loan bear interest at an annual rate of Term SOFR plus 5.75%. The outstanding portion of the
term loan is secured by substantially all of our assets with the priority interest of the lenders in the Braidwell Term
Loan and the Revolving Credit Facility, as defined below, subject to terms of a customary intercreditor agreement.
Revolving Credit Facility
In September 2022, we entered into the Revolving Credit Facility with entities affiliated with MidCap. The
Revolving Credit Facility provides up to $50.0 million in borrowing capacity based on a borrowing base. The
borrowing base is calculated based on certain accounts receivable and inventory assets. We may request a $25.0
million increase in the Revolving Credit Facility for a total commitment of up to $75.0 million. The Revolving Credit
Facility matures on the earlier of September 29, 2027, or 90 days prior to the final maturity date of any of our 2026
Notes.
36
The outstanding loans bear interest at the sum of Term SOFR plus 3.5% per annum. Interest on borrowings is
due monthly. The loan agreements include an unused line fee, which is calculated as 0.50% per annum of either the
unused Revolving Credit Facility or a minimum balance. Upon the Revolving Credit Facility’s maturity, any
outstanding principal balance, unpaid accrued interest, and all other obligations under the Revolving Credit Facility
will be due and payable.
The Revolving Credit Facility contains a lockbox arrangement clause requiring us to maintain a lockbox bank
account. If the revolving loan availability is less than 30% of the revolving loan limit for five consecutive business
days, or we are in default, MidCap will apply funds collected from our lockbox account to reduce the outstanding
balance of the Revolving Credit Facility.
The outstanding loans are secured by substantially all of our assets with the priority interest of the lenders in the
Braidwell Term Loan and the Revolving Credit Facility subject to terms of a customary intercreditor agreement. The
loan agreements and other ancillary documents contain customary representations and warranties and affirmative and
negative covenants. Under the loan agreements, we are required to maintain a minimum level of liquidity. The loan
agreements also include certain events of default, and upon the occurrence of such events of default, all outstanding
loans under the Revolving Credit Facility may be accelerated and/or the lenders’ commitments terminated.
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 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 sales agents. Our
products are shipped and invoiced 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 sales. Cost of sales consists primarily of direct product costs, royalties, service labor hours, and parts.
Our product costs consist primarily of raw materials, component parts, direct labor, and overhead. 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.
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, and fees paid to external service providers
and development consultants in the form of both cash and equity.
Sales, general and administrative expenses. Sales, general and administrative expenses consist primarily of
salaries and related employee benefits, sales commissions and other variable costs, depreciation of our surgical
instruments, regulatory affairs, quality assurance costs, professional service fees, travel, medical education, trade show
and marketing costs, and insurance expenses.
Litigation-related expenses. Litigation-related expenses are costs incurred for our ongoing and settled litigation.
Amortization of acquired intangible assets. Amortization of acquired intangible assets consists of intangible
assets acquired in business combinations and asset purchases.
Transaction-related expenses. Transaction-related expenses consist of certain costs incurred related primarily
to the acquisition and integration of EOS.
37
Restructuring expenses. Restructuring expenses primarily consist of severance, social plan benefits and related
tax costs incurred in connection with cost rationalization efforts, as well as costs associated with the opening or closing
of office and warehouse facilities.
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 provision. Income tax provision primarily consists of an estimate of federal, 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 of our deferred tax assets and liabilities, and changes in tax laws.
Results of Operations
Total revenue
(in thousands, except %)
Revenue:
Revenue from products and services
Revenue from international supply agreement
Total revenue
Year Ended December 31,
Change
2022
2021
$
%
$ 350,852 $ 242,258 $ 108,594
(939)
$ 350,867 $ 243,212 $ 107,655
954
15
45%
(98)%
44%
Revenue from products and services increased by $108.6 million, or 45%, during the year ended December 31,
2022, compared to the year ended December 31, 2021. The increase was primarily due to an increase in product
volume that was due to the increase in our surgeon user base, continued expansion of our new product portfolio, and
increasing adoption of our technology. Revenue associated with our acquisition of EOS accounted for approximately
$16.0 million of the increase in revenue from products and services for the year ended December 31, 2022, compared
to the pre-acquisition period during the year ended December 31, 2021.
Revenue from international supply agreement, which is attributed to sales to Globus Medical Ireland, Ltd., a
subsidiary of Globus Medical, Inc., and its affiliated entities (collectively “Globus Medical”), under which we supplied
to Globus Medical certain of its implants and instruments at agreed-upon prices for a minimum term of three years,
decreased by $1.0 million, or 98%, during the year ended December 31, 2022 compared to the year ended December
31, 2021. The decrease in revenue from the international supply was due the expiration and termination of the
international supply agreement with Globus Medical on August 31, 2021.
Cost of sales
(in thousands, except %)
Cost of sales
Year Ended December 31,
Change
2022
$ 117,808 $
2021
85,450 $ 32,358
$
%
38%
Cost of sales increased by $32.4 million, or 38%, during the year ended December 31, 2022, compared to the
year ended December 31, 2021. The increase was primarily due to product volume, offset by a decrease in inventory
expense associated with the purchase accounting of the EOS acquisition. Cost of sales associated with our acquisition
of EOS accounted for approximately $10.1 million of the increase for the year ended December 31, 2022, compared
to the pre-acquisition period during the year ended December 31, 2021. Inventory expense associated with the
purchase accounting of EOS offset the increase by approximately $5.1 million, or 16%.
38
Operating expenses
(in thousands, except %)
Operating expenses:
Research and development
Sales, general and administrative
Litigation-related expenses
Amortization of acquired intangible assets
Transaction-related expenses
Restructuring expenses
Total operating expenses
Year Ended December 31,
Change
2022
2021
$
%
$
44,033 $ 32,015 $ 12,018
70,742
229,271
300,013
12,820
11,123
23,943
4,767
5,348
10,115
(6,245)
6,365
120
113
1,697
1,810
$ 380,034 $ 285,819 $ 94,215
38%
31%
115%
89%
(98)%
7%
33%
Research and development expenses. Research and development expenses increased by $12.0 million, or 38%,
during the year ended December 31, 2022, compared to the year ended December 31, 2021. The increase was primarily
due to an increase in personnel to support the expansion of our new product portfolio. Research and development costs
associated with EOS accounted for approximately $2.0 million of the total increase for the year ended December 31,
2022, as compared to the pre-acquisition period during the year ended December 31, 2021.
Sales, general and administrative expenses. Sales, general and administrative expenses increased by $70.7
million, or 31%, during the year ended December 31, 2022, compared to the year ended December 30, 2021. The
increase was primarily due to higher compensation-related costs and variable selling expenses associated with the
increase in revenue, and our continued investment in building our strategic distribution channel. Additionally, we have
increased our investment in our sales and marketing functions by increasing headcount to support the growth of our
business. Sales, general and administrative expenses associated with EOS accounted for approximately $7.6 million
of the total increase for the year ended December 31, 2022, as compared to the pre-acquisition period during the year
ended December 31, 2021.
Litigation-related expenses. Litigation-related expenses increased by $12.8 million, or 115%, during the year
ended December 31, 2022, compared to the year ended December 31, 2021. The increase was primarily related to an
increase in legal fees and related accruals associated with our ongoing and settled litigation matters. Refer to Note 7
of our Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for further
information regarding litigation matters.
Amortization of acquired intangible assets. The increase of amortization of acquired intangible assets is
primarily due to the amortization of intangible assets acquired in the EOS acquisition.
Transaction-related expenses. The decrease in transaction-related expenses for the year ended December 31,
2022 is primarily due to the closing of the EOS acquisition on May 13, 2021.
Restructuring expenses. The increase in restructuring costs for the year ended December 31, 2022 was primarily
due to severance, social plan benefits and related taxes in connection with cost rationalization efforts.
Total interest and other expense, net
(in thousands, except %)
Interest and other expense, net:
Interest expense, net
Loss on debt extinguishment, net
Other income (expense), net
Total interest and other expense, net
Year Ended December 31,
Change
2022
2021
$
%
$
$
(5,505) $
—
471
1,603
(7,108) $
7,434
(7,434)
2,034
(1,563)
(5,034) $ (16,105) $ 11,071
(23)%
(100)%
(130)%
(69)%
The decrease in interest expense, net, during the year ended December 31, 2022, compared to the year ended
December 30, 2021, was primarily due to lower interest rates on the 2026 Notes compared to the term loan with
39
Squadron Medical Finance Solutions, LLC (the "Squadron Medical Term Loan"), that was repaid in full during the
year ended December 31, 2021. The decrease in loss on debt extinguishment, net, during the year ended December
31, 2022, compared to the year ended December 31, 2021 was due to the net loss on debt extinguishment associated
with the early payoff of the Squadron Medical Term Loan and the Paycheck Protection Program loan forgiveness,
which were non-recurring expenses in 2021. The decrease in other income (expense), net, during the year ended
December 31, 2022, compared to the year ended December 31, 2021, was primarily due to foreign currency gains.
Income tax provision
(in thousands, except %)
Income tax provision
Year Ended December 31,
Change
2022
2021
$
%
$
140 $
164 $
(24)
(15)%
Income tax provision for the year ended December 31, 2022 was negligible and remained consistent compared
to the year ended December 31, 2021.
Liquidity and Capital Resources
Our principal sources of liquidity are our existing cash and cash equivalents, our Revolving Credit Facility, and
cash from operations. Our liquidity and capital structure are evaluated regularly within the context of our annual
operating and strategic planning process. We consider the liquidity necessary to fund our operations, which includes
working capital needs, investments in research and development, investments in inventory and instrument sets to
support our 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, the timing of introductions of new products and enhancements to
existing products, and the international expansions of our business.
As current borrowing sources become due, we may be required to access the capital markets for additional
funding. If we are required to access the debt markets, we expect to be able to secure reasonable borrowing rates. As
part of our liquidity strategy, we will continue to monitor our current level of spending and cash use as well as our
ability to secure additional credit facilities, term loans, or other similar arrangements in light of our spending levels
and general financial market conditions.
A substantial portion of our operations are in the U.S., and most of our net sales have been made in the U.S.
Accordingly, we do not have material exposures to foreign currency rate fluctuations from operations. However, as
our business in markets outside of the U.S. continues to increase, we will be exposed to foreign currency exchange
risk related to our foreign operations.
We do not have any material financial exposure to one customer or one country that would significantly hinder
our liquidity. We are and may become involved in various legal proceedings arising from our business activities.
While we have no material accruals for pending litigation or claims for which accrual amounts are not disclosed in
our 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 consolidated financial statements. An estimated loss
contingency is accrued in our consolidated financial statements if it is probable that a liability has been incurred and
the amount of the loss can be reasonably estimated. Assessing contingencies is highly subjective and requires
judgments about future events because litigation is inherently unpredictable, and unfavorable resolutions could occur.
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. We have disclosed all material accruals for pending litigation or
investigations in Note 7, Commitments and Contingencies, in the Notes to Consolidated Financial Statements included
in this Annual Report.
40
Cash and cash equivalents were $84.7 million and $187.2 million at December 31, 2022 and December 31,
2021, respectively. We have available borrowings under the Revolving Credit Facility and the Braidwell Term Loan
discussed above. We believe that our existing funds, cash generated from our operations and our existing sources of
and access to financing are adequate to satisfy our needs for working capital, capital expenditure, debt service
requirements and other business initiatives we plan to strategically pursue.
Summary of Cash Flows
The following is a summary of cash provided by (used in) operating, investing, and financing activities, the
effect of exchange rate changes on cash and cash equivalents, and the net change in cash and cash equivalents:
Cash (used in) provided by:
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash
Net (decrease) increase in cash and cash equivalents
Year Ended December 31,
2021
2022
2020
$
(75,143) $
(58,280)
31,228
(357)
$ (102,552) $
(73,432) $
(157,762)
311,966
(1,289)
79,483 $
(46,412)
(23,859)
130,829
94
60,652
Operating Activities
We used net cash of $75.1 million from operating activities for the year ended December 31, 2022. The cash
used in operating activities primarily related to costs associated with the continued expansion of our business and
inventory purchases, offset by the timing of cash payments and receipts.
Investing Activities
We used cash of $58.3 million in investing activities for the year ended December 31, 2022, which is primarily
related to the purchase of surgical instruments to support the commercial launch of new products and growth of our
business.
Financing Activities
Financing activities provided net cash of $31.2 million for the year ended December 31, 2022, primarily related
to proceeds from the Revolving Credit Facility.
Debt and Commitments
As of December 31, 2022, we had $35.3 million outstanding under the Revolving Credit Facility. The
outstanding loans bear interest at the sum of Term SOFR plus 3.5% per annum. The Revolving Credit Facility matures
on the earlier of September 29, 2027, or 90 days prior to the final maturity date of any of our 2026 Notes.
As of December 31, 2022, we had $316.3 million outstanding under the 2026 Notes. The 2026 Notes accrue
interest at a rate of 0.75%, payable semi-annually in arrears on February 1 and August 1 of each year. Prior to maturity
in August 2026, the holders of the 2026 Notes may, under certain circumstances, choose to convert their notes into
shares of our common stock. Based on the terms, we have the option to pay or deliver cash, shares of our common
stock, or a combination thereof, when a conversion notice is received.
We assumed the outstanding convertible bonds of EOS (“OCEANEs”) issued by EOS in connection with our
acquisition of EOS. The OCEANEs bear interest at 6% per year, payable semi-annually in arrears on May 31 and
November 30 of each year. Unless either earlier converted or repurchased, the outstanding OCEANEs of $13.3 million
(€12.5 million) will mature on May 31, 2023.
41
We assumed $5.1 million (€4.8 million) in other debts with the acquisition of EOS that are due in monthly and
quarterly installments through maturity in 2027.
As of December 31, 2022, we have made $53.4 million in Orthotec settlement payments and there remains an
outstanding balance of $4.1 million in Orthotec settlement payments to be paid by us in quarterly installments through
October 2023.
We have an inventory purchase commitment agreement with a third-party supplier, where we are obligated to
certain minimum purchase commitment requirements through December 2025. As of December 31, 2022, the
remaining minimum purchase commitment under the agreement was $27.4 million.
Contractual obligations and commercial commitments
Total contractual obligations and commercial commitments as of December 31, 2022 are summarized in the
following table (in thousands):
Total
Payments Due by Period
1 Year or Less
Senior Convertible Notes
Revolving Credit Facility
Facility lease obligations (1)
Purchase commitments (2)
OCEANEs
Interest expense
Orthotec litigation settlement obligation (3)
Other (4)
Development services plans
Total
$
$
316,250 $
35,251
38,247
27,449
13,333
10,102
4,064
5,046
3,854
453,596 $
— $
—
4,937
5,826
13,333
2,696
4,064
656
—
31,512 $
More than 1 Year
316,250
35,251
33,310
21,623
—
7,406
—
4,390
3,854
422,084
(1)
(2)
(3)
(4)
Includes our headquarters building lease that commenced in February 2021.
Includes inventory purchase commitments of $27.4 million.
Represents payments, including imputed interest, 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.
Represents cash repayments of government sponsored COVID relief initiatives at EOS.
Off-Balance Sheet Arrangements
As of December 31, 2022, we did not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated
financial statements, which have been prepared in accordance with accounting principles generally accepted in the
United States of America. 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.
42
We believe the following accounting policies to be critical to the judgments and estimates used in the preparation
of our consolidated financial statements.
Revenue Recognition
We recognize revenue from product sales in accordance with Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) Revenue from Contracts with Customers (“Topic 606”). This standard
applies 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 performance obligations in the contract; and (v) recognize revenue when
(or as) the entity satisfies a performance obligation. We only apply the five-step model to contracts when it is probable
that we will collect the consideration we are entitled to in exchange for the goods or services that we transfer to the
customer.
Sales are derived primarily from the sale of spinal implant products, imaging equipment, and related services to
hospitals and medical centers through direct sales representatives and independent sales agents. 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, and other imaging related services, is recognized in the period
the service is performed, and makes up less than 10% of our 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, we offer the ability for customers to lease our imaging equipment primarily on
a non-sales type basis, but such arrangements are immaterial to total revenue in the years presented. We generally do
not allow returns of products that have been delivered. Costs incurred by us associated with sales contracts with
customers are deferred over the performance obligation period and recognized in the same period as the related
revenue, except for 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, we estimate 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 our 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 estimated amounts in the transaction price are based largely on an assessment
of our anticipated performance and all information that is reasonably available, including historical, current, and
forecasted information.
We record a contract liability, or deferred revenue, when we have an obligation to provide a product or service
to the customer and payment is received in advance of our performance. When we sell 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, we do not have observable evidence of the standalone selling price related to
our future service obligations; therefore, we estimate the selling price using an expected cost plus a margin approach.
The transaction price is allocated using the relative standalone selling price method. The use of alternative estimates
could result in a different amount of revenue deferral.
43
Excess and Obsolete Inventory
Most of our inventory is comprised of finished goods, and we primarily utilize third-party suppliers to produce
our products. Specialized implants, fixation products, biologics, and disposables are determined by utilizing a standard
cost method, which includes capitalized variances, which approximates the weighted average cost. Imaging equipment
and related parts are valued at weighted average cost. Inventories are stated at the lower of cost or net realizable value.
We review the components of inventory on a periodic basis for excess and obsolescence and adjust inventory to its
net realizable value as necessary.
We record a lower of cost or net realizable value inventory reserve (“LCNRV”) for estimated excess and
obsolete inventory based upon our expected use of inventory on hand. Our inventory, which consists primarily of
specialized implants, fixation products, biologics, and disposables is at risk of obsolescence due to the need to maintain
substantial levels of inventory. In order to market our products effectively and meet the demands of interoperative
product placement, we maintain and provide surgeons and hospitals with a variety of inventory products and sizes.
For each surgery, fewer than all components will be consumed. The need to maintain and provide such a variety of
inventory causes inventory to be held that is not likely to be used.
Our estimates and assumptions for excess and obsolete inventory are reviewed and updated on a quarterly basis.
The estimates and assumptions are determined primarily based on current usage of inventory and the age of inventory
quantities on hand. Additionally, we consider recent sales experience to develop assumptions about future demand for
our products, while considering product life cycles and new product launches. Increases in the LCNRV reserve for
excess and obsolete inventory result in a corresponding charge to cost of sales.
Valuation of Goodwill
Our goodwill represents the excess of the cost over the fair value of net assets acquired from our business
combinations. The determination of the value of goodwill and intangible assets arising from business combinations
and asset acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase price to
the fair value of the net tangible and intangible assets acquired. Goodwill is assessed for impairment using fair value
measurement techniques on an annual basis or more frequently if facts and circumstance warrant such a review.
Goodwill is considered to be impaired if we determine that the carrying value of the reporting unit exceeds its
respective fair value.
Valuation of Intangible Assets
Our intangible assets are comprised primarily of purchased technology, customer relationships, trade name,
trademarks, and in-process research and development. We make significant judgments in relation to the valuation of
intangible assets resulting from business combinations and asset acquisitions. Intangible assets are generally amortized
on a straight-line basis over their estimated useful lives of 2 to 12 years. We base the useful lives and related
amortization expense on the period of time we estimate the assets will generate net sales or otherwise be used. We
also periodically review the lives assigned to our intangible assets to ensure that our initial estimates do not exceed
any revised estimated periods from which we expect to realize cash flows. If a change were to occur in any of the
above-mentioned factors or estimates, the likelihood of a material change in our reported results would increase. We
evaluate our intangible assets with finite lives for indications of impairment whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Factors that could trigger an impairment review
include significant under-performance relative to expected historical or projected future operating results, significant
changes in the manner of our use of the acquired assets or the strategy for our overall business or significant negative
industry or economic trends. If this evaluation indicates that the value of the intangible asset may be impaired, we
make an assessment of the recoverability of the net carrying value of the asset over its remaining useful life. If this
assessment indicates that the intangible asset is not recoverable, based on the estimated undiscounted future cash flows
of the asset over the remaining amortization period, we reduce the net carrying value of the related intangible asset to
fair value and may adjust the remaining amortization period. Significant judgment is required in the forecasts of future
operating results that are used in the discounted cash flow valuation models. It is possible that plans may change and
estimates used may prove to be inaccurate. If our actual results, or the plans and estimates used in future impairment
analyses, are lower than the original estimates used to assess the recoverability of these assets, we could incur
additional impairment charges.
44
Valuation of Stock-Based Compensation
Stock-based compensation expense for equity-classified awards, principally related to restricted stock units
("RSUs") and performance restricted stock units ("PRSUs") is measured at the grant date based on the estimated fair
value of the award. The fair value of equity instruments that are expected to vest is recognized and amortized over the
requisite service period. We have granted awards with up to four year graded or cliff vesting terms. No exercise price
or other monetary payment is required for receipt of the shares issued in settlement of the respective award; instead,
consideration is furnished in the form of the participant’s service.
The fair value of RSUs including PRSUs with pre-defined performance criteria is based on the stock price on
the date of grant whereas the expense for PRSUs with pre-defined performance criteria is adjusted with the probability
of achievement of such performance criteria at each period end. The fair value of the PRSUs that are earned based on
the achievement of pre-defined market conditions, is estimated on the date of grant using a Monte Carlo valuation
model. The key assumptions in applying this model are an expected volatility and a risk-free interest rate.
Stock-based compensation recorded in our consolidated statements of operations is based on awards expected
to ultimately vest and has been reduced for estimated forfeitures. Our estimated forfeiture rates may differ from our
actual forfeitures. We consider our historical experience of pre-vesting forfeitures on awards by each homogenous
group of employees as the basis to arrive at our estimated annual pre-vesting forfeiture rates.
We estimate the fair value of stock options issued under our equity incentive plans and shares issued to
employees under our employee stock purchase plan ("ESPP"), using a Black-Scholes option-pricing model on the date
of grant. The Black-Scholes option-pricing model incorporates various assumptions including expected volatility,
expected term and risk-free interest rates. The expected volatility is based on the historical volatility of our common
stock over the most recent period commensurate with the estimated expected term of our stock options and ESPP
offering period which is derived from historical experience. The risk-free interest rate for periods within the
contractual life of the option is based on the U.S. Treasury yield in effect at the time of grant. We have never declared
or paid dividends and have no plans to do so in the foreseeable future.
We account for stock option grants to non-employees under provisions which require that the fair value of these
instruments be recognized as an expense over the period in which the related services are rendered.
Recent Accounting Pronouncements
See “Notes to Financial Statements - Note 1 - Recent Accounting Pronouncements” included elsewhere in this
Annual Report on Form 10-K.
45
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We are exposed to interest rate risks related to our cash, cash equivalents and borrowings. We had cash and cash
equivalents of $84.7 million as of December 31, 2022, which consist of cash and money market funds. Interest-earning
money market funds carry a degree of interest rate risk; however, historical fluctuations in interest income have not
been significant.
Loans under the Revolving Credit Facility and the Braidwell Term Loan bear interest at floating rates tied to
Term SOFR. As a result, changes in Term SOFR can affect our results of operation and cash flows. As of December
31, 2022, the outstanding balance under the Revolving Credit Facility was $35.3 million. The interest rate as of
December 31, 2022 was 7.7%.
Foreign Currency Exchange Risk
As our business in markets outside of the U.S. continues to increase, we may be exposed to foreign currency
exchange risks related to our foreign operations. Fluctuations in the rate of exchange between the U.S. and foreign
currencies, primarily the euro, could adversely affect our financial results. We do not have any material financial
exposure to one customer or one country that would significantly hinder our liquidity.
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 sales, 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
year ended December 31, 2022.
Item 8.
Financial Statements and Supplementary Data
The consolidated financial statements and supplementary data required by this item are set forth at the pages
indicated in Item 15.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be
disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the timelines
specified in the 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 timely
decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well designed and operated, can only provide
reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance,
management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible
controls and procedures.
46
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 the Company’s disclosure controls
and procedures (as defined in SEC Rules 13a - 15(e) and 15d - 15(e) of the Exchange Act) as of December 31, 2022.
Based on such evaluation, our management has concluded as of December 31, 2022, the Company’s disclosure
controls and procedures are effective at the reasonable assurance level.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting refers to the
process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected
by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.
generally accepted accounting principles.
Management has used the framework set forth in the report entitled Internal Control - Integrated Framework
published by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) to evaluate
the effectiveness of the Company’s internal control over financial reporting. Management has concluded that the
Company’s internal control over financial reporting was effective as of December 31, 2022, based on those criteria.
Deloitte & Touche LLP, the Company’s independent registered public accounting firm, who audited the
consolidated financial statements included in this Annual Report on Form 10-K, has issued an attestation report on
the Company’s internal control over financial reporting as of December 31, 2022. This report states that internal
control over financial reporting was effective and appears in “Report of Independent Registered Public Accounting
Firm” in Part IV, Item 15 of this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
We are involved in ongoing evaluations of internal controls. In anticipation of the filing of this Annual Report
on Form 10-K, our Chief Executive Officer and Chief Financial Officer, with the assistance of other members of our
management, performed an evaluation of any change in internal control over financial reporting that occurred during
our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over
financial reporting. We are in the process of implementing a new enterprise resource planning (“ERP”) system that
affects many of our financial processes and is expected to improve the efficiency and effectiveness of certain financial
and business transaction processes, as well as the underlying systems environment. There has been no change to our
internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.
Other Information
None.
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
47
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
The information required by this item is incorporated herein by reference to our Proxy Statement with respect
to our 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the end of the fiscal year
covered by this Annual Report on Form 10-K.
Item 11.
Executive Compensation
The information required by this item is incorporated herein by reference to our Proxy Statement with respect
to our 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the end of the fiscal year
covered by this Annual Report on Form 10-K.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this item is incorporated herein by reference to our Proxy Statement with respect
to our 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the end of the fiscal year
covered by this Annual Report on Form 10-K.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated herein by reference to our Proxy Statement with respect
to our 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the end of the fiscal year
covered by this Annual Report on Form 10-K.
Item 14.
Principal Accounting Fees and Services
The information required by this item is incorporated herein by reference to our Proxy Statement with respect
to our 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the end of the fiscal year
covered by this Annual Report on Form 10-K.
48
Item 15.
Exhibits, Financial Statement Schedules
Item 15 (a) The following documents are filed as part of this Annual Report on Form 10-K:
PART IV
(1) Financial Statements:
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Schedule II. Valuation and Qualifying Accounts:
Page
F-2
F-6
F-7
F-8
F-9
F-12
F-13
All other financial statement schedules have been omitted because they are not applicable, not required or the
information required by such schedules is shown in the financial statements or the notes thereto.
(3) Exhibits List
The following is a list of exhibits filed as part of this Annual Report on Form 10-K.
Exhibit
Number
Exhibit Description
Filed
with
this
Report
Incorporated by
Reference herein
from Form or
Schedule
3.1
3.2
3.3
3.4
3.5
4.1
4.2
4.3
Amended and Restated Certificate of
Incorporation of Alphatec Holdings, Inc.
Amendment to the Certificate of
Incorporation of Alphatec Holdings, Inc.
Restated Bylaws of Alphatec Holdings,
Inc.
Form of Certificate of Designation of
Preferences, Rights and Limitations of
Series A convertible Preferred Stock of
Alphatec Holdings, Inc.
Form of Certificate of Designation of
Preferences, Rights and Limitations of
Series B convertible Preferred Stock of
Alphatec Holdings, Inc.
Form of Common Stock Certificate
Amended and Restated Registration Rights
Agreement, dated April 16, 2018, by and
among Alphatec Holdings, Inc. and the
other signatories thereto
Filing Date
04/20/06
SEC File/
Reg.
Number
333-
131609
08/24/16 000-52024
05/26/06
333-
131609
03/23/17 000-52024
Amendment No. 2 to
Form S-1
(Exhibit 3.2)
Form 8-K
(Exhibit 3.1(B))
Amendment No. 5 to
Form S-1
(Exhibit 3.4)
Form 8-K
(Exhibit 3.1)
Form 8-K
(Exhibit 3.1)
03/12/18 000-52024
Form 10-K
(Exhibit 4.1)
Form 8-K/A
(Exhibit 4.1)
03/20/14
333-
131609
04/16/18 000-52024
Registration Rights Agreement, dated
November 6, 2018, by and among Alphatec
Form S-3/A
(Exhibit 4.5)
11/13/18
333-
221085
49
Exhibit
Number
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
Exhibit Description
Holdings, Inc. and the other signatories
thereto
Form of Warrant issued to certain investors
on March 8, 2018
Form of Registration Rights Agreement
Second Amended and Restated Warrant to
Purchase Common Stock of Alphatec
Holdings, Inc. issued to Patrick S. Miles
X
Form of Warrant to Purchase Common
Stock of Alphatec Holdings, Inc. issued in
connection with financing dated November
6, 2018
Form of Warrant to Purchase Common
Stock of Alphatec Holdings, Inc. issued in
connection with financing dated June 21,
2019
Form of Merger Warrant
Registration Rights Agreement between
Alphatec Holdings, Inc., and Squadron
Medical Finance Solutions LLC and
Tawani Holdings LLC, dated November 6,
2018
Registration Rights Agreement between
Alphatec Holdings, Inc., and Squadron
Medical Finance Solutions LLC and
Tawani Holdings LLC, dated June 21,
2019
Description of the Registrant’s Securities
Registered Pursuant to Section 12 of the
Securities and Exchange Act of 1934
Form of Common Stock Purchase Warrant
Form of Amendment to Warrant
Form of Second Amendment to Warrant
Registration Rights Agreement between
Alphatec Holdings, Inc., and Squadron
Medical Finance Solutions LLC and
Tawani Holdings LLC, dated May 29, 2020
Registration Rights Agreement, dated
December 16, 2020
50
Filed
with
this
Report
Incorporated by
Reference herein
from Form or
Schedule
SEC File/
Reg.
Number
Filing Date
Form 8-K
(Exhibit 4.1)
Form 8-K
(Exhibit 4.2)
03/12/18 000-52024
03/23/17 000-52024
Form S-3/A
(Exhibit 4.11)
11/13/18
333-
221085
Form 8-K
(Exhibit 10.1)
06/27/19 000-52024
Form 8-K
(Exhibit 4.3)
Form S-3/A
(Exhibit 4.5)
03/12/18 000-52024
11/13/18
333-
221085
Form 8-K
(Exhibit 10.2)
06/27/19 000-52024
Form 10-K
(Exhibit 4.15)
03/17/20 000-52024
Form 8-K
(Exhibit 4.1)
Form 8-K
(Exhibit 4.2)
Form 8-K
(Exhibit 4.3)
Form 8-K
(Exhibit 4.4)
Form 8-K
(Exhibit 4.1)
06/04/20 000-52024
06/04/20 000-52024
06/04/20 000-52024
06/04/20 000-52024
12/17/20 000-52024
Exhibit
Number
4.18
4.19
10.1
10.2
Exhibit Description
Indenture, dated as of August 10, 2021,
between Alphatec Holdings, Inc. and U.S.
Bank National Association, as trustee.
Form of certificate representing the 0.75%
Convertible Senior Notes due 2026.
Securities Purchase Agreements
Securities Purchase Agreement dated as of
March 8, 2018, between Alphatec Holdings,
Inc. and each purchaser named in the
signature pages thereto
Real Property Lease Agreements
Lease Agreement by and between Alphatec
Spine, Inc. and RAF Pacifica Group - Real
Estate Fund IV, LLC; ARKA Monterey
Park, LLC, and 170 Arrowhead Partners,
LLC, dated as of December 4, 2019
Capped Call Agreements
Filed
with
this
Report
Incorporated by
Reference herein
from Form or
Schedule
Form 8-K
(Exhibit 4.1)
Form 8-K
(Exhibit 4.2)
Form 8-K
(Exhibit 10.1)
SEC File/
Reg.
Number
000-52024
Filing Date
8/10/21
8/10/21
000-52024
03/12/18 000-52024
Form 10-K
(Exhibit 10.3
03/17/20 000-52024
10.3
Form of Confirmation of Call Option
Transaction
Form 8-K
(Exhibit 10.1)
8/10/21
000-52024
Agreements with Respect to Product Supply, Collaborations, Licenses, Research and
Development
10.4†
10.5†
10.6*
10.7*
10.8*
10.9*
Supply Agreement by and between
Alphatec Spine, Inc. and Invibio, Inc.,
dated as of October 18, 2004 and amended
by Letter of Amendment in respect of the
Supply Agreement, dated as of December
13, 2004
Letter Amendment between Alphatec
Spine, Inc. and Invibio, Inc., dated
November 24, 2010
Agreements with Officers and Directors
Employment Agreement with J. Todd
Koning dated April 6, 2021
Employment Agreement with Craig E.
Hunsaker dated September 14, 2016
Employment Agreement by and among
Patrick S. Miles, Alphatec Spine, Inc., and
Alphatec Holdings, Inc., dated, October 2,
2017
Employment Agreement by and among
Eric Dasso, Alphatec Spine, Inc., and
Alphatec Holdings, Inc., dated, August 2,
2019
51
Amendment No. 4 to
Form S-1
(Exhibit 10.29)
05/15/06
333-
131609
Form 10-Q
(Exhibit 10.3)
05/06/11 000-52024
Form 8-K
(Exhibit 10.1)
Form 10-Q
(Exhibit 10.5)
Form 10-K
(Exhibit 10.26)
04/8/21
000-52024
05/12/17
000-52024
03/09/18
000-52024
Form 10-K
(Exhibit 10.29)
03/17/20 000-52024
Filed
with
this
Report
Incorporated by
Reference herein
from Form or
Schedule
Form 10-K
(Exhibit 10.30)
SEC File/
Reg.
Number
Filing Date
03/17/20 000-52024
Form 10-K
(Exhibit 10.31)
03/17/20 000-52024
Form 10-Q
(Exhibit 10.2)
Form 10-Q
(Exhibit 10.3)
Form 10-Q
(Exhibit 10.4)
Form 8-K
(Exhibit 10.1)
Form 8-K
(Exhibit 10.2)
05/11/20 000-52024
05/11/20 000-52024
05/11/20 000-52024
02/22/21 000-52024
02/22/21 000-52024
Form 10-K
(Exhibit 10.30)
03/05/21 000-52024
Form S-8
(Exhibit 99.1)
Schedule 14A
(Appendix B)
Form 10-Q
(Exhibit 10.1)
Form 10-K
(Exhibit 10.40)
03/23/13
333-
187190
06/11/13 000-52024
10/30/14 000-52024
03/05/13 000-52024
Form 10-K
(Exhibit 10.41)
03/05/13 000-52024
Exhibit
Number
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
Exhibit Description
Employment Agreement by and among
Kelli Howell, Alphatec Spine, Inc., and
Alphatec Holdings, Inc., dated March 10,
2018
Employment Agreement by and among
Dave Sponsel, Alphatec Spine, Inc., and
Alphatec Holdings, Inc., dated March 4,
2018
Severance Agreement between Dave
Sponsel and Alphatec Spine, Inc dated
March 11, 2019
Severance Agreement between Eric Dasso
and Alphatec Spine, Inc dated March 11,
2019
Severance Agreement between Kelli
Howell and Alphatec Spine, Inc dated
March 11, 2019
Severance Agreement between Patrick S.
Miles and Alphatec Spine, Inc dated
February 18, 2021
Severance Agreement between Craig E.
Hunsaker and Alphatec Spine, Inc dated
February 18, 2021
Form of Change in Control Agreement
entered into separate between Alphatec
Spine, Inc. and Dave Sponsel, Eric Dasso,
Kelli Howell, Mark Ojeda
Equity Compensation Plans
Amended and Restated 2005 Employee,
Director and Consultant Stock Plan
Amendment to Amended and Restated
2005 Employee, Director and Consultant
Stock Plan
Amendment to the Amended and Restated
2005 Employee, Director and Consultant
Stock Plan
Form of Non-Qualified Stock Option
Agreement issued under the Amended and
Restated 2005 Employee, Director and
Consultant Stock Plan
Form of Incentive Stock Option Agreement
issued under the Amended and Restated
2005 Employee, Director and Consultant
Stock Plan
52
Filed
with
this
Report
Incorporated by
Reference herein
from Form or
Schedule
Form 10-K
(Exhibit 10.42)
SEC File/
Reg.
Number
Filing Date
03/05/14 000-52024
Form 10-Q
(Exhibit 10.2)
10/30/14 000-52024
Form 8-K/A
(Exhibit 10.1)
Form 8-K
(Exhibit 10.2)
Form 10-Q
(Exhibit 10.1)
Form 8-K
(Exhibit 10.2)
Form 8-K
(Exhibit 10.2)
Form 8-K/A
(Exhibit 10.2)
Form 8-K
(Exhibit 10.1)
Form 8-K
(Exhibit 10.1)
Form S-8
(Exhibit 10.2)
Form S-8
(Exhibit 10.2)
Form S-8
(Exhibit 10.3)
Form 8-K
(Exhibit 10.4)
Form 8-K
(Exhibit 10.9)
06/22/17 000-52024
05/18/18 000-52024
11/09/18 000-52024
06/13/19 000-52024
06/18/20 000-52024
06/22/17 000-52024
06/13/19 000-52024
06/21/21 000-52024
10/05/16
12/12/16
03/31/17
333-
213981
333-
215036
333-
217055
10/2/17
000-52024
03/12/18 000-52024
Form S-8
(Exhibit 10.11)
07/16/19
Form S-8
(Exhibit 10.3)
10/05/16
333-
232661
333-
213981
Exhibit
Number
10.23*
10.24*
10.25*
10.26*
10.27*
10.28*
10.29*
10.30*
10.31*
10.32*
Exhibit Description
Form of Restricted Stock Agreement issued
under the Amended and Restated 2005
Employee, Director and Consultant Stock
Plan
Form of Performance-Based Restricted
Unit Agreement issued under the Amended
and Restated 2005 Employee, Director and
Consultant Stock Plan.
Amended and Restated 2016 Equity
Incentive Award Plan
First Amendment to 2016 Equity Incentive
Plan
Second Amendment to 2016 Equity
Incentive Plan
Third Amendment to 2016 Equity
Incentive Plan
Fourth Amendment to 2016 Equity
Incentive Plan
Amended and Restated 2007 Employee
Stock Purchase Plan
First Amended and Restated 2007
Employee Stock Purchase Plan
Second Amended and Restated 2007
Employee Stock Purchase Plan
10.33*
2016 Employment Inducement Plan
10.34*
10.35*
10.36*
10.37*
10.38*
10.39*
First Amendment to 2016 Employment
Inducement Award Plan
Second Amendment to the 2016
Employment Inducement Award Plan
Third Amendment to the 2016 Employment
Inducement Award Plan, dated October 1,
2017.
Fourth Amendment to the 2016
Employment Inducement Award Plan,
dated March 6, 2018.
Fifth Amendment to the 2016 Employment
Inducement Award Plan, dated May 13,
2019
Form of Restricted Stock Unit Grant Notice
and Restricted Stock Unit Award
Agreement under the 2016 Employment
Inducement Award Plan
53
Exhibit
Number
10.40*
10.41*
10.42
Exhibit Description
Form of Stock Option Grant Notice and
Stock Option Agreement under the 2016
Employment Inducement Award Plan
Form of Performance Stock-Based Award
Grant Notice and Performance Stock-Based
Award Agreement under the 2016
Employment Inducement Award Plan
Settlement Agreements
Settlement and Release Agreement, dated
as of August 13, 2014, by and among
Alphatec Holdings, Inc. and its direct and
indirect subsidiaries and affiliates,
Orthotec, LLC, Patrick Bertranou and the
other parties named therein
Filed
with
this
Report
Incorporated by
Reference herein
from Form or
Schedule
Form S-8
(Exhibit 10.4)
Filing Date
10/05/16
Form S-8
(Exhibit 10.5)
10/05/16
SEC File/
Reg.
Number
333-
213981
333-
213981
Form 10-Q
(Exhibit 10.3)
10/30/14 000-52024
54
Filed
with
this
Report
Incorporated by
Reference herein
from Form or
Schedule
SEC File/
Reg.
Number
Filing Date
Form 8-K
(Exhibit 10.1)
01/09/23 000-52024
Form 8-K
(Exhibit 10.1)
10/03/22 000-52024
Form 8-K
(Exhibit 10.2)
01/09/23 000-52024
Form 10-K
(Exhibit 21.1)
03/02/22 000-52024
X
X
X
X
X
Exhibit
Number
10.43
10.44
10.45
21.1
23.1
23.2
31.1
31.2
32
101.INS
Exhibit Description
Loan Agreements
Credit, Security and Guaranty Agreement,
dated as of January 6, 2023, by and among
Alphatec Holdings, Inc., as borrower, the
guarantors from time to time party thereto,
the lenders from time to time party thereto,
and Wilmington Trust, National
Association, as agent
Credit Agreement, dated as of September
29, 2022, by and among Alphatec Holdings,
Inc., Alphatec Spine, Inc. and the other
borrowers from time to time party thereto,
the guarantors from time to time party
thereto, MidCap Financial Trust and the
other lenders from time to time party
thereto, and MidCap Funding IV Trust, as
administrative agent
Omnibus Joinder and Amendment No. 1 to
Credit, Security and Guaranty Agreement,
dated as of January 6, 2023, by and among
Alphatec Holdings, Inc., Alphatec Spine,
Inc., SafeOp Surgical, Inc., MidCap
Funding IV Trust, as agent and the lenders
party thereto
Subsidiaries of the Registrant and Wholly
Owned Subsidiaries of the Registrant's
Subsidiaries
Consent of Mayer Hoffman McCann P.C.,
Independent Registered Public Accounting
Firm
Consent of Deloitte & Touche LLP,
Independent Registered Public Accounting
Firm
Certification of Principal Executive Officer
pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
Certification of Principal Financial Officer
pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
Certification pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
XBRL Instance Document-the instance
document does not appear in the Interactive
Data File because its XBRL tags are
embedded within the Inline XBRL
document.
55
Filed
with
this
Report
Incorporated by
Reference herein
from Form or
Schedule
SEC File/
Reg.
Number
Filing Date
Exhibit
Number
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
Exhibit Description
Inline XBRL Taxonomy Extension Schema
Document
Inline XBRL Taxonomy Extension
Calculation Linkbase Document
Inline XBRL Taxonomy Extension
Definition Linkbase Document
Inline XBRL Taxonomy Extension Label
Linkbase Document
Inline XBRL Taxonomy Extension
Presentation Linkbase Document
Cover page Interactive Data File (formatted
as Inline XBRL and contained in Exhibit
101).
(*) Management contract or compensatory plan or arrangement.
(†) Confidential treatment has been granted by the Securities and Exchange Commission as to certain portions.
56
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.
SIGNATURES
Dated: February 28, 2023
Dated: February 28, 2023
ALPHATEC HOLDINGS, INC.
By:
By:
/s/ Patrick S. Miles
Patrick S. Miles
Chairman and Chief Executive Officer
(principal executive officer)
/s/ J. Todd Koning
J. Todd Koning
Executive Vice President and Chief Financial
Officer
(principal financial officer and principal accounting
officer)
SIGNATURES AND POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes
and appoints Patrick S. Miles and J. Todd Koning, and each of them, as his or her true and lawful attorneys-in-fact
and agents, each with full power of substitution and resubstitution, for him or her and in his or her name, place and
stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the
same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact
and agents or any of them, or his or her or their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date
February 28, 2023
/s/ Patrick S. Miles
Patrick S. Miles
/s/Mortimer Berkowitz III
Mortimer Berkowitz III
/s/Beth Altman
Beth Altman
/s/Evan Bakst
Evan Bakst
/s/Andy S. Barnett
Andy S. Barnett
/s/Quentin Blackford
Quentin Blackford
/s/Karen K. McGinnis
Karen K. McGinnis
/s/Marie Meynadier
Marie Meynadier
/s/David H. Mowry
David H. Mowry
Lead Director
February 28, 2023
Director
Director
Director
Director
Director
Director
Director
February 28, 2023
February 28, 2023
February 28, 2023
February 28, 2023
February 28, 2023
February 28, 2023
February 28, 2023
57
Signature
/s/David R. Pelizzon
David R. Pelizzon
/s/Jeffrey P. Rydin
Jeffrey P. Rydin
/s/James L. L. Tullis
James L.L. Tullis
/s/Ward W. Woods
Ward W. Woods
Title
Director
Director
Director
Director
Date
February 28, 2023
February 28, 2023
February 28, 2023
February 28, 2023
58
ALPHATEC HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
F-2
F-6
F-7
F-8
F-9
F-12
F-13
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Alphatec Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Alphatec Holdings, Inc. and subsidiaries (the
"Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive
loss, stockholders' (deficit) equity, and cash flows, for the years ended December 31, 2022 and 2021, and the related
notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in
all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its
operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with
accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria
established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission and our report dated February 28, 2023, expressed an unqualified opinion on the
Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our
audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that (1) relates to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of Inventories - Refer to Note 1 to the Financial Statements
The Company records its inventories at the lower of cost or net realizable value (“LCNRV”). Quarterly, the Company
records an adjustment to its LCNRV inventory reserve for estimated excess and obsolete inventory based upon its
expected use of inventory on hand. To determine the expected use of inventory, management develops estimates and
assumptions primarily based on the current usage of inventory, and the age of inventory quantities on hand.
Additionally, the Company considers recent sales experience to develop assumptions about future demand for its
products, while considering product life cycles and new product launches. Inventories as of December 31, 2022 are
$101.5 million. During the year ended December 31, 2022, the Company recognized $9.8 million of LCNRV charges
related to excess and obsolete inventory.
F-2
We identified management’s estimation of excess and obsolete inventories, and the related LCNRV inventory reserve,
as a critical audit matter due to management’s significant manual process used to determine the estimate, and the
judgments required by management to estimate future use of their products. This required a high degree of auditor
judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of
management’s assumptions related to expected use of inventory in future operations.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s judgments used to estimate excess and obsolete inventory and the
related LCNRV inventory reserve included the following, among others:
•
•
•
•
We tested the effectiveness of controls over management’s estimate of excess and obsolete inventories,
including:
ο management’s assessment of assumptions used to identify excess and obsolete inventory and to
estimate the related LCNRV inventory reserve.
the completeness and accuracy of data used in the calculation.
ο
We evaluated the reasonableness of the methodology used by the Company to estimate the excess and
obsolete inventories and related LCNRV reserve, by comparing actual results to the historical estimates.
We evaluated the key assumptions used in identifying the population of inventory with excess or
obsolescence exposure that require a reserve and determining the amount of reserve to record.
We evaluated the appropriateness of the underlying data utilized in management’s analysis, including
current inventory usage, product aging, recent sales, and product life cycle.
/s/ Deloitte & Touche LLP
San Diego, California
February 28, 2023
We have served as the Company's auditor since 2021.
F-3
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Alphatec Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated statement of operations, comprehensive loss, stockholders’ equity,
and cash flows of Alphatec Holdings, Inc. (the "Company") for the year ended December 31, 2020, and the related
notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in
all material respects, the results of the Company's operations and its cash flows for the year ended December 31, 2020,
in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with
the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audit also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our
audit provides a reasonable basis for our opinion.
We served as the Company’s auditor since 2017, which ended in 2021.
/s/ Mayer Hoffman McCann P.C.
San Diego, California
March 5, 2021
F-4
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Alphatec Holdings, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Alphatec Holdings, Inc. and subsidiaries (the
“Company”) as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of December
31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2022, of the
Company and our report dated February 28, 2023, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ Deloitte & Touche LLP
San Diego, California
February 28, 2023
F-5
ALPHATEC HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value data)
Current assets:
Assets
Cash and cash equivalents
Accounts receivable, net of allowances of $679 and $2,307, respectively
Inventories
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Right-of-use assets
Goodwill
Intangible assets, net
Other assets
Total assets
Liabilities and Stockholders’ (Deficit) Equity
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Contract liabilities
Short-term debt
Current portion of operating lease liabilities
Total current liabilities
Long-term debt
Operating lease liabilities, less current portion
Other long-term liabilities
Redeemable preferred stock, $0.0001 par value; 20,000 shares authorized, and 3,319
shares issued and outstanding at December 31, 2022 and 2021
Commitments and contingencies (Note 7)
Stockholders’ (deficit) equity:
Series A convertible preferred stock, $0.0001 par value; 15 shares authorized, and 0
shares issued and outstanding at December 31, 2022 and 2021
Common stock, $0.0001 par value; 200,000 authorized; 106,673 shares issued and
106,640 outstanding at December 31, 2022, and 99,627 shares issued and 99,537
shares outstanding at December 31, 2021
Treasury stock, 1,808 shares at December 31, 2022 and December 31, 2021
Additional paid-in capital
Accumulated other comprehensive deficit
Accumulated deficit
Total stockholders’ (deficit) equity
Total liabilities and stockholders’ (deficit) equity
December 31,
2022
2021
$
$
$
84,696
60,060
101,521
9,357
255,634
101,952
28,360
39,775
82,781
4,874
513,376
34,742
72,382
11,956
14,948
4,842
138,870
349,511
26,562
11,543
23,603
187,248
41,893
91,703
10,313
331,157
87,401
25,283
39,689
85,274
3,249
572,053
25,737
55,549
15,255
342
4,212
101,095
326,489
24,383
17,061
23,603
—
—
11
(25,097)
933,537
(10,690)
(934,474)
(36,713)
513,376
$
10
(25,097)
892,828
(5,994)
(782,325)
79,422
572,053
$
$
$
$
See accompanying notes to consolidated financial statements.
F-6
ALPHATEC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Revenue:
Revenue from products and services
Revenue from international supply agreement
Total revenue
Cost of sales
Gross profit
Operating expenses:
Research and development
Sales, general and administrative
Litigation-related expenses
Amortization of acquired intangible assets
Transaction-related expenses
Restructuring expenses
Total operating expenses
Operating loss
Interest and other expense, net:
Interest expense, net
Loss on debt extinguishment, net
Other income (expense), net
Total interest and other expense, net
Net loss before taxes
Income tax provision
Net loss
Net loss per share, basic and diluted
Weighted average shares outstanding, basic and diluted
Year Ended December 31,
2021
2022
2020
$
$
$
$
350,852
15
350,867
117,808
233,059
$
242,258
954
243,212
85,450
157,762
44,033
300,013
23,943
10,115
120
1,810
380,034
(146,975)
32,015
229,271
11,123
5,348
6,365
1,697
285,819
(128,057)
(5,505)
—
471
(5,034)
(152,009)
140
(152,149) $
(1.47) $
103,373
(7,108)
(7,434)
(1,563)
(16,105)
(144,162)
164
(144,326) $
(1.50) $
96,197
141,079
3,782
144,861
42,360
102,501
18,745
129,156
8,552
688
4,223
—
161,364
(58,863)
(12,374)
(7,612)
—
(19,986)
(78,849)
145
(78,994)
(1.18)
67,020
See accompanying notes to consolidated financial statements.
F-7
ALPHATEC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
Net loss
Foreign currency translation adjustments
Comprehensive loss
Year Ended December 31,
2021
(144,326) $
(7,198)
(151,524) $
2022
(152,149) $
(4,696)
(156,845) $
$
$
2020
(78,994)
116
(78,878)
See accompanying notes to consolidated financial statements.
F-8
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1
1
-
F
ALPHATEC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
2022
Year Ended December 31,
2021
2020
$
(152,149)
$
(144,326)
$
(78,994)
Depreciation and amortization
Stock-based compensation
Amortization of debt discount and debt issuance costs
Amortization of right-of-use assets
Write-down for excess and obsolete inventories
Loss on disposal of assets
Loss on debt extinguishment, net
Impairment of investment
Other
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Other assets
Accounts payable
Accrued expenses and other current liabilities
Lease liabilities
Contract liabilities
Other long-term liabilities
Net cash used in operating activities
Investing activities:
Purchases of property and equipment
Purchase of intangible assets
Acquisition of business, net of cash acquired
Purchase of OCEANE
Cash paid for investments
Settlement of forward contract
Cash received from sale of assets
Net cash used in investing activities
Financing activities:
Proceeds from Revolving Credit Facility and line of credit
Payment of debt issuance costs
Proceeds from common stock offering
Proceeds from issuance of convertible notes
Net cash (paid) received from common stock exercises
Purchase of capped calls
Repurchase of common stock
Proceeds from term debt
Repayment of Revolving Credit Facility and line of credit
Repayment of Squadron Medical Term Loan
Repayment of Inventory Financing Agreement
Other
Net cash provided by financing activities
Effect of exchange rate changes on cash
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow information:
Cash paid for interest
Cash paid for income taxes
Supplemental disclosure of noncash investing and financing activities:
PPP Loan Forgiveness
Debt issuance costs
Financed insurance
Financed property and equipment
Financed inventory
Purchases of property and equipment in accounts payable
Purchases of intangible assets
Recognition of lease liability
Modification of lease liability for lease amendment
Common stock warrants issued with term loan draw
Common stock issued for partial extinguishment of debt
$
$
$
$
$
$
$
$
$
$
$
$
$
$
41,168
40,556
2,038
2,760
9,792
2,594
—
—
1,187
(18,832)
(20,704)
552
(109)
9,796
13,508
(2,678)
(2,280)
(2,342)
(75,143)
(49,453)
(8,827)
—
—
—
—
—
(58,280)
62,500
(1,315)
—
—
(3,041)
—
—
—
(27,500)
—
—
584
31,228
(357)
(102,552)
187,248
84,696
3,860
272
$
$
$
26,756
36,450
1,868
3,418
11,147
1,976
7,434
3,000
2,721
(10,141)
(27,746)
1,258
11
757
8,023
150
(1,040)
4,852
(73,432)
(68,544)
—
(62,133)
(21,097)
(3,000)
(2,988)
—
(157,762)
—
(10,028)
131,828
316,250
(5,963)
(39,866)
(25,000)
—
—
(45,000)
(8,088)
(2,167)
311,966
(1,289)
79,483
107,765
187,248
5,027
223
$
$
$
2,760
1,959
600
2,128
750
1,694
4,288
— $
$
$
$
— $
$
$
$
$
— $
— $
4,271
$
— $
— $
— $
$
$
— $
$
— $
— $
— $
4,015
2,577
23,403
10,949
17,659
3,974
683
7,044
498
7,612
—
116
(7,484)
(18,192)
(2,930)
(51)
7,130
8,812
(1,312)
—
(1,926)
(46,412)
(23,131)
(755)
—
—
—
—
27
(23,859)
42,455
—
107,698
—
3,341
—
—
34,008
(56,615)
—
—
(58)
130,829
94
60,652
47,113
107,765
6,330
190
—
—
—
—
—
3,527
—
—
—
2,974
33,807
See accompanying notes to consolidated financial statements.
F-12
ALPHATEC HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies
The Company
Alphatec Holdings, Inc. (the “Company”), through its wholly owned subsidiaries, Alphatec Spine, Inc.
(“Alphatec Spine”), SafeOp Surgical, Inc. (“SafeOp”), and EOS imaging S.A. (“EOS”), is a medical technology
company focused on the design, development, and advancement of technology for the better surgical treatment of
spinal disorders. The Company markets its products in the United States of America and internationally via a network
of independent sales agents and direct sales representatives.
Basis of Presentation and Principles of Consolidation
The consolidated financial statements have been prepared in accordance with generally accepted accounting
principles in the United States of America ("U.S. GAAP") and include the accounts of the Company and its wholly
owned subsidiaries. The Company translates the financial 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 in consolidation. The Company operates
in one reportable business segment.
Reclassification
Certain amounts in the consolidated financial statements for the years ended December 31, 2021 and 2020 have
been reclassified to conform to the current year’s presentation. These reclassifications were immaterial and have no
impact on previously reported results of operations or accumulated deficit.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from those
estimates. Significant items subject to such estimates and assumptions include the useful lives of property and
equipment, goodwill, intangible assets, allowances for doubtful accounts, deferred tax assets, inventory, stock-based
compensation, revenues, income tax uncertainties, and other contingencies.
Concentrations of Credit Risk and Significant Customers
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily
of cash, cash equivalents, and accounts receivable. The Company limits its exposure to credit loss by depositing its
cash and investments with established financial institutions. As of December 31, 2022, a substantial portion of the
Company’s available cash funds is held in business accounts. Although the Company deposits its cash with multiple
financial institutions, its deposits, at times, may exceed federally insured limits.
The Company’s customers are primarily hospitals and surgical centers. No one single customer represented
greater than 10 percent of consolidated revenues and accounts receivable for the years presented. Credit to customers
is granted based on an analysis of the customers’ credit worthiness. Credit losses have not been significant.
Cash and Cash Equivalents
The company considers all highly liquid investments that are readily convertible into cash and have an original
maturity of three months or less at the time of purchase to be cash equivalents.
F-13
Accounts Receivable, net
Accounts receivable are presented net of allowance for doubtful accounts. The Company makes judgments as
to its ability to collect outstanding receivables and provides allowances for a portion of receivables when collection
becomes doubtful. Provisions are made based upon a specific review of all significant outstanding invoices. In
determining the provision for invoices not specifically reviewed, the Company analyzes historical collection
experience. If the historical data used to calculate the allowance provided for doubtful accounts does not reflect the
Company’s future ability to collect outstanding receivables or if the financial condition of customers were to
deteriorate, resulting in impairment of their ability to make payments, an increase in the provision for doubtful
accounts may be required.
The Company’s accounts receivable generally have net 30-day payment terms. The Company generally does
not allow returns of products that have been delivered. The Company offers standard quality assurance warranty on
its products. The Company had no material bad debt expense and there were no material contract assets during the
years presented.
Excess and Obsolete Inventory
Most of the Company’s inventory is comprised of finished goods, which is primarily produced by third-party
suppliers. Specialized implants, fixation products, biologics, and disposables are determined by utilizing a standard
cost method that includes capitalized variances which approximates the weighted average cost. Imaging equipment
and related parts are valued at weighted average cost. Inventories are stated at the lower of cost or net realizable value.
The Company reviews the components of its inventory on a periodic basis for excess and obsolescence and adjusts
inventory to its net realizable value as necessary.
The Company records a lower of cost or net realizable value (“LCNRV”) inventory reserve for estimated excess
and obsolete inventory based upon its expected use of inventory on hand. The Company’s inventory, which consists
primarily of specialized implants, fixation products, biologics, and disposables is at risk of obsolescence due to the
need to maintain substantial levels of inventory. In order to market its products effectively and meet the demands of
interoperative product placement, the Company maintains and provides surgeons and hospitals with a variety of
inventory products and sizes. For each surgery, fewer than all components will be consumed. The need to maintain
and provide a wide variety of inventory causes inventory to be held that is not likely to be used.
The Company’s estimates and assumptions for excess and obsolete inventory are reviewed and updated on a
quarterly basis. The estimates and assumptions are determined primarily based on current usage of inventory and the
age of inventory quantities on hand. Additionally, the Company considers recent sales experience to develop
assumptions about future demand for its products, while considering product life cycles and new product launches.
Increases in the LCNRV reserve for excess and obsolete inventory result in a corresponding charge to cost of sales.
For the years ended December 31, 2022, 2021 and 2020, the Company recorded LCNRV charges for excess and
obsolete inventory of $9.8 million, $11.1 million and $7.0 million, respectively, net of inventory sold of $1.5 million,
$2.5 million and $1.0 million, respectively. For the years ended December 31, 2022, 2021 and 2020, the Company
recorded a reduction of reserve for inventory that was disposed of $8.2 million, $2.1 million and $1.3 million,
respectively.
F-14
Property and Equipment, net
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets, generally ranging from three to seven years.
Leasehold improvements and assets acquired under financing leases are amortized over the shorter of their useful lives
or the remaining terms of the related leases.
Operating Lease
The Company determines whether a contract is a lease or contains a lease at inception by assessing whether
there is an identified asset and whether the contract conveys the right to control the use of the identified asset in
exchange for consideration over a period of time. If both criteria are met, the Company determines the initial
classification and measurement of its right-of-use (“ROU”) asset and lease liability at the lease commencement date
and thereafter, if modified. The Company recognizes a ROU asset and lease liability for its operating leases with lease
terms greater than 12 months. The lease term includes any renewal options and termination options that the Company
is reasonably assured to exercise. ROU assets and lease liabilities are based on the present value of lease payments
over the lease term. The present value of operating lease payments is determined by using the incremental borrowing
rate of interest that the Company would borrow on a collateralized basis for an amount equal to the lease payments in
a similar economic environment.
Rent expense for operating leases is recognized on a straight-line basis over the reasonably assured lease term
based on the total lease payments and is included in cost of sales, research and development, and sales, general and
administrative expenses in the consolidated statements of operations.
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 were immaterial for all years presented. The Company
had an immaterial amount of financing leases as of December 31, 2022 and 2021, which is included in property and
equipment, net, accrued expenses and other current liabilities, and other long-term liabilities on the consolidated
balance sheets.
Valuation of Goodwill
Goodwill represents the excess of the cost over the fair value of net assets acquired from the Company’s business
combinations. The determination of the value of goodwill and intangible assets arising from business combinations
and asset acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase price to
the fair value of the net tangible and intangible assets acquired. Goodwill is assessed for impairment using fair value
measurement techniques on an annual basis or more frequently if facts and circumstance warrant such a review.
Goodwill is considered to be impaired if the Company determines that the carrying value of the reporting unit exceeds
its respective fair value.
The Company’s annual evaluation for impairment of goodwill consists of one reporting unit. The Company
completed its most recent annual evaluation for impairment of goodwill as of October 1, 2022 and determined that no
impairment existed. In addition, no indicators of impairment were noted through December 31, 2022, and
consequently no impairment charge was recorded during the years ended December 31, 2022, 2021 and 2020.
F-15
Valuation of Intangible Assets
Intangible assets are comprised primarily of purchased technology, customer relationships, trade name,
trademarks, and in-process research and development. The Company makes significant judgments in relation to the
valuation of intangible assets resulting from business combinations and asset acquisitions. Intangible assets are
generally amortized on a straight-line basis over their estimated useful lives of 2 to 12 years. The Company bases the
useful lives and related amortization expense on the period of time it estimates the assets will generate net sales or
otherwise be used. The Company also periodically reviews the lives assigned to its intangible assets to ensure that its
initial estimates do not exceed any revised estimated periods from which the Company expects to realize cash flows.
If a change were to occur in any of the above-mentioned factors or estimates, the likelihood of a material change in
the Company’s reported results would increase. The Company evaluates its intangible assets with finite lives for
indications of impairment whenever events or changes in circumstances indicate that the carrying value may not be
recoverable. Factors that could trigger an impairment review include significant under-performance relative to
expected historical or projected future operating results, significant changes in the manner of the Company’s use of
the acquired assets or the strategy for its overall business or significant negative industry or economic trends. If this
evaluation indicates that the value of the intangible asset may be impaired, the Company makes an assessment of the
recoverability of the net carrying value of the asset over its remaining useful life. If this assessment indicates that the
intangible asset is not recoverable, based on the estimated undiscounted future cash flows of the asset over the
remaining amortization period, the Company reduces the net carrying value of the related intangible asset to fair value
and may adjust the remaining amortization period. Significant judgment is required in the forecasts of future operating
results that are used in the discounted cash flow valuation models. It is possible that plans may change and estimates
used may prove to be inaccurate. If actual results, or the plans and estimates used in future impairment analyses, are
lower than the original estimates used to assess the recoverability of these assets, the Company could incur additional
impairment charges. There were no impairment charges during the years ended December 31, 2022, 2021 or 2020.
In-process research and development ("IPR&D") and software in development have indefinite lives and are not
amortized until the related products reach full commercial launch or when the projects are complete and their assets
are ready for their intended use. Indefinite-lived intangible assets are considered to be impaired if the products do not
reach commercial launch, if the project is not completed or not completed in a timely manner, or if the related products
or projects are no longer technologically feasible. Impairment related to IPR&D and software in development is
calculated as the excess of the asset's carrying value over its fair value. There were no impairment charges during the
years ended December 31, 2022, 2021 or 2020.
Impairment of Long-Lived Assets
The Company assesses potential impairment to its long-lived assets when there is evidence that events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is
recognized when estimated future undiscounted cash flows related to the asset are less than its carrying amount. Any
required impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds its
fair value and is recorded as a reduction in the carrying value of the related asset and a charge to operating results.
There were no material impairment charges during the years ended December 31, 2022, 2021 or 2020.
Warrants to Purchase Common Stock
Warrants are accounted for in accordance with the applicable accounting guidance as either derivative liabilities
or as equity instruments depending on the specific terms of the agreements.
All warrants issued during the years ended December 31, 2022 and 2021 qualified for classification within
stockholders’ equity.
F-16
Fair Value Measurements
The carrying amount of financial instruments consisting of cash and cash equivalents, accounts receivable,
prepaid expenses and other current assets, accounts payable, accrued expenses, and short-term debt included in the
Company’s consolidated financial statements are reasonable estimates of fair value due to their short maturities.
Authoritative guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in
measuring fair value as follows:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for
similar assets or liabilities, quoted prices in markets that are not active; or other inputs that can be
corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the
fair value of the assets or liabilities.
Revenue Recognition
The Company recognizes revenue from product sales in accordance with Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) Revenue from Contracts with Customers (“Topic 606”). This
standard applies 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 performance 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.
F-17
Sales are derived primarily from the sale of spinal implant products, imaging equipment, and related services to
hospitals and medical centers through direct sales representatives and independent sales agents. 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 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. 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, except for 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 estimated amounts in the transaction price are based
largely on an assessment of the Company’s anticipated performance and all 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 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 price is allocated using the relative standalone selling
price method. The use of alternative estimates could result in a different amount of revenue deferral.
Research and Development Expenses
Research and development costs are expensed as incurred. Research and development expenses consist of costs
associated with the design, development, testing, and enhancement of the Company's products. Research and
development expenses also include salaries and related employee benefits, research-related overhead expenses, fees
paid to external service providers and development consultants in the form of both cash and equity.
Transaction-related Expenses
Transaction-related costs are expensed as incurred. Transaction-related expenses consist of certain costs
incurred related primarily to the acquisition and integration of EOS.
Product Shipment Cost
Product shipment costs for surgical sets are included in sales, general and administrative expenses in the
accompanying consolidated statements of operations. Product shipment costs totaled $14.8 million, $8.3 million and
$5.3 million for the years ended December 31, 2022, 2021 and 2020 respectively.
F-18
Stock-Based Compensation
Stock-based compensation expense for equity-classified awards, principally related to restricted stock units
("RSUs") and performance restricted stock units ("PRSUs") is measured at the grant date based on the estimated fair
value of the award. The fair value of equity instruments that are expected to vest is recognized and amortized over the
requisite service period. The Company has granted awards with up to four year graded or cliff vesting terms. No
exercise price or other monetary payment is required for receipt of the shares issued in settlement of the respective
award; instead, consideration is furnished in the form of the participant’s service.
The fair value of RSUs including PRSUs with pre-defined performance criteria is based on the stock price on
the date of grant whereas the expense for PRSUs with pre-defined performance criteria is adjusted with the probability
of achievement of such performance criteria at each period end. The fair value of the PRSUs that are earned based on
the achievement of pre-defined market conditions, is estimated on the date of grant using a Monte Carlo valuation
model. The key assumptions in applying this model are an expected volatility, risk-free interest rate and the probability
of the performance criteria being met.
Stock-based compensation recorded in the Company’s consolidated statements of operations is based on awards
expected to ultimately vest and has been reduced for estimated forfeitures. The Company’s estimated forfeiture rates
may differ from its actual forfeitures. The Company considers its historical experience of pre-vesting forfeitures on
awards by each homogenous group of employees as the basis to arrive at its estimated annual pre-vesting forfeiture
rates.
The Company estimates the fair value of stock options issued under the Company’s equity incentive plans and
shares issued to employees under the Company’s employee stock purchase plan (“ESPP”) using a Black-Scholes
option-pricing model on the date of grant. The Black-Scholes option-pricing model incorporates various assumptions
including expected volatility, expected term and risk-free interest rates. The expected volatility is based on the
historical volatility of the Company’s common stock over the most recent period commensurate with the estimated
expected term of the Company’s stock options and ESPP offering period which is derived from historical experience.
The risk-free interest rate for periods within the contractual life of the option is based on the United States ("U.S.")
Treasury yield in effect at the time of grant. The Company has never declared or paid dividends and has no plans to
do so in the foreseeable future.
The Company accounts for stock option grants to non-employees in accordance with provisions which require
that the fair value of these instruments be recognized as an expense over the period in which the related services are
rendered.
Income Taxes
The Company accounts for income taxes in accordance with provisions which set forth an asset and liability
approach that requires the recognition of deferred tax assets and deferred tax liabilities for the expected future tax
consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.
Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be
realized. In making such determination, a review of all available positive and negative evidence must be considered,
including scheduled reversal of deferred tax liabilities, projected future taxable income, tax planning strategies, and
recent financial performance.
The Company recognizes interest and penalties related to uncertain tax positions as a component of the income
tax provision.
F-19
Net Loss per Share
Basic net loss per share is calculated by dividing the net loss available to common stockholders by the weighted-
average number of common shares outstanding for the period. If applicable, diluted net loss per share attributable to
common stockholders is calculated by dividing net loss available to common stockholders by the diluted weighted-
average number of common shares outstanding for the period determined using the treasury-stock method and the if-
converted method for convertible debt. For purposes of this calculation, common stock subject to repurchase by the
Company, common stock issuable upon conversion or exercise of convertible notes, preferred shares, options, 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. Due to the Company’s net loss position, the effect of including common stock
equivalents in the earnings per share calculation is anti-dilutive, and therefore not included.
The following table sets forth the computation of basic and diluted loss per share (in thousands, except per share
data):
Numerator:
Net loss
Denominator:
Year Ended December 31,
2021
2020
2022
$ (152,149) $ (144,326) $
(78,994)
Weighted average common shares outstanding
103,373
96,197
Net loss per share, basic and diluted
$
(1.47) $
(1.50) $
67,020
(1.18)
The following potentially dilutive shares of common stock were excluded from the calculation of diluted net
loss per share because their effect would have been anti-dilutive for the years presented (in thousands):
Series A convertible preferred stock
Options to purchase common stock and employee stock
purchase plan
Unvested restricted stock units
Warrants to purchase common stock
Senior convertible notes
Recent Accounting Pronouncements
Recently Issued Accounting Pronouncements
Year Ended December 31,
2021
2020
2022
—
29
29
2,991
8,533
15,491
17,246
44,261
3,416
8,703
20,184
17,246
49,578
3,951
8,216
24,881
—
37,077
In August 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for
Contract Assets and Contract Liabilities from Contracts with Customers. The guidance requires application of ASC
606, “Revenue from Contracts with Customers” to recognize and measure contract assets and contract liabilities
acquired in a business combination. ASU No. 2021-08 adds an exception to the general recognition and measurement
principle in ASC 805 where assets acquired and liabilities assumed in a business combination, including contract
assets and contract liabilities arising from contracts with customers, are measured at fair value on the acquisition date.
Under the new guidance, the acquirer will recognize acquired contract assets and contract liabilities as if the acquirer
had originated the contract. The standard is effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2022, with early adoption permitted. The Company does not intend to early adopt the
standard and is in the process of assessing the impact, if any, on its consolidated financial statements and related
disclosures.
F-20
2. 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 a 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 “Change in Control Date”), 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 Change in Control Date, 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 Change in Control Date, 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. 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 biplanar 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 to better inform and better achieve spinal alignment objectives in surgery.
F-21
During the year ended December 31, 2022, the Company recorded a purchase accounting adjustment primarily
related to deferred tax assets, which resulted in a $1.6 million increase to goodwill. The Company has completed its
estimate of the fair value of the purchase consideration, the assets acquired, and the liabilities assumed. Accordingly,
the Company has allocated the purchase consideration as follows:
(in thousands)
Cash paid for purchase of EOS Shares at Change in Control Date
Cash paid for purchase of OCEANEs at Change in Control Date
Total cash paid at Change in Control Date
Fair value of investment in EOS Shares held prior to Change in
Control Date
Fair value of investment in OCEANEs held prior to Change in
Control Date
Total fair value of investment in EOS held prior to Change in
Control Date
Fair value of noncontrolling interest acquired after Change in
Control Date
Cash and cash equivalents
Accounts receivable
Inventory
Other current assets
Property, plant and equipment, net
Deferred tax assets
Right-of-use assets
Goodwill
Definite-lived intangible assets:
Developed technology
Customer relationships
Trade names
Other noncurrent assets
Contract liabilities
Long-term debt
Other liabilities assumed
Total identifiable net assets
As of May 13, 2021
46,908
19,620
66,528
23,549
1,477
25,026
8,454
100,008
16,778
9,083
26,681
4,422
1,650
536
4,341
29,469
56,000
9,500
6,000
395
21,196
15,297
28,354
100,008
$
$
$
$
The purchase price, including cash paid at the Change in Control Date, the fair value of the investment held
prior to the Change in Control Date, and the fair value of the noncontrolling interest acquired after the Change in
Control Date, 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 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 straight-line basis
over useful lives of ten 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 $5.8 million were recognized during the year ended December 31, 2021, as transaction-
related expenses on the consolidated statements of operations as incurred. No such costs were recognized during the
year ended December 31, 2022. The Company’s results of operations for the year ended December 31, 2021 included
the operating results of EOS of $30.0 million of revenue and a net loss of $17.6 million in the consolidated statement
of operations.
F-22
The following table presents the results of the year ended December 31, 2022 and the unaudited pro forma
results for the year ended December 31, 2021, 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. The pro forma
information is presented for informational purposes only and is not indicative of the results of operations that may
have been achieved if the acquisition had taken place at such time. The unaudited pro forma results presented include
non-recurring adjustments directly attributable to the business combination, including $7.3 million in amortization
charges for acquired intangible assets and $10.8 million in acquisition related expenses. The unaudited pro forma
results include IFRS to U.S. GAAP adjustments for EOS historical results and adjustments for accounting policy
alignment, which were materially similar to the Company. Any differences in accounting policies were adjusted to
reflect the accounting policies of the Company in the unaudited pro forma results presented.
(in thousands, except per share amounts)
Total revenue
Net loss
Net loss per share, basic and diluted
3. Fair Value Measurements
$
$
Year Ended December 31,
2022
350,867
(152,149)
$
2021
251,906
(140,441)
(1.46)
(1.47) $
Assets and liabilities measured at fair value on a recurring basis include the following as of December 31, 2022,
and December 31, 2021 (in thousands):
Cash equivalents:
Money market funds
Total cash equivalents
Cash equivalents:
Money market funds
Total cash equivalents
Liability classified equity award
Level 1
Level 2
Level 3
Total
December 31, 2022
$
$
62,956
62,956
—
—
— $
— $
62,956
62,956
Level 1
Level 2
Level 3
Total
December 31, 2021
$ 140,010
$ 140,010
$
—
—
—
—
— $ 140,010
— $ 140,010
2,052 $
2,052
The Company did not have any transfers of assets and liabilities between the levels of the fair value measurement
hierarchy during the periods presented.
On March 16, 2021, the Company entered into two foreign currency forward contracts, with a notional amount
of $8.0 million total, $4.0 million each (€6.7 million total and €3.3 million each), to mitigate the foreign currency
exchange risk related to its EOS subsidiary. The contracts are not designated as hedging instruments. The Company
classified the derivative liabilities within Level 2 of 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. During the year ended December 31,
2021, the foreign currency forward contracts were settled for $7.6 million (€6.7 million). The Company recognized a
nominal loss from the change in fair value of the contracts during the year ended December 31, 2021. The loss on the
contract settlement was recorded within other expense, net on the consolidated statements of operations and the cash
settlement is included in investing activities in the consolidated statements of cash flows for the year ended December
31, 2021.
F-23
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. The contract was not designated as a hedging instrument. The Company classified
the derivative liability within Level 2 of the fair value hierarchy as observable inputs were available for the full term
of the 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 $115.3 million (€95.6 million). The Company recognized a $1.7 million and $0.9 million loss
from the change in fair value of the contract during the years ended December 31, 2021 and 2020, respectively. The
loss on the contract settlement was recorded as other expense on the consolidated statement of operations and the cash
settlement is included in investing activities in the consolidated statements of cash flows for the year ended December
31, 2021.
In 2019, the Company issued a liability classified equity award to one of its executive officers. As the award
was required to be settled in cash, it was classified as a liability on the consolidated balance sheets for the year ended
December 31, 2021. The award was classified within Level 3 of the fair value hierarchy as the Company used a
probability-weighted income approach, utilizing significant unobservable inputs including the probability of achieving
the specific market condition with the valuation updated at each reporting period.
On November 2, 2022, the award was amended to be paid in shares of the Company's common stock. As a result
of the amendment, the award is classified as equity in the consolidated balance sheets for the year ended December
31, 2022. The award vests in 2023 subject to continued service and a specific market condition. The Company used a
probability-weighted income approach, utilizing significant unobservable inputs including the probability of achieving
the specific market condition, to determine the fair value of the award after the amendment of approximately $3.0
million. The previously recognized liability was reclassified to additional paid-in capital and the unrecognized
compensation costs will be amortized ratably over the remaining term of the award.
The following table provides a reconciliation of liabilities measured at fair value using significant unobservable
inputs (Level 3) as of December 31, 2022 (in thousands):
Balance at December 31, 2020
Straight-line recognition of liability classified equity award
Change in fair value measurement
Balance at December 31, 2021
Straight-line recognition of liability classified equity award
Change in fair value measurement
Reclassification to equity classified award
Balance at December 31, 2022
Level 3
Liabilities
1,668
1,028
(644)
2,052
483
(586)
(1,949)
—
$
$
$
Fair Value of Convertible Debt
The fair value, based on a quoted market price (Level 1), of the Company’s outstanding 0.75% Convertible
Senior Notes due 2026 (the "2026 Notes") was approximately $288.8 million at December 31, 2022 and approximately
$308.1 million at December 31, 2021. The fair value, based on a quoted market price (Level 1), of the Company’s
outstanding OCEANEs was approximately $13.3 million at December 31, 2022 and approximately $14.1 million at
December 31, 2021. See Note 6 for further information.
F-24
4. Balance Sheet Details
Inventories
Inventories consist of the following (in thousands):
Raw materials
Work-in-process
Finished goods
Inventories
Property and Equipment, net
December 31,
2022
2021
$
$
13,928
3,032
84,561
101,521
$
$
14,671
5,712
71,320
91,703
Property and equipment, net consist of the following (in thousands, except as indicated):
Surgical instruments
Machinery and equipment
Computer equipment
Office furniture and equipment
Leasehold improvements
Construction in progress
Less: accumulated depreciation
Property and equipment, net
Useful Life
(in years)
4
7
3
5
various
n/a
December 31,
2022
158,906 $
9,502
4,753
4,760
2,965
15,360
196,246
(94,294)
101,952 $
2021
130,432
11,092
5,694
3,861
1,754
7,292
160,125
(72,724)
87,401
$
$
Total depreciation expense was $31.0 million, $20.3 million and $9.2 million for the years ended December 31,
2022, 2021 and 2020 respectively. At December 31, 2022 and 2021, assets recorded under financing leases of $0.4
million were included in the machinery and equipment balance. Amortization of assets under financing leases is
included in depreciation expense.
Goodwill
The change in the carrying amount of goodwill during the year ended December 31, 2022 included the following
(in thousands):
December 31, 2021
Purchase price allocation adjustment
Foreign currency fluctuation
December 31, 2022
$
$
39,689
1,628
(1,542)
39,775
F-25
Intangible Assets, net
Intangible assets, net consist of the following (in thousands, except as indicated):
December 31, 2022:
Developed product technology
Trademarks and trade names
Customer relationships
Distribution network
Total amortized intangible assets
Software in development
In-process research and development
Total intangible assets
December 31, 2021:
Developed product technology
Trademarks and trade names
Customer relationships
Distribution network
Total amortized intangible assets
Remaining Weighted
Avg. Useful Life
(in years)
7
8
4
2
Gross
Accumulated Intangible
Amount Amortization Assets, net
(13,420)$ 62,476
4,434
7,334
372
74,616
$ 75,896 $
5,421
14,240
2,413
97,970
(987)
(6,906)
(2,041)
(23,354)
n/a
n/a
2,503
5,662
$ 106,135 $
2,503
5,662
(23,354)$ 82,781
.
Remaining Weighted
Avg. Useful Life
(in years)
12
10
5
3
Gross
Accumulated Intangible
Amount Amortization Assets, net
(5,768)$ 68,775
5,255
9,468
573
84,071
$ 74,543 $
5,732
14,732
2,413
97,420
(477)
(5,264)
(1,840)
(13,349)
In-process research and development
Total intangible assets
n/a
1,203
$ 98,623 $
1,203
(13,349)$ 85,274
During the year ended December 31, 2021, in connection with the expiration and termination of the product
manufacture and supply agreement (the “Supply Agreement”) with Globus Medical Ireland, Ltd., a subsidiary of
Globus Medical, Inc., and its affiliated entities (collectively “Globus Medical”), the Company wrote off $32.6 million
in fully amortized intangible assets. During the year ended December 31, 2021, in connection with the Company’s
acquisition of EOS, as further described in Note 2, the Company recorded additions to definite-lived intangible assets
in the amount of $71.5 million.
Total expense related to amortization of intangible assets was $10.2 million, $6.4 million and $1.8 million for
the years ended December 31, 2022, 2021 and 2020, respectively. Software in development assets begin amortizing
when the projects are complete and the assets are ready for their intended use. In-process research and development
assets begin amortizing when the related products reach full commercial launch.
Future amortization expense related to intangible assets as of December 31, 2022 is as follows (in thousands):
Year Ending December 31,
2023
2024
2025
2026
2027
Thereafter
Total
$
$
12,402
12,300
10,811
10,811
8,939
19,353
74,616
F-26
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following (in thousands):
Payroll and payroll related
Commissions and sales milestones
Accrued legal expenses
Royalties
Orthotec litigation settlement obligation
Inventory in -transit
Debt issuance costs
Administration fees
Other taxes payable
Professional fees
Interest
Other
Total accrued expenses and other current liabilities
Other Long-Term Liabilities
Other long-term liabilities consist of the following (in thousands):
Royalties
Orthotec litigation settlement obligation
Income tax-related liabilities
Contract liabilities
Other
Other long-term liabilities
December 31,
2022
2021
19,764
17,444
8,345
4,758
3,968
3,548
2,690
1,912
1,955
1,238
1,122
5,638
72,382
$
$
18,449
12,420
4,290
3,466
4,400
2,089
—
1,698
3,004
394
1,045
4,294
55,549
December 31,
2022
2021
5,739
—
980
3,047
1,777
11,543
$
$
5,833
3,587
1,522
2,897
3,222
17,061
$
$
$
$
F-27
5. Contract Liabilities
The Company had current and non-current contract liabilities totaling $12.0 million and 3.0 million,
respectively, as of December 31, 2022. The Company had current and non-current contract liabilities totaling $15.3
million and $2.9 million, respectively, as of December 31, 2021. The non-current contract liabilities balance is
included in other long-term liabilities on the consolidated balance sheets. Contract liabilities relates to contracts with
customers for which partial or complete payment of the transaction price has been received from the customer and the
related obligations must be completed before revenue can be recognized. These amounts primarily relate to
undelivered equipment, services, or maintenance agreements. The Company recognized $21.6 million of revenue from
its contract liabilities during the year ended December 31, 2022, of which $12.9 million was recognized from the
beginning contract liabilities balance. The Company recognized $14.6 million of revenue from its contract liabilities
during the years ended December 31, 2021. There were no contract liabilities recognized during the year ended
December 31, 2020. The opening and closing balances of the Company’s contract liabilities are as follows (in
thousands):
Balance at December 31, 2021
Payments received
Revenue recognized
Foreign currency fluctuation
Balance at December 31 2022
6. Debt
Revolving Credit Facility
$
$
18,151
19,494
(21,581)
(1,061)
15,003
In September 2022, the Company entered into a revolving credit facility (the “Revolving Credit Facility”) with
entities affiliated with MidCap Financial Trust (“MidCap”). The Revolving Credit Facility provides up to $50.0
million in borrowing capacity to the Company based on a borrowing base. The borrowing base is calculated based on
certain accounts receivable and inventory assets. The Company may request a $25.0 million increase in the Revolving
Credit Facility for a total commitment of up to $75.0 million. The Revolving Credit Facility matures on the earlier of
September 29, 2027, or 90 days prior to the final maturity date of the Company’s 2026 Notes, as defined below. As
of December 31, 2022, the outstanding balance under the Revolving Credit Facility was $35.3 million. In January
2023, the Company repaid $27.5 million of the outstanding balance.
In conjunction with obtaining the Revolving Credit Facility, the Company incurred $1.4 million in debt issuance
costs. These costs were capitalized to other assets on the consolidated balance sheets and are being amortized over the
life of the Revolving Credit Facility. As of December 31 2022, debt issuance costs, net of accumulated amortization,
associated with the Revolving Credit Facility were $1.3 million.
The outstanding loans bear interest at the sum of Term Secured Overnight Financing Rate, a rate per annum
equal to the secured overnight financing rate for such SOFR business day ("SOFR"), plus 3.5% per annum. The interest
rate as of December 31, 2022 was 7.7%. The loan agreements include an unused line fee, which is calculated as 0.5%
per annum of either the unused Revolving Credit Facility or a minimum balance. Interest and unused line fees incurred
are due and capitalized to the outstanding principal balance monthly. The Company recognized interest expense on
the Revolving Credit Facility of $0.2 million during the year ended December 31, 2022, which includes $0.1 million
for the amortization of debt issuance costs. Upon the Revolving Credit Facility’s maturity, any outstanding principal
balance, unpaid accrued interest, and all other obligations under the Revolving Credit Facility will be due and payable.
The Revolving Credit Facility contains a lockbox arrangement clause requiring the Company to maintain a
lockbox bank account. If the revolving loan availability is less than 30% of the revolving loan limit for five consecutive
business days, or the Company is in default, MidCap will apply funds collected from the Company's lockbox account
to reduce the outstanding balance of the Revolving Credit Facility. As of December 31, 2022, the Company's loan
availability level has not activated lockbox deductions, nor is it expected to for the next 12 months; therefore, the
Company has determined that the outstanding balance under the Revolving Credit Facility is long-term debt on the
consolidated balance sheets.
F-28
The outstanding loans are secured by substantially all of the Company’s assets with the priority interest of the
lenders subject to terms of a customary intercreditor agreement in connection with the term loan described in Note 14,
Subsequent Events. The loan agreements and other ancillary documents contain customary representations and
warranties and affirmative and negative covenants. Under the loan agreements, the Company is required to maintain
a minimum level of liquidity. The loan agreements also include certain events of default, and upon the occurrence of
such events of default, all outstanding loans under the Revolving Credit Facility may be accelerated and/or the lenders’
commitments terminated. The Company is in compliance with all required financial covenants as of December 31,
2022.
0.75% Convertible Senior Notes due 2026
In August 2021, the Company issued $316.3 million aggregate principal amount of unsecured 2026 Notes with
a stated interest rate of 0.75% and a maturity date of August 1, 2026. Interest on the 2026 Notes is payable semi-
annually in arrears on February 1 and August 1 of each year, beginning on February 1, 2022. The net proceeds from
the sale of the 2026 Notes were approximately $306.2 million after deducting the initial purchasers’ offering expenses
and before cash used for the privately negotiated capped call transactions (the "Capped Call Transactions"), as
described below, the repurchase of stock, as described in Note 9, and the repayment of the outstanding unsecured term
loan with Squadron Medical Finance Solutions, LLC (the “Squadron Medical Term Loan") and outstanding obligation
under the Inventory Financing Agreement, as described below. The 2026 Notes do not contain any financial covenants.
The 2026 Notes are convertible into shares of the Company’s common stock based upon an initial conversion
rate of 54.5316 shares of the Company’s common stock per $1,000 principal amount of 2026 Notes (equivalent to an
initial conversion price of approximately $18.34 per share). The conversion rate will be subject to adjustment upon
the occurrence of certain specified events, including certain distributions and dividends to all or substantially all of
the holders of the Company’s common stock. Based on the terms of the 2026 Notes, when a conversion notice is
received, the Company has the option to pay or deliver cash, shares of the Company’s common stock, or a combination
thereof.
Holders of the 2026 Notes have the right to convert their notes in certain circumstances and during specified
periods. Prior to the close of business on the business day immediately preceding February 2, 2026, holders may
convert all or a portion of their 2026 Notes only under the following circumstances: (1) during any calendar quarter
(and only during such calendar quarter) commencing after the calendar quarter ending on September 30, 2021, if the
last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive)
during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately
preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2)
during the 5 consecutive business days immediately after any 10 consecutive trading day period (the “measurement
period”) in which the trading price per $1,000 principal amount of 2026 Notes for each trading day of the measurement
period was less than 98% of the product of the last reported sale price of the Company’s common stock and the
conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. From and after
February 2, 2026, holders of the 2026 Notes may convert their notes at any time at their election until the close of
business on the second scheduled trading day immediately before the maturity date. As of December 31, 2021, none
of the conditions permitting the holders of the 2026 Notes to convert have been met. The 2026 Notes are classified as
long-term debt on the consolidated balance sheets as of December 31, 2022.
The 2026 Notes are redeemable, in whole or in part, at the Company’s option at any time, and from time to time,
on or after August 6, 2024 and on or before the 40th scheduled trading day immediately before the maturity date, at a
cash redemption price equal to the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid
interest, if any, but only if the last reported sale price per share of the Company’s common stock exceeds 130% of the
conversion price for a specified period of time. In addition, calling any of the notes for redemption will constitute a
“make-whole fundamental change” with respect to that note, in which case the conversion rate applicable to the
conversion of that note will be increased in certain circumstances if such note is converted after it is called for
redemption.
If a fundamental change occurs prior to the maturity date, holders may require the Company to repurchase all
or a portion of their 2026 Notes for cash at a price equal to 100% of the principal amount of the 2026 Notes plus
accrued and unpaid interest. No principal payments are otherwise due on the 2026 Notes prior to maturity.
F-29
The Company recorded the full principal amount of the 2026 Notes as a long-term liability net of deferred
issuance costs. The annual effective interest rate for the 2026 Notes is 1.4%. The Company recognized interest expense
on the 2026 Notes of $4.4 million and $1.7 million during the years ended December 31, 2022 and 2021, respectively,
which includes $2.0 million and $0.8 million for the amortization of debt issuance costs during the years ended
December 31, 2022 and 2021, respectively. The Company uses the if-converted method for assumed conversion of
the 2026 Notes to compute the weighted average shares of common stock outstanding for diluted earnings per share,
if applicable.
The outstanding principal amount and carrying value of the 2026 Notes consist of the following (in thousands):
Principal
Unamortized debt issuance costs
Net carrying value
Capped Call Transactions
December 31,
2022
$
$
316,250
(7,290)
308,960
In connection with the offering of the 2026 Notes, the Company entered into the Capped Call Transactions with
certain financial institutions. The Capped Call Transactions are expected generally to reduce the potential dilution
and/or offset the cash payments the Company is required to make in excess of the principal amount of the 2026 Notes
upon conversion of the 2026 Notes in the event that the market price per share of the Company’s common stock is
greater than the strike price of the Capped Call Transactions with such reduction and/or offset subject to a cap. The
Capped Call Transactions have an initial cap price of $27.68 per share of the Company’s common stock, which
represents a premium of 100% over the last reported sale price of the Company’s common stock on August 5, 2021,
and is subject to certain adjustments under the terms of the Capped Call Transactions. Collectively, the Capped Call
Transactions cover, initially, the number of shares of the Company’s common stock underlying the 2026 Notes, subject
to anti-dilution adjustments substantially similar to those applicable to the 2026 Notes. The cost of the Capped Call
Transactions was approximately $39.9 million.
The Capped Call Transactions are separate transactions and are not part of the terms of the 2026 Notes and will
not affect any holder’s rights under the notes. Holders of the 2026 Notes will not have any rights with respect to the
Capped Call Transactions.
The Capped Call Transactions meet all of the applicable criteria for equity classification and, as a result, the
related $39.9 million cost was recorded as a reduction to additional paid-in capital on the Company’s consolidated
statements of shareholders’ (deficit) equity for the year ended December 31, 2021.
OCEANE Convertible Bonds
On May 31, 2018, EOS issued 4,344,651 OCEANEs, denominated in Euros, due May 2023 for aggregate gross
proceeds of $34.3 million (€29.5 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 was $0.8 million for the year
ended December 31, 2022 and $0.7 million from the date of the EOS acquisition to December 31, 2021.
F-30
As discussed in Note 2, in connection with the Offer to acquire EOS, the Company purchased 2,486,135
OCEANEs, and as such, 1,858,516 OCEANEs with a principal amount of $15.3 million (€12.6 million) remained
outstanding at the time of acquisition.
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 one 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 twenty consecutive trading days during any forty
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. As a result of the
Company’s acquisition of EOS, the OCEANEs are now convertible into new shares of EOS, as a wholly-owned
subsidiary of the Company. OCEANE holders can redeem the notes upon the occurrence of an event of default or
upon the occurrence of a change of control. In July 2021, in connection with the change of control, holders of 25,971
OCEANEs chose to redeem their bonds for approximately $0.2 million (€0.2 million).
The carrying value of the outstanding OCEANEs was $13.3 million (€12.5 million) as of December 31, 2022.
Other Debt Agreements
In January and April 2021, prior to the acquisition, EOS obtained two loan agreements, denominated in Euros,
under French government sponsored COVID-19 relief initiatives (pret garanti par l’etat or “PGE” loans). 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 amounts. The loans carry an interest-free rate from the commercial banks (€3.3 million)
and a 1.75% interest from the lender (€1.5 million). 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 chooses to extend the
debt, the election must be made by the Company between months 8 and 11 of the 12-month term. 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).
In February 2022, the Company extended the maturity for each loan agreement to 2027. Each loan has a 12-
month period from the applicable extension date where interest only payments will occur (the “Interest Only Period”).
Following the Interest Only Period, monthly and quarterly installments of principal and interest under each loan
agreement will be due until the original principal amounts and applicable interest is fully repaid in 2027. The
outstanding obligation under each loan as of December 31, 2022 was $3.5 million and $1.6 million (€3.3 million and
€1.5 million) at weighted average interest rates of 0.98% and 1.25%, respectively, and weighted average costs of the
state guaranty of 0.69% and 1.00%, respectively.
F-31
Debt consists of the following (in thousands):
2026 Notes
OCEANEs
Other notes payable
EOS PGE Loans
Revolving Credit Facility
Total
Less: debt discount
Total
Less: current portion of long-term debt
Total long-term debt, net of current portion
December 31,
2022
2021
$
$
316,250
13,333
1,869
5,046
35,251
371,749
(7,290)
364,459
(14,948)
349,511
$
$
316,250
14,113
386
5,341
—
336,090
(9,259)
326,831
(342)
326,489
14,957
1,731
1,693
317,513
35,855
371,749
(7,290)
364,459
(14,948)
349,511
Principal payments on debt are as follows as of December 31, 2022 (in thousands):
2023
2024
2025
2026
2027
Total
Less: debt discount
Total
Less: current portion of long-term debt
Long-term debt, net of current portion
Paycheck Protection Loan
$
$
On April 23, 2020, the Company received the proceeds from a loan in the amount of $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 Company used the loan proceeds for purposes
consistent with the terms of the PPP and applied for forgiveness of the entire $4.3 million loan balance, which was
granted in July 2021. The Company recorded a gain on debt extinguishment of $4.3 million, which is included in loss
on debt extinguishment, net, on the consolidated statements of operations for the year ended December 31, 2021.
Squadron Medical Credit Agreement
On November 6, 2018, the Company entered into the Squadron Medical Term Loan that was subsequently
amended March 2019, May 29, 2020 and December 16, 2020 to expand the availability of additional term loans,
extend the maturity, remove all financial covenant requirements and, in the December 2020 amendment, to incorporate
a debt exchange. On December 16, 2020, the Company amended the Squadron Medical Term Loan to expand the
credit facility by an additional $15.0 million and to extend the maturity of the Squadron Medical Term Loan to June
30, 2026. In conjunction with the Squadron Medical Term 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 Squadron Medical 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 issuance price.
F-32
The Company accounted for the March 2019, May 2020, and December 2020 amendments of the Squadron
Medical Term 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 Squadron Medical Term Loan, as amended. As a result of the partial
extinguishment the Company elected, as an accounting policy in accordance with ASC 470-50-40-2, to write off a
proportionate amount of the unamortized fees at the time that the financing was partially settled in accordance with
the terms of the Squadron Medical Term Loan dated November 6, 2018, as amended. The unamortized debt issuance
costs were allocated between the remaining original loan balance and the portion of the loan paid down on a pro-rata
basis. At the time of prepayment, the Company recorded a loss on extinguishment of $6.1 million, which was included
in loss on debt extinguishment, net, on the consolidated statements of operations for the year ended December 31,
2020 and capitalized $3.8 million in non-cash debt issuance closing costs.
On August 10, 2021, the Company terminated and repaid all obligations under the Squadron Medical Term
Loan, which consisted of the $45.0 million outstanding principal and $0.2 million accrued interest. As a result of the
early termination of the Squadron Medical Term Loan, the Company recorded a loss on debt extinguishment
associated with the unamortized debt issuance costs of $11.7 million, which is included in loss on debt extinguishment,
net, on the consolidated statements of operations for the year ended December 31, 2021.
In connection with the initial 2018 Squadron Medical Term Loan and subsequent amendments, the Company
issued an aggregate of 6,759,530 warrants to Squadron Medical and a participant lender. See Note 9 for further
information on the warrants issued.
Inventory Financing
In November 2018, the Company entered into an Inventory Financing Agreement with an inventory supplier
whereby the Company was 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 $9.0 million for the purchase of inventory. On August 10, 2021, the
Company terminated and repaid all obligations under the Inventory Financing Agreement, which consisted of $8.1
million outstanding principal and $0.1 million accrued interest.
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, including the outstanding balance of $9.6 million, which consisted of outstanding principal
and accrued interest. As a result of the early termination of the Credit Facility with MidCap Funding IV, LLC, the
Company recorded a loss on debt extinguishment in its consolidated statements of operations for the year ended
December 31, 2020.
7. Commitments and Contingencies
Leases
The Company determines if an arrangement is a lease at inception by assessing whether there is an identified
asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration
over a period of time. If both criteria are met, the Company records the associated lease liability and corresponding
ROU asset upon commencement of the lease using a discount rate based the incremental borrowing rate of interest
that the Company would borrow on a collateralized basis for an amount equal to the lease payments in a similar
economic environment. Any short-term leases defined as twelve months or less or month-to-month leases are excluded
and continue to be expensed each month. Total costs associated with these short-term leases is immaterial to all years
presented.
F-33
The Company leases office and storage facilities and equipment under various operating and financing lease
agreements. The initial terms of these leases range from 1 to 10 years and generally provide for periodic rent increases.
The Company’s lease agreements do not contain any material variable lease payments, residual value guarantees or
material restrictive covenants. 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 year ended December
31, 2022 were immaterial. The Company had an immaterial amount of financing leases as of December 31, 2022,
which is included in property and equipment, net, accrued expenses and other current liabilities, and other long-term
liabilities, on the consolidated balance sheets.
The Company occupies 121,541 square feet of office space as its headquarters in Carlsbad, California. On
December 4, 2019, the Company entered into a 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 are not reasonably certain to be
exercised. Base rent under the building lease increases annually by 3% throughout the remainder of the lease. On May
11, 2022, the Company entered into a lease amendment for the build out of additional space within the building which
resulted in a lease modification increasing the ROU asset and lease liability.
Future minimum annual lease payments for all operating leases of the Company are as follows as of December
31, 2022 (in thousands):
2023
2024
2025
2026
2027
Thereafter
Total undiscounted lease payments
Less: imputed interest
Operating lease liability
Less: current portion of operating lease liability
Operating lease liability, less current portion
$
$
4,937
5,033
5,019
5,080
5,121
13,057
38,247
(6,843)
31,404
(4,842)
26,562
The Company’s weighted average remaining lease term and weighted average discount rate as of December 31,
2022 and December 31, 2021 are as follows:
Weighted average remaining lease term (years)
Weighted average discount rate
December 31,
2022
2021
7.7
5.5%
8.6
8.5%
Information related to the Company’s operating leases is as follows (in thousands):
Rent expense
Cash paid for amounts included in measurement of lease
liabilities
$
$
Year Ended December 31,
2021
2020
2022
4,643 $
4,482 $
1,300
4,409 $
1,795 $
1,400
Purchase Commitments
The Company is obligated to certain minimum inventory purchase commitment requirements with a third-party
supplier through December 2026. As of December 31, 2022, the remaining minimum purchase commitment required
by the Company under the agreement was $27.4 million.
F-34
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 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, 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, infringed, or contributed to the infringement of, U.S.
Patent Nos. 7,819,801, 8,355,780, 8,361,156, 8,439,832, 8,753,270, 9,833,227 and U.S. Design Patent Nos. D652,519
and D750,252. In May 2018, the Court dismissed the asserted design patents with prejudice. In September 2018,
NuVasive filed an Amended Complaint, asserting infringement claims of U.S. Patent Nos. 9,924,859, 9,974,531 and
8,187,334. 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 2020, PTAB ruled that all challenged
claims of the ‘156 Patent were valid, that several claims of the ‘334 Patent were invalid and that other challenged
claims of the ‘334 Patent valid. In February 2022, the U.S. Court of Appeals for the Federal Circuit affirmed that
ruling. In August 2021, the Court found the ’156 Patent invalid and, in September 2021, NuVasive elected not to
proceed with its remaining claims for the ’334 Patent, ’780 Patent, ’270 Patent, ’227 Patent and ’859 Patent. Trial on
the remaining patents concluded on March 11, 2022. On March 15, 2022, the Court ordered the parties to participate
in post-trial settlement conference. In June 2022, the parties reached a final resolution of all matters and executed a
confidential settlement agreement. The Court dismissed the action with prejudice. The outcome of these proceedings
did not have any material adverse effect on the Company’s consolidated results of operations, cash flows or financial
position.
Indemnifications
In the normal course of business, the Company enters into agreements under which it occasionally indemnifies
third-parties for intellectual property infringement claims or claims arising from breaches of representations or
warranties. In addition, from time to time, the Company provides indemnity protection to third-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, in June 2018, NuVasive amended its complaint to add the Company as a
defendant. In October 2018, the Delaware Court ordered that NuVasive advance 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 December 31, 2022, the Company has not
recorded any liability on the consolidated balance sheet related to this matter.
F-35
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 calculated either as a percentage of net sales or on a per-unit sold basis.
Royalties are included on the accompanying consolidated statements of operations as a component of cost of sales.
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 paid
in March 2014, and an additional lump sum payment of $15.75 million, which the Company paid in April 2014. The
Company agreed to pay the remaining $31.5 million in 28 quarterly installments of $1.1 million and one additional
quarterly installment of $0.7 million, commencing October 1, 2014. The unpaid balance of the principal amount 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.
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 agreed to contribute $5.0 million to the $49.0 million settlement
amount. During the year ended December 31, 2021, HealthpointCapital completed its contribution to the settlement
amount.
As of December 31, 2022, the Company has made installment payments in the aggregate of $53.4 million, with
a remaining outstanding balance of $4.1 million (including imputed 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.
A reconciliation of the total net settlement obligation is as follows (in thousands):
Litigation settlement obligation - short-term portion
Litigation settlement obligation - long-term portion
Total
Future imputed interest
Total litigation settlement obligation
December 31,
2022
2021
3,968
—
3,968
96
4,064
$
$
4,400
3,587
7,987
478
8,465
$
$
The short-term portion of the litigation settlement obligation is included in accrued expenses and other current
liabilities on the consolidated balance sheets.
9. Equity
Common Stock
There were 200,000,000 shares of common stock authorized at December 31, 2022 and 2021. On March 1, 2021
the Company completed the sale of 12,421,242 shares of common stock for gross proceeds of $138.0 million, and net
proceeds of approximately $131.8 million, net of $6.2 million in fees. On October 16, 2020 the Company completed
the sale of 13,142,855 shares of common stock for gross proceeds of $115.0 million, resulting in net proceeds of
approximately $107.7 million, net of $7.3 million in fees.
F-36
On August 3, 2021, the Company’s Board of Directors authorized the Company to repurchase an aggregate of
up to $25.0 million of shares of the Company’s common stock. On August 10, 2021, The Company repurchased
1,806,358 shares of its common stock for approximately $25.0 million in privately negotiated transactions. There were
no repurchases of common stock during the years ended December 31, 2022 or 2020.
Redeemable Preferred Stock
The Company issued shares of redeemable preferred stock in connection with its initial public offering in June
2006. As of December 31, 2022, and 2021, the redeemable preferred stock carrying value was $23.6 million and there
were 20 million shares of redeemable preferred stock authorized. The redeemable preferred stock is not convertible
into common stock but is redeemable at $9.00 per share, (i) upon the Company’s liquidation, dissolution or winding
up, or the occurrence of certain mergers, consolidations or sales of all or substantially all of the Company’s assets,
before any payment to the holders of the Company’s common stock, or (ii) at the Company’s option at any time.
Holders of redeemable preferred stock are generally not entitled to vote on matters submitted to the stockholders,
except with respect to certain matters that will affect them adversely as a class and are not entitled to receive dividends.
The carrying value of the redeemable preferred stock was $7.11 per share at December 31, 2022 and 2021. The
redeemable preferred stock is presented separately from stockholders’ equity in the consolidated balance sheets and
any adjustments to its carrying value up to its redemption value of $9.00 per share are reported as a dividend.
2017 PIPE Warrants
The 2017 common stock warrants (the “2017 PIPE Warrants”) had a five-year life and were exercisable by cash
exercise only. During the year ended December 31, 2022, there were approximately 2,312,000 2017 PIPE Warrant
exercises for total cash proceeds of $3.5 million. During the year ended December 31, 2021, there were approximately
795,000 2017 PIPE Warrant exercises, for total cash proceeds of $1.6 million. As of December 31, 2022, the 2017
PIPE Warrants were expired, and no 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 by cash
or cashless exercise. During the year ended December 31, 2022, there were approximately 2,168,000 2018 PIPE
Warrant exercises for total cash proceeds of $0.4 million. During the year ended December 31, 2021, there were
approximately 2,901,000 2018 PIPE Warrant exercises for total cash proceeds of $1.5 million. A total of
approximately 6,311,000 2018 PIPE Warrants remained outstanding as of December 31, 2022.
SafeOp Surgical Merger Warrants
The SafeOp common stock warrants (the “SafeOp Warrants”), have a five-year life and are exercisable by cash
or cashless exercise. During the year ended December 31, 2022, there were approximately 257,000 SafeOp Warrant
cashless exercises. During the year ended December 31, 2021, there were approximately 970,000 SafeOp Surgical
Merger Warrant exercises for total cash proceeds of $0.1 million. A total of approximately 938,000 SafeOp Warrants
remained outstanding as of December 31, 2022.
Squadron Medical Warrants
In connection with debt financing entered into with Squadron Medical in 2018, and amended in 2019 and 2020,
the Company issued common stock warrants to Squadron Medical and a participant lender (the “Squadron Medical
Warrants”). The Squadron Medical Warrants expire in May 2027 and are exercisable by cash exercise. No Squadron
Medical Warrants have been exercised as of December 31, 2022.
Executive Warrants
The Company issued warrants to Mr. Patrick S. Miles, the Company’s Chairman and Chief Executive Officer
(the “Executive Warrants”). The Executive Warrants had a five-year term and are exercisable by cash or cashless
exercise. In October 2022, the term was extended to seven years. No Executive Warrants have been exercised as of
December 31, 2022.
F-37
A summary of all outstanding warrants as of December 31, 2022 is as follows (in thousands):
2018 PIPE Warrants
SafeOp Surgical Merger Warrants
2018 Squadron Medical Warrants
2019 Squadron Medical Warrants
2020 Squadron Medical Warrants
Executive Warrants
Other*
Total
*Represents weighted average strike price
Number of
Warrants
6,311 $
938 $
845 $
4,839 $
1,076 $
1,327 $
Strike Price
3.50
3.50
3.15
2.17
4.88
5.00
155 $
6.97
15,491
Expiration
May 2023
May 2023
May 2027
May 2027
May 2027
December 2024
Various through
February 2026
10. Stock Benefit Plans and Stock-Based Compensation
2016 Equity Incentive Plan
In 2016 the Company adopted its 2016 Equity Incentive Plan (the “2016 Plan”), which replaced the Company’s
2005 Employee, Director and Consultant Stock Plan. On October 25, 2018, the Company’s Board of Directors adopted
an amendment to the Company’s 2016 Equity Incentive Award Plan. The 2016 Plan allows for the grant of options,
restricted stock, restricted stock unit awards and performance unit awards to employees, directors, and consultants of
the Company. Upon its adoption, the 2016 Plan had 1,083,333 shares of common stock reserved for issuance. The
Board of Directors determines the terms of the grants made under the 2016 Plan. Options granted under the 2016 Plan
expire no later than ten years from the date of grant (five years for incentive stock options granted to holders of more
than 10% of the Company’s voting stock). Options generally vest over a four-year period and may be immediately
exercisable upon a change of control of the Company. The exercise price of incentive stock options may not be less
than 100% of the fair value of the Company’s common stock on the date of grant. The exercise price of any option
granted to a 10% stockholder may be no less than 110% of the fair value of the Company’s common stock on the date
of grant. Restricted stock unit awards and performance unit awards generally vest over a three or four year period and
vest immediately upon a change in control of the Company. On June 17, 2020, the Company’s shareholders approved
an amendment to the Company’s 2016 Equity Incentive Award Plan which increased the shares of common stock
available for issuance under the Equity Plan by 7,000,000 shares. As of December 31, 2022, approximately 791,000
shares of common stock remained available for issuance under the 2016 Plan. The 2016 Plan will expire in May 2026.
2016 Employment Inducement Award Plan
On October 4, 2016, the Company’s Board of Directors adopted the 2016 Employment Inducement Award Plan
(the “Inducement Plan”). The Inducement Plan allows for the grant of options, restricted stock, restricted stock unit
awards and performance unit awards to new employees of the Company by granting an award to such new employee
as an inducement for the employee to begin employment with the Company. As of December 31, 2022 the Inducement
Plan had approximately 477,000 shares of common stock reserved for issuance, which may only be granted to an
employee who has not previously been an employee or member of the board of directors of the Company. The terms
of the Inducement Plan are substantially similar to the terms of the Company’s 2016 Plan with two principal
exceptions: (i) incentive stock options may not be granted under the Inducement Plan; and (ii) the annual compensation
paid by the Company to specified executives will be deductible only to the extent that it does not exceed $1.0 million.
F-38
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 December 31, 2022,
approximately 213,000 restricted shares and approximately 12,500 common stock warrants have been granted under
the 2019 Management Objective Strategic Incentive Plan.
2017 Distributor Inducement Plan
Under the 2017 Distributor Inducement Plan, the Company is authorized to grant up to 1,000,000 shares of
common stock to independent third-party sales agents whereby, upon the achievement of certain Company sales and/or
distribution milestones the Company may grant to an independent sales agent 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-based vesting conditions. As of December 31, 2022, approximately 305,000 warrants and 414,000
shares of restricted common stock were granted under the 2017 Distributor Inducement Plan. As of December 31,
2022, approximately 295,000 warrants and approximately 392,000 shares of common stock were earned or issued.
2017 Development Services Plan
Under the 2017 Development Services Plan, the Company is authorized to issue up to 8,000,000 shares of
common stock to third-parties upon the achievement of certain revenue milestones associated with certain developed
royalty-bearing products. Future royalty payments for product and/or intellectual property development work may be
paid in either cash or restricted shares of the Company’s common stock at the election of the developer, depending on
the terms of the agreement. Each common stock issuance is contingent on net sales-based criteria and other provisions,
including the satisfaction of applicable laws regarding the issuance of restricted shares to such developers. The
Company has entered into Development Services Agreements for development of a wide variety of potential products
and intellectual property, with the possibility of issuing shares of common stock. As of December 31, 2022, no shares
have been issued and the majority of the agreements are not deemed probable of common stock issuance at this time.
The Company recognizes stock-based compensation once the achievement of the performance criteria and vesting
conditions are deemed probable.
Stock-Based Compensation Costs
The compensation cost that has been included in the Company’s consolidated statements of operations for all
stock-based compensation arrangements is detailed as follows (in thousands):
Cost of sales
Research and development
Sales, general and administrative
Total
Year Ended December 31,
2021
2020
2022
$
$
2,597 $
5,016
32,943
40,556 $
737 $
4,056
31,657
36,450 $
512
2,114
15,033
17,659
F-39
Stock Options
A summary of the Company’s stock option activity under the Plans and related information is as follows (in
thousands, except as indicated and per share data):
Outstanding at December 31, 2021
Exercised
Forfeited
Outstanding at December 31, 2022
Options vested and expected to vest at
December 31, 2022
Options exercisable at
December 31, 2022
Weighted
average
remaining
contractual
term
(in years)
Weighted
average
exercise
price
Aggregate
intrinsic
value
Shares
3,351 $
(378)
(57)
2,916 $
3.50
2.84
13.83
3.38
4.58 $
26,783
2,916 $
3.38
4.58 $
26,783
2,849 $
3.22
4.51 $
26,550
The weighted-average grant-date fair value per share of stock options granted during the years ended
December 31, 2021 and 2020 was $9.88 and $4.71, respectively. There were no stock options granted during the year
ended December 31, 2022. The total intrinsic value of stock options exercised was $3.4 million, $6.8 million and $2.3
million for the years ended December 31, 2022, 2021 and 2020, respectively. The aggregate intrinsic value of options
at December 31, 2022 is based on the Company’s closing stock price on the last business day of 2022 of $12.35 per
share.
The weighted average assumptions used to compute the stock-based compensation costs for the stock options
granted during the years ended December 31, 2021 and 2020 are as follows:
Risk-free interest rate
Expected dividend yield
Weighted average expected life (years)
Volatility
Year Ended December 31,
2020
2021
0.84%
—
6.07
87.38%
1.03%
—
6.08
84.00%
As of December 31, 2022, there was $0.3 million of unrecognized compensation expense for stock options
which is expected to be recognized on a straight-line basis over a weighted average period of approximately 1.75
years.
Restricted Stock Units and Performance Based Restricted Stock Units
The following table summarizes information about the restricted stock units and performance-based restricted
units activity (in thousands, except as indicated and per share data):
Weighted
average
grant
date fair
value
Weighted
average
remaining
recognition
period
(in years)
6.34
8.13
4.68
6.30
6.63
1.43
Shares
8,703 $
3,909
(3,316)
(763)
8,533 $
Unvested at December 31, 2021
Awarded
Vested
Forfeited
Unvested at December 31, 2022
F-40
The weighted-average grant-date fair value per share of awards granted during the years ended December 31,
2022, 2021 and 2020 was $8.13, $12.79 and $4.87, respectively. The total fair value of RSUs that vested during the
years ended December 31, 2022, 2021 and 2020 was $35.2 million, $43.9 million and $13.1 million, respectively.
As of December 31, 2022, there was $41.4 million of unrecognized compensation expense for restricted stock
awards, restricted stock units, and performance-based restricted units which is expected to be recognized on a straight-
line basis over a weighted average period of approximately 1.43 years.
Employee Stock Purchase Plan
In 2007, the Company adopted the Alphatec Holdings, Inc. 2007 Amended and Restated Employee Stock
Purchase Plan (the “ESPP”), which was first amended in May 2017. On June 16, 2021, the Company’s shareholders
approved a second amendment to the ESPP which increased the amount of shares of common stock available for
purchase under the ESPP by 500,000 shares.
The ESPP provides eligible employees with a means of acquiring equity in the Company at a discounted
purchase price using their own accumulated payroll deductions. Under the terms of the ESPP, employees can elect to
have up to 20% of their annual compensation, up to a maximum of $21,250 per year, withheld to purchase shares of
Company common stock for a purchase price equal to 85% of the lower of the fair market value per share (at closing)
of Company common stock on (i) the commencement date of the six-month offering period or (ii) the respective
purchase date.
During the years ended December 31, 2022, 2021 and 2020 there were approximately 429,000, 227,000 and
379,000 shares of common stock, issued under the ESPP, respectively. The Company recognized $1.6 million, $1.1
million and $1.0 million in expense related to the ESPP for the years ended December 31, 2022, 2021 and 2020,
respectively. As of December 31, 2022, approximately 119,000 shares were available under the ESPP for future
issuance.
The Company estimates the fair value of shares issued to employees under the ESPP using the Black-Scholes
option-pricing model. The assumptions used to estimate the fair value of stock purchase rights under the ESPP are as
follows:
2022
Year Ended December 31,
2021
2020
Risk-free interest rate
Expected dividend yield
Expected term (years)
Volatility
0.07% - 4.54%
—
0.50 - 0.60
0.12% - 1.58%
—
0.50
50.29% - 64.53% 49.98% - 78.37% 54.96% - 102.5%
0.04% - 0.12%
—
0.50
Common Stock Reserved for Future Issuance
Common stock reserved for future issuance consists of the following (in thousands):
Stock options outstanding
Unvested restricted stock units
Employee stock purchase plan
Senior convertible notes
Warrants outstanding
Authorized for future grant under the Distributor and
Development Services plans
Authorized for future grant under the Management
Objective Strategic Incentive Plan
Authorized for future grant under the Company
Equity plans
F-41
December 31, 2022
2,916
8,533
119
17,246
15,491
281
274
1,269
46,129
11. Income Taxes
The components of the pretax income (loss) are presented in the following table (in thousands):
U.S. Domestic
Foreign
Net loss before taxes
Year Ended December 31,
2021
2022
$ (146,627) $ (127,943) $
(5,382)
(16,219)
$ (152,009) $ (144,162) $
2020
(78,849)
—
(78,849)
The components of the provision for income taxes are presented in the following table (in thousands):
Current income tax provision:
Federal
State
Foreign
Total current
Deferred income tax provision:
Federal
State
Total deferred
Total income tax provision
Year Ended December 31,
2021
2022
2020
$
$
(764) $
(140)
301
(603)
583
160
743
140 $
123 $
166
66
355
(159)
(32)
(191)
164 $
—
100
35
135
(2)
12
10
145
The provision for income taxes differs from the amount of income tax determined by applying the applicable
U.S. statutory federal income tax rate to pretax loss as a result of the following differences:
Federal statutory rate
Adjustments for tax effects of:
State taxes, net
Stock-based compensation
Rate differential
Foreign taxes
Other permanent adjustments
Federal uncertain tax positions
Expiration of tax attribute
Other
Valuation allowance
Effective income tax rate
2022
December 31,
2021
2020
21.00%
21.00%
21.00%
0.03
(1.79)
0.43
(0.05)
0.21
0.03
(1.60)
0.59
(18.94)
(0.09)%
(0.07)
(0.48)
0.43
(0.05)
0.08
(0.08)
0.00
(0.13)
(20.81)
(0.11)%
(0.11)
(0.93)
0.00
(0.04)
(1.70)
0.00
0.00
(0.15)
(18.25)
(0.18)%
F-42
Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2022 and 2021
are as follows (in thousands):
Deferred tax assets:
Net operating losses
Interest
Capitalized research and development expenses
Inventory
Lease liability
Stock-based compensation
Accruals and reserves
Legal settlement
Income tax credit carryforwards
Total deferred tax assets
Valuation allowance
Total deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Property and equipment
Goodwill and intangibles
Right-of-use assets
Total deferred tax liabilities
Net deferred tax assets
December 31,
2022
2021
$
$
$
146,464
12,979
12,062
11,298
7,975
5,786
4,292
2,302
1,566
204,724
(162,314)
42,410
(19,610)
(15,518)
(7,250)
(42,378)
32
$
131,734
11,095
—
8,784
6,216
4,318
7,145
1,998
1,574
172,864
(127,209)
45,655
(18,404)
(18,439)
(6,256)
(43,099)
2,556
The realization of deferred tax assets is dependent on the Company’s ability to generate sufficient taxable
income in future years in the associated jurisdiction to which the deferred tax assets relate. As of December 31, 2022,
a valuation allowance of $162.3 million has been established against the deferred tax assets, as the Company has
determined that it is currently not likely that these assets will be realized. During the years ended December 31, 2022,
2021 and 2020, the valuation allowance increased by $35.1 million, $39.7 million and $14.4 million, respectively.
In determining the need for a valuation allowance, the Company considers all available positive and negative
evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning
strategies, and recent financial performance. Based on the review of all positive and negative evidence, including a
three-year cumulative pretax loss, the Company determined that a full valuation allowance should be recorded against
its deferred tax assets, with the exception of the Company’s Texas Temporary Credit for Business Loss Carryforwards.
The following table summarizes the changes to unrecognized tax benefits (in thousands):
Year ended December 31,
2021
2022
2020
Unrecognized tax benefit at the beginning of the year
$
15,165 $
2,452 $
2,452
Increases in tax positions for current year relating to
acquisitions
Decreases in tax positions for prior years
Increases in tax positions for current year relating to
ongoing operations
Decreases in tax positions as a result of a lapse of statute
of limitations
Unrecognized tax benefits at the end of the year
—
(8,929)
12,713
—
173
—
—
—
—
(330)
6,079 $
—
15,165 $
—
2,452
$
At December 31, 2022, 2021 and 2020, $5.6 million, $14.5 million and $2.0 million, respectively, of the
Company’s total unrecognized tax benefits, if recognized, would impact the effective income tax rate.
In accordance with the disclosure requirements as described in ASC Topic 740, Income Taxes, the Company
classifies uncertain tax positions as non-current income tax liabilities unless they are expected to be paid within one
F-43
year. The Company recognizes interest and penalties related to income tax matters as a component of the income tax
provision. As of December 31, 2022 and 2021, there were $0.04 million and $0.2 million in accrued interest and
penalties, respectively. There were no accrued interest and penalties as of December 31, 2020.
The Company and its subsidiaries are subject to federal income tax as well as income tax of multiple state and
foreign jurisdictions. With few exceptions, the Company is no longer subject to income tax examination by tax
authorities in major jurisdictions for years prior to 2017. However, to the extent allowed by law, the taxing authorities
may have the right to examine prior periods where net operating losses and tax credits were generated and carried
forward and make adjustments up to the amount of the carryforwards. The Company is not currently under
examination by the Internal Revenue Service, foreign or state and local tax authorities.
At December 31, 2022, the Company had federal, state, and foreign net operating loss carryforwards of $487.9
million, $375.5 million and $112.9 million, respectively. Federal and state net operating losses generated after
December 31, 2017 of $358.7 million and $74.9 million, respectively, can be carried forward indefinitely. The
remaining federal and state net operating losses begin expiring at various dates beginning in 2022 through 2042, while
foreign net operating losses in France carryforward indefinitely. At December 31, 2022, 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 (the “Internal Revenue
Code”), 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. The Company completed
formal study through the year ended December 31, 2018 and determined ownership changes within the meaning of
IRC Section 382 had occurred. The Company adjusted federal tax attribute carry forwards and deferred tax assets
accordingly. The Company will make adjustments to the fully reserved attributes as further studies are completed.
F-44
12. Related Party Transactions
In November 2018, the Company entered into the Term Loan and Inventory Financing Agreement with certain
affiliates of Squadron Capital, LLC (“Squadron”), including an inventory supplier (the "Squadron Supplier Affiliate”).
The Term Loan and the Inventory Financing Agreement were terminated and all obligations thereunder were repaid
on August 10, 2021. See Note 6 for further details regarding the Term Loan and Inventory Financing Agreement. For
the years ended December 31, 2022, 2021 and 2020, the Company purchased inventory in the amounts of $10.3
million, $7.7 million and $4.0 million, respectively, from the Squadron Supplier Affiliate. As of December 31, 2022
and 2021, the Company had $2.4 million and $0.8 million, respectively, due to the Squadron Supplier Affiliate.
Squadron was a lead investor in the Private Placement that was closed on March 1, 2021. David Pelizzon, President
and Director of Squadron, currently serves on the Company’s Board of Directors.
13. Business Segment and Geographic Information
The Company operates in one 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 and equipment, net, by geographic region are as follows (in thousands):
Revenue
Property and equipment, net
Year Ended December 31,
December 31,
2022
326,697
24,170
350,867
$
$
2021
223,911 $
19,301
243,212 $
2020
141,079 $
3,782
144,861 $
2022
99,050
2,902
101,952
$
$
2021
85,320
2,081
87,401
$
$
(in thousands)
United States
International
Total
14. Subsequent Events
On January 6, 2023, the Company entered into a $150.0 million term loan agreement with Braidwell Transaction
Holdings, LLC. The agreement provides for an initial term loan facility of $100.0 million which was funded on the
closing date. The Company has the option to draw an additional $50.0 million within 18 months of the closing date.
The term loan matures in January 2028. Borrowings under the term loan bear interest at an annual rate of Term SOFR
plus 5.75%. The outstanding portion of the term loan is secured by substantially all of the Company’s assets with the
priority interest of the lenders in the Braidwell Term Loan and the Revolving Facility subject to terms of a customary
intercreditor agreement.
F-45
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