Surgalign Holdings, Inc. Announces First Quarter 2021 Results
Deerfield, Ill., May 10, 2021 – Surgalign Spine Technologies, (NASDAQ: SRGA) a global medical technology company focused on elevating the standard of care by driving the evolution of digital surgery, today reported operating results for the first quarter of 2021.
- Total global spine revenue of $23.3 million, compared to $27.1 million in the first quarter of 2020
- Net loss from continuing operations of $15.2 million inclusive of approximately $3.2 million of non-recurring charges
- Adjusted EBITDA loss of $9.8 million, compared to a loss of $20.1 million in the first quarter of 2020
- Appointed Marc Mackey as Executive Vice President, Digital Surgery
- Submitted premarket notification, 510(k) for the Holo Surgical intelligent guidance system
“We are very excited about the recent progress we have made as we continue the transition from a traditional spine company focused on surgical approaches and procedures to a company that will redefine and lead digital surgery. The addition of Marc Mackey and his 25 years of experience in the digital surgery space adds important competencies to our leadership team that will drive this transformation,” said Terry Rich, President and Chief Executive Officer of Surgalign Holdings. “With the recent filing of our initial FDA 510(k) submission for the Holo Surgical intelligent guidance system we have achieved a critical milestone for 2021 and we remain on track to hit our goal of having the first procedures performed using the Holo system by the end of 2021.”
First Quarter 2021
Global revenue for the quarter ended March 31, 2021 was $23.3 million compared to $27.1 million for the prior year period. The decline in revenue was primarily due to the impact of the COVID-19 pandemic on global elective procedural volumes.
Gross profit for the first quarter of 2021 was $17.1 million or 73% of revenue compared to $17.9 million or 66% of revenue in the first quarter of 2020.
Marketing, general and administrative expenses for the first quarter of 2021 were $25.9 million compared to $37.2 million in the first quarter of 2020. The reduction in marketing, general and administrative expenses was predominantly driven by the decline in sales and distribution costs related to the decline in sales and the elimination of administrative overhead with the sale of the OEM business.
R&D expense for the first quarter of 2020 was $2.9 million compared to $4.3 million in the first quarter of 2020. The reduction in R&D relates to the separation of the OEM business and the transition of R&D headcount.
Net loss from continuing operations for the first quarter of 2020 was $15.2 million compared to $24.5 million for the first quarter of 2020. Adjusted for non-recurring charges, net loss from continuing operations was $12.0 million for the first quarter of 2021 compared to $19.4 million in the prior year period.
Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA), for the first quarter of 2021 was a loss of $9.8 million compared to a loss of $20.2 million for the first quarter of 2020.
Fiscal 2021 Business Outlook
The Company continues to anticipate full year revenue to grow in the range of 5% – 10% compared to the prior year’s global spine revenue of approximately $102 million. Our guidance continues to assume that global procedure volumes return to normal levels during the second quarter of 2021.
Based on these revenue levels, the Company continues to anticipate full year adjusted EBITDA loss will be in the range of $35 – $40 million.
Surgalign will host a conference call and audio webcast at 4:30 p.m. ET today. The conference call can be accessed by dialing (877) 383-7419 (U.S.) or (760) 666-3754 (International), using conference ID 2227105. The webcast can be accessed through the investor section of Surgalign’s website at surgalign.com/investors/. A replay of the conference call will be available on Surgalign’s website for one month following the call.
About Surgalign Holdings, Inc.
Surgalign Holdings, Inc. is a global medical technology company committed to the promise of digital surgery and is building out its digital surgery platform to drive transformation across the surgical landscape. Uniquely aligned and resourced to advance the standard of care, the company is building technologies surgeons will look to for what is truly possible for their patients. Surgalign is focused on bringing surgeons solutions that predictably deliver superior clinical and economic outcomes. Surgalign markets products throughout the United States and in more than 50 countries worldwide through an expanding network of top independent distributors. Surgalign, a member of AdvaMed, is headquartered in Deerfield, IL, with commercial, innovation and design centers in San Diego, CA, Marquette, MI, and Wurmlingen, Germany. Learn more at www.surgalign.com and connect on LinkedIn and Twitter.
Forward Looking Statement
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management’s current expectations, estimates and projections about our industry, our management’s beliefs and certain assumptions made by our management. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking statements. The forward-looking statements are not guarantees of future performance and are based on certain assumptions including general economic conditions, as well as those within the Company’s industry, and numerous other factors and risks identified in the Company’s most recent Form 10-K and other filings with the SEC. Our actual results may differ materially from the anticipated results reflected in these forward-looking statements. Important factors that could cause actual results to differ materially from the anticipated results reflected in these forward-looking statements include risks and uncertainties relating to the following: (i) the risk of existing or potential litigation or regulatory action arising from the previously announced SEC and internal investigations and their findings; (ii) the identification of control deficiencies, including material weaknesses in internal control over financial reporting and the impact of the same; (iii) potential reputational damage that the Company has or may suffer as a result of the findings of the SEC and internal investigations and related litigation; (iv) general worldwide economic conditions and related uncertainties; (v) the continued impact of the COVID-19 novel coronavirus pandemic and the Company’s attempts at mitigation; (vi) the failure by the Company to identify, develop and successfully implement immediate action plans and longer-term strategic initiatives; (vii) the reliability of our supply chain; (viii) our ability to meet obligations, including purchase minimums, under our vendor and other agreements; (ix) the duration of decreased demand for our products; (x) whether or when the demand for procedures involving our products will increase; (xi) the Company’s access to adequate operating cash flow, trade credit, borrowed funds and equity capital to fund its operations and pay its obligations as they become due, and the terms on which external financing may be available, including the impact of adverse trends or disruption in the global credit and equity markets; (xii) our financial position and results, total revenue, product revenue, gross margin, and operations; (xiii) failure to realize, or unexpected costs in seeking to realize, the expected benefits of the recent Holo Surgical, Inc. (“Holosurgical”) acquisition, including the failure of Holosurgical’s products and services to be satisfactorily developed or achieve applicable regulatory approvals or as a result of the failure to commercialize and distribute its products; (xiv) the failure to effectively integrate Holosurgical’s operations with those of the Company; (xv) the failure to retain key personnel of Holosurgical; (xvi) the number of shares and amount of cash that will be required in connection with any post-closing milestone payments, including as a result of changes in the trading price of the Company’s common stock and their effect on the amount of cash needed by the Company to fund any post-closing milestone payments in connection with the acquisition; (xvii) the effect of the transaction on relationships with customers, suppliers and other third parties; (xviii) the diversion of management time and attention on the transaction and subsequent integration; (xix) the effect of the recent resignation of our auditor and our ability to engage and onboard a new auditor; (xx) the effect and timing of changes in laws or in governmental regulations; and (xxi) other risks described in our public filings with the SEC. These factors should be considered carefully, and undue reliance should not be placed on the forward-looking statements. Each forward-looking statement in this communication speaks only as of the date of the particular statement. Copies of the Company’s SEC filings may be obtained by contacting the Company or the SEC or by visiting Surgalign’s website at www.surgalign.com or the SEC’s website at www.sec.gov. We undertake no obligation to update these forward-looking statements except as may be required by law.
Investor and Media Contact
Non-GAAP Financial Measures
To supplement our condensed consolidated financial statements presented on a GAAP basis, we disclose non-GAAP net income applicable to common shares and non-GAAP gross profit adjusted for certain amounts. The calculation of the tax effect on the adjustments between GAAP net loss applicable to common shares and non-GAAP net income applicable to common shares is based upon our estimated annual GAAP tax rate, adjusted to account for items excluded from GAAP net loss applicable to common shares in calculating non-GAAP net income applicable to common shares. Reconciliations of each of these non-GAAP financial measures to the corresponding GAAP measures are included in the reconciliations below.
The following are explanations of the adjustments that management excluded as part of the non-GAAP measures for the three months ended March 31, 2021 and 2020. Management removes the amount of these costs including the tax effect on the adjustments from our operating results to supplement a comparison to our past operating performance.
2021 Severance and restructuring costs – These costs relate to the reduction of our organizational structure, primarily driven by simplification of our Marquette, MI location.
2021 and 2020 Asset impairment and abandonments – These costs relate to asset impairment and abandonments of certain long-term assets within the asset group.
2021 and 2020 Transaction and integration expenses – These costs relate to professional fees associated with the acquisition of Holo Surgical and other matters.
2021 and 2020 Inventory purchase price adjustment – These costs relate to the purchase price effects of acquired Paradigm inventory that was sold during the three months ended March 31, 2021 and 2020.
2021 Gain on acquisition contingency – The gain on acquisition contingency relates to an adjustment to our estimate of obligation for future milestone payments on the Holo acquisition.
Material Limitations Associated with the Use of Non-GAAP Financial Measures
EBITDA, Adjusted EBITDA and Adjusted Net Income Applicable to Common Shares should not be considered in isolation, or as a replacement for GAAP measures.
Usefulness of Non-GAAP Financial Measures to Investors
The Company believes that presenting EBITDA, Adjusted EBITDA and Adjusted Net Income Applicable to Common Shares in addition to the related GAAP measures provide investors greater transparency to the information used by management in its financial decision-making.