CSI TIP: BUY ATEC @ $1.56

Alphatec Holdings Inc. (NASDAQ–ATEC)

Valuation-$3.00

Price August 29, 2014-$1.56

ATEC has had some troubles lately. We personally bought ATEC earlier this year, but then sold it when it lost a $50 million lawsuit they inherited from an acquisition in March. We now own ATEC again based on recent performance.

Latest earnings were for the second quarter ended 6/30/2014. ATEC posted record sales and adjusted EBITDA. Revenues were up 4% to $53.2 million from $51 million and they lost $2.9 million versus a $4.7 million loss last year. They are projecting around $210 million of sales for 2014 and adjusted EBITDA of $30-$33 million. Our valuation based on the latest quarter is $3.00 a share.

Back in March when they lost the lawsuit they entered into a loan facility with Deerfield entities  (which own about 4% of ATEC) to be able to fund the lawsuit settlement. They currently have about $21 million in cash and $100 million in debt. They still have $31.5 million to pay on the settlement but are only required to pay this in $1.1 million quarterly installments.

Healthpoint Capital is a longtime holder of about 20% of ATEC.

Trading at only 52% of our valuation we think this is a BUY.

There are about 97 million shares outstanding and it trades about 180,000 shares a day.

About ATEC: 

Alphatec Spine, Inc., a wholly owned subsidiary of Alphatec Holdings, Inc., is a global provider of spinal fusion technologies for the treatment of spinal disorders associated with trauma, congenital deformities, disease and degeneration. The Company’s mission is to combine innovative surgical solutions with world-class customer service to improve outcomes and patient quality of life. The Company and its affiliates market products in the U.S. and internationally via a direct sales force and independent distributors..

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4 Comments

    • Warrant accounting can be pretty complicated. I believe in this situation they are considered non-dilutive because the company reported a loss for the quarter. GAAP usually does not let you include warrants or options in the fully diluted shares if they reduce the loss per share, only if they increase the loss per share. When, and if, the company gets profitable on a GAAP basis, then they will count–to reduce the income per share. The SEC and accountants make the rules.

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