Alphatec Update

Alphatec announced Q1 earnings in May. Much better than Q4 thankfully. Revenues were $28 million ($34.2 million last year) with 60% gross margins and they increased their adjusted EBITDA to $500,000 from $71,000 last year. At least part of the revenue decline is due to their intentional realignment of their distribution channel. They reduced headcount from 195 at September 30, 2016 to 140. GAAP loss was $5.15 million compared to $6.6 million last year. Non-GAAP net loss was about $3.2 million compared to a loss of $6.6 million last year. They had $25.5 million of cash and net debt of just under $43 million. My valuation came in at $9.42 down from $16.50 pre-financing. ATEC looks like they have all new leadership (CEO, CFO and a bunch of others) that all come from highly regarded spinal companies (other than the CFO where it really doesn’t matter). I was impressed with the conference call (but there were no questions from anyone on the call) and am much more confident that this play can work. One statement by the CEO was impressive to me“ We are here because we view Alphatec as the most attractive opportunity in orthopedics. So much so that we wrote in with our checkbooks in our March financing, with the entire senior leadership team investing our personal assets as a demonstration of our belief in the opportunity and our commitment to our collective success. From what I can tell, it looks like the management put in a bit over $2 million into the offering. I am hanging on to this one, it may take another year or two, but the risk/reward feels good here.

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