Alphatec’s Hole Deepens. What’s Next?

Conditions at Alphatec have, apparently, reached the stage where a press release regarding the quarterly results is not considered necessary.

Nor, for that matter, is a call with Wall Street analysts to review the quarter.

On May 6, 2016 Alphatec Spine filed the required 10-Q financial report with the Securities and Exchange Commission (SEC). Normally, that would prompt both a press release and a call with analysts and institutional investors.

Not this time.

While management appears to have gone radio silent, rank and file Alphatec employees are lighting up anonymous web-based message boards with blistering critiques and dire warnings.

Comments like this one are being repeated in one form or another: “Pros: great benefits, good products and excellent people who work here. Cons: sales down, morale not good, no cash flow, no hiring in early 2016, not very positive work environment. Used to be better when DK was here.”

DK refers to Dirk Kuyper, CEO at Alphatec from 2007 to 2012.

Reading the tea leaves, Alphatec may be vacillating between two potential circumstances:

1. Debt holders have replaced equity owners as the company’s most important constituency and are putting together some form of recapitalization—with our without court assistance—likely without current management.
2. Or a buyer for Alphatec is trying to close the deal and a call with Wall Street will wait until that is wrapped up.

Reading Alphatec’s 10-Q

Alphatec’s March 2016 SEC filing is tough reading. No doubt the company’s attorneys urged management to disgorge every possible negative fact or possibility.

Here are the key points:

• Sales for the three months ended March 31, 2016 fell 8% from the same period last year.
• Operating earnings turned from a $1.1 million profit last year to a $3.7 million loss this year.
• Net loss reached $6.6 million.
• Cash at the end of the quarter was $7.8 million.
• Total current liabilities at the end of the quarter were $130 million.
• Total current assets at the end of the quarter were $100 million.

The following table illustrates how steadily Alphatec’s operations have deteriorated since 2013.

Source: Alphatec’s 10-Q filings with the Securities and Exchange Commission

• First quarter sales declined each year since 2013/
• Alphatec has reported an operating loss in 3 of the last 4 1st quarters.
• Cash balances are now one-third of 2014 levels.
• Current debts are now 30% more than current liabilities.

In its March filing with the SEC, management disclosed the depth of its financial distress saying, in effect, that the company could not meet its financial obligations this year without some form of help from investors.

“There is no assurance that we will be in compliance with the financial covenants of the Amended Credit Facility or the Facility Agreement in April 2016 or in the future” said Alphatec in its March 2016 10-Q filing. “If we have future defaults and we do not obtain waivers from MidCap or Deerfield they would have the right to call their respective debts due immediately, which would significantly impact our ability to continue as a going concern. We intend to pursue additional opportunities to raise additional capital through public or private equity offerings, debt financings, receivables financings or collaborations or partnerships with other companies to further support our planned operations. However, there is no assurance that we will be able to do so. Accordingly, as of March 31, 2016, there is substantial doubt about our ability to continue as a going concern through December 31, 2016.”

In short, investors, employees and other stakeholders are hanging on for whatever happens next and hoping that time has not finally run out for Alphatec.