Is Alphatec Rising From the Ashes?

A deal for $80 million in cash, paying off Deerfield Capital, recapitalizing balance sheet with a new $30 million credit facility and a 100% focus on the U.S. market.

Is Alphatec rising from the ashes and spreading its long dormant wings?

On September 1, 2016—if all goes as planned and as disclosed in its SEC filings—all that and more will happen.

Alphatec, which was originally founded by Shunshiro “Roy” Yoshimi as the American extension of his Japanese-based spinal implant business, has agreed to sell its international business (approximately 60 countries of which Japan is the most significant) to Globus Medical Inc. for $80 million in cash, subject to a working capital adjustment and a five-year, $30 million credit facility with Globus.

The Buck Pauses Here

The $80 million in cash, however, will not stay long in Alphatec’s bank account. At closing $69 million will go to repay, in full, debt and interest owed to Deerfield and a portion of the debts outstanding to MidCap Funding IV, LLC.

But that still leaves about $11 million which will approximately double Alphatec’s cash balances.

What Globus Is Buying

Globus is buying all the assets associated with Alphatec’s international business—which generated about $71 million in revenues in 2015.

Here’s how Alphatec’s international business has been doing these last three years:

Source: Alphatec SEC filings

Last year, while Alphatec’s overall sales declined about 11%, international sales increased. As a percent of the total, international contributed 38% of total sales. International assets amounted to $49 million in 2015, down substantially from $144 million last year and $169 million in 2013.

In addition to all distributor relationships, revenues and related assets, Globus will be acquiring all the capital stock in Cibramed Products Medicos Ltda – EPP, Alphatec Pacific, Inc., Japan Ortho Medical, Inc., Alphatec Medical Device (Shanghai) Co. Ltd., and Scient’x Asia Pacific PTE. LTD. and Scient’x Australia PTY. LTD.

Alphatec’s Second Quarter Results

For the six months ended June 30, 2016, Alphatec reported that sales reached $88.6 million, down 7% from the $95.3 million booked for the same period in 2015. Gross profit margins were 66% of sales for the six months which is an improvement from the 63% in the first half last year. Finally, operating losses for the first half of this year reached $4.9 million, which was quite a bit higher than the $1.7 million in operating losses reported for the same period last year.

On a cash flow basis, Alphatec generated a positive $10 million in cash flow for the first half. That was a significant improvement over last year when Alphatec generated $3.4 million of positive cash flow for the first half. After debt payments and other financing costs, the company ended June with $9.3 million in cash on hand, up slightly from the $8.9 million booked on June 30, 2015.

Bottom Line

This is very good news for Alphatec’s employees and other stakeholders. This creates breathing room for the company and sharpens its focus on the U.S. market. If, in the coming quarters, sales can begin to move in an upward trajectory and earnings can materialize on the bottom line…then the roller coaster ride of the past few years may have a chance to fade into a distant memory.