Alphatec Holdings $2 Window

ATEC : NASDAQ : US$1.93
BUY 
Target: US$4.00

COMPANY DESCRIPTION:
Alphatec Spine is a small cap, spinal implant company that develops fully customizable fusion implants and instruments
including pedicle screw and rod systems, lumbar plates, anterior cervical plates, and various spacers. The company employs a hybrid distribution model utilizing distributors and direct reps to market its products in the US and Japan.

DRIVEN BY STRONG US AND JAPAN;
REITERATE BUY, $4 PT
Investment recommendation
We reiterate our BUY rating and $4.00 price target following the release of strong preliminary top-line Q3/13 results. Revenues outperformed both our and consensus estimates, driven by strong performances in both the US, and OUS, geographies. Management noted that an increase in surgeon adoption as well as unit growth drove the US outperformance, while Japan continued to be a driver of OUS sales.

We view the preliminary results favorably as they indicate that the company has turned around the Phygen acquisition and is returning to abovemarket growth in the U.S. As a reminder, Alphatec recently announced the planned restructuring of its European business unit Scient’x. We look for additional color on both the restructuring and complete Q3/13 results on the Q3/13 call.
Investment highlights
 Alphatec reported preliminary Q3/13 revenues of $50.1M vs. our and consensus estimates of $48.5M.
 US revenues of $33.7M and OUS revenues of $16.4 vs. our estimates of $33.0M and $15.4M, respectively.
 Alphatec management will provide a more detailed overview into the restructuring initiative on the Q3/13 results call.
Valuation
We maintain our $4.00 price target based on a 2.0x EV/sales multiple applied to our 2014 revenue estimate of $215.1M. In our calculation, we assume cash of $12.9M, debt of $65.0M and shares outstanding of 95.9 million.

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