Alphatec Holdings (NASDAQ:ATEC) Is Making Moderate Use Of Debt

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Alphatec Holdings, Inc. (NASDAQ:ATEC) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Alphatec Holdings's Debt?

As you can see below, at the end of December 2024, Alphatec Holdings had US$576.2m of debt, up from US$512.8m a year ago. Click the image for more detail. On the flip side, it has US$138.8m in cash leading to net debt of about US$437.3m.

How Strong Is Alphatec Holdings' Balance Sheet?

We can see from the most recent balance sheet that Alphatec Holdings had liabilities of US$153.0m falling due within a year, and liabilities of US$613.3m due beyond that. On the other hand, it had cash of US$138.8m and US$88.7m worth of receivables due within a year. So it has liabilities totalling US$538.8m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Alphatec Holdings has a market capitalization of US$1.52b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Alphatec Holdings's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

View our latest analysis for Alphatec Holdings

In the last year Alphatec Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 27%, to US$612m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Even though Alphatec Holdings managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. To be specific the EBIT loss came in at US$123m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled US$138m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting Alphatec Holdings insider transactions.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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