G2G,
I do not connect the layoffs with pending bad news on FDA approval. In fact, I believe that stretches logic and I do not agree with your working thesis which connects layoffs to pending FDA denial.
However, I do you are directionally accurate in the spirit of your conclusion: my working thesis on this news is that they are trying to get out in front of poor Q3 revenue numbers. Sonny has alluded to the need to contain costs, drive revenues, and improve fiscal discipline, and their downward trend in annual YOY revenues is definitely an ongoing concern. Q3 is now closed and they don't report on it until mid-November, but they have enough data to make substantive changes if they feel the current trajectory is unsustainable. Right now the bullish thesis for buying the stock at these discounted multiples is that of a turnaround play, and these layoffs are the real world results of a multi-year downtrend in both share price and company performance. In the recent analyst reports, analysts were estimating that the company would not be cash flow positive until 2018. With the delay in csc approval, they only have additional lateral lumbar sizes to sell as they wait on pedicle screw approval as well. To me, this isn't enough of a positive catalyst to reverse the revenue downtrend in Q3 or the short term. They've already admitted to trying to retool their US sales infrastructure and to a suboptimal distribution channel in Europe where csc is approved. All of this points to a poor Q3, and I see this PR as getting out in front of bad Q3 performance. If/when that Q3 results print poorly, the temporary share price reduction is already absorbed and the remedy is already known. A poor Q3 number becomes a non-issue due to getting out in front of it like they did today.
A second working narrative I have is some kind of upcoming fundamental change in business models, such as outsourcing of manufacturing, going completely indirect with their sales channels, or converting to an OEM/IP play. I need more data on the layoffs and strategic direction before I can fully form those narratives, which are weak at best.
For my money, this changes nothing on the upcoming FDA approval window but it certainly does add additional volatility to the decision. If approved, the highs will be higher due to the layoffs as it fuel all kinds of speculation involving the layoffs being a predecessor of a buyout or radical business change. If the FDA denies csc, it will psychologically confirm the long running downtrend in company performance and share price.
Between now and the end of the month just got really interesting for both bears and bulls, and it is obvious that your bias has switched bearish. You're a very smart guy, and I don't dismiss your conclusions. However, I believe there is sufficient room for rational people to disagree on what this means going forward. Best of luck with your new positions in MSTX and BAS.
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