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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549 
FORM 10-Q 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
COMMISSION FILE NO. 001-36905
SeaSpine Holdings Corporation
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 47-3251758
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
 (I.R.S. EMPLOYER
IDENTIFICATION NO.)
5770 Armada Drive, Carlsbad, CA 92008
(Address of principal executive offices) (zip code)
REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (760727-8399
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockSPNEThe Nasdaq Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x   No  o  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated fileroAccelerated filer
x 
Non-accelerated filero Smaller reporting companyo
Emerging growth companyo
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes    No  ý
The number of shares of the registrant’s common stock, $0.01 par value, outstanding as of October 31, 2022 was 37,202,800.




SEASPINE HOLDINGS CORPORATION
INDEX
 Page
Number




PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SEASPINE HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
 
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Total revenue, net$67,147 $46,445 $174,158 $135,862 
Cost of goods sold26,637 18,289 66,140 51,137 
Gross profit40,510 28,156 108,018 84,725 
Operating expenses:
Selling and marketing32,983 27,578 95,518 76,413 
General and administrative14,767 11,642 37,898 32,055 
Research and development6,596 6,262 18,095 15,618 
Intangible amortization856 942 2,568 2,577 
Total operating expenses55,202 46,424 154,079 126,663 
Operating loss(14,692)(18,268)(46,061)(41,938)
Other (expense) income, net(419)(231)(976)5,689 
Loss before income taxes(15,111)(18,499)(47,037)(36,249)
Provision (benefit) for income taxes389 (872)(986)(689)
Net loss$(15,500)$(17,627)$(46,051)$(35,560)
Net loss per share, basic and diluted$(0.42)$(0.48)$(1.25)$(1.09)
Weighted average shares used to compute basic and diluted net loss per share37,044 36,419 36,833 32,638 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4



SEASPINE HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
(In thousands)
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Net loss$(15,500)$(17,627)$(46,051)$(35,560)
Other comprehensive income (loss)
Foreign currency translation adjustments(493)(170)(1,135)(425)
Comprehensive loss$(15,993)$(17,797)$(47,186)(35,985)
The accompanying notes are an integral part of these condensed consolidated financial statements.


5





SEASPINE HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except par value data)
September 30, 2022December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents$46,763 $83,106 
Trade accounts receivable, net of allowances of $166 and $74
38,969 36,231 
Inventories83,993 72,299 
Prepaid expenses and other current assets5,141 4,328 
  Total current assets174,866 195,964 
Property, plant and equipment, net56,360 46,892 
Right of use assets16,347 6,948 
Intangible assets, net36,532 42,056 
Goodwill84,595 84,595 
Long-term trade receivable4,568  
Other assets856 812 
Total assets$374,124 $377,267 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade17,778 20,301 
Accrued compensation9,578 8,769 
Accrued commissions12,457 9,877 
Short-term lease liability2,412 2,234 
Deferred revenue2,137 1,545 
Other accrued expenses and current liabilities10,685 10,255 
  Total current liabilities55,047 52,981 
Long-term borrowings under credit facility25,812  
Long-term lease liability15,124 5,866 
Deferred tax liability, net3,182 4,308 
Other liabilities500 1,748 
Total liabilities99,665 64,903 
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value; 15,000 authorized; no shares issued and outstanding at September 30, 2022 and December 31, 2021
  
Common stock, $0.01 par value; 120,000 authorized; 37,197 and 36,584 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively
372 366 
Additional paid-in capital593,306 584,031 
Accumulated other comprehensive income435 1,570 
Accumulated deficit(319,654)(273,603)
Total stockholders' equity274,459 312,364 
Total liabilities and stockholders' equity$374,124 $377,267 
The accompanying notes are an integral part of these condensed consolidated financial statements.

6



SEASPINE HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
7



 Nine Months Ended September 30,
 20222021
OPERATING ACTIVITIES:
Net loss$(46,051)$(35,560)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization12,838 10,280 
Instrument replacement expense 4,549 2,665 
Provision for excess and obsolete inventories3,649 3,891 
Deferred income tax benefit(1,089) 
Stock-based compensation10,172 8,791 
Gain on forgiveness of Paycheck Protection Program Loan (6,173)
Other112 429 
Changes in assets and liabilities, net of the effects from acquisition:
Accounts receivable(3,520)(753)
Inventories(13,647)(17,995)
Prepaid expenses and other current assets(830)248 
Long-term trade receivable(4,568) 
Other non-current assets(133)220 
Accounts payable1,432 9,729 
Accrued commissions2,577 1,053 
Other accrued expenses and current liabilities886 1,405 
Other non-current liabilities(563)(607)
Net cash used in operating activities(34,186)(22,377)
INVESTING ACTIVITIES:
Purchases of property and equipment(25,043)(16,894)
Additions to technology assets(700)(1,161)
Acquisitions (28,331)
Net cash used in investing activities(25,743)(46,386)
FINANCING ACTIVITIES:
Borrowings under credit facility25,000 20,000 
Repayments of credit facility (20,000)
Debt issuance costs (45)
Proceeds from issuance of common stock- employee stock purchase plan964 1,016 
Proceeds from exercise of stock options31 1,996 
Proceeds from issuance of common stock, net of offering costs 94,531 
Repurchases of common stock for income tax withheld upon vesting of restricted stock awards and restricted stock units(1,888)(2,781)
Payment of contingent royalty consideration liabilities in connection with acquisition of
business
(39)(33)
Net cash provided by financing activities24,068 94,684 
Effect of exchange rate changes on cash and cash equivalents(482)(301)
Net change in cash and cash equivalents(36,343)25,620 
Cash and cash equivalents at beginning of period83,106 76,813 
Cash and cash equivalents at end of period$46,763 $102,433 
Supplemental cash flow information:
Interest paid$114 $253 
Income taxes paid$130 $148 
Non-cash investing activities:
Purchases of property and equipment in liabilities$3,507 $4,648 
Intangible assets payments in liabilities$ $200 
Non-cash financing activities:
Issuance of common stock - Acquisition$ $61,048 
Exchangeable shares - Acquisition $ $26,505 
The accompanying notes are an integral part of these condensed consolidated financial statements.
8



SEASPINE HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands)
 Common Stock Additional Accumulated OtherTotal
Number of Paid-InComprehensive AccumulatedStockholders'
Shares Amount CapitalIncome (Loss)Deficit Equity
Balance December 31, 202136,584 $366 $584,031 $1,570 $(273,603)$312,364 
Net loss— — — — (16,604)(16,604)
Foreign currency translation adjustment— — — (175)— (175)
Issuance of common stock- Exchangeable Shares50 1 (1)— —  
Restricted stock issued155 1  — — 1 
Issuance of common stock - exercise of stock options  3 — — 3 
Repurchases of common stock for income tax withheld upon vesting of restricted stock awards and restricted stock units— — (1,587)— — (1,587)
Stock-based compensation— — 2,819 — — 2,819 
Balance March 31, 202236,789 368 585,265 1,395 (290,207)296,821 
Net loss— — — — (13,947)(13,947)
Foreign currency translation adjustment— — — (467)— (467)
Restricted stock issued192 2 (1)— — 1 
Issuance of common stock under employee stock purchase plan201 2 962 — — 964 
Issuance of common stock- exercise of stock options3  28 — — 28 
Repurchases of common stock for income tax withheld upon vesting of restricted stock awards and restricted stock units— — (274)— — (274)
Stock-based compensation— — 3,701 — — 3,701 
Balance June 30, 202237,185 372 589,681 928 (304,154)286,827 
Net loss— — — — (15,500)(15,500)
Foreign currency translation adjustment— — — (493)— (493)
Restricted stock issued12 — — — — — 
Repurchases of common stock for income tax withheld upon vesting of restricted stock awards and restricted stock units— — (27)— — (27)
Stock-based compensation— — 3,652 — — 3,652 
Balance September 30, 202237,197 372 593,306 435 (319,654)274,459 
9



 Common Stock Additional Accumulated OtherTotal
Number of Paid-InComprehensive AccumulatedStockholders'
Shares Amount CapitalIncomeDeficit Equity
Balance December 31, 202027,729 $277 $388,574 $2,124 $(219,257)$171,718 
Net loss— — — — (12,720)(12,720)
Foreign currency translation adjustment— — — (357)— (357)
Restricted stock issued175 2  — — 2 
Issuance of common stock - exercise of stock options44  496 — — 496 
Repurchases of common stock for income tax withheld upon vesting of restricted stock awards and restricted stock units— — (2,418)— — (2,418)
Stock-based compensation— — 2,546 — — 2,546 
Balance March 31, 202127,948 279 389,198 1,767 (231,977)159,267 
Net loss— — — — (5,213)(5,213)
Foreign currency translation adjustment — — — 102 — 102 
Restricted stock issued71 1 (1)— —  
Issuance of common stock under employee stock purchase plan109 1 1,015 — — 1,016 
Issuance of common stock- Public Offering5,175 52 94,479 — — 94,531 
Issuance of common stock- Acquisition2,991 30 61,018 — — 61,048 
Issuance of common stock- Exchangeable Shares  26,505 — — 26,505 
Issuance of common stock- exercise of stock options81 1 1,106 — — 1,107 
Repurchases of common stock for income tax withheld upon vesting of restricted stock awards and restricted stock units— — (126)— — (126)
Stock-based compensation— — 3,096 — — 3,096 
Balance June 30, 202136,375 364 576,290 1,869 (237,190)341,333 
Net loss— — — — (17,627)(17,627)
Foreign currency translation adjustment— — — (170)— (170)
Restricted stock issued22 — — — — — 
Issuance of common stock- exercise of stock options30 — 393 — — 393 
Repurchases of common stock for income tax withheld upon vesting of restricted stock awards and restricted stock units— — (237)— — (237)
Stock-based compensation— — 3,149 — — 3,149 
Balance September 30, 202136,427 364 579,595 1,699 (254,817)326,841 

The accompanying notes are an integral part of these condensed consolidated financial statements.
10



SEASPINE HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND BASIS OF PRESENTATION
Business
SeaSpine Holdings Corporation was incorporated in Delaware on February 12, 2015. Unless the context indicates otherwise, references to "SeaSpine" or the "Company" refer to SeaSpine Holdings Corporation and its wholly-owned subsidiaries.
SeaSpine is a global medical technology company focused on the design, development, and commercialization of surgical solutions for the treatment of patients suffering from spinal disorders. SeaSpine’s complete procedural solutions feature its FLASH™ Navigation, a system designed to improve accuracy of screw placement and provide a cost-effective, rapid, radiation-free solution to surgical navigation, and a comprehensive portfolio of spinal implants and orthobiologics to meet the varying combinations of products that neurosurgeons and orthopedic spine surgeons need to facilitate spinal fusion in degenerative, minimally invasive surgery (MIS), and complex spinal deformity procedures on the lumbar, thoracic and cervical spine.
Basis of Presentation and Principles of Consolidation
The Company prepared the unaudited interim condensed consolidated financial statements included in this report in accordance with accounting principles generally accepted in the U.S. (GAAP) for interim financial information and the rules and regulations of the Securities and Exchange Commission (SEC) related to quarterly reports on Form 10-Q.
The Company’s financial statements are presented on a consolidated basis. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The unaudited interim condensed consolidated financial statements do not include all information and disclosures required by GAAP for annual audited financial statements and should be read with the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC. In the opinion of management, the unaudited interim condensed consolidated financial statements included in this report have been prepared on the same basis as the Company's audited consolidated financial statements and include all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the financial position, results of operations, cash flows, and statement of equity for periods presented. The results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results expected for the full year. The condensed consolidated balance sheet as of December 31, 2021 was derived from the audited consolidated balance sheet for the year ended December 31, 2021. Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.
Prior period revisions
During the third quarter of 2021, the Company made a revision related to the functional currency of its recently acquired Canadian company, 7D Surgical Inc., a corporation incorporated under the laws of the Province of Ontario (7D Surgical). Prior to July 1, 2021, the functional currency for 7D Surgical was the Canadian dollar. The Company reassessed the functional currency and determined that the functional currency is the U.S. dollar based on management's analysis of the primary economic environment in which 7D Surgical operates. The Company revised the presentation of the unaudited statements for the prior quarter ending June 30, 2021 to reflect this determination and revised such prior period information presented in this filing.
The Company assessed the materiality of the error, both quantitatively and qualitatively, in accordance with the SEC’s Staff Accounting Bulletin No. 99, and concluded that the error was not material to any of its previously reported unaudited financial statements based upon qualitative aspects of the error. However, in order to correctly present other comprehensive income, previously issued unaudited financial statements have been revised and are presented “As Revised” in the tables below.
The $3.2 million adjustment noted in the tables below reflects the change in foreign currency fluctuations.
11

SEASPINE HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Three Months EndedSix Months Ended
June 30, 2021June 30, 2021
As ReportedAdjustmentAs RevisedAs ReportedAdjustmentAs Revised
 (In thousands)
Condensed Consolidated Statements of Comprehensive Loss:
Foreign currency translation adjustments$(3,070)$3,172 $102 $(3,427)$3,172 $(255)
Comprehensive loss(8,283)3,172 (5,111)(21,360)3,172 (18,188)
As of June 30, 2021
As ReportedAdjustmentAs Revised
Condensed Consolidated Statements of Equity:
Accumulated other comprehensive (loss) income$(1,303)$3,172 $1,869 
Foreign currency translation adjustments(3,070)3,172 102 
Total stockholders' equity338,161 3,172 341,333 
Condensed Consolidated Balance Sheet:
Intangible assets, net$57,015 $1,203 $58,218 
Goodwill73,845 1,983 75,828 
Other assets389 (14)375 
Total assets397,212 3,172 400,384 
Accumulated other comprehensive (loss) income$(1,303)$3,172 $1,869 
Total stockholders' equity338,161 3,172 341,333 

Concentration of Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash, which is held at major financial institutions, and trade receivables.
The Company’s products are sold on an uncollateralized basis and on credit terms based upon a credit risk assessment of each customer. A portion of the Company’s trade receivables to customers outside the United States includes sales to foreign stocking distributors, who then sell to government owned or supported healthcare systems. The ongoing economic conditions in certain European countries, especially Greece, Ireland, Italy, Portugal and Spain remain uncertain.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going Concern
The Company has not achieved profitable operations, nor is there assurance that profitable operations will ever be achieved, and, if achieved, could be sustained on a continuing basis. As of September 30, 2022, the Company had cash and cash equivalents totaling approximately $46.8 million and $0.6 million of borrowing capacity available under its credit facility. The Company incurred net losses in each year since inception. Its net losses were $46.1 million and $35.6 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, the Company had an accumulated deficit of $319.7 million. The Company anticipates that its expenses will increase as it continues to invest in the expansion of its business, primarily in sales, marketing and research and development, and invests in inventory, spinal implant set builds and instrument capital expenditures. In addition, the Company is subject to a number of risks similar to other medical device companies, including, but not limited to, risks related to maintaining high levels of inventory, raising additional capital, and the successful discovery, development, and commercialization of products. These circumstances raise substantial doubt about the Company’s ability to continue as a going concern and, based on its operating plans and current liquidity resources, it does not believe that it has sufficient resources to fund operations and meet its contractual obligations for the 12 months following the issuance date of these consolidated financial statements. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty and assumes that the Company will continue as a going concern through the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
12

SEASPINE HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Subsequent to the quarter end, the Company entered into an agreement and plan of merger with Orthofix Medical Inc., a Delaware corporation (“Orthofix”), which contemplates a merger of equals in an all stock transaction. See Note 12. Subsequent Events for further discussion. There is no assurance that the proposed merger with Orthofix will be consummated. If the merger is not consummated, the Company could be forced to raise funds through an equity or debt offering, delay, reduce or eliminate some or all of its projected inventory and capital expenditures spend, research and development programs or commercialization activities, which could materially adversely affect its business prospects and its ability to continue operations.

COVID-19; Ukraine Conflict

The full extent to which the COVID-19 pandemic or the ongoing conflict in Ukraine will directly or indirectly impact the Company's business, results of operations and financial condition, including revenues, expenses, manufacturing, research and development costs and employee-related compensation, will depend on future developments that are highly uncertain, including, with respect to COVID-19, as a result of variants of the virus that causes COVID-19 or other information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, and with respect to the ongoing conflict in Ukraine, the impact thereof on the supply chain for titanium, which is used in certain of our products, as well as the broader macroeconomic impact arising from both COVID-19 and the conflict on local, regional, national and international customers and markets.
Below is a summary of certain of the Company's significant accounting policies. For a comprehensive description of the Company's accounting policies, refer to the Annual Report on Form 10-K for the year ended December 31, 2021.
Use of Estimates
Preparing consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities, and the reported amounts of revenues and expenses. Significant estimates affecting amounts reported or disclosed in the consolidated financial statements include allowances for doubtful accounts receivable and sales returns and other credits, net realizable value of inventories, discount rates and estimated projected cash flows used to value and test impairments of goodwill, identifiable intangible and long-lived assets, fair value estimates related to business combinations, assumptions related to the timing and probability of product launch dates, discount rates matched to the estimated timing of payments, probability of success rates and discount adjustments on the related cash flows for contingent considerations in business combinations, depreciation and amortization periods for identifiable intangible and long-lived assets, computation of taxes, valuation allowances recorded against deferred tax assets, the valuation of stock-based compensation and loss contingencies. These estimates are based on historical experience and on various other assumptions believed to be reasonable under the current circumstances. Actual results could differ from these estimates.
Recently Adopted Accounting Standards
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU or Update) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires credit losses on most financial assets measured at amortized cost, including trade receivables, and certain other instruments to be measured using an expected credit loss model, referred to as the current expected credit loss (CECL) model. Under this model, entities will estimate credit losses over the entire contractual term of the instrument. The FASB subsequently issued other related ASUs that amend ASU No. 2016-13 to provide clarification and additional guidance. The new standard was effective for the Company beginning January 1, 2022 and primarily impacted trade accounts receivable. The amendments in this update were adopted using a modified retrospective transition method as of January 1, 2022, which had no cumulative impact to retained earnings. The adoption of this new standard had no material impact on the Company's consolidated financial statements. The Company's concentrations of credit risks are limited due to the large number of customers and their dispersion across a number of geographic areas. Substantially all of the Company's trade receivables are concentrated in the public and private hospital and healthcare industry in the U.S. and internationally or with distributors who operate in international markets. The Company's historical credit losses have not been significant due to this dispersion and the financial stability of the Company's customers. The Company considers credit losses immaterial to its business and, therefore, has not provided all the disclosures otherwise required by the standard. The Company updated its accounting policy disclosure for accounts receivable as follows:
Trade accounts receivable in the accompanying consolidated balance sheets are presented net of allowances for doubtful accounts for expected credit losses and sales returns and other credits. The Company grants credit to customers in the normal course of business, but generally does not require collateral or any other security to support its receivables.
13

SEASPINE HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company evaluates the collectability of accounts receivable based on a combination of factors. In circumstances where a specific customer is unable to meet its financial obligations to the Company, a provision to the allowances for doubtful accounts for expected credit losses is recorded to reduce the net recognized receivable to the amount that is reasonably expected to be collected. For all other customers, a provision to the allowances for doubtful accounts for expected credit losses is recorded based on factors including the length of time the receivables are past due, the current business environment, the geographic market and the Company’s historical experience. Provisions to the allowances for doubtful accounts for expected credit losses are recorded to general and administrative expenses. Account balances are charged off against the allowance when it is probable that the receivable will not be recovered. The allowance for doubtful accounts for expected credit losses was $166 thousand and $74 thousand as of September 30, 2022 and December 31, 2021, respectively.
In January 2017, the FASB issued Update No. 2017-04, Simplifying the Test for Goodwill Impairment (ASU 2017-04). ASU 2017-04 simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. ASU 2017-04 was effective for the Company beginning January 1, 2022 and was applied on a prospective basis. The adoption of ASU 2017-04 had no material impact on its consolidated financial statements.
In May 2021, the FASB issued Update No. 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40) Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This Update addresses issuer's accounting for certain modifications or exchanges of freestanding equity-classified written call options. The new standard was effective for the Company beginning January 1, 2022. The adoption of this new standard had no material impact on its consolidated financial statements.
In July 2021, the FASB issued Update No. 2021-05, Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments. Under this standard, lessors will classify leases with variable payments that do not depend on an index or rate as operating leases if a different classification would result in a commencement date selling loss. The new standard was effective for the Company beginning January 1, 2022 and early adoption is permitted. The adoption of this new standard had no material impact on its consolidated financial statements.
Net Loss Per Share
The Company follows the two-class method when computing net loss per share. Because the Company's board of directors has discretion in declaring/issuing dividends on the Company's common stock, these dividend rights meet the definition for participating securities. Basic and diluted net loss per share was calculated using the weighted-average number of shares of common stock outstanding during the period. The weighted average number of shares used to compute diluted net loss per share excludes any assumed issuance of common stock upon exercise of stock options, any assumed issuance of common stock under restricted stock awards or units, and any assumed issuances under the Company's employee stock purchase plan, because the effect, in each case, would be antidilutive. Common stock equivalents, including the Exchangeable Shares (as defined below), of 7.3 million and 6.5 million shares for each of the three and nine months ended September 30, 2022 and 2021, respectively, were excluded from the calculation because of their antidilutive effect.
3. DEBT AND INTEREST
Credit Agreement
In December 2015, the Company entered into a credit facility with Wells Fargo Bank, N.A. (as amended, the Credit Facility). On July 15, 2022, the Company entered into an amendment to the Credit Facility which, among other things, extends the maturity date from July 27, 2022 to July 27, 2025, and changes the monthly interest rate from an interest rate based on LIBOR and a three-level grid based on the prior month’s excess availability to an interest rate based on Term SOFR plus 2.65% (the transition from LIBOR to Term SOFR was intended to be value neutral). The Credit Facility provides an asset-backed revolving line of credit of up to $30.0 million. In addition, under the Credit Facility, at any time prior to July 15, 2025, the Company may increase the $30.0 million borrowing limit by up to an additional $10.0 million, subject to the Company having sufficient amounts of eligible accounts receivable and inventory and to customary conditions precedent, including obtaining the commitment of lenders to provide such additional amount. The Company paid to Wells Fargo a $150,000 closing fee in connection with parties entering into the amendment. In connection with entering into the Credit Facility, the Company was required to become a guarantor and to provide a security interest in substantially all its assets for the benefit of the counterparty.
As of September 30, 2022, there was $25.8 million outstanding under the Credit Facility. There were no amounts outstanding at December 31, 2021. As of September 30, 2022, the effective interest rate on the amounts borrowed was 4.78%. At September 30, 2022, the Company had $0.6 million of current borrowing capacity under the Credit Facility before the
14

SEASPINE HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
requirement to maintain the minimum fixed charge coverage ratio as discussed below. Debt issuance costs and legal fees related to the amendment of the Credit Facility totaling $0.3 million were recorded as a deferred asset and are being amortized ratably over the term of the arrangement.
Borrowings under the amended Credit Facility accrue interest at the rate then applicable to base rate loans (as customarily defined), unless and until converted into SOFR rate loans (as customarily defined) in accordance with the Credit Facility. Borrowings bear interest at a floating annual rate equal to (a) base rate plus 1.50 percentage points for base rate loans and (b) SOFR rate plus 2.65 percentage points for SOFR rate loans. The Company also pays an unused line fee based on the average amount borrowed under the Credit Facility for the most recently completed month equal to 0.50% per annum of the amount unused under the Credit Facility. The unused line fee is due on the first day of each month.
The Credit Facility contains various customary affirmative and negative covenants, including prohibiting the Company from incurring indebtedness without the lender’s consent. The Credit Facility also includes a financial covenant that requires the Company to maintain a minimum fixed charge coverage ratio of 1.10 to 1.00 for the applicable measurement period, if the Company's Total Liquidity (as defined in the Credit Facility) is less than $5.0 million. The Company was in compliance with all applicable covenants at September 30, 2022.
The Credit Facility also includes customary events of default, including events of default relating to non-payment of amounts due under the Credit Facility, material inaccuracy of representations and warranties, violation of covenants, bankruptcy and insolvency, failure to comply with health care laws, violation of certain of the Company’s existing agreements, and the occurrence of a change of control. Under the Credit Facility, if an event of default occurs, the lender will have the right to terminate the commitments and accelerate the maturity of any loans outstanding.

4. INVENTORIES
Inventories consisted of:
September 30, 2022December 31, 2021
 (In thousands)
Finished goods$58,015 $49,405 
Work in process19,777 17,644 
Raw materials6,201 5,250 
$83,993 $72,299 

15

SEASPINE HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at historical cost less accumulated depreciation and amortization and any impairment charges. The Company provides for depreciation using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the lease term or the useful life. The cost of major additions and improvements is capitalized, while maintenance and repair costs that do not improve or extend the lives of the respective assets are charged to operations as incurred. The cost of computer software obtained for internal use is accounted for in accordance with FASB Accounting Standards Codification, Internal-Use Software (Subtopic 350-40).
The cost of purchased spinal instruments that the Company consigns to hospitals and independent sales agents to support surgeries is initially capitalized as construction in progress. The amount is then either reclassified to spinal instruments and sets, and depreciation is initiated when instruments are put together in a newly built set with spinal implants, or directly expensed for the instruments used to replace damaged instruments in an existing set. The depreciation expense and direct expense for replacement instruments are recorded in selling and marketing expense.
Property, plant and equipment balances and corresponding useful lives were as follows:
September 30, 2022December 31, 2021Useful Lives
 (In thousands)
Leasehold improvements$6,641 $6,501 Shorter of lease term or useful life
Machinery and production equipment11,004 10,408 3-10years
Spinal instruments and sets50,091 45,076 4-6years
Information systems and hardware9,834 8,186 3-7years
Furniture and fixtures2,086 2,097 3-5years
Construction in progress22,202 17,615 
     Total101,858 89,883 
Less accumulated depreciation and amortization(45,498)(42,991)
Property, plant and equipment, net$56,360 $46,892 
Depreciation and amortization expenses totaled $2.5 million and $2.2 million for the three months ended September 30, 2022 and 2021, respectively, and $7.3 million and $5.5 million for the nine months ended September 30, 2022 and 2021, respectively. The cost of purchased instruments used to replace damaged instruments in existing sets and recorded directly to instrument replacement expense totaled $1.9 million and $1.0 million for the three months ended September 30, 2022 and 2021, respectively, and $4.5 million and $2.7 million for the nine months ended September 30, 2022 and 2021, respectively.


16

SEASPINE HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. IDENTIFIABLE INTANGIBLE ASSETS
Identifiable intangible assets are initially recorded at fair value at the time of acquisition, generally using an income or cost approach. The Company capitalizes costs incurred to renew or extend the term of recognized intangible assets and amortizes those costs over their expected useful lives.
The components of the Company’s identifiable intangible assets were:
 September 30, 2022
 Weighted
Average
Life
CostAccumulated
Amortization
Net
 (Dollars in thousands)
Product technology12 years$65,642 $(35,442)$30,200 
Customer relationships12 years56,830 (51,618)$5,212 
Trademarks/brand names6 years1,600 (615)$985 
Other intangibles8 years$162 $(27)$135 
$124,234 $(87,702)$36,532 
 December 31, 2021
 Weighted
Average
Life
CostAccumulated
Amortization
Net
 (Dollars in thousands)
Product technology12 years$65,642 $(32,484)$33,158 
Customer relationships12 years56,830 (49,241)7,589 
Trademarks/brand names6 years1,600 (438)1,162 
Other intangibles8 years159 (12)147 
$124,231 $(82,175)$42,056 
Annual amortization expense (including amounts reported in cost of goods sold) is expected to be approximately $7.3 million in 2022, $6.6 million in 2023, $4.6 million in 2024, $3.3 million in 2025, and $3.3 million in 2026. For the three months ended September 30, 2022 and 2021, amortization expense totaled $1.8 million and $2.2 million, respectively, and included $1.0 million and $1.3 million, respectively, of amortization of product technology intangible assets that is presented within cost of goods sold. Amortization expense totaled $5.5 million and $4.7 million for the nine months ended September 30, 2022 and 2021, respectively, and included $3.0 million and $2.2 million, respectively, of amortization of product technology intangible assets that is presented within cost of goods sold.
17

SEASPINE HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. EQUITY AND STOCK-BASED COMPENSATION
Common Stock
In April 2021, the Company entered into an Underwriting Agreement with Piper Sandler & Co., Canaccord Genuity LLC, and Stifel, Nicolaus & Company, Incorporated relating to the issuance and sale of 4,500,000 shares of the Company's common stock at a price to the public of $19.50 per share, before underwriting discounts and commissions. Under the terms of that agreement, the Company granted the underwriters an option, exercisable for 30 days, to purchase up to an additional 675,000 shares of common stock. The underwriters exercised this option and the offering closed on April 20, 2021 with the sale of 5,175,000 shares of common stock, resulting in net proceeds to the Company of approximately $95 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. The Company used a portion of the net proceeds from the offering to repay all of its then-outstanding borrowings under the Credit Facility and to finance the cash consideration of $27.5 million for the Company's acquisition of 7D Surgical.
In May 2021, the Company issued 2,991,054 shares of the Company’s common stock and 1,298,648 Exchangeable Shares in connection with Company's acquisition of 7D Surgical.
Equity Award Plans
In May 2015, the Company adopted the 2015 Incentive Award Plan, which was subsequently amended and restated with approval of the Company's stockholders. In February and March 2018, the Company's board of directors approved amendments to the plan that increased the share reserve by an aggregate of 2,726,000 shares over the then-existing share reserve thereunder, subject to stockholder approval. The Company's stockholders approved both amendments in May 2018. In April 2020, the Company's board of directors approved an amendment to the plan that, among other things, increased the share reserve by an aggregate of 3,500,000 shares over the then-existing share reserve thereunder, subject to stockholder approval. The Company's stockholders approved the amendment in June 2020 (the 2015 Incentive Award Plan, as amended and restated to date, the Restated Plan). Under the Restated Plan, the Company can grant its employees, non-employee directors and consultants incentive stock options and non-qualified stock options, restricted stock, performance stock, dividend equivalent rights, stock appreciation rights, stock payment awards and other incentive awards. The aggregate number of shares that may be issued or transferred pursuant to awards under the Restated Plan is the sum of (1) the number of shares issuable upon exercise or vesting of the equity awards issued by the Company's former parent company prior to the spin-off that were converted into the Company's equity awards under the Restated Plan as of the date of the spin-off and (2) 9,735,500 shares of the Company's common stock in respect of awards granted under the Restated Plan. As of September 30, 2022, 1,411,864 shares were available for issuance under the Restated Plan.
In August 2020, the Company adopted the 2020 Employment Inducement Incentive Award Plan (the 2020 Inducement Plan). The terms of the 2020 Inducement Plan are substantially similar to the terms of the Restated Plan with four principal exceptions: (1) incentive stock options may not be granted under the 2020 Inducement Plan; (2) there are no annual limits on awards that may be issued to an individual under the 2020 Inducement Plan; (3) awards granted under the 2020 Inducement Plan are not required to be subject to any minimum vesting period; and (4) awards may be granted under the 2020 Inducement Plan only to those individuals and in those circumstances described below. An aggregate of 2,000,000 shares are reserved under the 2020 Inducement Plan. As of September 30, 2022, 1,171,398 shares were available for issuance under the 2020 Inducement Plan.
The 2020 Inducement Plan was adopted by the Company’s board of directors without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules. In accordance with Rule 5635(c)(4) of the Nasdaq Listing Rules, awards under the plan may only be made to an employee who has not previously been an employee or member of the Company's board of directors or of any board of directors of any parent or subsidiary of the Company, or following a bona fide period of non-employment by the Company or a parent or subsidiary, if he or she is granted such award in connection with his or her commencement of employment with the Company or a subsidiary and such grant is an inducement material to his or her entering into employment with the Company or such subsidiary.
Forfeiture Rate Assumptions
Stock-based compensation expense related to all equity awards includes an estimate for forfeitures. The expected forfeiture rate of all equity-based compensation is based on historical experience of pre-vesting forfeitures on awards and options by each homogeneous group of shareowners. For awards and options granted to non-executive employees, the forfeiture rate is estimated to be 10% and 9% annually for the nine months ended September 30, 2022 and 2021, respectively. There is no forfeiture rate applied to awards or options granted to non-employee directors or executive employees because their pre-vesting forfeitures are anticipated to be highly unlikely. As individual awards and options become fully vested, stock-based compensation expense is adjusted to recognize actual forfeitures.
18

SEASPINE HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Restricted Stock Awards and Restricted Stock Units
Restricted stock award and restricted stock unit grants to employees generally have a requisite service period of three years, and restricted stock award and restricted stock unit grants to non-employee directors generally have a requisite service period of one year. Both are subject to graded vesting. The Company expenses the fair value of restricted stock awards and restricted stock units on an accelerated basis over the vesting period or requisite service period, whichever is shorter.
No restricted stock units were granted to non-employee directors during any of the three or nine months ended September 30, 2022 or 2021. During each of the nine months ended September 30, 2022 and 2021, there were 141,575 and 65,540 shares of restricted stock awards granted to non-employee directors. There were no restricted stock awards granted to non-employee directors during each of the three months ended September 30, 2022 and 2021, respectively.
During the three and nine months ended September 30, 2022, 82,743 and 804,150 restricted stock units were granted to employees, respectively. During the three and nine months ended September 30, 2021, 10,600 and 409,385 restricted stock units were granted to employees, respectively. No restricted stock awards were granted to employees during any of the three or nine months ended September 30, 2022 or 2021.
As of September 30, 2022, there was approximately $7.9 million of unrecognized compensation expense related to the unvested portions of restricted stock awards and restricted stock units. This expense is expected to be recognized over a weighted-average period of approximately 1.2 years.
Stock Options
Stock option grants to employees generally have a requisite service period of four to five years, and stock option grants to non-employee directors generally have a requisite service period of one year. Both are subject to graded vesting. The Company records stock-based compensation expense associated with stock options on an accelerated basis over the applicable vesting period within each grant and based on their fair value at the date of grant using the Black-Scholes-Merton option pricing model. There were 143,539 and 53,850 stock options granted during the three months ended September 30, 2022 and 2021, respectively, and 680,084 and 1,131,863 stock options granted during the nine months ended September 30, 2022 and 2021, respectively. The following weighted-average assumptions were used in the calculation of fair value for options granted during the period indicated.
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Expected dividend yield%%%%
Risk-free interest rate3.2%0.6%2.0%0.6%
Expected volatility 54.7%52.3%52.7%51.7%
Expected term (in years)4.34.35.14.9
The Company considered that it has never paid, and does not currently intend to pay, cash dividends. The risk-free interest rates are derived from the U.S. Treasury yield curve in effect on the date of grant for instruments with a remaining term similar to the expected term of the options. The expected volatility is calculated based upon the historical volatility of the Company's share prices. The expected term is calculated using the historical weighted average term of the Company’s options.
As of September 30, 2022, there was approximately $5.0 million of unrecognized compensation expense related to unvested stock options. This expense is expected to be recognized over a weighted-average period of approximately 1.4 years.
Employee Stock Purchase Plan
In May 2015, the Company adopted the SeaSpine Holdings Corporation 2015 Employee Stock Purchase Plan, which was amended in November 2018, as described below (as amended, the ESPP). Under the ESPP, eligible employees may purchase shares of the Company’s common stock through payroll deductions of up to 15% of eligible compensation during an offering period. Generally, each offering period will be for 24 months as determined by the Company's board of directors. There are four six-month purchase periods in each offering period for contributions to be made and to be converted into shares at the end of the purchase period. In no event may an employee purchase more than 2,500 shares per purchase period based on the closing price on the first trading date of an offering period or more than $25,000 worth of stock during any calendar year. The purchase price for shares to be purchased under the ESPP is 85% of the lesser of the market price of the Company's common stock on the first trading date of an offering period or on any purchase date during an offering period (June 30 or December 31).
19

SEASPINE HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Subject to stockholder approval, on and effective as of November 2, 2018, the Company's board of directors approved an amendment to the ESPP pursuant to which the share reserve under the ESPP would increase from 400,000 shares to 800,000 shares. The Company's stockholders approved that amendment in May 2019. In December 2020, the Company's board of directors approved the issuance of an additional 500,000 shares of common stock under the ESPP. The Company's stockholders approved that amendment in June 2021. The ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended (the IRC). The ESPP contains a restart feature, such that if the market price of the stock at the end of any six-month purchase period is lower than the market price at the original grant date of an offering period, that offering period will terminate after that purchase date, and a new two-year offering period will commence on the January 1 or July 1 immediately following the date the original offering period terminated. This restart feature was triggered on the purchase date that occurred on December 31, 2021, such that the offering periods that commenced on January 1, 2021 and July 1, 2021 were terminated, and a new two-year offering period commenced on January 1, 2022 and will end on December 31, 2023. This restart feature was triggered again on the purchase date that occurred on June 30, 2022, such that the offering period that commenced on January 1, 2022 was terminated, and a new two-year offering period commenced on July 1, 2022 and will end on June 30, 2024. The Company applied share-based payment modification accounting to the awards that were initially valued at the grant date to determine the amount of any incremental fair value associated with the modified awards. The impact to stock-based compensation expense for modifications during the nine months ended September 30, 2022 was immaterial.
During the nine months ended September 30, 2022 and 2021, there were 200,642 and 109,178 shares of common stock purchased under the ESPP. The Company recognized $0.8 million in expense related to the ESPP for each of the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, 226,675 shares were available under the ESPP for future issuance.
The Company estimates the fair value of shares issued to employees under the ESPP using the Black-Scholes-Merton option-pricing model. The following weighted average assumptions were used in the calculation of fair value of shares under the ESPP at the grant date for the periods indicated:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Expected dividend yield % % % %
Risk-free interest rate2.8 %0.1 %2.4 %0.1 %
Expected volatility 51.3 %58.9 %52.1 %40.7 %
Expected term (in years)1.31.31.30.8
8. LEASES
The Company determines if an arrangement is a lease at inception. The Company's leases primarily relate to administrative, manufacturing, research, and distribution facilities and various manufacturing, office and transportation equipment. Lease assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Lease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company's leases do not provide an implicit rate, the Company's incremental borrowing rate is used as a discount rate, based on the information available at the commencement date, in determining the present value of lease payments. Lease assets also include the impact of any prepayments made and are reduced by impact of any lease incentives.
The Company made an accounting policy election for short-term leases, such that the Company will not recognize a lease liability or lease asset on its balance sheet for leases with a lease term of twelve months or less as of the commencement date. Rather, any short-term lease payments will be recognized as an expense on a straight-line basis over the lease term. The current period short-term lease expense reasonably reflects the Company's short-term lease commitments.
The Company made a policy election for all classifications of leases to combine lease and non-lease components and to account for them as a single lease component. Variable lease payments are excluded from the lease liability and recognized in the period in which the obligation is incurred. Additionally, lease terms may include opt