Welcome to SeaSpine's 2023 third quarter financial results conference call. At this time, all participants are in listen-only mode. Following management's prepared remarks, we'll hold a Q&A session. To ask a question at the time, please press star followed by one on your touch tone phone. If anyone needs assistance. As a reminder, this conference call is being recorded today, November 1, 2022. I would now like to turn the conference over to Greg Rudichuk. Please go ahead, sir. Thank you for participating in today's call, third quarter 2022. During the conference call, we will make forward-looking statements within the meaning of the federal securities laws in regards to our business strategy, expectations and plans, our objectives of future operations and our future financial results and conditions. All statements other than statements of historical fact are forward-looking statements, believe, plan, intend and similar expressions. You are cautioned not to place undue reliance on forward-looking statements, which are only predictions and reflect our beliefs based on the current information and speak only as of today, November 1st, 2022. For the descriptions of risks and uncertainties that could cause material differences between our actual results and those stated or implied by the forward-looking statements, please see our news releases and periodic filings with the Securities and Exchange Commission, which are available on our corporate website, www.seaspine.com, or at www.sec.gov. Our discussion today will also include certain financial measures such as adjusted gross margin and adjusted EBITDA loss that are not calculated in accordance with generally accepted accounting principles or GAAP. Management believes that the presentation of these non-GAAP financial measures provides important supplemental information to management and investors regarding financial and business trends relating to the company's results of operations. These non-GAAP financial measures should not be considered replacements for, or should be read together with the most directly comparable GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are provided in the tables accompanying the press release we issued today. I will now turn the call over to Keith Valentine. Keith? Good afternoon, and thank you all for joining us. Our organization's consistent execution and the performance of our distributor partners, including the large transformational distributors we added during the past year, delivered record third quarter revenue growth and accelerating momentum. The tremendous momentum, combined with our innovative product offerings in orthobiologics, spinal implants and enabling technologies, continue to attract larger, more exclusive distributors and fuel our growth as we finish 2022 and look forward to consummating our planned merger with Orthofix, which we expect to close early next year. The momentum gave us the confidence to raise full year 2022 revenue guidance to a range of $236 million-$238 million, representing year-over-year growth of 23%-24%. In the third quarter, we grew total revenues by 45% over the prior year period of $67.1 million. In the U.S., where we generate approximately 90% of our total revenue, we saw revenue increase 24%, reaching $51.1 million, and international revenue grew 207% to $16 million. Largely as a result of the spinal implants stocking orders, we ship to our European distribution partners ahead of our planned exit from the spinal implants market there. We continue to expand our product portfolio with the full commercial launches of the WaveForm TA articulating interbody system and the Mariner MIS Wayfinder system. The WaveForm TA system is the next iteration of our proprietary 3D printed interbody technology that is manufactured entirely of a repeating and continuous wave-like structure that absorbs and distributes compressive loads more efficiently than other 3D printed architectures in the market without compromising strength. The Wayfinder system, a novel one-step k-wireless screw delivery system for pedicle screw fixation that is designed to reduce the number of steps associated with fixation placement. These launches improve outcomes and drive market share gains. Turning to 7D Surgical. We placed six units in the third quarter. From an earn-out perspective, we have executed a total of five deals since the acquisition, with an aggregate annual revenue commitment of $2.8 million per year. The sell-through of our spinal implants and orthobiologics products. We continue to see increased revenue six months post-capital sale in over half of those accounts. Before handing off the call to John, I would like to take a few minutes to discuss our recently announced intent to merge with Orthofix Medical. We believe our combined portfolios will put us in a highly differentiated position in the spine market, combining leading both a $200 million base of complementary revenue with immediate pull-through opportunity via the motion preservation, 7D enabling technologies and Bone Growth Therapies portfolios. Additionally, we believe that the revenue risk is manageable, as our due diligence efforts confirm that there is minimal geographic overlap in the United States. This merger of two patient-focused companies will create far more significant revenue upside and cost synergies than the two existing companies combined. Million dollar. International revenue increased by 207% to $16 million. U.S. spinal implant and enabling technologies revenue in the third quarter increased 30% to $27.4 million. Products launched or enhanced via line extensions within the past five years. Utilization of our spinal implant systems and orthobiologics products increased to 2.2 per procedure in the third quarter of 2022 compared to 2.1 a year ago. We experienced low single-digit average price declines in both the spinal implants and orthobiologics portfolios, consistent with prior. Margin associated with the $10 million increase in spinal implants revenue to European distributors in the third quarter of 2022 compared to the prior year period, which was partially offset by lower excess and obsolete inventory charges. Operating expenses for the third quarter of 2022 totaled $55.2 million, an $8.8 million increase compared to the third quarter of 2021. The increase in operating expenses was driven primarily by $5.4 million in higher selling and marketing expenses, which raised headcount-related compensation expenses and by legal and other fees associated with the planned merger with Orthofix, and $300,000 in higher research and development expenses. Net loss for the third quarter of 2022 was $15.5 million, compared to a net loss of $17.6 million for the third quarter of 2021. Adjusted EBITDA loss for the third quarter of 2022 was $2.7 million, compared to a loss of $7.4 million for the third quarter of 2021. 2022 totaled $46.8 million and includes $25.8 million of outstanding borrowing under the credit facility. Our free cash flow burn, which includes operating cash flows and purchases of property and equipment, was $19 million for the third quarter of 2022. This sets the rest of U.S. revenue growth expectations for the full year. Turning to our financial outlook for 2022, as Keith noted earlier, we expect full year 2022 revenue to be in the range of $236 million-$238 million, reflecting growth of approximately 23%-24% over full year 2021. This revenue range reflects growth of 16%-19% for the fourth quarter of 2022 after excluding European spinal implant revenue generated in the fourth quarter of 2021. Moving down the P&L, we still anticipate higher adjusted gross margins from further market penetration of the unique 7D Flash technology and through an increasingly favorable sales mix. Our expectation for free cash flow burn for full year 2022 has increased to more than $70 million. This increase is driven primarily by 2% revenue growth as we continue to support product launches and the onboarding of more transformative distributor partners as we seek to exceed the 15%-18% long-term revenue growth rates we committed to earlier this year. To date, we have received and paid more than $35 million of that significant growth investment. At this point, I'd like to turn the call back over to Keith for closing comments. Thank you, John. SeaSpine continues to gain momentum as evidenced by our sustained and outstanding results while increasing revenue guidance. We are simply winning and taking market share. The winning recipe requires hard work. Take a lot of product innovation, combine with proper execution, and mix in a great crew. The outcomes are increased market share, improving financial results, and overall success. We are taking this winning recipe with us as we chart our course into our future merger with Orthofix, and I look forward to the combined entity yielding even better outcomes by becoming stronger together. With that, thank you all for your time, and more importantly, your support. We will now open it up to questions. Thank you, sir. Ladies and gentlemen, at this stage, we will begin the question and answer session. If you would like to ask a question, please press star and then one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and then two if you would like to remove your question from the queue. Again, if you would like to ask a question, please press star and then one. The first question we have is from Ryan Zimmerman from BTIG. Please go ahead. Good afternoon. Thanks for taking the question. Hello. Hello, everyone. Hello. Just wanna ask if you could take us through kind of your thoughts on the low and high end of guidance for the fourth quarter, kind of what your underlying assumptions are for the low end, what your underlying assumptions are for the high end as we think about the revenue implied for fourth quarter. Yeah, it's obviously driven by U.S. revenue, with 90% of our revenue coming in the U.S. Spinal implants and orthobiologics are both coming off great quarters, and we're getting, you know, deepening penetration with the capital sales team from 7D. Again, the expectation is it's gonna come from across the board in the U.S. We exited the spinal implants market in Europe in the third quarter with those final stocking orders. That doesn't change our ability to sell spinal implants elsewhere in the world, and it doesn't impact our ability to sell orthobiologics or 7D in Europe, right? Because it was a different distributor network. Obviously, the European piece you'd expect to see down for OUS. The growth is picking up on the momentum we've seen in the U.S. in both spinal implants and orthobiologics from recent product launches. You know, we've got expectations for upcoming product launches with Mariner for adult deformity, and really it's just continuing to see the benefits of those larger transformative distributors we brought on board, you know, most meaningfully in the past year or even six months. We've got a pipeline of additional distributors we wanna bring in that exclusive capacity and think we'll be able to capitalize on some of those opportunities in the fourth quarter. Really it's a lot of the same of what we did in the third quarter, minus the stocking orders for the European distributors. Okay. Just to be clear, there's no kind of underlying macro assumption of, you know, a COVID wave or anything like that. I just wanna get it off the table, you know, for anyone that may have been concerned about that. Correct. No, no assumptions for COVID. Assuming continuing volumes at the same level we've seen, you know, really all this year since the Omicron wave. We've been fortunate that we have not been impacted by any COVID waves and expect to see the same kinda volumes continuing in the fourth quarter that we saw in the third quarter. Okay. Just a follow-up question from me. I mean, as we think about the merger, Keith, and you know, I appreciate the commentary about, you know, revenue synergies and also certainly revenue opportunities. Maybe just, you know, one, how you feel like you're mitigating any risk around the merger, especially around integration of the two organizations and just where you see kind of the greatest revenue synergy, whether that's in opportunities within, say, motion preservation or enabling tech or, you know, specific product categories that you're, you know, where you think you can capture the most cross-sell. Thank you. Yeah, you bet, Ryan. I think you captured all of them. There's components to each. I mean, one area that we are excited about is we feel like in the research that we did, that there's minimal overlap. Dealing with minimal overlap means that we're gonna be able to really hit the ground running with distribution, especially our exclusive distributors, who will have, you know, the ability to now have motion preservation with what we feel strongly about is the best cervical fusion product portfolio. That combination will be very powerful. In addition to that, I think that there's gonna be interest in us exploring how exclusive distribution has the ability to drive a greater BGT opportunity, so bone growth therapies and what we can do in the stim business by having focused distributors also interested in driving that platform. I think also when you look at enabling tech, I think as we know, 7D is a great agnostic platform, meaning not only can it be used in all different spine surgeries, but it can also be used in surgeries outside of spine. I think that's gonna be a great opportunity for us as we start combining and understanding what other areas of the organization can benefit from the use of 7D and benefit from either placements outright or some sort of earn outs. Okay. Appreciate it. I'll hop back with you. Thanks, guys. Thanks. Next question we have is from Kyle Rose from Canaccord Genuity. Great. Good afternoon, everyone. Hello. I wonder just to start if we could get just a U.S., OUS breakout for 7D in the quarter and then just, you know, expectations as far as, you know, how you expect that will trend, you know, through year-end here. Yeah, I remember, Ryan, we talked about giving revenue guidance on capital sales revenue through the anniversary of the acquisition because we wanted to provide organic versus inorganic. Now that we've anniversaried the acquisition, we're shifting to just focus on placements, because the placements is the critical part, right? We get the benefit of either a capital sales revenue, which is the upfront revenue, or we get the benefit of the longer term, revenue growth from an earn out. We're not gonna give color on the different capital sales opportunities or results, but we're gonna instead stay focused on talking about units, because the more units we're placing in the field, whether it's capital sale or earn out, we're seeing the uptick in spinal implants revenue. Obviously, with the earn outs, it's contractual. As we mentioned, over half the accounts where a 7D unit's been sold, we're starting to see non-contractual pull through of revenue for our spinal implants and orthobiologics. It's kind of that other benefit to the capital sale. Great. Thank you. Then, with respect to just, both the merger as well as the commercial team, you talked about, you know, new transformative, you know, exclusive type distributors. Can you just help us understand, I realize it's still early, but, you know, how have, you know, those conversations with either, you know, potential distributors, trended since the merger announcement, as well as how have the conversations with, you know, your existing commercial team now that you've presumably had a chance to check in with everybody, at NASS and thereafter? Just overall reaction after a little bit of the dust has settled, with respect to the merger. You know, I'll tell you, there was a real palpable energy at NASS. I think that we were really pleased with not only the enthusiasm that our distribution team had, which was the enthusiasm a lot along the lines of what I just answered previously on what the synergies can be and the upside opportunity can be for them. But I was also impressed with our sales management team and marketing teams and development teams that were all there as well. I mean, obviously this kind of news can create a certain level of tension or apprehension, so to speak. Everyone was very excited. They're excited about what this opportunity is gonna bring. They're excited about being part of a larger company that's gonna have certainly a strong balance sheet that will enable further investments in spine and further growth opportunities. I think. Just overall, just, you know, kind of piggybacking on Ryan's question previously with regards to, you know, the macro. Any changes you're seeing with respect to, you know, staffing challenges across the environment, expectations when you're speaking to hospital partners? Do you think those will get easier into the Q4? Just, you know, macro demand trends into the end of the year would be really helpful. Thank you. Yeah. Some kind of our market checks and conversations with surgeons have been very positive. Most are completely booked up for their fourth quarter. Not unusual, knowing that how that usually shapes up in Q4. No one seems to be expressing any concerns about staffing. I think that everyone wants there to be more flexibility, the ability to work weekends or work longer shifts in the OR. Not sure everyone's gonna have that flexibility. I think most surgeons have spoke that it is stable again, and that they're not worried about any kind of slowdowns from an OR perspective and absolutely looking forward to getting through their scheduling. I view it as it should be very similar to what we saw in the third quarter as far as staffing and availability and everything else, and don't anticipate any kind of disruption at this point. Great. Thank you for taking the questions. Yep. Thank you. Ladies and gentlemen, just a reminder, if you would like to ask a question, please press star and then one now. The next question we have is from Richard Newitter with Truist Securities. Hi, thanks for taking the question. This is Sam on for Rich. Just first question from us. In terms of the plans to add direct reps, are those conversations still happening? How should we think about as a combined entity, you know, when those direct reps are gonna come on board and where they should be felt there and when they should be felt? Yeah. The strategy, you know, has all along been to add direct reps second half of the year, and we have been. I know that generally speaking, during the process of due diligence, that we're all in agreement that direct reps do make sense in a, you know, progressive manner. Meaning, in areas that we both now will have white space or have areas that good distribution can't be found, but a direct is an alternative that we will pursue it. You know, technically speaking, the strategy hasn't changed. It may even accelerate once we have the combined entities. We'll just have to see once we're able to, you know, look at that and look at the overlaps and where there could be white space for both of us and take advantage of it. Yeah. Pick up in R&D sequentially here in 3Q. Can you just give us any guidance on how to think about OpEx and spend sort of over the next few quarters, leading up to the merger? Thanks. Yeah. R&D spend has picked up, and that's a lot of it influenced by the acceleration of the 7D development programs and the next generation camera system and, you know, proceeding with the integration of the 7D system with our spinal implants and making that more seamless. We talked about that, you know, dating back to the acquisition of 7D and how we'd expect that to pick up over time and gave some guidance in, you know, accelerating R&D spend as a percentage of revenue in 2022. I think you're seeing that play out largely influenced by 7D. You know, consistent with that long-term guidance, we expect R&D expenses, at least on a standalone basis, would've been similar for 2023 as a percentage of revenue. Again, heavily influenced by accelerating all those 7D development programs. How that's gonna shape up post-merger, right? We obviously haven't given guidance on that yet, but we're continuing to invest aggressively in spinal implant and orthobiologics product development programs and gathering clinical data. That hasn't changed and, you know, has not grown at the same rate as revenue has grown. The increase in R&D is, you know, mostly coming from that increasing spend in 7D because we want to continue to keep that technology ahead of all the competition before there's another entry into the market. Great. Any, just any, like, similar commentary on SG&A over the next few quarters? How we should think about that versus the rest? The G&A component, which we split out, adjusted G&A has been growing typically, you know, mid-single digits year-over-year. I think that'll continue to be the long-term trends because we're able to get leverage out of that G&A line. Again, how that changes with the merger, we've yet to give guidance, but I don't see that changing, you know, fundamentally of getting leverage out of the G&A line. From our standalone sales and marketing perspective, we're really starting to see the benefits of those more efficient commission rates on distributors because we're, you know, well into multiple year arrangements with distributors and where we had offered premiums in the past because we didn't perhaps have the most up-to-date portfolio, you know, to take market share. We did offer premium commissions early on, but now that we've got a complete bag and we believe, you know, the best hardware spinal implant portfolio in the business across the board, when you know, look at cervical, interbody, thoracic lumbar, we don't need to offer those premium commission rates, yet we're still able to sign up these transformative large distributors that are driving market share. I think we'll continue to see gradual leverage in the commission lines from the distribution model, but also as we continue to hire more direct sales reps. Longer term, we're gonna get more leverage out of that, but because of, you know, typical upfront costs of bringing our direct sales force, it might be a bit dilutive in the near term, but I think the distributor commission efficiency can outweigh that in the near term as well. Great. Thank you. Thank you. The next question we have is from Jeffrey Cohen from Ladenburg Thalmann. Oh, hi, Keith and John. How are you? Good. How you doing, Jeff? Good. Good. Just, two questions from our side. I guess kind of a macro question since 2023 with the close. As you've seen and we've seen the pull-through from the 7D folks with respect to your hardware and your penetration in the marketplace. Perhaps you can hypothesize how that might play out through 2023 with the Orthofix portfolio in addition to yours. Yeah. I think it opens up more opportunities for both capital sales and earn outs and as Keith said, right, not just in the spine space, but there's opportunity to leverage 7D technology in the same way through the orthopedics channel with Orthofix, whether it's capital sale or earn out in those accounts. I think the merger only increases the opportunity of what we've been able to take advantage of in earn outs and capital sales and drive pull-through, whether it's contractual revenue pull-through on an earn out with a broader revenue base to now include motion preservation in addition to our spinal implants and biologics. Also the non-contractual pull-through that we're seeing when a unit is placed in an account. I'm excited to see where we can take it with the merger because it just increases the opportunity we've already been able to take advantage of with 7D. Sure. Okay. I got it. Could you hypothesize how that might play out in the future as far as the two research organizations both at Orthofix as well as SeaSpine as they integrate? Perhaps talk to us a little bit about on your side some of your thoughts on motion preservation and other areas of the skeletal system. Yes. What was that again? The how the research is going to combine? Was that the question? Yeah, the R&D related to, you know, perhaps taking some of your Spine innovation to other areas of the body and vice versa. Yeah. I guess I'm not tracking on that. The combined groups for Spine haven't been decided. That'll be you know, that's a work stream and effort on how that combination will look and how we'll be, you know, splitting up not only talent, but also how we'll be thinking about new product introductions and new product innovation. That work stream is not done yet. You know, we're excited from the perspective of, you know, there's really a big bag of products right now, and there's really not a lot to fill out. A lot of what we'll be doing is working on next generation products probably moving forward as well. Again, that work stream is in process and won't be finalized really until after the combination. Okay. Got it. The one thing. Super. Thanks for taking the questions. Yeah. The one thing I'll add, Jeff, is we've been pretty clear it doesn't change our commitment to innovation across all the different portfolios of the combined business, right? That's something I think both groups are aligned on, is continue to invest in innovation and take market share as a larger organization. Got it. Perfect. Thanks for taking the questions. Thank you. Ladies and gentlemen, just a final reminder. If you would like to ask a question, please press star and then one now. Next question we have is from Ross Osborn from Cantor Fitzgerald. Hi, everyone. Congrats on the quarter and thanks for taking our questions. Thanks. Starting off, I realize the full launch of percutaneous is still new. Is there any feedback you'd like to share at this point, maybe from conversations at NASS? Copy. Oh, 7D percutaneous? Yeah. We had a good alpha and beta with it, which created some minor changes that went into the considerations for full launch. You know, I think what's interesting with the PERC module. It is a seamless PERC system to use when you look at what other competitors use for PERC. One big advantage that we found that was, you know, just the definition of PERC. PERC is very clear, but a lot of folks do mini opens as well. With a mini open, you can use the regular system. You have to use the PERC, which would require the intraoperative scan. That's a big feature because some folks do traditional, very percutaneous type procedures, but most do a mini open, and that mini open can give enough exposure that we can use the standard system, which makes it even a quicker registration, if you will. Okay. Got it. Thank you for that. Just one on the merger. You know, given Orthofix's international presence, you know, how should we start to think about the sales ramp with respect to SeaSpine's current portfolio OUS? You know, what areas of the portfolio do you expect to perform particularly well? What areas do you expect will be more challenging to gain traction initially? Yeah. You know, I think that one opportunity which we're looking forward to is the enabling technology broader footprint internationally now. That's one that I think is super exciting. We haven't really evaluated yet. It probably won't happen until after The merger is finalized. Does this present a new opportunity for us with spine implants in Europe, for example? I still think it's a very burdensome regulatory commitment, but there may be other pathways now that we can consider, and that we're holding that open as a wait and see. I think from a spinal implant perspective, other than the European presence remains to be seen. It's just something that we haven't really, you know, spent a great deal of time on, but it is part of one of our integration streams that we'll be looking at. For sure, the 7D, I think is gonna be a much broader opportunity with the broader distribution network that Orthofix brings internationally. Great. Thanks for taking the questions. Yep. Thanks. Thank you. Our final question is from Jason Wiederhorn from Loop Capital. Hi, thanks. Maybe if I could just ask, you know, there's the spread has closed a bit or quite a bit, but there's still a spread here. You've spoken to shareholders. I mean, what has been the support of this deal with Orthofix? Can you give any quantitative commentary on that? I mean, we've spoken to our shareholders and we're, you know, touching base with Orthofix because obviously the shareholder vote will be important. We're making sure that we're getting the message out clearly that this is a great opportunity to create scale and growth and profitability at the same time, right? They've got channels that we can leverage, and we've got channels they can leverage. I think the conversations with investors has been positive. I think we're starting to really hammer home the message that this is not a spine merger of giant companies, right? That we sometimes get lumped into where you're gonna have big dyssynergies. You've got two companies with a combined market share of less than 5% in spinal implants. You shouldn't see a lot of geographic overlap and revenue dis-synergy risk, and that's what the due diligence bore out. I think we're really putting that to bed because that was an initial concern after the announcement of the merger. It just doesn't make sense that there'd be a lot of overlap, and that's why we focused that on the due diligence. Now we're really focusing on as well, just talking about the $200 million of complementary revenue that represents upside for revenue synergies, right? There were none that were built into the model, and that's the way the deal model was built. With $200 million of complementary revenue that each side can pull through its distribution channel, there's gonna be revenue synergies there. That's something we're working and focusing on in the integration planning to be able to jump on that from day one, right? I think those conversations, it's becoming a lot clearer to people as we talk to them that there's not that big revenue dis-synergy risk, but there's a lot of upside on the revenue synergies that we're gonna really focus on. Don't forget the operating expense synergies, right? We're gonna get scale and efficiency out of this combined organization. It's a situation that people appreciate better than I think after the initial announcement. That's very helpful. You know, I know you've probably made some comments, but I don't know if you could maybe review them in terms of, I understand you guys, both companies are underscaled, especially you guys, in terms of sales forces, sales force penetration and distribution at this point. I mean, if you take it portfolio by portfolio, the motion preservation, right? That's all opportunity upside for us 'cause we don't have motion preservation. You know, both sides have talked about the investments we've made in the spinal fixation hardware and the market should continue to move forward with projects they've got in their pipeline, projects we've got in our pipeline. But we can immediately bring to the market the portfolio we've got through their distributor network. I view that as a lot of upside, and we're gonna continue to invest in innovation. On the orthobiologic side, we've got, we believe, and data shows the best DBM in the entire marketplace. They've got the best cellular graft in Trinity in the marketplace, and there's a very clear surgeon preference in some cases where some are gonna be true believers in cells, and they wanna use cells on their patients. Others are true believers in DBM and the data we've been able to provide. We now, as a combined company, we don't think of it as competing. We think of it as we can span the spectrum of surgeon preferences in an area that has very clear surgeon preference. We have the best offerings in both worlds of DBM and cellular grafts. Orthopedics is a great channel, as Keith talked about, to pull through 7D and the enabling technologies, not just through their spine business but through their orthopedics business and through their much larger international sales channel that, you know, they can bring to bear. To me, it's all opportunity to be able to take advantage of the complementary nature of the products. There's cross-selling opportunities everywhere you look. Great. I'll jump back in queue. Thanks for the info. Thanks. Thank you, sir. Ladies and gentlemen, there are no further questions at this. Thank you for joining us, and we will talk with you again on our next call. Have a great evening. Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.