XML 23 R11.htm IDEA: XBRL DOCUMENT
v3.23.2

Merger and Acquisitions | 6 Months Ended
--- | ---
Jun. 30, 2023
Business Combinations [Abstract] |
Merger and Acquisitions | 3. Merger and acquisitions Merger with SeaSpine On January 5, 2023, the Company and SeaSpine completed an all-stock merger of equals (the "Merger") to create a leading global spine and orthopedics company with highly complementary portfolios of biologics, innovative spinal hardware, bone growth therapies, specialized orthopedic solutions, and a leading surgical navigation system. As a result of the Merger, each share of SeaSpine common stock issued and outstanding immediately prior to the closing of the Merger was converted into the right to receive 0.4163 shares of Orthofix common stock. The Merger is being accounted for as an acquisition of SeaSpine by Orthofix under the acquisition method of accounting for business combinations in accordance with U.S. GAAP. Thus, Orthofix is treated as the acquirer for accounting purposes. In identifying the acquirer, Orthofix and SeaSpine considered the structure of the transaction and other actions contemplated by the merger agreement (the “Merger Agreement”), relative outstanding share ownership, market values, the composition of the combined company's board of directors, and the relative size of Orthofix and SeaSpine. Under the acquisition method of accounting, the assets and liabilities of SeaSpine and its subsidiaries have been recorded at their respective fair values as of the acquisition date. The total estimated fair value of consideration associated with the Merger as of the acquisition date was comprised of:
(Unaudited, U.S. Dollars, in thousands, except shares and price per share) |  |  |
Share Consideration: |  |  |
Orthofix common shares to be issued in exchange for SeaSpine common shares |  |  | 16,047,315 |
Orthofix closing price per share as of January 4, 2023 |  | $ | 22.76 |
Estimated fair value of shares issued in exchange for SeaSpine common shares |  | $ | 365,237 |
Estimated fair value of Orthofix stock options and RSUs issued in exchange for outstanding SeaSpine equity awards |  | $ | 11,508 |
Total estimated fair value of consideration |  | $ | 376,745 |
The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the acquisition date. Certain of the acquired assets and liabilities assumed were valued utilizing Level 3 inputs and assumptions. A final determination of the allocation of the purchase price to assets acquired and liabilities assumed has not been made and the following should be considered preliminary. Adjustments to the preliminary purchase price allocation could be material. The final determination is subject to completion of the Company's valuation of the assets acquired and liabilities assumed, including contingent liabilities and deferred income taxes, which it expects to complete within one year of the acquisition date.
(Unaudited, U.S. Dollars, in thousands) |  | Previously Reported |  |  | Adjustments |  |  | As Revised |  |  | Assigned Useful Life
Assets acquired: |  |  |  |  |  |  |  |  |  |  |
Current assets |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 29,419 |  |  | $ | — |  |  | $ | 29,419 |  |  |
Accounts receivable, net |  |  | 35,313 |  |  |  | — |  |  |  | 35,313 |  |  |
Inventories |  |  | 129,610 |  |  |  | 3,026 |  |  |  | 132,636 |  |  |
Prepaid expenses and other current assets |  |  | 4,600 |  |  |  | (10 | ) |  |  | 4,590 |  |  |
Total current assets |  |  | 198,942 |  |  |  | 3,016 |  |  |  | 201,958 |  |  |
Property, plant, and equipment, net |  |  | 68,911 |  |  |  | (48 | ) |  |  | 68,863 |  |  |
Customer relationships |  |  | 27,100 |  |  |  | 6,000 |  |  |  | 33,100 |  |  | 13 years
Developed technology |  |  | 45,400 |  |  |  | 1,800 |  |  |  | 47,200 |  |  | 6 - 8 years
In-process research and development ("IPR&D") |  |  | 5,600 |  |  |  | 150 |  |  |  | 5,750 |  |  | Indefinite
Other long-term assets |  |  | 20,472 |  |  |  | 29 |  |  |  | 20,501 |  |  |
Total identifiable assets acquired |  | $ | 366,425 |  |  | $ | 10,947 |  |  | $ | 377,372 |  |  |
Liabilities assumed: |  |  |  |  |  |  |  |  |  |  |
Current liabilities |  |  |  |  |  |  |  |  |  |  |
Accounts payable |  | $ | 21,602 |  |  | $ | — |  |  | $ | 21,602 |  |  |
Other current liabilities |  |  | 41,224 |  |  |  | (920 | ) |  |  | 40,304 |  |  |
Total current liabilities |  |  | 62,826 |  |  |  | (920 | ) |  |  | 61,906 |  |  |
Long-term borrowings under SeaSpine credit facility |  |  | 26,298 |  |  |  | — |  |  |  | 26,298 |  |  |
Other long-term liabilities |  |  | 31,950 |  |  |  | 883 |  |  |  | 32,833 |  |  |
Total liabilities assumed |  |  | 121,074 |  |  |  | (37 | ) |  |  | 121,037 |  |  |
Net identifiable assets acquired |  | $ | 245,351 |  |  | $ | 10,984 |  |  | $ | 256,335 |  |  |
Total fair value of consideration transferred |  |  | 376,745 |  |  |  | — |  |  |  | 376,745 |  |  |
Residual goodwill |  | $ | 131,394 |  |  | $ | (10,984 | ) |  | $ | 120,410 |  |  |
The purchase price exceeded the fair value of the net tangible and identifiable intangible assets acquired in the Merger. As a result, the Company recorded goodwill totaling $120.4 million, which was assigned to the Global Spine reporting segment. Specifically, the goodwill includes the assembled workforce and synergies associated with the combined entity. The goodwill is not deductible for tax purposes. The IPR&D intangible assets are considered an indefinite-lived asset until the completion or abandonment of the associated research and development efforts. Accordingly, during the development period after the acquisition, these assets are not amortized but, instead, are subject to impairment assessment. Upon completion of each IPR&D project, the Company will determine the useful life of the asset and begin amortization. The Company recognized $3.3 million and $9.8 million in direct acquisition-related costs, which exclude integration-related activities, that were expensed during the three and six months ended June 30, 2023, respectively. These costs are included in the condensed consolidated statements of operations and comprehensive income (loss), primarily within general and administrative expenses. The Company's results of operations included $64.4 million and $125.3 million of net sales from SeaSpine for the three and six months ended June 30, 2023, respectively, and a net loss attributable to SeaSpine of $24.9 million and $52.8 million for the three and six months ended June 30, 2023, respectively. Pro Forma Financial Information Due to the Merger closing on January 5, 2023, all SeaSpine financial results for fiscal year 2023, except for the first four days of January, are included in Orthofix's condensed consolidated statement of operations and comprehensive income (loss). The following unaudited pro forma financial information for the three and six months ended June 30, 2023, and 2022 are based on the Company's historical condensed consolidated financial statements adjusted to reflect as if the Merger closed as of January 1, 2022. The unaudited pro-forma information makes certain adjustments to depreciation and amortization expense to reflect the fair value recognized in the purchase price allocation and to remove one-time transaction-related costs. The unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the Merger closed as of January 1, 2022.
|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
(Unaudited, U.S. Dollars, in millions) |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Net sales |  | $ | 187.0 |  |  | $ | 174.4 |  |  | $ | 362.2 |  |  | $ | 331.5 |
Net income (loss) |  | $ | (30.1 | ) |  | $ | (27.1 | ) |  | $ | (75.3 | ) |  | $ | (69.9 | )
Integration and Restructuring Activities The Company has incurred significant integration and restructuring costs in connection with the Merger. The following table summarizes integration costs incurred for the three and six months ended June 30, 2023, and 2022.
|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
(Unaudited, U.S. Dollars, in millions) |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Compensation-related integration costs |  |  | 3.5 |  |  | $ | — |  |  |  | 13.8 |  |  | $ | — |
Fee paid to financial advisor to the Merger |  |  | — |  |  |  | — |  |  |  | 5.5 |  |  |  | — |
Professional fees / consulting fees |  |  | 0.7 |  |  |  | — |  |  |  | 5.0 |  |  |  | — |
Product rationalization charges |  |  | 4.2 |  |  |  | — |  |  |  | 4.9 |  |  |  | — |
Other costs to complete |  |  | (0.3 | ) |  |  | — |  |  |  | 1.2 |  |  |  | — |
Total |  |  | 8.1 |  |  | $ | — |  |  |  | 30.4 |  |  | $ | — |
In the first quarter of 2023, the Company approved and initiated certain restructuring activities to streamline costs and to better align talent with operational needs following the consummation of the Merger. The Company expects to incur total pre-tax expense of approximately $16.7 million associated with the restructuring activities, which will be recognized within operating expenses. The table below provides a summary of restructuring costs incurred during the period and the resulting liability as of June 30, 2023, which is recognized within other current liabilities:
(Unaudited, U.S. Dollars, in millions) |  | Balance as of December 31, 2022 |  |  | Charges Incurred |  |  | Payments Made |  |  | Balance as of June 30, 2023 |
Severance costs |  | $ | — |  |  | $ | 10.4 |  |  | $ | (4.4 | ) |  | $ | 6.0 |
Retention costs |  |  | — |  |  |  | 2.8 |  |  |  | (0.2 | ) |  |  | 2.6 |
Payroll taxes |  |  | — |  |  |  | 0.4 |  |  |  | (0.1 | ) |  |  | 0.3 |
Total |  | $ | — |  |  | $ | 13.6 |  |  | $ | (4.7 | ) |  | $ | 8.9 |

X
- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 805 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479907/805-20-50-5 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//805/tableOfContent + Details
Name: | us-gaap_BusinessCombinationDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration

X
- References No definition available. + Details
Name: | us-gaap_BusinessCombinationsAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration