x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
DELAWARE | 47-3251758 | |
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) | (I.R.S. EMPLOYER IDENTIFICATION NO.) | |
5770 Armada Drive, Carlsbad, California | 92008 | |
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) | (ZIP CODE) |
Title of Each Class | Name of Exchange on Which Registered | |
Common Stock, Par Value $.01 Per Share | The Nasdaq Stock Market LLC |
Large accelerated filer | o | Accelerated filer | x |
Non-accelerated filer | o (Do not check if a smaller reporting company) | Smaller reporting company | o |
Page Number | |
• | An extensive and differentiated offering of orthobiologics products. We offer a broad range of differentiated orthobiologics products that better positions us to meet the needs of our surgeon customers compared to our competitors who focus primarily on spinal hardware products. For example, our proprietary Accell bone matrix technology is designed to provide both immediate and sustained availability of the natural array of osteoinductive bone proteins and, in addition, provides flexibility in handling as a result of its reverse-phase carrier. Despite our relatively small size, we estimate we have a 14% share of the demineralized bone matrices (DBM) market in the United States. |
• | A range of innovative, titanium-coated PEEK interbody devices. We have exclusive rights to NanoMetalene technology within the spine market. NanoMetalene describes a sub-micron layer of commercially pure titanium molecularly bonded to a PEEK-OPTIMA® polymer from INVIBIO®. It is applied in a proprietary, high-energy, low-temperature process that differs from other coating applications and maximizes implant surface area with titanium nanotopography. NanoMetalene molecular bond are designed to provide the benefits of a titanium surface while retaining the benefits associated with traditional PEEK devices, such as biocompatibility, a modulus of elasticity similar to bone, and excellent radiographic visibility for post-operative imaging. We currently offer a wide range of NanoMetalene products and expect to continue to launch additional products incorporating NanoMetalene technology. In addition, in 2016, we began to offer NanoMetalene products in an individual, sterile-packaged and ready-to-use presentation. This packaging solution |
• | A synergistic channel strategy for orthobiologics products. We maintain a dual branding strategy that allows us to market our orthobiologics products through sales agents who carry competitive spinal hardware products. For example, we market our advanced DBM product as both Accell Evo3 and OsteoSurge300, which allows sales agents who sell spinal hardware products competitive with ours to continue to represent our orthobiologics products. We believe this dual branding strategy allows us to penetrate a greater number of customer accounts than we would otherwise serve if we marketed our orthobiologics products under a single brand. |
• | Our own orthobiologics design, development and manufacturing operations. While many of our spinal hardware competitors source their orthobiologics products from original equipment manufacturers to supplement their spinal hardware portfolio, we design and develop a majority of our orthobiologics products internally and manufacture them at our facility in Irvine, California. By controlling the manufacturing processes, we should be able to better control the cost of our products and provide operational leverage with volume increases. |
• | Research and development to bring new products and techniques to market. We have recently increased, and intend to continue to increase, our annual research and development spending as a percentage of revenue in an effort to drive higher revenue growth through new product sales. We plan to continue to invest resources to further expand our product portfolio and to develop additional next-generation products for our existing core product lines. We also plan to continue to work with our surgeon customers to understand their needs and develop new orthobiologics and spinal hardware products that will improve clinical outcomes. We intend to make further investments in our infrastructure and have hired additional dedicated orthobiologics engineers and scientists with expertise in material sciences, and biology and hardware engineers with expertise in product design and development. We expect to bring a greater number of new products to market in the next few years than we have in recent years. |
• | Commercial infrastructure to further penetrate the U.S. orthobiologics and spinal hardware markets and increase our focus in international markets where we currently have a presence. We have recently increased, and intend to continue to increase, the quality, size and geographic breadth of our sales management team and network of independent sales agents in the United States. To support these efforts, we are investing more in, and are developing comprehensive support for, distributor and surgeon training and education programs. We have expanded the capacity of our hands-on cadaveric training facility in Carlsbad, California and have increased the number of training opportunities there for surgeons and distributors. In addition, we plan to increase our presence within teaching institutions that provide spinal surgery fellowship programs to educate new surgeons on the use of our products. We believe these combined efforts will help surgeons become adept with our spinal hardware products and techniques, thereby improving outcomes for their patients. Internationally, we intend to continue to focus our sales and marketing efforts on expanding and strengthening our presence in those markets where we currently have relationships with stocking distributors and to selectively expand into new markets. |
• | Clinical affairs programs to generate data on product efficacy. We plan to invest in additional clinical development programs designed to generate peer-reviewed clinical data that we believe will validate the efficacy of select orthobiologics and spinal hardware solutions over competing technologies. Specifically, we believe NanoMetalene technology has advantages over existing implant materials. We have initiated studies to generate data on the unique surface characteristics of titanium and the mechanical properties and radiolucency of PEEK-OPTIMA, which NanoMetalene technology combines into a single device. |
• | Opportunities to enhance our product offering through strategic alliances and acquisitions. We currently market several products under distribution agreements and licenses with third-parties. We intend to continue to pursue alliances and acquisition opportunities that we believe will provide us with technologies to strengthen our market position and grow our business. |
• | lack of experience with our products, techniques or technologies; |
• | existing relationships with those who sell competitive products; |
• | the time required for surgeon and medical staff education and training on new products, techniques and equipment; |
• | lack or perceived lack of clinical evidence supporting patient benefit relative to competing products; |
• | our products not being included on hospital formularies or integrated delivery network or group purchasing organization preferred vendor lists; |
• | less attractive coverage and/or reimbursement within healthcare payment systems for our products and procedures compared to other products and procedures; |
• | other costs associated with the introduction of new products and the equipment necessary to use new products; and |
• | perceived risk of liability that could be associated with the use of new products and techniques. |
• | There has been consolidation among healthcare facilities and purchasers of medical devices, particularly in the U.S. One of the results of such consolidation is that group purchasing organizations, integrated delivery networks and large single accounts use their market power to consolidate purchasing decisions, which in turn intensifies competition to provide products and services to healthcare providers and other industry participants, resulting in greater pricing pressures and the exclusion of certain suppliers from important market segments. For example, some group purchasing organizations negotiate pricing for its member hospitals and require us to discount, or limit our ability to raise, prices for certain of our products. |
• | Surgeons increasingly have moved from independent, out-patient practice settings toward employment by hospitals and other healthcare entities, which align surgeons’ product choices with their employers’ price sensitivities and adds to pricing pressures. Hospitals have introduced and may continue to introduce new pricing structures into their contracts to contain healthcare costs, including fixed price formulas and capitated and construct pricing. |
• | Certain hospitals provide financial incentives to doctors for reducing hospital costs (known as gainsharing), rewarding physician efficiency (known as physician profiling) and encouraging partnerships with healthcare service and goods providers to reduce prices. |
• | Existing and proposed laws, regulations and industry policies, in both domestic and international markets, regulate or seek to increase regulation of sales and marketing practices and the pricing and profitability of companies in the healthcare industry. |
• | difficulties in staffing and managing foreign and geographically dispersed operations; |
• | having to comply with various U.S. and international laws, including the U.S. Foreign Corrupt Practices Act of 1977 and anti-money laundering laws (see also, “Our international operations subject us to laws regarding sanctioned countries, entities and persons, customs and import-export practices, laws regarding transactions in foreign countries, the Foreign Corrupt Practices Act of 1977 and local anti-bribery and other laws regarding interactions with healthcare professionals, and product registration requirements” below); |
• | having to comply with export control laws, including, but not limited to, the Export Administration Regulations and trade sanctions against embargoed countries, which are administered by the Office of Foreign Assets Control within the Department of the Treasury, as well as the laws and regulations administered by the Department of Commerce; |
• | differing regulatory requirements for obtaining clearances or approvals to market our products; |
• | changes in, or uncertainties relating to, foreign rules and regulations that may impact our ability to sell our products, perform services or repatriate profits to the United States; |
• | tariffs and trade barriers, export regulations and other regulatory and contractual limitations on our ability to sell our products in certain foreign markets; |
• | fluctuations in foreign currency exchange rates; |
• | limitations on or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries or joint ventures; |
• | differing multiple payer reimbursement regimes, government payers or patient self-pay systems; |
• | differing labor laws and standards; |
• | economic, political or social instability in foreign countries and regions; |
• | an inability, or reduced ability, to protect our intellectual property, including any effect of compulsory licensing imposed by government action; and |
• | availability of government subsidies or other incentives that benefit competitors in their local markets that are not available to us. |
• | economic conditions worldwide, which could affect the ability of hospitals and other customers to purchase our products and could result in a reduction in elective and non-reimbursed operative procedures; |
• | increased competition; |
• | market acceptance of our existing products, as well as products in development, and the demand for, and pricing of, our products and the products of our competitors; |
• | costs, benefits and timing of new product introductions; |
• | the timing of or failure to obtain regulatory clearances or approvals for new products; |
• | lost sales and other expenses resulting from stoppages in our or third parties’ production, including as a result of product recalls or field corrective actions; |
• | the availability and cost of components and materials, including raw materials such as human tissue; |
• | our ability to purchase or manufacture and ship our products efficiently and in sufficient quantities to meet |
• | the timing of our research and development expenditures; |
• | expenditures for major initiatives; |
• | reimbursement, changes in reimbursement or denials in coverage for our products by third-party payors, such as Medicare, Medicaid, private and public health insurers and foreign governmental health systems; |
• | the ability of our independent sales agents and stocking distributors to achieve expected sales targets and for new agents and distributors to become familiar with our products in a timely manner; |
• | peer-reviewed publications discussing the clinical effectiveness of our products; |
• | inspections of our manufacturing facilities for compliance with Quality System Regulations (Good Manufacturing Practices), which could result in Form 483 observations, warning letters, injunctions or other adverse findings from the FDA or equivalent foreign regulatory bodies, and corrective actions, procedural changes and other actions, including product recalls, that we determine are necessary or appropriate to address the results of those inspections, any of which may affect production and our ability to supply our customers with our products; |
• | the costs to comply with new regulations from the FDA or equivalent foreign regulatory bodies, such as the requirements to establish a unique device identification system to adequately identify medical devices through their distribution and use; |
• | the increased regulatory scrutiny of certain of our products, including products we manufacture for others, which could result in their being removed from the market; |
• | fluctuations in foreign currency exchange rates; and |
• | the impact of acquisitions, including the impact of goodwill and intangible asset impairment charges, if future operating results of the acquired businesses are significantly less than the results anticipated at the time of the acquisitions. |
• | the number of products sold in the quarter; |
• | the unpredictability of sales of full sets of spinal implants and instruments to our international stocking distributors; and |
• | the number of selling days in the quarter. |
• | the revenue generated by sales of our products; |
• | the costs associated with expanding our sales and marketing efforts; |
• | the expenses we incur in procuring, manufacturing and selling our products; |
• | the scope, rate of progress and cost of our clinical studies; |
• | the cost of obtaining and maintaining regulatory approval or clearance of our products and products in development; |
• | the costs associated with complying with state, federal and international laws and regulations; |
• | the cost of filing and prosecuting patent applications and defending and enforcing our patent and other intellectual property rights; |
• | the cost of defending, in litigation or otherwise, any claims that we infringe third-party patent or other intellectual property rights; |
• | the cost of enforcing or defending against non-competition claims; |
• | the number and timing of acquisitions and other strategic transactions; |
• | the costs associated with increased capital expenditures, including fixed asset purchases of instrument sets which we consign to hospitals and independent sales agents to support surgeries; and |
• | anticipated and unanticipated general and administrative expenses, including insurance expenses. |
• | maintain, and, where necessary, increase appropriate product inventory levels; |
• | fund our operations and clinical studies; |
• | continue, and, where appropriate, increase our research and development activities; |
• | file, prosecute and defend our intellectual property rights, and defend, in litigation or otherwise, any claims that we infringe third-party patents or other intellectual property rights; |
• | address the FDA or other governmental, legal or enforcement actions and remediate underlying problems and address investigations or inquiries into sales and marketing practices from governmental agencies worldwide; |
• | commercialize our new products, if any such products receive regulatory clearance or approval for sale; and |
• | acquire companies' new products, technology or intellectual property. |
• | take a significant amount of time; |
• | require the expenditure of substantial resources; |
• | involve rigorous and expensive pre-clinical and clinical testing, as well as post-market surveillance; |
• | involve modifications, repairs or replacements of our products; and |
• | result in limitations on the indicated uses of our products. |
• | stop making, selling or using products or technologies that allegedly infringe the asserted intellectual property; |
• | lose the opportunity to license our technology to others or to collect royalty payments based upon successful protection and assertion of our intellectual property rights against others; |
• | incur significant legal expenses; |
• | pay substantial damages or royalties to the party whose intellectual property rights we may be found to be infringing; |
• | pay the attorney fees and costs of litigation to the party whose intellectual property rights we may be found to be infringing; |
• | redesign those products that contain the allegedly infringing intellectual property, which could be costly, disruptive and/or infeasible; or |
• | attempt to obtain a license to the relevant intellectual property from third parties, which may not be available on reasonable terms or at all. |
• | actual or anticipated fluctuations in our quarterly financial condition and operating performance; |
• | introduction of new products by us or our competitors; |
• | announcements by us or our competitors of significant acquisitions or dispositions; |
• | our ability to obtain financing as needed; |
• | a shift in our investor base, including sales of our shares by existing stockholders; |
• | any major change in our board of directors or management; |
• | threatened or actual litigation or governmental investigations; |
• | the number of shares of our common stock publicly owned and available for trading; |
• | the operating and stock price performance of similar companies; |
• | changes in earnings estimates by securities analysts or our ability to meet earnings guidance; |
• | publication of research reports about us or our industry or changes in recommendations or withdrawal of research coverage by securities analysts; |
• | changes in laws or regulations affecting our business, including tax legislation; |
• | the success or failure of our business strategy; |
• | investor perception of us and our industry; |
• | changes in accounting standards, policies, guidance, interpretations or principles; |
• | the overall performance of the equity markets; |
• | general political and economic conditions, and other external factors. |
• | a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors; |
• | no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; |
• | the ability of our board of directors to determine to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; |
• | the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or by the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; |
• | limitations on the removal of directors; |
• | a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; |
• | the requirement that a special meeting of stockholders be called only by the chairman of our board of directors, our chief executive officer, our president (in absence of a chief executive officer) or our board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; |
• | the requirement for the affirmative vote of holders of at least 66 2⁄3% of the voting power of all of the then outstanding shares of our voting stock, voting together as a single class, to amend the provisions of our amended and restated certificate of incorporation relating to the issuance of preferred stock and management of our business or our amended and restated bylaws, which may inhibit the ability of an acquirer from amending our amended and restated certificate of incorporation or amended and restated bylaws to facilitate a hostile acquisition; |
• | the ability of our board of directors, by majority vote, to amend our amended and restated bylaws, which may allow our board of directors to take additional actions to prevent a hostile acquisition and inhibit the ability of |
• | advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us. |
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
2016 | 2015 | |||||||
High | Low | High | Low | |||||
Fourth Quarter | 10.75 | 6.80 | 17.18 | 14.66 | ||||
Third Quarter | 12.14 | 9.40 | 19.11 | 13.93 | ||||
Second Quarter | 14.93 | 9.49 | — | — | ||||
First Quarter | 16.71 | 12.06 | — | — |
Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares That May Yet be Purchased Under the Plans or Programs | |||||||||
March 1- March 31 | 9,000 | $ | 14.11 | — | — | ||||||||
July 1 - July 31 | 2,159 | $ | 11.06 | — | — | ||||||||
September 1 - September 30 | 376 | $ | 10.67 | — | — | ||||||||
December 1 - December 31 | 421 | $ | 7.28 | — | — |
(1 | ) | These shares were surrendered to the Company to satisfy tax withholdings obligations in connection with the vesting of restricted stock awards. |
ITEM 6. | SELECTED FINANCIAL DATA |
Year Ended December 31, | ||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||
Consolidated Statements of Operations Data: | ||||||||||||||||||||
Total revenue, net | $ | 128,860 | $ | 133,178 | $ | 138,695 | $ | 146,586 | $ | 147,510 | ||||||||||
Cost of goods sold | 55,544 | 61,119 | 56,714 | 55,532 | 54,856 | |||||||||||||||
Gross profit | 73,316 | 72,059 | 81,981 | 91,054 | 92,654 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Selling, general and administrative | 101,065 | 110,551 | 88,213 | 93,009 | 94,747 | |||||||||||||||
Research and development | 11,442 | 8,353 | 8,527 | 9,893 | 12,269 | |||||||||||||||
Intangible amortization | 4,309 | 5,331 | 5,590 | 5,598 | 5,716 | |||||||||||||||
Total operating expenses | 116,816 | 124,235 | 102,330 | 108,500 | 112,732 | |||||||||||||||
Operating loss | (43,500 | ) | (52,176 | ) | (20,349 | ) | (17,446 | ) | (20,078 | ) | ||||||||||
Other expense, net | (264 | ) | (877 | ) | (269 | ) | (4,556 | ) | (8,194 | ) | ||||||||||
Loss before income taxes | (43,764 | ) | (53,053 | ) | (20,618 | ) | (22,002 | ) | (28,272 | ) | ||||||||||
Provision (benefit) for income taxes | (552 | ) | 2,479 | 3,927 | 3,744 | 2,152 | ||||||||||||||
Net loss | $ | (43,212 | ) | $ | (55,532 | ) | $ | (24,545 | ) | $ | (25,746 | ) | $ | (30,424 | ) | |||||
Net loss per share (basic and diluted) | $ | (3.85 | ) | $ | (4.99 | ) | $ | (2.22 | ) | $ | (2.23 | ) | $ | (2.75 | ) |
As of December 31, | ||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Consolidated Balance Sheet Data: | ||||||||||||||||||||
Working capital | $ | 58,242 | $ | 87,687 | $ | 28,664 | $ | 37,857 | $ | 36,871 | ||||||||||
Total assets | 147,165 | 176,389 | 139,642 | 153,493 | $ | 157,387 | ||||||||||||||
Long term debt (1) | 3,835 | 328 | — | — | $ | 126,963 | ||||||||||||||
Short term debt (2) | 445 | — | — | — | $ | — | ||||||||||||||
Stockholders' equity | 110,977 | 147,339 | 91,284 | 111,495 | $ | (5,624 | ) |
• | general economic and business conditions, in both domestic and international markets; |
• | our expectations and estimates concerning future financial performance, financing plans and the impact of competition; |
• | anticipated trends in our business, including healthcare reform in the United States, increased pricing pressure from our competitors or hospitals and changes in third-party payment systems; |
• | physicians’ willingness to adopt our recently launched and planned products, customers’ continued willingness to pay for our products and third-party payors’ willingness to provide or continue coverage and appropriate reimbursement for any of our products and our ability to secure regulatory approval for products in development; |
• | existing and future regulations affecting our business, both in the United States and internationally, and enforcement of those regulations; |
• | anticipated demand for our products and our ability to purchase or produce our products in sufficient quantities to meet customer demand; |
• | our ability to manage timelines and costs related to manufacturing our products; |
• | our ability to maintain and expand our marketing and sales networks and the costs related thereto; |
• | our ability to successfully develop new and next-generation products and the costs associated with designing and developing those new and next-generation products; |
• | our ability to support the safety and efficacy of our products with long-term clinical data; |
• | our ability to obtain additional debt and equity financing to fund capital expenditures and working capital requirements and acquisitions; |
• | our dependence on a limited number of third-party suppliers for components and raw materials; |
• | our ability to protect our intellectual property, including unpatented trade secrets, and to operate without infringing or misappropriating the proprietary rights of others; |
• | our ability to complete acquisitions, integrate operations post-acquisition and maintain relationships with customers of acquired entities; and |
• | other risk factors described in the section entitled “Risk Factors.” |
Year Ended December 31, | 2016 vs. 2015 | 2015 vs. 2014 | ||||||||||||||||
(In thousands, except percentages) | 2016 | 2015 | 2014 | % Change | % Change | |||||||||||||
Total revenue, net | $ | 128,860 | $ | 133,178 | $ | 138,695 | (3 | )% | (4 | )% | ||||||||
Cost of goods sold | 55,544 | 61,119 | 56,714 | (9 | )% | 8 | % | |||||||||||
Gross profit | 73,316 | 72,059 | 81,981 | 2 | % | (12 | )% | |||||||||||
Gross margin | 57 | % | 54 | % | 59 | % | 6 | % | (8 | )% | ||||||||
Operating expenses: | ||||||||||||||||||
Selling, general and administrative | 101,065 | 110,551 | 88,213 | (9 | )% | 25 | % | |||||||||||
Research and development | 11,442 | 8,353 | 8,527 | 37 | % | (2 | )% | |||||||||||
Intangible amortization | 4,309 | 5,331 | 5,590 | (19 | )% | (5 | )% | |||||||||||
Total operating expenses | 116,816 | 124,235 | 102,330 | (6 | )% | 21 | % | |||||||||||
Operating loss | (43,500 | ) | (52,176 | ) | (20,349 | ) | (17 | )% | 156 | % | ||||||||
Other expense, net | (264 | ) | (877 | ) | (269 | ) | (70 | )% | 226 | % | ||||||||
Loss before income taxes | (43,764 | ) | (53,053 | ) | (20,618 | ) | (18 | )% | 157 | % | ||||||||
Provision (benefit) for income taxes | (552 | ) | 2,479 | 3,927 | (122 | )% | (37 | )% | ||||||||||
Net loss | $ | (43,212 | ) | $ | (55,532 | ) | $ | (24,545 | ) | (22 | )% | 126 | % |
Year Ended December 31, | |||||||||||
2016 | 2015 | 2016 vs. 2015 | |||||||||
(In millions) | % Change | ||||||||||
Orthobiologics | $ | 66.2 | 67.3 | (2 | )% | ||||||
% of total revenue, net | 51 | % | 51 | % | |||||||
Spinal hardware | 62.7 | 65.9 | (5 | )% | |||||||
% of total revenue, net | 49 | % | 49 | % | |||||||
Total revenue, net | $ | 128.9 | $ | 133.2 | (3 | )% |
Year Ended December 31, | 2016 vs. 2015 | ||||||||||
2016 | 2015 | % Change | |||||||||
(In millions) | |||||||||||
United States | $ | 116.8 | $ | 120.3 | (3 | )% | |||||
International | 12.1 | 12.9 | (6 | )% | |||||||
Total revenue, net | $ | 128.9 | $ | 133.2 | (3 | )% |
Year Ended December 31, | |||||||
2016 | 2015 | ||||||
(In thousands) | |||||||
Loss before income taxes | $ | (43,764 | ) | $ | (53,053 | ) | |
Provision (benefit) for income taxes | (552 | ) | 2,479 | ||||
Effective tax rate | 1.3 | % | (4.7 | )% |
Year Ended December 31, | |||||||||||
2015 | 2014 | 2015 vs. 2014 | |||||||||
(In millions) | % Change | ||||||||||
Orthobiologics | $ | 67.3 | $ | 67.6 | — | % | |||||
% of total revenue, net | 51 | % | 49 | % | |||||||
Spinal hardware | 65.9 | 71.1 | (7 | )% | |||||||
% of total revenue, net | 49 | % | 51 | % | |||||||
Total revenue, net | $ | 133.2 | $ | 138.7 | (4 | )% |
Year Ended December 31, | 2015 vs. 2014 | ||||||||||
2015 | 2014 | % Change | |||||||||
(In millions) | |||||||||||
United States | $ | 120.3 | $ | 124.4 | (3 | )% | |||||
International | 12.9 | 14.3 | (10 | )% | |||||||
Total revenue, net | $ | 133.2 | $ | 138.7 | (4 | )% |
Year Ended December 31, | |||||||
2015 | 2014 | ||||||
(In thousands) | |||||||
Loss before income taxes | $ | (53,053 | ) | $ | (20,618 | ) | |
Provision for income taxes | 2,479 | 3,927 | |||||
Effective tax rate | (4.7 | )% | (19.0 | )% |
Year Ended December 31, | |||||||||||
2016 | 2015 | 2014 | |||||||||
(In thousands) | |||||||||||
SeaSpine spin-off related charges | $ | — | $ | 17,278 | $ | 2,310 | |||||
Transition services agreement charges | 265 | 2,809 | — | ||||||||
Discontinued and excess/obsolete product line charges | — | 2,600 | 860 | ||||||||
Excess raw material charge | 1,700 | — | — | ||||||||
Acquisition-related charges | 457 | — | 257 | ||||||||
Total | $ | 2,422 | $ | 22,687 | $ | 3,427 |
Year Ended December 31, | |||||||||||
2016 | 2015 | 2014 | |||||||||
(In thousands) | |||||||||||
Cost of goods sold | $ | 1,704 | $ | 3,248 | $ | 1,117 | |||||
Research and development | 8 | 348 | — | ||||||||
Selling, general and administrative | 710 | 19,091 | 2,310 | ||||||||
Total | $ | 2,422 | $ | 22,687 | $ | 3,427 |
• | SeaSpine spin-off related charges include legal, accounting, program management and outside consulting expenses incurred as part of the spin-off from Integra, and incremental personnel costs associated with becoming an independent, publicly-traded company that were duplicative to the allocations from Integra. |
• | Transition services agreement charges include charges from Integra immediately after the spin-off for the performance of certain transition services to SeaSpine until we hired the internal support and completed the build out of our infrastructure such that we could function separately as an independent, publicly traded company. |
• | Discontinued and excess/obsolete product line charges are related to the exit of one of our product lines sold internationally in 2014, a shift in management’s international sales strategy in 2015 that rendered a large portion of our spinal hardware inventory intended for distribution in international markets as excess and obsolete. |
• | The excess raw material charge in 2016 relates to management’s decision to repurpose a portion of our matched-donor bone raw material for other production uses and that rendered a large portion of the remaining and now unmatched-donor bone as excess quantities that were unlikely to be consumed in future production. |
• | Acquisition-related charges include transaction fees and the amortization of inventory fair value adjustments related to acquisitions. |
Year Ended December 31, | 2016 vs. 2015 | 2015 vs. 2014 | |||||||||||||||
2016 | 2015 | 2014 | % Change | % Change | |||||||||||||
(In thousands) | |||||||||||||||||
Net cash (used in) provided by operating activities | $ | (14,270 | ) | $ | (32,566 | ) | $ | 806 | (56 | )% | (4,140 | )% | |||||
Net cash used in investing activities | (8,719 | ) | (11,705 | ) | (3,804 | ) | (26 | )% | 208 | % | |||||||
Net cash provided by financing activities | 4,276 | 77,130 | 3,012 | (94 | )% | 2,461 | % | ||||||||||
Effect of exchange rate fluctuations on cash | (150 | ) | (82 | ) | (8 | ) | 83 | % | 925 | % | |||||||
Net increase (decrease) in cash and cash equivalents | $ | (18,863 | ) | $ | 32,777 | $ | 6 | (158 | )% | 546,183 | % |
Total | Less than 1 Year | 1-3 Years | 4-5 Years | More than 5 Years | |||||||||||||||
(In millions) | |||||||||||||||||||
Employment Agreements | $ | 1.2 | $ | 0.5 | $ | 0.7 | $ | — | $ | — | |||||||||
Operating Leases | 18.1 | 1.9 | 3.9 | 4.1 | 8.2 | ||||||||||||||
Purchase Obligations | 7.3 | 7.3 | — | — | — | ||||||||||||||
Credit Facility | 3.8 | — | 3.8 | — | — | ||||||||||||||
Other | 3.6 | 2.2 | 0.9 | 0.5 | — | ||||||||||||||
Total | $ | 34.0 | $ | 11.9 | $ | 9.3 | $ | 4.6 | $ | 8.2 |
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES |
ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
2. Financial Statement Schedules. | |
ITEM 16. | FORM 10-K SUMMARY |
SEASPINE HOLDINGS CORPORATION | |||
Date: | March 3, 2017 | /s/ Keith C. Valentine | |
Keith C. Valentine | |||
President and Chief Executive Officer |
Signature | Title | Date | ||
/s/ Keith C. Valentine | President, Chief Executive Officer and Director (Principal Executive Officer) | March 3, 2017 | ||
Keith C. Valentine | ||||
/s/ John J. Bostjancic | Chief Financial Officer (Principal Financial and Accounting Officer) | March 3, 2017 | ||
John J. Bostjancic | ||||
/s/ Kirtley C. Stephenson | Chairman of the Board | March 3, 2017 | ||
Kirtley C. Stephenson | ||||
/s/ Stuart M. Essig, Ph.D. | Lead Independent Director | March 3, 2017 | ||
Stuart M. Essig, Ph.D. | ||||
/s/ Cheryl R. Blanchard, Ph.D. | Director | March 3, 2017 | ||
Cheryl R. Blanchard, Ph.D. | ||||
/s/ Keith Bradley Ph.D. | Director | March 3, 2017 | ||
Keith Bradley Ph.D. | ||||
/s/ Michael Fekete | Director | March 3, 2017 | ||
Michael Fekete | ||||
/s/ John B. Henneman III | Director | March 3, 2017 | ||
John B. Henneman III | ||||
/s/ James M. Sullivan | Director | March 3, 2017 | ||
James M. Sullivan |
Year Ended December 31, | |||||||||||
2016 | 2015 | 2014 | |||||||||
Total revenue, net | $ | 128,860 | $ | 133,178 | $ | 138,695 | |||||
Cost of goods sold | 55,544 | 61,119 | 56,714 | ||||||||
Gross profit | 73,316 | 72,059 | 81,981 | ||||||||
Operating expenses: | |||||||||||
Selling, general and administrative | 101,065 | 110,551 | 88,213 | ||||||||
Research and development | 11,442 | 8,353 | 8,527 | ||||||||
Intangible amortization | 4,309 | 5,331 | 5,590 | ||||||||
Total operating expenses | 116,816 | 124,235 | 102,330 | ||||||||
Operating loss | (43,500 | ) | (52,176 | ) | (20,349 | ) | |||||
Other expense, net | (264 | ) | (877 | ) | (269 | ) | |||||
Loss before income taxes | (43,764 | ) | (53,053 | ) | (20,618 | ) | |||||
Provision (benefit) for income taxes | (552 | ) | 2,479 | 3,927 | |||||||
Net loss | $ | (43,212 | ) | $ | (55,532 | ) | $ | (24,545 | ) | ||
Net Loss per share, basic and diluted | $ | (3.85 | ) | $ | (4.99 | ) | $ | (2.22 | ) | ||
Weighted average shares used to compute basic and diluted net loss per share | 11,222 | 11,139 | 11,048 |
Year Ended December 31, | |||||||||||
2016 | 2015 | 2014 | |||||||||
Net loss | $ | (43,212 | ) | $ | (55,532 | ) | $ | (24,545 | ) | ||
Other comprehensive income (loss) | |||||||||||
Change in foreign currency translation adjustments | (119 | ) | 498 | (961 | ) | ||||||
Comprehensive loss | $ | (43,331 | ) | $ | (55,034 | ) | $ | (25,506 | ) |
December 31, 2016 | December 31, 2015 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 14,566 | $ | 33,429 | |||
Trade accounts receivable, net of allowances of $483 and $764 | 20,982 | 25,326 | |||||
Inventories | 45,299 | 51,271 | |||||
Prepaid expenses and other current assets | 1,813 | 3,696 | |||||
Total current assets | 82,660 | 113,722 | |||||
Property, plant and equipment, net | 21,863 | 21,958 | |||||
Intangible assets, net | 41,785 | 39,632 | |||||
Other assets | 857 | 1,077 | |||||
Total assets | $ | 147,165 | $ | 176,389 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable, trade | $ | 8,537 | $ | 13,689 | |||
Accrued compensation | 4,393 | 4,177 | |||||
Accrued commissions | 4,398 | 4,227 | |||||
Short-term debt | 445 | — | |||||
Contingent consideration liabilities | 2,855 | — | |||||
Accrued expenses and other current liabilities | 3,790 | 3,942 | |||||
Total current liabilities | 24,418 | 26,035 | |||||
Long-term borrowings under credit facility | 3,835 | 328 | |||||
Contingent consideration liabilities | 5,125 | — | |||||
Other liabilities | 2,810 | 2,687 | |||||
Total liabilities | 36,188 | 29,050 | |||||
Commitments and contingencies | |||||||
Stockholders' equity: | |||||||
Preferred stock, $0.01 par value; 15,000 authorized at December 31, 2016; no shares issued and outstanding at December 31, 2016 and December 31, 2015 | — | — | |||||
Common stock, $0.01 par value; 60,000 authorized; 11,258 and 11,102 shares issued and outstanding at December 31, 2016 and 2015, respectively | 113 | 111 | |||||
Additional paid-in capital | 180,753 | 173,786 | |||||
Accumulated other comprehensive income | 1,272 | 1,391 | |||||
Accumulated deficit | (71,161 | ) | (27,949 | ) | |||
Total stockholders' equity | 110,977 | 147,339 | |||||
Total liabilities and stockholders' equity | $ | 147,165 | $ | 176,389 |
Year Ended December 31, | |||||||||||
2016 | 2015 | 2014 | |||||||||
OPERATING ACTIVITIES: | |||||||||||
Net loss | $ | (43,212 | ) | $ | (55,532 | ) | $ | (24,545 | ) | ||
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | |||||||||||
Depreciation and amortization | 11,758 | 12,445 | 12,961 | ||||||||
Instrument replacement expense | 1,389 | 1,228 | 1,732 | ||||||||
Impairment of spine hardware instruments | 919 | 175 | — | ||||||||
Impairment of construction in progress | — | 419 | — | ||||||||
Provision for excess and obsolete inventories | 5,402 | 7,327 | 2,500 | ||||||||
Amortization of debt issuance costs | 139 | — | — | ||||||||
Loss on disposal of property and equipment | — | — | 292 | ||||||||
Deferred income tax benefit | (10 | ) | (282 | ) | (673 | ) | |||||
Stock-based compensation | 6,438 | 3,816 | 551 | ||||||||
Amortization of inventory step-up | — | — | 258 | ||||||||
Gain from change in fair value of contingent consideration liabilities | (270 | ) | — | — | |||||||
Allocation of non-cash charges from Integra | — | 563 | 1,934 | ||||||||
Changes in assets and liabilities | |||||||||||
Accounts receivable | 4,295 | (2,004 | ) | 2,997 | |||||||
Inventories | 1,404 | (8,365 | ) | (5,185 | ) | ||||||
Prepaid expenses and other current assets | 1,877 | (2,867 | ) | 256 | |||||||
Other non-current assets | 79 | 1,335 | 499 | ||||||||
Accounts payable | (5,006 | ) | 5,818 | 5,797 | |||||||
Income taxes payable | — | (320 | ) | 507 | |||||||
Accrued commissions | 166 | 335 | 344 | ||||||||
Accrued expenses and other current liabilities | 167 | 3,316 | 875 | ||||||||
Other non-current liabilities | 195 | 27 | (294 | ) | |||||||
Net cash (used in) provided by operating activities | (14,270 | ) | (32,566 | ) | 806 | ||||||
INVESTING ACTIVITIES: | |||||||||||
Purchases of property and equipment | (7,569 | ) | (11,555 | ) | (3,804 | ) | |||||
Additions to technology assets | (1,150 | ) | (150 | ) | — | ||||||
Net cash used in investing activities | (8,719 | ) | (11,705 | ) | (3,804 | ) | |||||
FINANCING ACTIVITIES: | |||||||||||
Debt issuance costs | — | (80 | ) | — | |||||||
Borrowings under credit facility | 3,300 | — | — | ||||||||
Borrowings under short term debt | 1,202 | — | — | ||||||||
Proceeds from the issuance of common stock | 691 | — | — | ||||||||
Repurchases of common stock for income tax withheld upon vesting of restricted stock awards | (160 | ) | — | — | |||||||
Repayments of short term debt | (757 | ) | — | — | |||||||
Integra net investment prior to the spin-off | — | 77,173 | 3,012 | ||||||||
Excess tax benefits from stock-based compensation arrangements | — | 37 | — | ||||||||
Net cash provided by financing activities | 4,276 | 77,130 | 3,012 | ||||||||
Effect of exchange rate changes on cash and cash equivalents | (150 | ) | (82 | ) | (8 | ) | |||||
Net change in cash and cash equivalents | (18,863 | ) | 32,777 | 6 | |||||||
Cash and cash equivalents at beginning of period | 33,429 | 652 | 646 | ||||||||
Cash and cash equivalents at end of period | $ | 14,566 | $ | 33,429 | $ | 652 | |||||
Non-cash financing activities: | |||||||||||
Settlement of related-party payable to Integra net investment | $ | — | $ | 29,022 | $ | — | |||||
Debt issuance cost | $ | — | $ | 328 | $ | — | |||||
Non-cash investing activities: | |||||||||||
Property and equipment in liabilities | $ | 802 | $ | 638 | $ | 300 | |||||
Fair value of intangible assets acquired through acquisition of business (see Note 6) | $ | 8,250 | $ | — | $ | — | |||||
Fair value of contingent consideration liabilities in connection with acquisition of business (see Note 7) | $ | 7,980 | $ | — | $ | — | |||||
Supplemental cash flow information: | |||||||||||
Income taxes paid (refunded) | $ | (513 | ) | $ | 2,982 | $ | 4,200 |
Common Stock | Additional | Integra | Accumulated Other | Total | ||||||||||||||||||||||
Number of | Paid-In | Net | Comprehensive | Accumulated | Stockholders' | |||||||||||||||||||||
Shares | Amount | Capital | Investment | Income (Loss) | Deficit | Equity | ||||||||||||||||||||
Balance December 31, 2013 | — | $ | — | $ | — | $ | 109,641 | $ | 1,854 | $ | — | $ | 111,495 | |||||||||||||
Net loss | — | — | — | (24,545 | ) | — | — | (24,545 | ) | |||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | (961 | ) | — | (961 | ) | |||||||||||||||||
Net transfers to Integra | — | — | — | 5,295 | — | — | 5,295 | |||||||||||||||||||
Balance December 31, 2014 | — | $ | — | $ | — | $ | 90,391 | $ | 893 | $ | — | $ | 91,284 | |||||||||||||
Net loss | — | — | — | (27,583 | ) | — | (27,949 | ) | (55,532 | ) | ||||||||||||||||
Net transfer from Integra | — | — | — | 107,433 | — | — | 107,433 | |||||||||||||||||||
Reclassification of parent company investment in connection with spin-off | — | — | 170,241 | (170,241 | ) | — | — | |||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | 498 | — | 498 | |||||||||||||||||||
Issuance of common stock in connection with spin-off | 11,048 | 110 | (110 | ) | — | — | — | — | ||||||||||||||||||
Restricted stock issued | 66 | 1 | (1 | ) | — | — | — | — | ||||||||||||||||||
Restricted stock forfeited | (12 | ) | — | — | — | — | — | — | ||||||||||||||||||
Stock-based compensation | — | — | 3,619 | — | — | — | 3,619 | |||||||||||||||||||
Excess tax benefits from stock-based compensation | — | — | 37 | — | — | — | 37 | |||||||||||||||||||
Balance December 31, 2015 | 11,102 | $ | 111 | $ | 173,786 | $ | — | $ | 1,391 | $ | (27,949 | ) | $ | 147,339 | ||||||||||||
Net loss | — | — | — | — | — | (43,212 | ) | (43,212 | ) | |||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | (119 | ) | — | (119 | ) | |||||||||||||||||
Restricted stock awards issued | 79 | 1 | (1 | ) | — | — | — | — | ||||||||||||||||||
Issuance of common stock under employee stock purchase plan | 90 | 1 | 690 | — | — | — | 691 | |||||||||||||||||||
Restricted stock awards forfeited | (1 | ) | — | — | — | — | — | — | ||||||||||||||||||
Repurchases of common stock for income tax withheld upon vesting of restricted stock awards | (12 | ) | — | (160 | ) | — | — | — | (160 | ) | ||||||||||||||||
Stock-based compensation | — | — | 6,438 | — | — | — | 6,438 | |||||||||||||||||||
Balance December 31, 2016 | 11,258 | $ | 113 | $ | 180,753 | $ | — | $ | 1,272 | $ | (71,161 | ) | $ | 110,977 |
Year Ended December 31, | ||||||||
2015 | 2014 | |||||||
(In thousands) | ||||||||
Cost of goods sold | $ | 488 | $ | 1,304 | ||||
Selling, general and administrative | 8,633 | 17,602 | ||||||
Research and development | 253 | 490 | ||||||
Total Allocated Costs | $ | 9,374 | $ | 19,396 |
Year Ended December 31, | ||||||||
2015 | 2014 | |||||||
(In thousands) | ||||||||
Cash pooling and general financing activities (a) | $ | 68,386 | $ | (14,451 | ) | |||
Corporate Allocations (excluding non-cash adjustments) | 8,787 | 17,463 | ||||||
Total Integra net investment in financing activities within cash flow statement | 77,173 | 3,012 | ||||||
Non-cash adjustments (b) | 29,806 | 2,485 | ||||||
Spin-off related adjustment (c) | 161 | — | ||||||
Reclassification of Integra net investment in connection with the spin-off | (170,241 | ) | — | |||||
Foreign exchange impact | 293 | (202 | ) | |||||
Net (decrease) increase in Integra investment | $ | (62,808 | ) | $ | 5,295 |
(a) | Includes financing activities for capital transfers, cash sweeps and other treasury services. |
(b) | Reflects allocation of non-cash charges from Integra, stock-based compensation and settlement of related-party payable to Integra net investment. |
(c) | During the year ended December 31, 2015, certain spin-off related adjustments were recorded in stockholders' equity, to reflect the appropriate opening balances related to SeaSpine’s legal entities on July 1, 2015, which was the date when SeaSpine became a separate, independent, publicly-traded company. |
December 31, 2016 | December 31, 2015 | ||||||
(In thousands) | |||||||
Finished goods | $ | 30,922 | $ | 29,845 | |||
Work in process | 10,554 | 15,574 | |||||
Raw materials | 3,823 | 5,852 | |||||
$ | 45,299 | $ | 51,271 |
December 31, 2016 | December 31, 2015 | Useful Lives | |||||||
(In thousands) | |||||||||
Leasehold improvement | $ | 5,003 | $ | 4,830 | Lease term | ||||
Machinery and production equipment | 6,826 | 6,404 | 3-10 years | ||||||
Spinal hardware instrument sets | 26,618 | 25,080 | 5 years | ||||||
Information systems and hardware | 6,918 | 6,872 | 3-7 years | ||||||
Furniture and fixtures | 1,058 | 944 | 3-5 years | ||||||
Construction in progress | 7,828 | 8,375 | |||||||
Total | 54,251 | 52,505 | |||||||
Less accumulated depreciation and amortization | (32,388 | ) | (30,547 | ) | |||||
Property, plant and equipment, net | $ | 21,863 | $ | 21,958 |
December 31, 2016 | |||||||||||||
Weighted Average Life | Cost | Accumulated Amortization | Net | ||||||||||
(In thousands) | |||||||||||||
Product technology | 12 years | $ | 40,569 | $ | (22,218 | ) | $ | 18,351 | |||||
Customer relationships | 12 years | 56,830 | (33,396 | ) | 23,434 | ||||||||
Trademarks/brand names | — | 300 | (300 | ) | — | ||||||||
$ | 97,699 | $ | (55,914 | ) | $ | 41,785 |
December 31, 2015 | |||||||||||||
Weighted Average Life | Cost | Accumulated Amortization | Net | ||||||||||
(In thousands) | |||||||||||||
Product technology | 12 years | $ | 31,169 | $ | (19,280 | ) | $ | 11,889 | |||||
Customer relationships | 12 years | 56,830 | (29,087 | ) | 27,743 | ||||||||
Trademarks/brand names | — | 300 | (300 | ) | — | ||||||||
$ | 88,299 | $ | (48,667 | ) | $ | 39,632 |
(In thousands) | |||
Cash paid for purchase | $ | 1,000 | |
Contingent closing consideration | 2,930 | ||
Contingent milestone payments | 2,310 | ||
Contingent royalty payments | 3,010 | ||
Total purchase price | $ | 9,250 |
(In thousands) | |||
Product technology | $ | 9,250 | |
Net assets acquired | $ | 9,250 |
Year Ended December 31, | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
(In thousands, except per share data) | ||||||||||||
Operating loss | $ | (45,063 | ) | $ | (54,196 | ) | $ | (22,369 | ) | |||
Net loss | (44,775 | ) | (57,552 | ) | (26,565 | ) | ||||||
Net loss per share, basic and diluted | $ | (3.99 | ) | $ | (5.17 | ) | $ | (2.40 | ) | |||
Weighted average shares used to compute basic and diluted net loss per share | 11,222 | 11,139 | 11,048 |
Total | Quoted Price in Active Market (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
December 31, 2016: | ||||||||||||||||
Contingent consideration liabilities- current | $ | 2,855 | $ | — | $ | — | $ | 2,855 | ||||||||
Contingent consideration liabilities- non-current | 5,125 | — | — | 5,125 | ||||||||||||
Total contingent consideration | $ | 7,980 | $ | — | $ | — | $ | 7,980 |
Balance as of January 1, 2016 | $ | — | ||
Contingent consideration liabilities assumed | 8,250 | |||
Gain from change in fair value of contingent consideration liabilities | (270 | ) | ||
Fair value at December 31, 2016 | $ | 7,980 |
December 31 | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
(In Thousands) | ||||||||||||
Selling, general and administrative | $ | 5,378 | $ | 3,993 | $ | 519 | ||||||
Research and development | 783 | 242 | 18 | |||||||||
Cost of goods sold | 277 | 168 | 14 | |||||||||
Total stock-based compensation expense | 6,438 | 4,403 | 551 | |||||||||
Total estimated tax benefit related to stock-based compensation expense | — | 37 | 203 | |||||||||
Net effect on net income | $ | 6,438 | $ | 4,366 | $ | 348 |
Restricted Stock Awards and Units | |||
Shares (In thousands) | Weighted Average Grant Date Fair Value Per Share | ||
Unvested, January 1, 2016 | 63 | $9.58 | |
Granted | 79 | 9.89 | |
Cancellations | (2) | 4.05 | |
Released/Vested | (75) | 9.77 | |
Unvested, December 31, 2016 | 65 | $9.87 |
December 31, 2016 | December 31, 2015 | ||||
Expected dividend yield | 0 | % | 0 | % | |
Risk-free interest rate | 1.27 | % | 1.55 | % | |
Expected volatility | 38.20 | % | 38.17 | % | |
Expected term (in years) | 4.9 | 5.1 |
Number of Shares Outstanding (In thousands) | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (In years) | Aggregate Intrinsic Value (In thousands) | ||||||||||
Outstanding, January 1, 2016 | 1,973 | $ | 14.86 | 7.20 | $ | 4,585 | |||||||
Granted | 955 | $ | 13.43 | — | — | ||||||||
Exercised | — | $ | — | — | — | ||||||||
Forfeited | (196 | ) | $ | 13.93 | — | — | |||||||
Outstanding, December 31, 2016 | 2,732 | $ | 14.43 | 6.71 | $ | 37 | |||||||
Vested or expected to vest, December 31, 2016 | 2,657 | $ | 14.46 | 6.71 | $ | 30 | |||||||
Exercisable, December 31, 2016 | 1,346 | $ | 14.45 | 6.54 | $ | 5 |
December 31, 2016 | |||
Expected dividend yield | 0 | % | |
Risk-free interest rate | 0.6 | % | |
Expected volatility | 30.5 | % | |
Expected term (in years) | 1.2 |
Payments Due by Calendar Year | |||
(In thousands) | |||
2017 | $ | 1,885 | |
2018 | 1,920 | ||
2019 | 1,963 | ||
2020 | 2,017 | ||
2021 | 2,078 | ||
Thereafter | 8,185 | ||
Total minimum lease payments | $ | 18,048 |
Year Ended December 31, | |||||||||||
2016 | 2015 | 2014 | |||||||||
(In thousands) | |||||||||||
United States operations | $ | (44,072 | ) | $ | (51,305 | ) | $ | (22,097 | ) | ||
Foreign operations | 308 | (1,748 | ) | 1,479 | |||||||
$ | (43,764 | ) | $ | (53,053 | ) | $ | (20,618 | ) |
Year Ended December 31, | |||||
2016 | 2015 | 2014 | |||
Federal statutory rate | 35.0% | 35.0% | 35.0% | ||
Increase (decrease) in income taxes resulting from: | |||||
State income taxes, net of federal tax benefit | 2.1% | 0.1% | 2.3% | ||
Foreign operations | (3.2)% | (0.7)% | (1.1)% | ||
Changes in valuation allowances | (33.1)% | (16.7)% | (57.9)% | ||
Pre-Spin losses with no tax benefit | —% | (22.7)% | —% | ||
Uncertain tax positions | 0.2% | —% | 0.4% | ||
Research and development credit | 0.2% | —% | 0.2% | ||
Return to provision | 0.9% | —% | 0.6% | ||
Domestic manufacturing deduction | —% | 0.5% | 2.0% | ||
Other | (0.8)% | (0.2)% | (0.5)% | ||
Effective tax rate | 1.3% | (4.7)% | (19.0)% |
Year Ended December 31, | |||||||||||
2016 | 2015 | 2014 | |||||||||
(In thousands) | |||||||||||
Current: | |||||||||||
Federal | $ | (532 | ) | $ | 2,655 | $ | 3,944 | ||||
State | (51 | ) | 106 | 252 | |||||||
Foreign | 41 | — | 404 | ||||||||
Total current | $ | (542 | ) | $ | 2,761 | $ | 4,600 | ||||
Deferred: | |||||||||||
Federal | — | — | (741 | ) | |||||||
State | — | — | (60 | ) | |||||||
Foreign | (10 | ) | (282 | ) | 128 | ||||||
Total deferred | $ | (10 | ) | $ | (282 | ) | $ | (673 | ) | ||
Provision (benefit) for income taxes | $ | (552 | ) | $ | 2,479 | $ | 3,927 |
Year Ended December 31, | |||||||
2016 | 2015 | ||||||
(In thousands) | |||||||
Deferred tax assets: | |||||||
Doubtful accounts | $ | 184 | $ | 272 | |||
Inventory related items | 13,163 | 11,170 | |||||
Tax credits | 83 | — | |||||
Accrued vacation | 498 | 425 | |||||
Accrued bonus | 812 | 740 | |||||
Stock compensation | 3,329 | 1,466 | |||||
Net operating loss carryforwards | 19,955 | 7,045 | |||||
Intangible & fixed assets | 22,910 | 25,354 | |||||
Other | 923 | 649 | |||||
Total deferred tax assets | 61,857 | 47,121 | |||||
Less valuation allowance | (61,118 | ) | (46,638 | ) | |||
Deferred tax assets after valuation allowance | $ | 739 | $ | 483 | |||
Deferred tax liabilities: | |||||||
Other | 246 | — | |||||
Total deferred tax liabilities | $ | 246 | $ | — | |||
Net deferred tax assets | $ | 493 | $ | 483 |
Year Ended December 31, | |||||||||||
2016 | 2015 | 2014 | |||||||||
(In thousands) | |||||||||||
Balance, beginning of year | $ | 298 | $ | 113 | $ | 187 | |||||
Gross increases: | |||||||||||
Prior years’ tax positions | 7 | 90 | 13 | ||||||||
Additions to tax positions in prior years due to spin-off | — | 185 | — | ||||||||
Current year tax positions | 107 | — | — | ||||||||
Gross decreases: | |||||||||||
Settlements | — | — | — | ||||||||
Statute of limitations lapses | (107 | ) | (90 | ) | (87 | ) | |||||
Balance, end of year | $ | 305 | $ | 298 | $ | 113 |
Year Ended December 31, | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
(In thousands) | ||||||||||||
Orthobiologics | $ | 66,240 | $ | 67,258 | $ | 67,594 | ||||||
Spinal hardware | 62,620 | 65,920 | 71,101 | |||||||||
Total Revenue, net | $ | 128,860 | $ | 133,178 | $ | 138,695 |
Year Ended December 31, | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
(In thousands) | ||||||||||||
United States | $ | 116,800 | $ | 120,259 | $ | 124,365 | ||||||
International | 12,060 | 12,919 | 14,330 | |||||||||
Total Revenue, net | $ | 128,860 | $ | 133,178 | $ | 138,695 |
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
(In thousands, except per share data) | |||||||||||||||
Total revenue, net: | |||||||||||||||
2016 | $ | 31,399 | $ | 33,201 | $ | 31,741 | $ | 32,519 | |||||||
2015 | 32,314 | 33,461 | 32,679 | 34,724 | |||||||||||
Gross profit: | |||||||||||||||
2016 | $ | 17,116 | $ | 19,271 | $ | 17,860 | $ | 19,069 | |||||||
2015 | 19,713 | 18,955 | 15,338 | 18,053 | |||||||||||
Net loss: | |||||||||||||||
2016 | $ | (12,007 | ) | $ | (11,983 | ) | $ | (9,454 | ) | $ | (9,768 | ) | |||
2015 | (9,898 | ) | (17,685 | ) | (14,199 | ) | (13,750 | ) | |||||||
Basic/diluted net loss per common share(1): | |||||||||||||||
2016 | $ | (1.08 | ) | $ | (1.07 | ) | $ | (0.84 | ) | $ | (0.87 | ) | |||
2015 | (0.90 | ) | (1.60 | ) | (1.27 | ) | (1.23 | ) |
Balance at Beginning of Period | Charged to Costs and Expenses | Charged to Other Accounts | Additions/Deductions | Balance at End of Period | |||||||||||||||
Description | |||||||||||||||||||
(In thousands) | |||||||||||||||||||
Year ended December 31, 2016: | |||||||||||||||||||
Allowance for doubtful accounts and sales returns and other credits | 764 | (207 | ) | — | (74 | ) | 483 | ||||||||||||
Deferred tax asset valuation allowance | 46,638 | 14,480 | — | — | 61,118 | ||||||||||||||
Year ended December 31, 2015: | |||||||||||||||||||
Allowance for doubtful accounts and sales returns and other credits | $ | 558 | $ | 55 | $ | — | $ | 151 | $ | 764 | |||||||||
Deferred tax asset valuation allowance | 83,457 | (36,819 | ) | — | — | 46,638 | |||||||||||||
Year ended December 31, 2014: | |||||||||||||||||||
Allowance for doubtful accounts and sales returns and other credits | $ | 1,068 | $ | (267 | ) | $ | — | $ | (238 | ) | $ | 563 | |||||||
Deferred tax asset valuation allowance | 73,461 | 10,483 | (487 | ) | — | 83,457 |
EXHIBIT INDEX | ||||||||||
Incorporated by Reference | ||||||||||
Exhibit No. | Description | Filed or Furnished Herewith | Form | File/Film No. | Date Filed | |||||
2.1(a)*# | Asset Purchase Agreement among SeaSpine Holdings Corporation, N.L.T Spine Ltd. and NLT Spine, Inc., dated August 17, 2016 | Form 10-Q | 001-36905-161987764 | 11/10/2016 | ||||||
2.1(b) | Amendment to the Asset Purchase Agreement among SeaSpine Holdings Corporation, N.L.T Spine Ltd. and NLT Spine, Inc., dated September 26, 2016 | Form 10-Q | 001-36905-161987764 | 11/10/2016 | ||||||
2.1(c) | Amendment No. 2 to Asset Purchase Agreement among SeaSpine Holdings Corporation, N.L.T Spine Ltd. and NLT Spine, Inc., dated January 31, 2017 | X | ||||||||
2.2# | Separation and Distribution Agreement between Integra LifeSciences Holdings Corporation and SeaSpine Holdings Corporation, dated as of June 30, 2015 | Form 8-K | 001-36905-15966132 | 7/1/2015 | ||||||
3.1 | Amended and Restated Certificate of Incorporation of SeaSpine Holdings Corporation | Form 8-K | 001-36905-15966132 | 7/1/2015 | ||||||
3.2 | Amended and Restated Bylaws of SeaSpine Holdings Corporation | Form 8-K | 001-36905-15966132 | 7/1/2015 | ||||||
4.1 | Form of Common Stock Certificate of SeaSpine Holdings Corporation | Form 10 | 001-36905-15904590 | 6/1/2015 | ||||||
4.2 | Form of Indenture | Form S-3 | 333-213089-161825462 | 8/11/2016 | ||||||
10.1 | Transition Services Agreement between Integra LifeSciences Holdings Corporation and SeaSpine Holdings Corporation, dated as of July 1, 2015 | Form 8-K | 001-36905-15966132 | 7/1/2015 | ||||||
10.2 | Tax Matters Agreement between Integra LifeSciences Holdings Corporation and SeaSpine Holdings Corporation, dated as of July 1, 2015 | Form 8-K | 001-36905-15966132 | 7/1/2015 | ||||||
10.3 | Employee Matters Agreement between Integra LifeSciences Holdings Corporation and SeaSpine Holdings Corporation, dated as of July 1, 2015 | Form 8-K | 001-36905-15966132 | 7/1/2015 | ||||||
10.4 | Microfibrillar Collagen Supply Agreement between Integra LifeSciences Holdings Corporation and SeaSpine Holdings Corporation, dated as of July 1, 2015 | Form 8-K | 001-36905-15966132 | 7/1/2015 | ||||||
10.5 | Collagen Ceramic Supply Agreement between Integra LifeSciences Holdings Corporation and SeaSpine Holdings Corporation, dated as of July 1, 2015 | Form 8-K | 001-36905-15966132 | 7/1/2015 | ||||||
10.6 | Demineralized Bone Matrix and Collagen Ceramic Products Supply Agreement between Integra LifeSciences Holdings Corporation and SeaSpine Holdings Corporation, dated as of July 1, 2015 | Form 8-K | 001-36905-15966132 | 7/1/2015 | ||||||
10.7** | Brian Baker Letter Agreement, dated February 25, 2015 | Form 8-K | 001-36905-15966132 | 7/1/2015 | ||||||
10.8** | Form of Indemnification Agreement entered into between SeaSpine Holdings Corporation and each of its directors and executive officers | Form 10 | 001-36905-15904590 | 6/1/2015 | ||||||
10.9** | SeaSpine Holdings Corporation 2015 Employee Stock Purchase Plan | Form 10 | 001-36905-15904590 | 6/1/2015 | ||||||
10.10** | Employment Agreement, by and between SeaSpine Holdings Corporation, SeaSpine Orthopedics Corporation and Keith Valentine, dated April 28, 2015 | Form 10 | 001-36905-15904590 | 6/1/2015 | ||||||
10.11** | John Bostjancic Letter Agreement, dated March 30, 2015 | Form 10 | 001-36905-15904590 | 6/1/2015 | ||||||
10.12** | John Winge Letter Agreement, dated January 22, 2015 | Form 10 | 001-36905-15904590 | 6/1/2015 | ||||||
10.13(a) | Amended and Restated Lease between Salma Jason Monica Limited Partnership and SeaSpine, Inc., dated as of May 23, 2011 for property at 2384 La Miranda, Vista, CA | Form 10 | 001-36905-15904590 | 6/1/2015 | ||||||
10.13(b) | Amended and Restated Lease between Salma Jason Monica Limited Partnership and SeaSpine, Inc., dated as of May 23, 2011 for property at 2302 La Miranda, Vista, CA | Form 10 | 001-36905-15904590 | 6/1/2015 | ||||||
10.14 | Amended and Restated Lease between Monarch RRC Properties, LLC (assignee of original landlord, New Goodyear LTD) and IsoTis Orthobiologics, Inc., dated as of February 23, 2006, for property at 2 Goodyear, Irvine, CA (the “Irvine Industrial Real Estate Lease”) | Form 10 | 001-36905-15904590 | 6/1/2015 | ||||||
10.15(a) | Amendment No. 1 to Irvine Industrial Real Estate Lease, dated as of May 26, 2011 | Form 10 | 001-36905-15904590 | 6/1/2015 | ||||||
10.15(b) | Amendment No. 2 to Irvine Industrial Real Estate Lease, dated as of May 14, 2013 | Form 10 | 001-36905-15904590 | 6/1/2015 | ||||||
10.16 | Sublease Agreement between SeaSpine Orthopedics Corporation, and SkinMedica, Inc., dated as of July 8, 2015 | Form 8-K | 001-36905-151103433 | 9/11/2015 | ||||||
10.17** | SeaSpine Holdings Corporation Senior Leadership Retention and Severance Plan, effective January 27, 2016 | Form 8-K | 001-36905-161378936 | 2/2/2016 | ||||||
10.18** | SeaSpine Holdings Corporation 2015 Incentive Award Plan Annual Incentive Program | Form 8-K | 001-36905-161472253 | 3/1/2016 | ||||||
10.19** | SeaSpine Holdings Corporation Non-Employee Director Compensation Program, effective October 13, 2015 | Form 10-K | 001-36905-161510399 | 3/16/2016 | ||||||
10.20(a) | Credit Agreement between SeaSpine Holdings Corporation, SeaSpine Orthopedics Corporation, SeaSpine, Inc., SeaSpine Sales LLC, Theken Spine, LLC, ISOTIS Orthobiologics, Inc. and Wells Fargo Bank, National Association, as administrative agent for each member of the lender group and the bank product providers, entered into as of December 24, 2015 | Form 10-K | 001-36905-161510399 | 3/16/2016 | ||||||
10.20(b) | First Amendment to Credit Agreement and Waiver among SeaSpine Holdings Corporation, SeaSpine Orthopedics Corporation, SeaSpine, Inc., SeaSpine Sales LLC, Theken Spine, LLC, ISOTIS Orthobiologics, Inc. and Wells Fargo Bank, National Association, as administrative agent for each member of the lender group and the bank product providers, made as of October 14, 2016 | X | ||||||||
10.21** | Amended and Restated SeaSpine Holdings Corporation Non-Employee Director Compensation Program, effective March 30, 2016 | Form 10-Q | 001-36905-161653403 | 5/16/2016 | ||||||
10.22(a)** | SeaSpine Holdings Corporation Amended and Restated 2015 Incentive Award Plan (As Amended and Restated as of March 30, 2016) | Form S-8 | 333-211887-161700155 | 6/7/2016 | ||||||
10.22(b)** | First Amendment to the SeaSpine Holdings Corporation Amended and Restated 2015 Incentive Award Plan | Form 8-K | 001-36905-161841057 | 8/18/2016 | ||||||
10.22(c)** | SeaSpine Holdings Corporation 2015 Incentive Award Plan- Form of Stock Option Grant Notice (including Stock Option Agreement) | Form S-8 | 333-211887-161700155 | 6/7/2016 | ||||||
10.22(d)** | SeaSpine Holdings Corporation 2015 Incentive Award Plan - Form of Stock Option Grant Notice (including Stock Option Agreement) | Form 10 | 001-36905-15904590 | 6/1/2015 | ||||||
10.22(e)** | SeaSpine Holdings Corporation 2015 Incentive Award Plan- Form of Restricted Stock Award Grant Notice and Restricted Stock Award Agreement | Form S-8 | 333-211887-161700155 | 6/7/2016 | ||||||
10.22(f)** | SeaSpine Holdings Corporation 2015 Incentive Award Plan - Form of Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Award Agreement. | X | ||||||||
21.1 | Subsidiaries of the Registrant | Form 10-K | 001-36905-161510399 | 3/16/2016 | ||||||
23.1 | Consent of Pricewaterhouse Coopers LLP, Independent Registered Public Accounting Firm | X | ||||||||
24.1 | Power of Attorney (included on the signatures page) | X | ||||||||
31.1 | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||
31.2 | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||
32.1*** | Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X | ||||||||
32.2*** | Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X | ||||||||
†101.INS | XBRL Instance Document | X | ||||||||
†101.SCH | XBRL Taxonomy Extension Schema Document | X | ||||||||
†101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | X | ||||||||
†101.DEF | XBRL Definition Linkbase Document | X | ||||||||
†101.LAB | XBRL Taxonomy Extension Labels Linkbase Document | X | ||||||||
†101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | X |
* | Confidential treatment has been requested or granted to certain confidential information contained in this exhibit. Such information was omitted from this exhibit by means of redacting a portion of the text and replacing it with an asterisk. We have filed separately with the SEC an unredacted copy of the exhibit. |
# | Certain schedules and attachments referenced in this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and attachment will be furnished supplementally to the SEC upon request. |
** | Indicates management contract or compensatory plan or arrangement. |
*** | These certifications are being furnished solely to accompany this report pursuant to 18 U.S.C. 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation by reference language in such filing. |
† | The financial information of SeaSpine Holdings Corporation Annual Report on Form 10-K for the year ended December 31, 2016 filed on March 3, 2017 formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Loss, (iii) the Consolidated Balance Sheets, (iv) Parenthetical Data to the Consolidated Balance Sheets, (v) the Consolidated Statements of Cash Flows, (vi) the Consolidated Statements of Equity, and (vii) Notes to Consolidated Financial Statements, is furnished electronically herewith. |
BUYER: SEASPINE HOLDINGS CORPORATION | ||
By: | /s/ Keith C. Valentine | |
Name: | Keith C. Valentine | |
Title | CEO | |
SELLER PARENT: N.L.T SPINE LTD. | ||
By: | /s/ Eli Gendler | |
Name: | Eli Gendler | |
Title | CEO | |
SELLER SUBSIDIARY: NLT SPINE, INC. | ||
By: | /s/ Eli Gendler | |
Name: | Eli Gendler | |
Title | CEO | |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
11 |
PARENT: | SEASPINE HOLDINGS CORPORATION, a Delaware corporation |
By: | /s/ John Bostjancic |
John Bostjancic Chief Financial Officer | |
BORROWER: | SEASPINE ORTHOPEDICS CORPORATION, a Delaware corporation |
By: | /s/ John Bostjancic |
John Bostjancic Chief Financial Officer | |
SEASPINE, INC., a Delaware corporation | |
By: | /s/ John Bostjancic |
John Bostjancic Chief Financial Officer | |
ISOTIS, INC., a Delaware corporation | |
By: | /s/ John Bostjancic |
John Bostjancic Chief Financial Officer | |
SEASPINE SALES LLC, a Delaware limited liability company | |
By: | SeaSpine, Inc., its sole member |
By: | /s/ John Bostjancic |
John Bostjancic Chief Financial Officer | |
BORROWER: | ISOTIS ORTHOBIOLOGICS, INC., a Washington corporation |
By: | /s/ John Bostjancic |
John Bostjancic Chief Financial Officer |
THEKEN SPINE, LLC, an Ohio limited liability company | |
By: | /s/ John Bostjancic |
John Bostjancic Chief Financial Officer |
AGENT AND LENDER: | WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association, as Agent and as a Lender |
By: | /s/ Rina Shinoda |
Name: Rina Shinoda Title: Authorized Signatory |
DM3\4235994.5 | 1 |
DM3\4235994.5 | 2 |
DM3\4235994.5 | 1 |
Participant: | [_____] | ||
Grant Date: | [_____] | ||
Number of Restricted Stock Units: | [_____] | ||
Distribution Schedule: | Subject to the terms of the Agreement, the RSUs shall be distributable in accordance with Section 2.1 of the Agreement. | ||
Vesting Schedule: | Subject to the terms of the Agreement, the RSUs shall vest [__________________], provided that Participant does not experience a Termination of Service prior to each such vesting date. For clarity, in addition to the foregoing, if a Change in Control occurs, the RSUs shall be subject to accelerated vesting as provided in Section 12.2(d)(ii) and (iii) of the Plan. |
SEASPINE HOLDINGS CORPORATION | PARTICIPANT | |||
By: | By: | |||
Print Name: | Print Name: | |||
Title: | Address: | |||
Address: | 5770 Armada Dr. | |||
Carlsbad, CA 92008 | Email: |
1. | I have reviewed this annual report on Form 10-K of SeaSpine Holdings Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: | March 3, 2017 | /s/ Keith C. Valentine |
Keith C. Valentine | ||
Chief Executive Officer |
1. | I have reviewed this annual report on Form 10-K of SeaSpine Holdings Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: | March 3, 2017 | /s/ John J. Bostjancic |
John J. Bostjancic | ||
Chief Financial Officer |
1. | The Annual Report on Form 10-K of the Company for the year ended December 31, 2016 (the “Report”) fully complies with the requirement of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: | March 3, 2017 | /s/ Keith C. Valentine |
Keith C. Valentine | ||
Chief Executive Officer |
1. | The Annual Report on Form 10-K of the Company for the year ended December 31, 2016 (the “Report”) fully complies with the requirement of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: | March 3, 2017 | /s/ John J. Bostjancic |
John J. Bostjancic | ||
Chief Financial Officer |
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Document and Entity Information - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Feb. 24, 2017 |
Jun. 30, 2016 |
|
Document and Entity Information [Abstract] | |||
Document Type | 10-K | ||
Amendment Flag | false | ||
Document Period End Date | Dec. 31, 2016 | ||
Document Fiscal Year Focus | 2016 | ||
Document Fiscal Period Focus | FY | ||
Trading Symbol | SPNE | ||
Entity Registrant Name | SeaSpine Holdings Corporation | ||
Entity Central Index Key | 0001637761 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Filer Category | Accelerated Filer | ||
Entity Common Stock, Shares Outstanding | 11,607,753 | ||
Entity Well-known Seasoned Issuer | No | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Public Float | $ 89,665,822 |
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Income Statement [Abstract] | |||
Total revenue, net | $ 128,860 | $ 133,178 | $ 138,695 |
Cost of goods sold | 55,544 | 61,119 | 56,714 |
Gross profit | 73,316 | 72,059 | 81,981 |
Operating expenses: | |||
Selling, general and administrative | 101,065 | 110,551 | 88,213 |
Research and development | 11,442 | 8,353 | 8,527 |
Intangible amortization | 4,309 | 5,331 | 5,590 |
Total operating expenses | 116,816 | 124,235 | 102,330 |
Operating loss | (43,500) | (52,176) | (20,349) |
Other expense, net | (264) | (877) | (269) |
Loss before income taxes | (43,764) | (53,053) | (20,618) |
Provision (benefit) for income taxes | (552) | 2,479 | 3,927 |
Net loss | $ (43,212) | $ (55,532) | $ (24,545) |
Net Loss per share, basic and diluted (in dollars per share) | $ (3.85) | $ (4.99) | $ (2.22) |
Weighted average shares used to compute basic and diluted net loss per share | 11,222 | 11,139 | 11,048 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS - USD ($) $ in Thousands |
12 Months Ended | ||
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Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Statement of Comprehensive Income [Abstract] | |||
Net loss | $ (43,212) | $ (55,532) | $ (24,545) |
Other comprehensive income (loss) | |||
Change in foreign currency translation adjustments | (119) | 498 | (961) |
Comprehensive loss | $ (43,331) | $ (55,034) | $ (25,506) |
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Allowance for doubtful accounts receivable | $ 483 | $ 764 |
Preferred stock par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock authorized (in shares) | 15,000,000 | 15,000,000 |
Preferred stock issued (in shares) | 0 | 0 |
Preferred stock outstanding (in shares) | 0 | 0 |
Common stock par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock authorized (in shares) | 60,000,000 | 60,000,000 |
Common stock issued (in shares) | 11,258,000 | 11,102,000 |
Common stock outstanding (in shares) | 11,258,000 | 11,102,000 |
BUSINESS |
12 Months Ended |
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Dec. 31, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
BUSINESS | BUSINESS Spin-off from Integra SeaSpine Holdings Corporation ("SeaSpine" or the "Company") was incorporated in Delaware on February 12, 2015. As of June 30, 2015, SeaSpine was a subsidiary of Integra LifeSciences Holdings Corporation (Integra). On July 1, 2015, Integra completed the spin-off of its orthobiologics and spinal hardware business into SeaSpine, which was created to be a separate, independent, publicly-traded medical technology company focused on the design, development and commercialization of surgical solutions for the treatment of patients suffering from spinal disorders. Unless the context indicates otherwise, (i) references to "SeaSpine", the "Company" refer to SeaSpine Holdings Corporation and its wholly-owned subsidiaries, (ii) references to the "Business" refer to the SeaSpine’s orthobiologics and spinal hardware business and (iii) references to "Integra" refer to Integra LifeSciences Holdings Corporation and its subsidiaries other than SeaSpine. The SeaSpine Registration Statement on Form 10 became effective on June 9, 2015, and SeaSpine common stock began “regular-way” trading on the NASDAQ Global Market on July 2, 2015 under the symbol “SPNE.” |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
12 Months Ended |
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Dec. 31, 2016 | |
Accounting Policies [Abstract] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The Company prepared the consolidated financial statements included in this report in accordance with accounting principles generally accepted in the U.S. (“GAAP”). For periods prior to the spin-off, the Company’s consolidated financial statements were prepared on a stand-alone basis and derived from Integra's consolidated financial statements and accounting records related to its orthobiologics and spinal hardware business. The Company relied on Integra for a significant portion of its operational and administrative support. The consolidated financial statements for all periods prior to the spin-off included allocations of certain Integra corporate expenses, including information technology resources and support; finance, accounting, and auditing services; real estate and facility management services; human resources activities; certain procurement activities; treasury services, legal advisory services and costs for research and development. These costs were allocated to the Company on the basis of direct usage when identifiable, with the remainder allocated on a pro-rata basis of revenue, standard costs of sales, or other measures. Integra used a centralized approach to cash management and financing of its operations and substantially all cash generated by the Company through May 4, 2015, the date the Company implemented its own separate enterprise resource planning system, was assumed to be remitted to Integra. Prior to the spin-off, cash management and financing transactions relating to the Company were accounted for through the Integra invested equity account. Accordingly, none of the Integra cash and cash equivalents at the corporate level was assigned to SeaSpine in the consolidated financial statements. Integra’s debt and related interest expense were not allocated to SeaSpine for any of the periods presented since SeaSpine was not the legal obligor of the debt and Integra’s borrowings were not directly attributable to SeaSpine. Subsequent to the spin-off, the Company’s financial statements are presented on a consolidated basis, as the Company became a separate publicly-traded company on July 1, 2015. See Note 3, “Transactions with Integra,” for further information regarding the relationships the Company has with Integra. Principles of Consolidation For periods prior to the spin-off, the consolidated financial statements include certain assets and liabilities that have historically been held at the Integra level but were specifically identifiable or otherwise attributable to the Company. All significant intra-company transactions within Integra's pre-spin off orthobiologics and spinal hardware business have been eliminated. All significant transactions between the Company and other businesses of Integra before the spin-off are included in these consolidated financial statements. For periods subsequent to the spin-off, the consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of consolidated financial statements in conformity with U.S. 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 identifiable intangible and long-lived assets, assumptions related to the timing and probability of the product launch dates, discount rates matched to the timing of payments, and 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 that are believed to be reasonable under the current circumstances. Actual results could differ from these estimates. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of 90 days or less at the date of purchase to be cash equivalents. Cash and cash equivalents include cash readily available in checking and bank deposit sweep accounts. Fair Value of Financial Instruments The carrying amounts of cash, cash equivalents, receivables, accounts payable, accrued expenses and short-term debt at December 31, 2016 and 2015, are considered to approximate fair value because of the short term nature of those items. The Company measures certain assets and liabilities in accordance with authoritative guidance which requires fair value measurements to be classified and disclosed in one of the following three categories: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data. Level 3: Unobservable inputs are used when little or no market data is available. The carrying amount of long-term debt outstanding pursuant to the Company’s credit facility with Wells Fargo Bank, National Association approximates fair value as interest rates on this instrument approximate the borrowing rates currently available for debt with similar terms and maturities. This fair value measurement is categorized within Level 2 of the fair value hierarchy. Trade Accounts Receivable and Allowances Trade accounts receivable in the accompanying consolidated balance sheets are presented net of allowances for doubtful accounts 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. 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 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 is recorded based on factors including the length of time the receivables are past due, the current business environment and the Company’s historical experience. Provisions to the allowances for doubtful accounts are recorded to selling, general and administrative expenses. Account balances are charged off against the allowance when it is probable that the receivable will not be recovered. Inventories Inventories, consisting of purchased materials, direct labor and manufacturing overhead, are stated at the lower of cost, the value determined by the first-in, first-out method, or market. At each balance sheet date, the Company evaluates inventories for excess quantities, obsolescence or shelf life expiration. This evaluation includes analysis of our current and future strategic plans, historical sales levels by product, projections of future demand, the risk of technological or competitive obsolescence for products, general market conditions, a review of the shelf life expiration dates for products, as well as the feasibility of reworking or using excess or obsolete products or components in the production or assembly of other products that are not obsolete or for which there are not excess quantities in inventory. To the extent that management determines there are excess or obsolete inventory or quantities with a shelf life that is too near its expiration for the Company to reasonably expect that it can sell those products prior to their expiration, the Company adjusts the carrying value to estimated net realizable value. The Company capitalizes inventory costs associated with certain products prior to regulatory approval, based on management’s judgment of probable economic benefit. The Company could be required to expense previously capitalized costs related to pre-approval inventory upon a change in such judgment, due to, among other potential factors, a denial or delay of approval by necessary regulatory bodies or a decision by management to discontinue the related development program. No such amounts were capitalized at December 31, 2016 or 2015. Property, Plant, and Equipment Property, plant and equipment are stated at historical cost less accumulated depreciation 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 the Accounting Standards Codification 350-40, Internal-Use Software. The cost of purchased spinal hardware instruments which the Company consigns to hospitals and independent sales agents to support surgeries is initially capitalized as construction in progress. The amount is then reclassified to spinal hardware instrument sets and depreciation is initiated when instruments are put together in a newly built set with spinal implants, or directly expensed for the instruments that are used to replace damaged instruments in an existing set. The depreciation expense and direct expense for replacement instruments are recorded in selling, general and administrative expense. Business Combinations The purchase price of each acquisition is allocated to the net assets acquired based on estimates of their fair values at the date of the acquisition. Any purchase price in excess of these net assets is recorded as goodwill, and any fair value of these net assets, excluding goodwill, in excess of the purchase price is recorded as a bargain purchase gain. The allocation of purchase price in certain cases may be subject to revision based on the final determination of fair values during the measurement period, which may be up to one year from the acquisition date. Contingent consideration is recognized at the estimated fair value on the acquisition date. Subsequent changes to the fair value of contingent payments are recognized in the statement of operations. Contingent payments related to acquisitions consist of commercial milestone payments and contingent royalty payments, and are valued using discounted cash flow techniques. The fair value of commercial milestone payments and contingent royalty payments reflects management’s expectations of probability of payment, and increases or decreases as the probability of payment or expectation of timing of payments changes. 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. Impairment of Long-Lived Assets Long-lived assets held and used by the Company, including property, plant and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets to be held and used, a recoverability test is performed using projected undiscounted net cash flows applicable to the long-lived assets. If an impairment exists, the amount of such impairment is calculated based on the estimated fair value of the asset. Impairments to long-lived assets to be disposed of are recorded based upon the difference between the carrying value and the fair value of the applicable assets. There was no impairment of intangible or tangible long-lived assets in any of the periods presented. Foreign Currency The Company generates revenues outside the United States in multiple foreign currencies including euros, British pounds, Swiss francs and New Zealand dollars, and in U.S. dollar-denominated transactions conducted with customers who generate revenue in currencies other than the U.S. dollar. The Company also incurs operating expenses in euros. All assets and liabilities of foreign subsidiaries which have a functional currency other than the U.S. dollar are translated at the rate of exchange at year-end, while elements of the income statement are translated at the average exchange rates in effect during the year. The net effect of these translation adjustments is shown as a component of accumulated other comprehensive income (loss). These currency translation adjustments are not currently adjusted for income taxes as they relate to permanent investments in non-U.S. subsidiaries. Foreign currency transaction gains and losses are reported in other income (expense), net. Income Taxes In the Company’s consolidated financial statements prior to the spin-off, income tax expense and deferred tax balances were calculated on a separate return basis although the Company’s operations had historically been included in the tax returns filed by the respective Integra entities of which the Company’s business was a part. Prior to the spin-off, the Company maintained an income taxes payable to/from account with Integra. The Company was deemed to settle current tax balances with the Integra tax paying entities in the respective jurisdictions. The Company’s current income tax balances were reflected as income taxes payable and settlements, which are deemed to occur in the year following incurrence, were reflected as changes in net Integra investment in the consolidated balance sheets. The Company recognizes tax benefits in its financial statements when its uncertain tax positions are more likely than not to be sustained upon audit. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The Company recognizes deferred tax assets for deductible temporary differences, operating loss carryforwards and tax credit carryforwards. Deferred tax assets are reduced by valuation allowance if it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. Revenue Recognition Our net sales are derived primarily from the sale of orthobiologics and spinal hardware products globally. Sales are reported net of returns, rebates, group purchasing organization fees and other customer allowances. Allowances and estimates of returns and other credits are recorded in the sales returns reserve. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred title and risk of loss have passed to the customer, there is a fixed or determinable sales price and collectability of that sales price is reasonably assured. In the United States, the Company generates most of its revenue by consigning its orthobiologics products and by consigning or loaning its spinal hardware sets to hospitals and independent sales agents, who in turn either deliver them to hospitals for a single surgical procedure, after which they are returned to the Company, or leave them with hospitals that are high volume users for multiple procedures. The spinal hardware sets typically contain the instruments, disposables, and spinal implants required to complete a surgery. The Company ships replacement inventory to independent sales agents to replace the consigned inventory used in surgeries. The Company maintains and replenishes loaned sets at its facility and returns them to a hospital or independent sales agent for the next procedure. The Company recognizes revenue on these consigned or loaned products when they have been used or implanted in a surgical procedure. For all other sales transactions, including sales to international stocking distributors and private label partners, the Company recognizes revenue when the products are shipped to the customer or stocking distributor and the transfer of title and risk of loss occurs. There is generally no customer acceptance or other condition that prevents the Company from recognizing revenue in accordance with the delivery terms for these sales transactions. Product royalties account for less than 1% of total revenue for any of the periods presented, and are estimated and recognized in the same period that the royalty-based products are sold by licensees. The Company estimates and recognizes royalty revenue based upon communication with licensees, historical information and expected sales trends. Differences between actual revenues and estimated royalty revenues are adjusted in the period in which they become known, which is typically the following quarter. Historically, such adjustments have not been material. Shipping and Handling Fees and Costs Amounts billed to customers for shipping and handling are included in revenues. The related shipping and freight charges incurred by the Company are included in cost of goods sold. Shipping and handling costs of $1.6 million, $1.2 million, and $1.0 million for product shipments for loaning of implant and instrumentation sets and costs incurred for internal movement of inventory were recorded in selling, general and administrative expense during the years ended December 31, 2016, 2015 and 2014, respectively. Research and Development Research and development costs, including salaries, depreciation, consultant and other external fees, and facility costs directly attributable to research and development activities, are expensed in the period in which they are incurred. Stock-Based Compensation For periods prior to the spin-off, the Company’s stock-based compensation was derived from the equity awards granted by Integra to individuals who would become the Company’s employees. Stock-based compensation expense has been allocated to the Company based on the awards and terms previously granted to its employees. As those stock-based compensation plans were Integra’s plans, the amounts have been recognized in the consolidated statements of operations and the Integra net investment account on the consolidated balance sheet. For periods after the spin-off, the Company's stock-based compensation has been recognized through the consolidated statement of operations and the Company's additional paid-in capital account on the consolidated balance sheet. The Company applies the authoritative guidance for stock-based compensation. This guidance requires companies to recognize the expense related to the fair value of their stock-based compensation awards. Stock-based compensation expense for stock option awards was based on the fair value on the grant date using the Black-Scholes-Merton option pricing model. The fair value of performance awards of restricted stock granted prior to the spin-off was based on the Integra’s stock price at the grant date and the assessed probability of meeting future performance targets. The long form method was used in the determination of the windfall tax benefit in accordance with the guidance. The stock-based compensation is initially measured at the fair value of the awards on the grant date and is then recognized on a ratable basis in the financial statements over the requisite service period of the award. Stock-based compensation expense was $6.4 million in 2016, $4.4 million in 2015, and $0.6 million in 2014. Concentration of Credit 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 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. Accounts receivable from customers in these countries are not a material amount of the Company’s overall receivables. None of the Company’s customers accounted for 10% or more of the net sales or accounts receivable for any of the periods presented. Recent Accounting Standards Not Yet Adopted In May 2014, the Financial Accounting Standards Board (FASB) issued Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). The new standard provides a five-step approach to be applied to all contracts with customers. The accounting standards update also requires expanded disclosures about revenue recognition. In July 2015, the FASB deferred for one year the effective date of the new revenue standard, but early adoption is permitted. The new standard will be effective for the Company starting January 1, 2019. Early adoption is permitted as early as the original effective date of December 15, 2016. The Company is in the process of evaluating the impact of this standard on its consolidated financial statements. In July 2015, the FASB issued Update No. 2015-11, Simplifying the Measurement of Inventory (Topic 330). The new guidance requires an entity to measure inventory within the scope of the amendment at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The guidance is effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. Adoption of this new guidance is not expected to have a material effect on the Company’s consolidated financial statements. In February 2016, the FASB issued Update No. 2016-02, Leases (Topic 842). The new accounting standard requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms of greater than twelve months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. The new accounting standard must be adopted using the modified retrospective approach. The standard will be effective for the Company starting January 1, 2019, with early adoption permitted. The Company does not intend to adopt the new guidance early and is in the process of determining the effects of adoption will have on its financial statements. In August 2016, the FASB issued Update No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This Update address eight specific cash flow issues related to cash receipts and cash payments with the objective of reducing the existing diversity of presentation and classification in the statement of cash flows. The new standard will be effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted and should be applied using a retrospective transition method to each period presented. The Company is in the process of evaluating the impact of this standard on its financial statements. Recently Adopted Accounting Standards In August 2014, the FASB issued Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The amendment requires management to evaluate, for each annual and interim reporting period, whether there are conditions and events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date the financial statements are issued or are available to be issued. If substantial doubt is raised, additional disclosures around management’s plan to alleviate these doubts are required. This update is effective for all annual periods and interim reporting periods ending after December 15, 2016. The implementation of the amended guidance did not have an impact on current disclosures in the Company's financial statements. In March 2016, the FASB issued Update No. 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718). Under current accounting guidance an entity is required to report excess tax benefits and tax deficiencies to the extent of previous windfalls in equity when the tax benefit is realized. Excess settlements are currently reported as cash inflows from financing activities. The amendment requires that an entity present all excess tax benefits and all tax deficiencies as income tax expense or benefit in the statement of operations to be applied using a prospective transition method. Related tax settlements are to be presented as cash inflows from operating activities. The Company has the option to use either a prospective or retrospective transition method. The amendment removes the requirement to delay recognition of an excess tax benefit until the tax benefit is realized. A modified retrospective transition method must be applied. This update will become effective for all annual periods and interim reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company early adopted ASU 2016-09 as of January 1, 2016. Amendments related to accounting for excess tax benefits (deficiencies) have been adopted prospectively, and recognition of excess tax benefits (deficiencies) against income tax expenses is immaterial for the year ended December 31, 2016. The Company elected to apply the change in classification for excess tax benefits in the statement of cash flows on a prospective basis, and elected to continue estimating stock-based compensation award forfeitures in determining the amount of compensation cost to be recognized each period. In January 2017, the FASB issued Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The amendments in this Update provide a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. If the screen is not met, the amendments in this Update (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The new guidance will be effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods and early adoption is permitted. The Company adopted this guidance as of December 31, 2016 and will apply the guidance on a prospective basis. Net Loss Per Share For periods prior to the spin-off, basic and diluted net loss per share was calculated based on the approximately 11.0 million shares of SeaSpine common stock that were distributed to Integra shareholders on July 1, 2015. For periods subsequent to the spin-off, 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 exercise of stock options, any assumed issuance of common stock under restricted stock units, the Employee Stock Purchase Plan, and a contingent closing consideration related to the acquisition of certain assets from N.L.T. Spine Ltd. as the effect would be antidilutive. Common stock equivalents of 3.1 million and 2.0 million shares for the years ended December 31, 2016 and 2015, respectively, were excluded from the calculation because of their antidilutive effect. |
TRANSACTIONS WITH INTEGRA |
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TRANSACTIONS WITH INTEGRA | TRANSACTIONS WITH INTEGRA Related-party Transactions Prior to the spin-off, and pursuant to certain supply agreements subsequent to the spin-off, SeaSpine purchased a portion of raw materials and finished goods from Integra for SeaSpine's Mozaik family of products, and SeaSpine contract manufactured certain finished goods for Integra. The Company's purchases of raw materials and Mozaik product finished goods from Integra for the years ended December 31, 2016, 2015 and 2014 totaled $1.1 million, $6.2 million and $6.2 million, respectively. The Company's sale of finished goods to Integra under its contract manufacturing arrangement for the year ended December 31, 2016 totaled $0.2 million, and was immaterial for the years ended December 31, 2015 and 2014. Pursuant to a transition services agreement, Integra and SeaSpine provided certain services to one another following the spin-off, and Integra and SeaSpine will indemnify each other against certain liabilities arising from their respective businesses. Under this agreement, Integra provided the Company with certain support functions, including information technology, accounting and other financial functions, regulatory affairs and quality assurance, human resources and other administrative support. The Company incurred approximately $0.3 million and $2.8 million of costs under the agreement for the years ended December 31, 2016 and 2015, respectively. The outstanding amount owed by SeaSpine to Integra was immaterial at December 31, 2016. The amount of services provided by SeaSpine to Integra was immaterial for the years ended December 31, 2016 and 2015. Subsequent to the spin-off, Integra also collected trade receivables from customers on behalf of the Company. The outstanding amount owed by Integra to SeaSpine was immaterial as of December 31, 2016, and $1.3 million as of December 31, 2015. Allocated Costs For periods prior to the spin-off, the consolidated statements of operations included direct expenses for cost of goods sold, research and development, sales and marketing, customer service, and administration as well as allocations of expenses arising from shared services and infrastructure provided by Integra to the Company, such as costs of information technology, including the costs of a multi-year global enterprise resource planning implementation, accounting and legal services, real estate and facilities management, corporate advertising, insurance and treasury services, and other corporate and infrastructure services. These allocations are included in the table below. These expenses were allocated to the Company using estimates that the Company considers to be a reasonable reflection of the utilization of services provided to or benefits received from the Company. The allocation methods include pro-rata basis of revenue, standard cost of sales or other measures. There were no allocated costs for the year ended December 31, 2016.
Included in the above amounts are certain non-cash allocated costs, including stock-based compensation. Such amounts were $0.6 million and $1.9 million for the years ended December 31, 2015 and 2014, respectively. All significant related party transactions between SeaSpine and Integra were included in the consolidated financial statements and, prior to the spin-off, were considered to be effectively settled for cash at the time the transaction was recorded, with the exception of the purchases by SeaSpine from Integra of Mozaik raw materials and finished goods for all periods presented. The total net effect of the transactions considered to be effectively settled for cash was reflected in the consolidated statement of cash flows as a financing activity. The following table summarizes the components of the net increase (decrease) in Integra net investment for the years ended December 31, 2015 and 2014. The Integra net investment was reclassified to Additional Paid-in Capital in connection with the spin-off.
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DEBT AND INTEREST |
12 Months Ended |
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Dec. 31, 2016 | |
Debt Disclosure [Abstract] | |
DEBT AND INTEREST | DEBT AND INTEREST Credit Agreement On December 24, 2015, the Company entered into a three-year credit facility (the Credit Facility), with Wells Fargo Bank, National Association. The Credit Facility provides an asset-backed revolving line of credit of up to $30.0 million in borrowing capacity with a maturity date of December 24, 2018, which maturity date is subject to a one-time one-year extension at the Company's election. In connection with 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. Borrowings under the Credit Facility accrue interest at the rate then applicable to the base rate loans (as customarily defined), unless and until converted into LIBOR rate loans (as customarily defined) in accordance with the terms of the Credit Facility. Borrowings bear interest at a floating annual rate equal to (a) during any month for which the Company's average excess availability (as customarily defined) is greater than $20.0 million, base rate plus (i) 1.25 percentage points for base rate loans and (ii) LIBOR rate plus 2.25 percentage points for LIBOR rate loans, (b) during any month for which the Company's average excess availability is greater than $10.0 million but less than or equal to $20.0 million, (i) base rate plus 1.50 percentage points for base rate loans and (ii) LIBOR rate plus 2.50 percentage points for LIBOR rate loans and (c) during any month for which the Company's average excess availability is less than or equal to $10.0 million, (i) base rate plus 1.75 percentage points for base rate loans and (ii) LIBOR rate plus 2.75 percentage points for LIBOR rate loans. The Company will also pay an unused line fee in an amount equal to 0.375% per annum of the unused Credit Facility amount. The unused line fee is due and payable on the first day of each month. In September 2016, the Company borrowed $3.3 million from the revolving line of credit. The Company elected to have the LIBOR rate apply to the amount borrowed with an interest period of six months commencing on September 28, 2016. At December 31, 2016, there was $3.8 million outstanding in total debt and $17.8 million borrowing capacity under the Credit Facility. Debt issuance costs and legal fees related to the Credit Facility totaling $0.4 million were recorded as a deferred asset and are being amortized ratably over the term of the arrangement. The Credit Facility contains various customary affirmative and negative covenants agreed to by the Company, 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 December 31, 2016. 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, Wells Fargo Bank, National Association will have the right to terminate the commitments and accelerate the maturity of any loans outstanding. Insurance Premium Finance Agreements In July 2016, the Company entered into two insurance premium finance agreements (the Finance Agreements), with First Insurance Funding Corporation and AFCO Acceptance Corporation (the Lenders), under which the Lenders will pay premiums, taxes and fees to insurance companies on the Company's behalf for various insurance policies. Under the Finance Agreements, the Company will pay to the Lenders the financed amount of $1.2 million with annual interest rates between 2% and 4% within the next 12 months from July 2016. The Company recorded the total amounts due to the Lenders as short-term debt on the balance sheet. At December 31, 2016, there was $0.4 million outstanding under the Finance Agreements. |
BALANCE SHEET DETAILS |
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Balance Sheet Related Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE SHEET DETAILS | BALANCE SHEET DETAILS Inventories. Inventories consisted of the following:
Property, Plant and Equipment. Property, plant and equipment, net and corresponding useful lives were as follows:
Depreciation and amortization expenses totaled $4.5 million, $4.5 million and $4.8 million for the years ended December 31, 2016, 2015, and 2014, respectively, and include $1.2 million, $0.3 million and $0.5 million expenses that were presented within cost of goods sold for 2016, 2015 and 2014, respectively. The cost of purchased instruments used to replace damaged instruments in existing sets and recorded directly to the instrument replacement expense totaled $1.4 million, $1.2 million and $1.7 million for the years ended December 31, 2016, 2015 and 2014, respectively. Identifiable Intangible Assets. The components of the Company’s identifiable intangible assets were as follows:
Annual amortization expense (including amounts reported in cost of goods sold) is expected to be approximately, $6.8 million in 2017, $6.5 million in 2018, $5.8 million in 2019, $4.9 million in 2020, and $4.9 million in 2021. Amortization expense totaled $7.2 million, $8.0 million and $8.2 million for the years ended December 31, 2016, 2015 and 2014, and includes $2.9 million, $2.7 million, and $2.6 million of amortization of product technology-based intangible assets. The amortization of product technology-based intangible assets is presented by the Company within cost of goods sold. |
BUSINESS COMBINATIONS |
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Business Combinations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BUSINESS COMBINATIONS | BUSINESS COMBINATIONS In August 2016, the Company entered into an asset purchase agreement with N.L.T Spine Ltd. (“NLT”), and NLT Spine, Inc., a wholly owned subsidiary of NLT, pursuant to which the Company agreed to purchase certain of the assets of NLT’s medical device business, including substantially all of NLT’s medical device intellectual property related to the ownership, design, development, manufacture, marketing and commercial exploitation of certain expandable interbody devices. The acquisition was undertaken to increase the Company's product offering in expandable interbody devices. Upon the terms and subject to the conditions of the acquisition agreement, at the initial closing (as defined in the agreement), the Company entered into (i) an exclusive license agreement with NLT, pursuant to which the Company received an exclusive, worldwide license to make, use, import, offer for sale, sell and otherwise commercially exploit NLT’s expandable interbody device products, (ii) a transition services agreement with NLT, pursuant to which NLT agreed to provide certain services with respect to the continued development of the acquired intellectual property and (iii) a non-competition and non-solicitation agreement with NLT, pursuant to which NLT and its affiliates agreed not to compete with the Company with respect to the acquired intellectual property, subject to certain exceptions. The purchase price consisted of an initial cash payment to NLT of $1.0 million, which was paid on September 26, 2016 upon the initial closing, and the issuance of 350,000 shares of the Company’s common stock with the total fair value of $2.5 million at issuance in January 2017 as contingent closing consideration upon the satisfaction of certain conditions, including FDA 510(K) clearance of one of the acquired product technologies. In accordance with the terms of the asset purchase agreement, the number of shares issued was determined based on the volume weighted average closing price (“VWAP”) of the common stock during the 20-trading day period ending one trading day prior to the issuance date, subject to a minimum and maximum VWAP of $10.00 and $17.00, respectively. The VWAP over such 20-trading day period was $7.58 and therefore $10.00 was used. If NLT's subsequent sale of those shares of common stock results in aggregate net proceeds to NLT in excess of $3.5 million, then NLT must pay to the Company, in cash, an amount equal to one-half of the net proceeds in excess of $3.5 million. The Company is also obligated to pay up to a maximum of $5.0 million, in milestone payments, payable at the Company’s election in cash or its common stock, which are contingent on the Company's achievement of four independent events related to the commercialization of the acquired product technologies. Additionally, the Company is required to pay royalty payments, in cash, to NLT equal to declining (over time) percentages of the Company’s future net sales of certain of the acquired product technologies not to exceed $43.0 million in the aggregate. The Company has the option to terminate any future obligation to make royalty payments by making a one-time cash payment to NLT of $18.0 million. The Company accounted for this transaction as a business combination in accordance with Accounting Standards Codification ("ASC") 805 Business Combinations, and as such, the assets acquired have been recorded at their respective fair values. There were no liabilities assumed. The determination of fair value for the identifiable intangible assets acquired requires extensive use of estimates and judgments. Significant estimates include measurements estimating cash flows and determining the appropriate discount rate, which are considered Level 3 inputs, as defined using the fair value concepts defined in ASC 820. Intangible assets acquired were valued at $9.3 million as of the initial closing date and recorded as Product Technology intangible assets, which are being amortized ratably over a useful life of 10 years from the initial closing. Acquisition costs of $0.5 million incurred were recorded as selling, marketing and administrative expenses. The following table summarizes the estimated fair value of total consideration to be paid to NLT as of September 26, 2016, the date of the initial closing. The Company estimated the fair value of the contingent consideration, including contingent milestone payments and contingent royalty payments, using a probability weighted approach that considers the possible outcomes based on assumptions related to the timing and probability of the product launch dates, discount rates matched to the timing of payments, and probability of success rates and discount adjustments on the related cash flows. Subsequent to the acquisition date, at each reporting period, the contingent consideration liabilities will be remeasured at current fair value with changes to be recorded in the consolidated statements of operations.
The total purchase price equals the intangible assets acquired, which were the sole assets acquired in connection with this acquisition.
The unaudited pro forma financial information set forth below assumes that the NLT purchased assets had been acquired on January 1, 2014. The unaudited pro forma financial information includes the effect of estimated amortization charges for acquired intangible assets of $0.9 million for the years ended December 31, 2016, 2015 and 2014, the estimated research and development expenses for the purchased assets of $1.1 million for the years ended December 31, 2016, 2015, and 2014, and the removal of non-recurring acquisition costs of $0.5 million for the year ended December 31, 2016. There was no adjustment to the total revenues. The unaudited pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the periods presented.
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FAIR VALUE MEASUREMENTS |
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FAIR VALUE MEASUREMENTS | FAIR VALUE MEASUREMENTS The fair values of the Company’s assets and liabilities, including contingent considerations are measured at fair value on a recurring basis, and are determined under the fair value categories as follows (in thousands):
Contingent consideration liabilities are classified within Level 3 of the fair value hierarchy because they use significant unobservable inputs. For those liabilities, fair value is determined using a probability-weighted discounted cash flow model, and the significant inputs which are not observable in the market. The significant inputs include assumptions related to the timing and probability of the product launch dates, discount rates matched to the timing of payments, and probability of success rates. The following table sets forth the changes in the estimated fair value of the Company’s liabilities measured on a recurring basis using significant unobservable inputs (Level 3) (in thousands):
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
STOCK-BASED COMPENSATION | STOCK-BASED COMPENSATION Stock-based compensation expense, all related to employees and non-employee directors, was recognized as follows:
Equity Award Plans As of June 30, 2015, Integra had stock options, restricted stock awards, performance stock awards, contract stock awards and restricted stock units outstanding under three plans, the 2000 Equity Incentive Plan, the 2001 Equity Incentive Plan, and the 2003 Equity Incentive Plan. In connection with the spin-off, Integra equity awards granted to individuals who became employees of the Company were converted to SeaSpine equity awards. In general, each award is subject to the same terms and conditions as were in effect prior to the spin-off. In May 2015, the Company adopted the 2015 Incentive Award Plan (the "2015 Plan"), under which the Company can grant its employees and non-employee directors 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 Company may issue up to 2,000,000 shares of its common stock under the 2015 Plan. On January 27, 2016, the Company's board of directors approved an amendment and restatement of the 2015 Plan, pursuant to which the share reserve was increased by 300,000 shares over the original share reserve under the 2015 Plan, and on March 30, 2016, the board of directors approved an amendment and restatement of the 2015 Plan, pursuant to which the share reserve was increased by an additional 1,209,500 shares of common stock. Such amendments and restatements were approved by the stockholders of the Company on June 7, 2016. An aggregate of 3,509,500 shares are reserved for issuance under the second amended and restated 2015 Plan. As of December 31, 2016, there were 1,087,630 shares available to grant under the second amended and restated 2015 Plan. Restricted Stock Awards and Restricted Stock Units 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. Stock-based compensation expense related to restricted stock awards, and restricted stock units 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 by each homogenous group of shareowners and is estimated to be 12% annually for all non-executive employees for the year ended December 31, 2016 and 10% annually for the year ended December 31, 2015. There is no forfeiture rate applied for non-employee directors and executive employees as their pre-vesting forfeitures are anticipated to be highly unlikely. As individual grant awards become fully vested, stock-based compensation expense is adjusted to recognize actual forfeitures. The following table summarizes restricted stock awards and restricted stock units granted to SeaSpine employees and non-employee directors during the year ended December 31, 2016:
The total fair value of shares vested in 2016, 2015 and 2014 was $0.7 million, $1.1 million, and $0.7 million, respectively. The Company recognized $0.9 million, $0.3 million and $0.6 million in expense related to restricted stock awards and restricted stock units granted during the years ended December 31, 2016, 2015 and 2014, respectively. As of December 31, 2016, there was approximately $0.2 million of total unrecognized compensation expense related to the unvested portions of these awards. This cost is expected to be recognized over a weighted-average period of approximately one year. Stock Options Stock option grants to employees generally have requisite service periods of four 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 various vesting periods within each grant and based on their fair value at the date of grant using the Black-Scholes-Merton option pricing model. The following weighted-average assumptions were used in the calculation of fair value for options grants for the years ended December 31, 2016 and 2015:
The Company considered that it has never paid cash dividends 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. Due to the Company’s limited historical data, the expected volatility is calculated based upon the historical volatility of comparable companies in the medical device industry whose share prices are publicly available for a sufficient period of time. The expected term of "plain vanilla" options is calculated using the simplified method as prescribed by accounting guidance for stock-based compensation. A "plain vanilla" option is an option with the following characteristics: (1) the option is granted at-the-money; (2) exercisability is conditional only on satisfaction of a service condition through the vesting date; (3) employees who terminate their service prior to vesting forfeit the options; (4) employees who terminate their service after vesting are granted limited time to exercise their stock options; and (5) the options are nontransferable and non-hedgeable. The expected term of any other option is based on disclosures from similar companies with similar grants. In addition, the Company applies an expected forfeiture rate when amortizing stock-based compensation expense. The expected forfeiture rate of stock options is based on historical experience of pre-vesting forfeitures on awards by each homogenous group of shareowners and is estimated to be 12% annually for all non-executive employees for the year ended December 31, 2016, and 10% annually for the year ended December 31, 2015. There is no forfeiture rate applied for non-employee directors and executive employees as their pre-vesting forfeitures are anticipated to be highly unlikely. As individual grant awards become fully vested, stock-based compensation expense is adjusted to recognize actual forfeitures. A summary of the options granted during the year ended December 31, 2016 and the total number of options outstanding as of that date and changes since January 1, 2016 are set forth below:
The weighted average grant date fair value of options granted during the year ended December 31, 2016 was $3.00. The total fair value of shares vested during the year ended December 31, 2016 was $4.8 million. The Company recognized $5.0 million in expense related to stock options for the year ended December 31, 2016. As of December 31, 2016, there was approximately $2.7 million of total unrecognized compensation expense related to unvested stock options. These costs are expected to be recognized over a weighted-average period of approximately 1.4 years. Employee Stock Purchase Plan In May 2015, the Company adopted a 2015 Employee Stock Purchase Plan, which was amended in December 2015 (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 will be for a period of twenty-four 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 each 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 any purchase date during an offering period (June 30 or December 31). The ESPP authorizes the issuance of up to 400,000 shares of common stock pursuant to purchase rights granted to employees. 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 first offering period under the ESPP commenced on January 1, 2016 and will end on December 31, 2017. However, 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 stock 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 firstly triggered by the purchase date that occurred on June 30, 2016, such that the offering period that commenced on January 1, 2016 was terminated, and a new offering period commenced on July 1, 2016 and will end on June 30, 2018. This restart feature was triggered again by the purchase date that occurred on December 31, 2016, such that the offering period that commenced on July 1, 2016 was terminated, and a new offering period commenced on January 1, 2017 and will end on December 31, 2018. 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 year ended December 31, 2016 was immaterial. During the year ended December 31, 2016, 89,857 shares of common stock were purchased under the ESPP. The Company recognized $0.5 million in expense related to the ESPP for the year ended December 31, 2016. 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 year ended December 31, 2016:
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Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||
LEASE | LEASE The Company leases administrative, manufacturing, research, and distribution facilities and various manufacturing, office and transportation equipment through operating leases. Future minimum lease payments under these operating leases at December 31, 2016 are as follows:
Total rental expense for the years ended December 31, 2016, 2015, and 2014 was $3.1 million, $2.5 million and $2.1 million, respectively. |
INCOME TAXES |
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Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INCOME TAXES | INCOME TAXES The Company is subject to income taxes in the U.S., Switzerland and France. Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are calculated based on the difference between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using the enacted income tax rates expected to be in effect during the years in which the temporary differences are expected to reverse. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Significant judgment is required in determining whether a valuation allowance should be recorded against deferred tax assets. In assessing the need for a valuation allowance, management considers all available evidence for each jurisdiction including past operating results, estimates of future taxable income and the feasibility of ongoing tax planning strategies. In the event that the Company changes its determination as to the amount of deferred tax assets that can be realized, the Company will adjust its valuation allowance with a corresponding impact to income tax expense in the period in which such determination is made. Prior to the Spin-off Prior to the spin-off, the income tax provision in the consolidated statements of operations has been calculated using the separate return method, as if the Company filed a separate tax return and operated as a stand-alone business. Therefore, cash tax payments and items of current and deferred taxes may not be reflective of actual tax balances included in Integra’s historical consolidated income tax return. More specifically, the presentation of substantial net operating losses, and any related valuation allowances, presented herein do not represent actual net operating losses that have been incurred by the Company or that are available for carryforward to a future tax year. After the Spin-off Subsequent to the spin-off on July 1, 2015, the deferred tax balances were adjusted to reflect only those tax attributes that carryforward with the Company. The adjustment to deferred taxes was recorded through stockholders' equity. The Company also made an election to change the tax classification for its foreign entity. This election resulted in both the foreign entity and its U.S. subsidiary to be included in the consolidated federal tax group on September 1, 2015. Income Tax Provision (Benefit) Income/(loss) before income taxes consisted of the following:
A reconciliation of the U.S. federal statutory rate to the Company’s effective tax rate is as follows:
The provision/(benefit) for income taxes consisted of the following:
The income tax effects of significant temporary differences that give rise to deferred tax assets and liabilities, shown before jurisdictional netting, are presented below:
At December 31, 2016, the Company had net operating loss carryforwards of $51.4 million for federal and state income tax purposes. The Company also had foreign net operating loss carryforwards of $3.0 million. These tax loss carryforwards begin to expire in 2016 and 2027 for foreign and federal and state income tax, respectively, and will expire through 2035. The tax benefit recorded for net operating losses, net of valuation allowance, was less than $0.1 million which relates only to foreign net operating losses. At December 31, 2015, the Company had net operating loss carryforwards of $13.3 million for federal and state income tax purposes. The Company also had foreign net operating loss carryforwards of $8.9 million. These tax loss carryforwards expire in various periods through 2035. The tax benefit recorded for net operating losses, net of valuation allowance, was $0.3 million which relates only to foreign net operating losses. The valuation allowance relates to deferred tax assets for certain items that will be deductible for income tax purposes under very limited circumstances and for which the Company believes it is not more likely than not that it will realize the associated tax benefit. However, in the event that the Company determines that it would be able to realize more or less than the recorded amount of net deferred tax assets, an adjustment to the deferred tax asset valuation allowance would be recorded in the period such a determination is made. In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that some portion of all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax planning strategies in making this assessment. Based upon the levels of historical taxable income, projections of future taxable income and the reversal of deferred tax liabilities over the periods in which the deferred tax assets are deductible, management believes it is more-likely-than-not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowance. The amount of deferred tax asset considered realizable, however, could change in the near term if estimates which require significant judgment of future taxable income during the carryforward period are increased or decreased. A reconciliation of the Company’s uncertain tax benefits is as follows:
Approximately $0.3 million of the balance at December 31, 2016 relates to uncertain tax positions that, if recognized, would affect the annual effective tax rate. There is $0.1 million related to tax positions for which it is reasonably possible that the total amounts could be reduced during the twelve months following December 31, 2016, as a result of expiring statutes of limitations. The Company recognizes interest and penalties relating to uncertain tax positions in income tax expense. The amounts recorded in 2016, 2015, and 2014 were not significant. The Company files income tax returns as prescribed by tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal, state, local and foreign jurisdictions where applicable based on the statute of limitations that apply in each jurisdiction. The Company has no open tax audits with any taxing authority as of December 31, 2016. |
COMMITMENTS AND CONTINGENCIES |
12 Months Ended |
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Dec. 31, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | COMMITMENTS AND CONTINGENCIES In consideration for certain technology, manufacturing, distribution, and selling rights and licenses granted to the Company, the Company has agreed to pay royalties on sales of certain products sold by the Company. The royalty payments that the Company made under these agreements were included in the consolidated statements of operations as a component of cost of goods sold. The Company is subject to various claims, lawsuits and proceedings in the ordinary course of its business with respect to its products, its current or former employees, and involving commercial disputes, some of which have been settled by the Company. In the opinion of management, such claims are either adequately covered by insurance or otherwise indemnified, or are not expected, individually or in the aggregate, to result in a material adverse effect on the Company's financial condition. However, it is possible that the Company's results of operations, financial position and cash flows in a particular period could be materially affected by these contingencies. The Company accrues for loss contingencies when it is deemed probable that a loss has been incurred and that loss is estimable. The amounts accrued are based on the full amount of the estimated loss before considering insurance proceeds, and do not include an estimate for legal fees expected to be incurred in connection with the loss contingency. The Company does not believe there are any pending legal proceedings that would have a material impact on the Company’s financial position, cash flows or results of operations. |
SEGMENT AND GEOGRAPHIC INFORMATION |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SEGMENT AND GEOGRAPHIC INFORMATION | SEGMENT AND GEOGRAPHIC INFORMATION Subsequent to the spin-off from Integra, management assessed its segment reporting based on how it internally manages and reports the results of its business to its chief operating decision maker. The Company’s management reviews financial results, manages the business and allocates resources on an aggregate basis. Therefore, financial results are reported in a single operating segment: the development, manufacture and marketing of orthobiologics and spinal hardware. The Company reports revenue in two product categories: orthobiologics and spinal hardware. Orthobiologics products consist of a broad range of advanced and traditional bone graft substitutes that are designed to improve bone fusion rates following surgery. The spinal hardware portfolio consists of an extensive line of products for minimally invasive surgery, complex spine, deformity and degenerative procedures. Revenue, net consisted of the following:
The Company attributes revenues to geographic areas based on the location of the customer. Total revenue by major geographic area consisted of the following:
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EMPLOYEE BENEFIT PLAN |
12 Months Ended |
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Dec. 31, 2016 | |
Compensation and Retirement Disclosure [Abstract] | |
EMPLOYEE BENEFIT PLAN | EMPLOYEE BENEFIT PLAN The Company has a defined contribution savings plan under section 401(k) of the IRC. The plan covers substantially all employees. The Company matches employee contributions made to the plan according to a specified formula. The Company’s matching contributions totaled approximately $0.6 million, $0.5 million and $0.3 million for the years ended 2016, 2015 and 2014, respectively. |
SELECTED QUARTERLY INFORMATION - UNAUDITED |
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Quarterly Financial Information Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SELECTED QUARTERLY INFORMATION - UNAUDITED | SELECTED QUARTERLY INFORMATION - UNAUDITED
(1) Per common share amounts for the quarters and full years have been calculated separately. Accordingly, quarterly amounts do not necessarily add to the annual amount because of differences in the weighted average common shares outstanding during each period principally due to the effect of the Company’s issuing or retiring shares of its common stock during the year. |
VALUATION AND QUALIFYING ACCOUNTS [Schedule] |
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VALUATION AND QUALIFYING ACCOUNTS | SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
12 Months Ended |
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Dec. 31, 2016 | |
Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation The Company prepared the consolidated financial statements included in this report in accordance with accounting principles generally accepted in the U.S. (“GAAP”). For periods prior to the spin-off, the Company’s consolidated financial statements were prepared on a stand-alone basis and derived from Integra's consolidated financial statements and accounting records related to its orthobiologics and spinal hardware business. The Company relied on Integra for a significant portion of its operational and administrative support. The consolidated financial statements for all periods prior to the spin-off included allocations of certain Integra corporate expenses, including information technology resources and support; finance, accounting, and auditing services; real estate and facility management services; human resources activities; certain procurement activities; treasury services, legal advisory services and costs for research and development. These costs were allocated to the Company on the basis of direct usage when identifiable, with the remainder allocated on a pro-rata basis of revenue, standard costs of sales, or other measures. Integra used a centralized approach to cash management and financing of its operations and substantially all cash generated by the Company through May 4, 2015, the date the Company implemented its own separate enterprise resource planning system, was assumed to be remitted to Integra. Prior to the spin-off, cash management and financing transactions relating to the Company were accounted for through the Integra invested equity account. Accordingly, none of the Integra cash and cash equivalents at the corporate level was assigned to SeaSpine in the consolidated financial statements. Integra’s debt and related interest expense were not allocated to SeaSpine for any of the periods presented since SeaSpine was not the legal obligor of the debt and Integra’s borrowings were not directly attributable to SeaSpine. Subsequent to the spin-off, the Company’s financial statements are presented on a consolidated basis, as the Company became a separate publicly-traded company on July 1, 2015. |
Principles of Consolidation | Principles of Consolidation For periods prior to the spin-off, the consolidated financial statements include certain assets and liabilities that have historically been held at the Integra level but were specifically identifiable or otherwise attributable to the Company. All significant intra-company transactions within Integra's pre-spin off orthobiologics and spinal hardware business have been eliminated. All significant transactions between the Company and other businesses of Integra before the spin-off are included in these consolidated financial statements. For periods subsequent to the spin-off, the consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. |
Use of Estimates | Use of Estimates The preparation of consolidated financial statements in conformity with U.S. 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 identifiable intangible and long-lived assets, assumptions related to the timing and probability of the product launch dates, discount rates matched to the timing of payments, and 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 that are believed to be reasonable under the current circumstances. Actual results could differ from these estimates. |
Cash and Cash Equivalents | Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of 90 days or less at the date of purchase to be cash equivalents. Cash and cash equivalents include cash readily available in checking and bank deposit sweep accounts. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The carrying amounts of cash, cash equivalents, receivables, accounts payable, accrued expenses and short-term debt at December 31, 2016 and 2015, are considered to approximate fair value because of the short term nature of those items. The Company measures certain assets and liabilities in accordance with authoritative guidance which requires fair value measurements to be classified and disclosed in one of the following three categories: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data. Level 3: Unobservable inputs are used when little or no market data is available. The carrying amount of long-term debt outstanding pursuant to the Company’s credit facility with Wells Fargo Bank, National Association approximates fair value as interest rates on this instrument approximate the borrowing rates currently available for debt with similar terms and maturities. This fair value measurement is categorized within Level 2 of the fair value hierarchy. |
Trade Accounts Receivable and Allowances | Trade Accounts Receivable and Allowances Trade accounts receivable in the accompanying consolidated balance sheets are presented net of allowances for doubtful accounts 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. 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 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 is recorded based on factors including the length of time the receivables are past due, the current business environment and the Company’s historical experience. Provisions to the allowances for doubtful accounts are recorded to selling, general and administrative expenses. Account balances are charged off against the allowance when it is probable that the receivable will not be recovered. |
Inventories | Inventories Inventories, consisting of purchased materials, direct labor and manufacturing overhead, are stated at the lower of cost, the value determined by the first-in, first-out method, or market. At each balance sheet date, the Company evaluates inventories for excess quantities, obsolescence or shelf life expiration. This evaluation includes analysis of our current and future strategic plans, historical sales levels by product, projections of future demand, the risk of technological or competitive obsolescence for products, general market conditions, a review of the shelf life expiration dates for products, as well as the feasibility of reworking or using excess or obsolete products or components in the production or assembly of other products that are not obsolete or for which there are not excess quantities in inventory. To the extent that management determines there are excess or obsolete inventory or quantities with a shelf life that is too near its expiration for the Company to reasonably expect that it can sell those products prior to their expiration, the Company adjusts the carrying value to estimated net realizable value. The Company capitalizes inventory costs associated with certain products prior to regulatory approval, based on management’s judgment of probable economic benefit. The Company could be required to expense previously capitalized costs related to pre-approval inventory upon a change in such judgment, due to, among other potential factors, a denial or delay of approval by necessary regulatory bodies or a decision by management to discontinue the related development program. No such amounts were capitalized at December 31, 2016 or 2015. |
Property, Plant and Equipment | Property, Plant, and Equipment Property, plant and equipment are stated at historical cost less accumulated depreciation 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 the Accounting Standards Codification 350-40, Internal-Use Software. The cost of purchased spinal hardware instruments which the Company consigns to hospitals and independent sales agents to support surgeries is initially capitalized as construction in progress. The amount is then reclassified to spinal hardware instrument sets and depreciation is initiated when instruments are put together in a newly built set with spinal implants, or directly expensed for the instruments that are used to replace damaged instruments in an existing set. The depreciation expense and direct expense for replacement instruments are recorded in selling, general and administrative expense. |
Business Combinations | Business Combinations The purchase price of each acquisition is allocated to the net assets acquired based on estimates of their fair values at the date of the acquisition. Any purchase price in excess of these net assets is recorded as goodwill, and any fair value of these net assets, excluding goodwill, in excess of the purchase price is recorded as a bargain purchase gain. The allocation of purchase price in certain cases may be subject to revision based on the final determination of fair values during the measurement period, which may be up to one year from the acquisition date. Contingent consideration is recognized at the estimated fair value on the acquisition date. Subsequent changes to the fair value of contingent payments are recognized in the statement of operations. Contingent payments related to acquisitions consist of commercial milestone payments and contingent royalty payments, and are valued using discounted cash flow techniques. The fair value of commercial milestone payments and contingent royalty payments reflects management’s expectations of probability of payment, and increases or decreases as the probability of payment or expectation of timing of payments changes. |
Identifiable Intangible Assets | 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. |
Impairment of Long-Lived Assets | Impairment of Long-Lived Assets Long-lived assets held and used by the Company, including property, plant and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets to be held and used, a recoverability test is performed using projected undiscounted net cash flows applicable to the long-lived assets. If an impairment exists, the amount of such impairment is calculated based on the estimated fair value of the asset. Impairments to long-lived assets to be disposed of are recorded based upon the difference between the carrying value and the fair value of the applicable assets. There was no impairment of intangible or tangible long-lived assets in any of the periods presented. |
Foreign Currency | Foreign Currency The Company generates revenues outside the United States in multiple foreign currencies including euros, British pounds, Swiss francs and New Zealand dollars, and in U.S. dollar-denominated transactions conducted with customers who generate revenue in currencies other than the U.S. dollar. The Company also incurs operating expenses in euros. All assets and liabilities of foreign subsidiaries which have a functional currency other than the U.S. dollar are translated at the rate of exchange at year-end, while elements of the income statement are translated at the average exchange rates in effect during the year. The net effect of these translation adjustments is shown as a component of accumulated other comprehensive income (loss). These currency translation adjustments are not currently adjusted for income taxes as they relate to permanent investments in non-U.S. subsidiaries. Foreign currency transaction gains and losses are reported in other income (expense), net. |
Income Taxes | Income Taxes In the Company’s consolidated financial statements prior to the spin-off, income tax expense and deferred tax balances were calculated on a separate return basis although the Company’s operations had historically been included in the tax returns filed by the respective Integra entities of which the Company’s business was a part. Prior to the spin-off, the Company maintained an income taxes payable to/from account with Integra. The Company was deemed to settle current tax balances with the Integra tax paying entities in the respective jurisdictions. The Company’s current income tax balances were reflected as income taxes payable and settlements, which are deemed to occur in the year following incurrence, were reflected as changes in net Integra investment in the consolidated balance sheets. The Company recognizes tax benefits in its financial statements when its uncertain tax positions are more likely than not to be sustained upon audit. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The Company recognizes deferred tax assets for deductible temporary differences, operating loss carryforwards and tax credit carryforwards. Deferred tax assets are reduced by valuation allowance if it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. |
Revenue Recognition | Revenue Recognition Our net sales are derived primarily from the sale of orthobiologics and spinal hardware products globally. Sales are reported net of returns, rebates, group purchasing organization fees and other customer allowances. Allowances and estimates of returns and other credits are recorded in the sales returns reserve. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred title and risk of loss have passed to the customer, there is a fixed or determinable sales price and collectability of that sales price is reasonably assured. In the United States, the Company generates most of its revenue by consigning its orthobiologics products and by consigning or loaning its spinal hardware sets to hospitals and independent sales agents, who in turn either deliver them to hospitals for a single surgical procedure, after which they are returned to the Company, or leave them with hospitals that are high volume users for multiple procedures. The spinal hardware sets typically contain the instruments, disposables, and spinal implants required to complete a surgery. The Company ships replacement inventory to independent sales agents to replace the consigned inventory used in surgeries. The Company maintains and replenishes loaned sets at its facility and returns them to a hospital or independent sales agent for the next procedure. The Company recognizes revenue on these consigned or loaned products when they have been used or implanted in a surgical procedure. For all other sales transactions, including sales to international stocking distributors and private label partners, the Company recognizes revenue when the products are shipped to the customer or stocking distributor and the transfer of title and risk of loss occurs. There is generally no customer acceptance or other condition that prevents the Company from recognizing revenue in accordance with the delivery terms for these sales transactions. Product royalties account for less than 1% of total revenue for any of the periods presented, and are estimated and recognized in the same period that the royalty-based products are sold by licensees. The Company estimates and recognizes royalty revenue based upon communication with licensees, historical information and expected sales trends. Differences between actual revenues and estimated royalty revenues are adjusted in the period in which they become known, which is typically the following quarter. Historically, such adjustments have not been material. |
Shipping and Handling Fees and Costs | Shipping and Handling Fees and Costs Amounts billed to customers for shipping and handling are included in revenues. The related shipping and freight charges incurred by the Company are included in cost of goods sold. |
Research and Development | Research and Development Research and development costs, including salaries, depreciation, consultant and other external fees, and facility costs directly attributable to research and development activities, are expensed in the period in which they are incurred. |
Stock-Based Compensation | Stock-Based Compensation For periods prior to the spin-off, the Company’s stock-based compensation was derived from the equity awards granted by Integra to individuals who would become the Company’s employees. Stock-based compensation expense has been allocated to the Company based on the awards and terms previously granted to its employees. As those stock-based compensation plans were Integra’s plans, the amounts have been recognized in the consolidated statements of operations and the Integra net investment account on the consolidated balance sheet. For periods after the spin-off, the Company's stock-based compensation has been recognized through the consolidated statement of operations and the Company's additional paid-in capital account on the consolidated balance sheet. The Company applies the authoritative guidance for stock-based compensation. This guidance requires companies to recognize the expense related to the fair value of their stock-based compensation awards. Stock-based compensation expense for stock option awards was based on the fair value on the grant date using the Black-Scholes-Merton option pricing model. The fair value of performance awards of restricted stock granted prior to the spin-off was based on the Integra’s stock price at the grant date and the assessed probability of meeting future performance targets. The long form method was used in the determination of the windfall tax benefit in accordance with the guidance. The stock-based compensation is initially measured at the fair value of the awards on the grant date and is then recognized on a ratable basis in the financial statements over the requisite service period of the award. |
Concentration of Credit Risk | Concentration of Credit 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 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. Accounts receivable from customers in these countries are not a material amount of the Company’s overall receivables. None of the Company’s customers accounted for 10% or more of the net sales or accounts receivable for any of the periods presented. |
Recently Issued and Adopted Accounting Standards | Recent Accounting Standards Not Yet Adopted In May 2014, the Financial Accounting Standards Board (FASB) issued Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). The new standard provides a five-step approach to be applied to all contracts with customers. The accounting standards update also requires expanded disclosures about revenue recognition. In July 2015, the FASB deferred for one year the effective date of the new revenue standard, but early adoption is permitted. The new standard will be effective for the Company starting January 1, 2019. Early adoption is permitted as early as the original effective date of December 15, 2016. The Company is in the process of evaluating the impact of this standard on its consolidated financial statements. In July 2015, the FASB issued Update No. 2015-11, Simplifying the Measurement of Inventory (Topic 330). The new guidance requires an entity to measure inventory within the scope of the amendment at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The guidance is effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. Adoption of this new guidance is not expected to have a material effect on the Company’s consolidated financial statements. In February 2016, the FASB issued Update No. 2016-02, Leases (Topic 842). The new accounting standard requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms of greater than twelve months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. The new accounting standard must be adopted using the modified retrospective approach. The standard will be effective for the Company starting January 1, 2019, with early adoption permitted. The Company does not intend to adopt the new guidance early and is in the process of determining the effects of adoption will have on its financial statements. In August 2016, the FASB issued Update No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This Update address eight specific cash flow issues related to cash receipts and cash payments with the objective of reducing the existing diversity of presentation and classification in the statement of cash flows. The new standard will be effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted and should be applied using a retrospective transition method to each period presented. The Company is in the process of evaluating the impact of this standard on its financial statements. Recently Adopted Accounting Standards In August 2014, the FASB issued Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The amendment requires management to evaluate, for each annual and interim reporting period, whether there are conditions and events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date the financial statements are issued or are available to be issued. If substantial doubt is raised, additional disclosures around management’s plan to alleviate these doubts are required. This update is effective for all annual periods and interim reporting periods ending after December 15, 2016. The implementation of the amended guidance did not have an impact on current disclosures in the Company's financial statements. In March 2016, the FASB issued Update No. 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718). Under current accounting guidance an entity is required to report excess tax benefits and tax deficiencies to the extent of previous windfalls in equity when the tax benefit is realized. Excess settlements are currently reported as cash inflows from financing activities. The amendment requires that an entity present all excess tax benefits and all tax deficiencies as income tax expense or benefit in the statement of operations to be applied using a prospective transition method. Related tax settlements are to be presented as cash inflows from operating activities. The Company has the option to use either a prospective or retrospective transition method. The amendment removes the requirement to delay recognition of an excess tax benefit until the tax benefit is realized. A modified retrospective transition method must be applied. This update will become effective for all annual periods and interim reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company early adopted ASU 2016-09 as of January 1, 2016. Amendments related to accounting for excess tax benefits (deficiencies) have been adopted prospectively, and recognition of excess tax benefits (deficiencies) against income tax expenses is immaterial for the year ended December 31, 2016. The Company elected to apply the change in classification for excess tax benefits in the statement of cash flows on a prospective basis, and elected to continue estimating stock-based compensation award forfeitures in determining the amount of compensation cost to be recognized each period. In January 2017, the FASB issued Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The amendments in this Update provide a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. If the screen is not met, the amendments in this Update (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The new guidance will be effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods and early adoption is permitted. The Company adopted this guidance as of December 31, 2016 and will apply the guidance on a prospective basis. |
Net Loss Per Share | Net Loss Per Share For periods prior to the spin-off, basic and diluted net loss per share was calculated based on the approximately 11.0 million shares of SeaSpine common stock that were distributed to Integra shareholders on July 1, 2015. For periods subsequent to the spin-off, 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 exercise of stock options, any assumed issuance of common stock under restricted stock units, the Employee Stock Purchase Plan, and a contingent closing consideration related to the acquisition of certain assets from N.L.T. Spine Ltd. as the effect would be antidilutive. |
TRANSACTIONS WITH INTEGRA (Tables) |
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Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Related Party Transactions | The following table summarizes the components of the net increase (decrease) in Integra net investment for the years ended December 31, 2015 and 2014. The Integra net investment was reclassified to Additional Paid-in Capital in connection with the spin-off.
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BALANCE SHEET DETAILS (Tables) |
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Balance Sheet Related Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Inventory, Net | Inventories consisted of the following:
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Schedule of Property, Plant and Equipment | Property, plant and equipment, net and corresponding useful lives were as follows:
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Schedule of Components of Identifiable Intangible Assets | The components of the Company’s identifiable intangible assets were as follows:
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BUSINESS COMBINATIONS (Tables) |
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Schedule of Business Acquisitions, by Acquisition | Subsequent to the acquisition date, at each reporting period, the contingent consideration liabilities will be remeasured at current fair value with changes to be recorded in the consolidated statements of operations.
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Schedule of Finite-Lived Intangible Assets Acquired as Part of Business Combination | The total purchase price equals the intangible assets acquired, which were the sole assets acquired in connection with this acquisition.
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Business Acquisition, Pro Forma Information | The unaudited pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the periods presented.
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FAIR VALUE MEASUREMENTS (Tables) |
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Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis | The fair values of the Company’s assets and liabilities, including contingent considerations are measured at fair value on a recurring basis, and are determined under the fair value categories as follows (in thousands):
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Schedule of Liabilities Measured on Recurring Basis, Unobservable Inputs | The following table sets forth the changes in the estimated fair value of the Company’s liabilities measured on a recurring basis using significant unobservable inputs (Level 3) (in thousands):
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STOCK-BASED COMPENSATION (Tables) |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Stock-Based Compensation Expense | Stock-based compensation expense, all related to employees and non-employee directors, was recognized as follows:
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Schedule of Share-based Compensation, Restricted Stock Units Award Activity | The following table summarizes restricted stock awards and restricted stock units granted to SeaSpine employees and non-employee directors during the year ended December 31, 2016:
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Schedule of Valuation Assumptions for Stock Options | The following weighted-average assumptions were used in the calculation of fair value for options grants for the years ended December 31, 2016 and 2015:
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Schedule of Stock Option Activity | A summary of the options granted during the year ended December 31, 2016 and the total number of options outstanding as of that date and changes since January 1, 2016 are set forth below:
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Schedule of Valuation Assumptions for ESPP | The following weighted average assumptions were used in the calculation of fair value of shares under the ESPP at the grant date for the year ended December 31, 2016:
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LEASE (Tables) |
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Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||
Schedule of Future Minimum Rental Payments for Operating Leases | Future minimum lease payments under these operating leases at December 31, 2016 are as follows:
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INCOME TAXES (Tables) |
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Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Income before Income Tax, Domestic and Foreign | Income/(loss) before income taxes consisted of the following:
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Schedule of effective income tax rate reconciliation | A reconciliation of the U.S. federal statutory rate to the Company’s effective tax rate is as follows:
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Schedule of Components of Income Tax Expense (Benefit) | The provision/(benefit) for income taxes consisted of the following:
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Schedule of Deferred Tax Assets and Liabilities | The income tax effects of significant temporary differences that give rise to deferred tax assets and liabilities, shown before jurisdictional netting, are presented below:
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Schedule of Unrecognized Tax Benefits Roll Forward | A reconciliation of the Company’s uncertain tax benefits is as follows:
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SEGMENT AND GEOGRAPHIC INFORMATION (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Revenue by Segment | Revenue, net consisted of the following:
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Total Revenue By Major Geographic Area | The Company attributes revenues to geographic areas based on the location of the customer. Total revenue by major geographic area consisted of the following:
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SELECTED QUARTERLY INFORMATION - UNAUDITED (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Quarterly Financial Information Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Quarterly Financial Information |
(1) Per common share amounts for the quarters and full years have been calculated separately. Accordingly, quarterly amounts do not necessarily add to the annual amount because of differences in the weighted average common shares outstanding during each period principally due to the effect of the Company’s issuing or retiring shares of its common stock during the year. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Narrative (Details) - USD ($) shares in Thousands, $ in Thousands |
6 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2015 |
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Accounting Policies [Abstract] | ||||
Product royalties as a percent of total revenue, less than (as a percent) | 1.00% | 1.00% | 1.00% | |
Shipping and handling costs | $ 1,600 | $ 1,200 | $ 1,000 | |
Stock-based compensation expense | $ 6,438 | $ 4,403 | $ 551 | |
Weighted average shares used to compute basic and diluted net loss per share | 11,000 | 11,222 | 11,139 | 11,048 |
Antidilutive dilutive securities (in shares) | 3,100 | 2,000 |
TRANSACTIONS WITH INTEGRA Narrative (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Related Party Transaction [Line Items] | |||
Purchases | $ (1,404) | $ 8,365 | $ 5,185 |
Related party costs incurred during the period | 300 | 2,800 | |
Trade receivables due from related party | 1,300 | ||
Stock-based compensation | 6,438 | 3,816 | 551 |
Integra | Affiliated Entity | |||
Related Party Transaction [Line Items] | |||
Purchases | 1,100 | 6,200 | 6,200 |
Sale of finished goods | $ 200 | ||
Stock-based compensation | $ 600 | $ 1,900 |
TRANSACTIONS WITH INTEGRA Allocated Costs (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Related Party Transaction [Line Items] | |||
Cost of goods sold | $ 55,544 | $ 61,119 | $ 56,714 |
Selling, general and administrative | 101,065 | 110,551 | 88,213 |
Research and development | $ 11,442 | 8,353 | 8,527 |
Integra | Affiliated Entity | |||
Related Party Transaction [Line Items] | |||
Cost of goods sold | 488 | 1,304 | |
Selling, general and administrative | 8,633 | 17,602 | |
Research and development | 253 | 490 | |
Total Allocated Costs | $ 9,374 | $ 19,396 |
BALANCE SHEET DETAILS Schedule of Inventories, Net (Details) - USD ($) $ in Thousands |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Balance Sheet Related Disclosures [Abstract] | ||
Finished goods | $ 30,922 | $ 29,845 |
Work in process | 10,554 | 15,574 |
Raw materials | 3,823 | 5,852 |
Inventories, net | $ 45,299 | $ 51,271 |
BALANCE SHEET DETAILS Property, Plant and Equipment Narrative (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Property, Plant and Equipment [Line Items] | |||
Depreciation | $ 4,500 | $ 4,500 | $ 4,800 |
Instrument replacement expense | 1,389 | 1,228 | 1,732 |
Cost of goods sold | |||
Property, Plant and Equipment [Line Items] | |||
Depreciation | $ 1,200 | $ 300 | $ 500 |
BALANCE SHEET DETAILS Components of Company's Identifiable Intangible Assets (Details) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Finite-Lived Intangible Assets [Line Items] | ||
Cost | $ 97,699 | $ 88,299 |
Accumulated Amortization | (55,914) | (48,667) |
Net | $ 41,785 | $ 39,632 |
Product technology | ||
Finite-Lived Intangible Assets [Line Items] | ||
Weighted Average Life (in years) | 12 years | 12 years |
Cost | $ 40,569 | $ 31,169 |
Accumulated Amortization | (22,218) | (19,280) |
Net | $ 18,351 | $ 11,889 |
Customer relationships | ||
Finite-Lived Intangible Assets [Line Items] | ||
Weighted Average Life (in years) | 12 years | 12 years |
Cost | $ 56,830 | $ 56,830 |
Accumulated Amortization | (33,396) | (29,087) |
Net | 23,434 | 27,743 |
Trademarks/brand names | ||
Finite-Lived Intangible Assets [Line Items] | ||
Cost | 300 | 300 |
Accumulated Amortization | (300) | (300) |
Net | $ 0 | $ 0 |
BALANCE SHEET DETAILS Identifiable Intangible Assets Narrative (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Finite-Lived Intangible Assets [Line Items] | |||
Annual amortization expense expected to approximate in 2017 | $ 6.8 | ||
Annual amortization expense expected to approximate in 2018 | 6.5 | ||
Annual amortization expense expected to approximate in 2019 | 5.8 | ||
Annual amortization expense expected to approximate in 2020 | 4.9 | ||
Annual amortization expense expected to approximate in 2021 | 4.9 | ||
Intangible asset amortization | 7.2 | $ 8.0 | $ 8.2 |
Product technology | Cost of goods sold | |||
Finite-Lived Intangible Assets [Line Items] | |||
Intangible asset amortization | $ 2.9 | $ 2.7 | $ 2.6 |
BUSINESS COMBINATIONS Preliminary Estimated Fair Values of NLTs Assets Acquired and Liabilities Assumed (Details) $ in Thousands |
Sep. 26, 2016
USD ($)
|
---|---|
Business Acquisition [Line Items] | |
Business combination, consideration transferred | $ 1,000 |
Total purchase price | 9,250 |
Common stock | |
Business Acquisition [Line Items] | |
Contingent consideration liability | 2,930 |
Contingent milestone payments | |
Business Acquisition [Line Items] | |
Contingent consideration liability | 2,310 |
Contingent asset purchase payments | |
Business Acquisition [Line Items] | |
Contingent consideration liability | $ 3,010 |
BUSINESS COMBINATIONS Purchase Price Allocation and Intangible Assets Acquired (Details) $ in Thousands |
Sep. 26, 2016
USD ($)
|
---|---|
Acquired Finite-Lived Intangible Assets [Line Items] | |
Intangible assets acquired | $ 9,250 |
Product technology | |
Acquired Finite-Lived Intangible Assets [Line Items] | |
Intangible assets acquired | $ 9,250 |
BUSINESS COMBINATIONS Results of Operations and Financial Position of the NLT Purchased Assets (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2016 |
Sep. 30, 2016 |
Jun. 30, 2016 |
Mar. 31, 2016 |
Dec. 31, 2015 |
Sep. 30, 2015 |
Jun. 30, 2015 |
Mar. 31, 2015 |
Jun. 30, 2015 |
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Operating loss | $ (43,500) | $ (52,176) | $ (20,349) | |||||||||
Net loss | $ (9,768) | $ (9,454) | $ (11,983) | $ (12,007) | $ (13,750) | $ (14,199) | $ (17,685) | $ (9,898) | $ (43,212) | $ (55,532) | $ (24,545) | |
Net Loss per share, basic and diluted (in dollars per share) | $ (0.87) | $ (0.84) | $ (1.07) | $ (1.08) | $ (1.23) | $ (1.27) | $ (1.60) | $ (0.90) | $ (3.85) | $ (4.99) | $ (2.22) | |
Weighted average shares used to compute basic and diluted net loss per share | 11,000 | 11,222 | 11,139 | 11,048 | ||||||||
Pro Forma | ||||||||||||
Operating loss | $ (45,063) | $ (54,196) | $ (22,369) | |||||||||
Net loss | $ (44,775) | $ (57,552) | $ (26,565) | |||||||||
Net Loss per share, basic and diluted (in dollars per share) | $ (3.99) | $ (5.17) | $ (2.40) | |||||||||
Weighted average shares used to compute basic and diluted net loss per share | 11,222 | 11,139 | 11,048 |
FAIR VALUE MEASUREMENTS - Changes in Contingent Consideration Liabilities (Details) - Recurring $ in Thousands |
12 Months Ended |
---|---|
Dec. 31, 2016
USD ($)
| |
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | |
Fair value of contingent consideration liability, end of period | $ 7,980 |
Level 3 | |
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | |
Fair value of contingent consideration liability, beginning of period | 0 |
Contingent consideration liabilities assumed | 8,250 |
Gain from change in fair value of contingent consideration liabilities | (270) |
Fair value of contingent consideration liability, end of period | $ 7,980 |
STOCK-BASED COMPENSATION Stock-Based Compensation Expense Breakout (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | |||
Total stock-based compensation expense | $ 6,438 | $ 4,403 | $ 551 |
Total estimated tax benefit related to stock-based compensation expense | 0 | 37 | 203 |
Net effect on net income | 6,438 | 4,366 | 348 |
Selling, general and administrative | |||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | |||
Total stock-based compensation expense | 5,378 | 3,993 | 519 |
Research and development | |||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | |||
Total stock-based compensation expense | 783 | 242 | 18 |
Cost of goods sold | |||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | |||
Total stock-based compensation expense | $ 277 | $ 168 | $ 14 |
STOCK-BASED COMPENSATION Equity Award Plans (Details) |
Mar. 30, 2016
shares
|
Jan. 27, 2016
shares
|
Dec. 31, 2016
shares
|
Jun. 30, 2015
plan
|
May 31, 2015
shares
|
---|---|---|---|---|---|
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||
Number of plans | plan | 3 | ||||
Number of shares authorized (in share) | 3,509,500 | 2,000,000 | |||
Number of additional shares authorized (in shares) | 1,209,500 | 300,000 | |||
Number of shares available for grant (in shares) | 1,087,630 |
STOCK-BASED COMPENSATION Restricted Stock Awards and Restricted Stock Units Narrative (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Forfeiture rate (as a percent) | 12.00% | 10.00% | |
Stock-based compensation | $ 6,438 | $ 3,816 | $ 551 |
Restricted Stock and Restricted Stock Unit | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Fair market value of shares vested | 700 | 1,100 | 700 |
Stock-based compensation | 900 | $ 300 | $ 600 |
Unrecognized compensation expense | $ 200 | ||
Recognition period (in years) | 1 year |
STOCK-BASED COMPENSATION Restricted Stock Awards and Restricted Stock Units Activity (Details) - Restricted Stock and Restricted Stock Unit shares in Thousands |
12 Months Ended |
---|---|
Dec. 31, 2016
$ / shares
shares
| |
Shares (In thousands) | |
Unvested at beginning of period (in shares) | shares | 63 |
Granted (in shares) | shares | 79 |
Cancellations (in shares) | shares | (2) |
Released/Vested (in shares) | shares | (75) |
Unvested at end of period (in shares) | shares | 65 |
Weighted Average Grant Date Fair Value Per Share | |
Unvested at beginning of period (in dollars per share) | $ / shares | $ 9.58 |
Granted (in dollars per share) | $ / shares | 9.89 |
Cancellations (in dollars per share) | $ / shares | 4.05 |
Released/Vested (in dollars per share) | $ / shares | 9.77 |
Unvested at end of period (in dollars per share) | $ / shares | $ 9.87 |
STOCK-BASED COMPENSATION Stock Options Narrative (Details) - USD ($) $ / shares in Units, $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Forfeiture rate (as a percent) | 12.00% | 10.00% | |
Stock-based compensation | $ 6,438 | $ 3,816 | $ 551 |
Employee Stock Option | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Weighted average grant date fair value (in dollars per share) | $ 3.00 | ||
Fair value of options vested | $ 4,800 | ||
Stock-based compensation | 5,000 | ||
Unrecognized compensation cost | $ 2,700 | ||
Recognition period (in years) | 1 year 5 months | ||
Employee | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Requisite service period (in years) | 4 years | ||
Director | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Requisite service period (in years) | 1 year |
STOCK-BASED COMPENSATION Stock Options Weighted-Average Assumptions (Details) - Employee Stock Option |
12 Months Ended | |
---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Expected dividend yield (as a percent) | 0.00% | 0.00% |
Risk-free interest rate (as a percent) | 1.27% | 1.55% |
Expected volatility (as a percent) | 38.20% | 38.17% |
Expected term (in years) | 4 years 11 months | 5 years 1 month |
STOCK-BASED COMPENSATION Employee Stock Purchase Plan Weighted-Average Assumptions (Details) - Employee Stock Purchase Plan |
12 Months Ended |
---|---|
Dec. 31, 2016 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Expected dividend yield (as a percent) | 0.00% |
Risk-free interest rate (as a percent) | 0.60% |
Expected volatility (as a percent) | 30.50% |
Expected term (in years) | 1 year 2 months |
LEASE Operating lease annual payment (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Leases [Abstract] | |||
2017 | $ 1,885 | ||
2018 | 1,920 | ||
2019 | 1,963 | ||
2020 | 2,017 | ||
2021 | 2,078 | ||
Thereafter | 8,185 | ||
Total minimum lease payments | 18,048 | ||
Rental expense | $ 3,100 | $ 2,500 | $ 2,100 |
INCOME TAXES Narrative (Details) - USD ($) $ in Millions |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Operating Loss Carryforwards [Line Items] | ||
Tax benefit | $ 0.1 | $ 0.3 |
Unrecognized tax benefits that would impact effective tax rate | 0.3 | |
Amounts expected to be reduced | 0.1 | |
Internal Revenue Service (IRS) And State and Local Jurisdiction | ||
Operating Loss Carryforwards [Line Items] | ||
Operating loss carryforwards | 51.4 | 13.3 |
Foreign Tax Authority | ||
Operating Loss Carryforwards [Line Items] | ||
Operating loss carryforwards | $ 3.0 | $ 8.9 |
INCOME TAXES Loss before income taxes (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Income Tax Disclosure [Abstract] | |||
United States operations | $ (44,072) | $ (51,305) | $ (22,097) |
Foreign operations | 308 | (1,748) | 1,479 |
Loss before income taxes | $ (43,764) | $ (53,053) | $ (20,618) |
INCOME TAXES Reconciliation of the U.S. federal statutory rate to the Company’s effective tax rate (Details) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Income Tax Disclosure [Abstract] | |||
Federal statutory rate | 35.00% | 35.00% | 35.00% |
Increase (decrease) in income taxes resulting from: | |||
State income taxes, net of federal tax benefit | 2.10% | 0.10% | 2.30% |
Foreign operations | (3.20%) | (0.70%) | (1.10%) |
Changes in valuation allowances | (33.10%) | (16.70%) | (57.90%) |
Pre-Spin losses with no tax benefit | 0.00% | (22.70%) | 0.00% |
Uncertain tax positions | 0.20% | 0.00% | 0.40% |
Research and development credit | 0.20% | (0.00%) | 0.20% |
Return to provision | 0.90% | 0.00% | 0.60% |
Domestic manufacturing deduction | 0.00% | 0.50% | 2.00% |
Other | (0.80%) | (0.20%) | (0.50%) |
Effective tax rate | 1.30% | (4.70%) | (19.00%) |
INCOME TAXES Provision for income taxes (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Current: | |||
Federal | $ (532) | $ 2,655 | $ 3,944 |
State | (51) | 106 | 252 |
Foreign | 41 | 0 | 404 |
Total current | (542) | 2,761 | 4,600 |
Deferred: | |||
Federal | 0 | 0 | (741) |
State | 0 | 0 | (60) |
Foreign | (10) | (282) | 128 |
Total deferred | (10) | (282) | (673) |
Provision (benefit) for income taxes | $ (552) | $ 2,479 | $ 3,927 |
INCOME TAXES Deferred tax assets and liabilities (Details) - USD ($) $ in Thousands |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Deferred tax assets: | ||
Doubtful accounts | $ 184 | $ 272 |
Inventory related items | 13,163 | 11,170 |
Tax credits | 83 | 0 |
Accrued vacation | 498 | 425 |
Accrued bonus | 812 | 740 |
Stock compensation | 3,329 | 1,466 |
Net operating loss carryforwards | 19,955 | 7,045 |
Intangible & fixed assets | 22,910 | 25,354 |
Other | 923 | 649 |
Total deferred tax assets | 61,857 | 47,121 |
Less valuation allowance | (61,118) | (46,638) |
Deferred tax assets after valuation allowance | 739 | 483 |
Deferred tax liabilities: | ||
Other | 246 | 0 |
Total deferred tax liabilities | 246 | 0 |
Net deferred tax assets | $ 493 | $ 483 |
INCOME TAXES Uncertain tax benefits (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Reconciliation of Unrecognized Tax Benefits, Excluding Amounts Pertaining to Examined Tax Returns [Roll Forward] | |||
Balance, beginning of year | $ 298 | $ 113 | $ 187 |
Prior years’ tax positions | 7 | 90 | 13 |
Additions to tax positions in prior years due to spin-off | 0 | 185 | 0 |
Settlements | 0 | 0 | 0 |
Statute of limitations lapses | (107) | (90) | (87) |
Balance, end of year | $ 305 | $ 298 | $ 113 |
SEGMENT AND GEOGRAPHIC INFORMATION Narrative (Details) |
12 Months Ended |
---|---|
Dec. 31, 2016
product
| |
Segment Reporting [Abstract] | |
Number of product categories | 2 |
SEGMENT AND GEOGRAPHIC INFORMATION Revenue (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Segment Reporting Information [Line Items] | |||
Revenues | $ 128,860 | $ 133,178 | $ 138,695 |
United States | |||
Segment Reporting Information [Line Items] | |||
Revenues | 116,800 | 120,259 | 124,365 |
International | |||
Segment Reporting Information [Line Items] | |||
Revenues | 12,060 | 12,919 | 14,330 |
Orthobiologics | |||
Segment Reporting Information [Line Items] | |||
Revenues | 66,240 | 67,258 | 67,594 |
Spinal hardware | |||
Segment Reporting Information [Line Items] | |||
Revenues | $ 62,620 | $ 65,920 | $ 71,101 |
EMPLOYEE BENEFIT PLAN Narrative (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Compensation and Retirement Disclosure [Abstract] | |||
Contributions | $ 0.6 | $ 0.5 | $ 0.3 |
SELECTED QUARTERLY INFORMATION - UNAUDITED Financials (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 12 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2016 |
Sep. 30, 2016 |
Jun. 30, 2016 |
Mar. 31, 2016 |
Dec. 31, 2015 |
Sep. 30, 2015 |
Jun. 30, 2015 |
Mar. 31, 2015 |
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Quarterly Financial Information Disclosure [Abstract] | |||||||||||
Total revenue, net | $ 32,519 | $ 31,741 | $ 33,201 | $ 31,399 | $ 34,724 | $ 32,679 | $ 33,461 | $ 32,314 | $ 128,860 | $ 133,178 | $ 138,695 |
Gross profit | 19,069 | 17,860 | 19,271 | 17,116 | 18,053 | 15,338 | 18,955 | 19,713 | 73,316 | 72,059 | 81,981 |
Net loss | $ (9,768) | $ (9,454) | $ (11,983) | $ (12,007) | $ (13,750) | $ (14,199) | $ (17,685) | $ (9,898) | $ (43,212) | $ (55,532) | $ (24,545) |
Net Loss per share, basic and diluted (in dollars per share) | $ (0.87) | $ (0.84) | $ (1.07) | $ (1.08) | $ (1.23) | $ (1.27) | $ (1.60) | $ (0.90) | $ (3.85) | $ (4.99) | $ (2.22) |
VALUATION AND QUALIFYING ACCOUNTS [Schedule] (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Allowance for doubtful accounts and sales returns and other credits | |||
Movement in Valuation Allowances and Reserves [Roll Forward] | |||
Balance at Beginning of Period | $ 764 | $ 558 | $ 1,068 |
Charged to Costs and Expenses | (207) | 55 | (267) |
Charged to Other Accounts | 0 | 0 | 0 |
Additions/Deductions | (74) | 151 | (238) |
Balance at End of Period | 483 | 764 | 558 |
Deferred tax asset valuation allowance | |||
Movement in Valuation Allowances and Reserves [Roll Forward] | |||
Balance at Beginning of Period | 46,638 | 83,457 | 73,461 |
Charged to Costs and Expenses | 14,480 | (36,819) | 10,483 |
Charged to Other Accounts | 0 | 0 | (487) |
Additions/Deductions | 0 | 0 | 0 |
Balance at End of Period | $ 61,118 | $ 46,638 | $ 83,457 |
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