Good morning, and welcome to today's Orthofix and SeaSpine merger announcement call. If you would like to ask a question at the end of the presentation, please press star followed by one on your telephone keypad. I would now like to turn the conference over to our host, Alexa Huerta, Senior Director of Investor Relations at Orthofix. Alexa, please go ahead.
Thank you, operator. Good morning, everyone. Welcome to the Orthofix-SeaSpine merger announcement call. Joining me on today's call are Jon Serbousek, President and Chief Executive Officer of Orthofix, and Keith Valentine, President and Chief Executive Officer of SeaSpine, as well as Doug Rice, Chief Financial Officer of Orthofix, and Jon Bostjancic, Chief Financial Officer and Chief Operating Officer of SeaSpine. This call is being shared live on the Internet, and there is a presentation available for viewing and download from the website of each company at www.orthofix.com and www.seaspine.com. The companies remind listeners that any forward-looking statements concerning the proposed merger and their respective financial and business impacts that are provided on this call or in related materials are subject to risks and uncertainties.
The company's SEC filings, including the 10-Q and 10-K reports, as well as the presentation itself, provide important information on the factors that could cause actual results to differ materially from those anticipated in the forward-looking statements. In addition, in connection with the merger and to be discussed today, Orthofix will file with the SEC a registration statement, which will include a prospectus of Orthofix and a joint proxy statement of Orthofix and SeaSpine that will contain important information about Orthofix, SeaSpine, the merger and related matters. Before we begin, I would like to highlight that there may be a short delay between the live telephone audio and the presentation being shown on the webcast. For the best experience, please use either the webcast for both the audio and video content, or if you dial in by phone, download the slides from our website and advance them yourself.
Again, to access the webcast and to download a copy of the presentation, please visit the IR section of the Orthofix or SeaSpine website under Events and Presentations. A replay of the event will be available following the call. Both Orthofix and SeaSpine put out this morning in two separate press releases that went out following the initial merger announcement. With that, I am pleased to turn the call over to Jon Serbousek, President and CEO of Orthofix. John?
Thanks, Alexa, and thank you for joining us on such short notice. This is an exciting day for Orthofix and SeaSpine. Together, we are combining two innovative and ambitious organizations in a merger of equals to create a leading global spine and orthopedic company. Why we are so excited about the combination. Keith will then discuss the strategic rationale in greater detail as well as the financial benefits. We'll then all be available to address questions. What makes this merger so compelling is the highly complementary nature of our respective strengths from our products and product portfolios to our commercial channels and employees, and just as importantly, our financial profiles. The result is a unique combination of scale, differentiated product and surgical solution offerings, global commercial reach, and a balance sheet strength that we believe positions the new company to be successful in both the near and long term.
Turning to slide 5. The combination of our two organizations creates a number of significant strategic and financial benefits as a combined entity, which we believe will ultimately drive sustainable, profitable growth and create significant shareholder value. First, we are delivering an industry-leading suite of spine and orthopedic offerings across a variety of high-growth segments interbody devices and limb reconstruction, among others. Next, we are creating one of the broadest biologics and regenerative technology portfolios in the industry, with a full spectrum of products to meet the needs of surgeons and patients across CBMs, DBMs, synthetics, stimulation and growth factors in the future with a recently announced CGBio partnership. Beyond these innovative products, the combined offering of differentiated technologies, including enabling technologies highlighted by OrthoNext and 7D Flash, will allow us to serve a full continuum of surgical care from pre-operative planning through surgical navigation.
Moving outside of the portfolio, this combination strengthens the commercial reach of both organizations in the U.S. internationally. Leveraging the broad portfolio and innovative pipeline, the new company will be able to attract larger, more dedicated distribution partners, supported by the ability to invest behind a direct sales organization in select markets. As a result of the highly complementary nature of our businesses and the scale at which we expect to operate at, we anticipate that we will be able to realize meaningful revenue and cost synergies. We expect our growth initiatives will be funded through the strength of our combined balance sheet and without the need to raise diluted capital. Now turning to slide six for an overview of the transaction.
The terms of transaction are straightforward and are consistent with a merger of equal structure, with a pro forma ownership at the time of closing of 56.5% to Orthofix and 43.5% to SeaSpine. SeaSpine shareholders receive approximately 0.4163 shares of Orthofix common stock for each share of SeaSpine that they own. Turning to leadership. The new company's board will consist of nine directors, five of which will be designated by Orthofix, including the leading independent director, and the remaining four will be designated by SeaSpine. I will serve as Executive Chairman of the Board, and Keith Valentine will serve as the President and Chief Executive Officer and a member of the board. The remainder of the combined company's leadership team will be made prior to closing and is expected to be inclusive of executives from both Orthofix and SeaSpine.
The combined company will be headquartered in Lewisville, Texas. This location will conduct general business, product development, medical education, and manufacturing. The company will retain primary offices in Carlsbad, California, with a focus on spinal product innovation and surgery education, and in Verona, Italy, with an emphasis on product innovation, production, and medical education for orthopedics. The current facilities in Irvine, California, Toronto, Canada, Sunnyvale, California, Wayne, Pennsylvania, Olive Branch, Mississippi, Maidenhead, U.K., Munich, Germany, Paris, France, São Paulo, Brazil, will also be retained. We expect this transaction to close during the first half of 2023, and the deal is subject to approval by both company shareholders as well as customary closing conditions and regulatory approvals. Now turning to the benefits of this transaction in a little bit more detail on slide seven. The combined business will have a very attractive financial profile.
Based on our attractive growth markets, our strong combined product portfolio, and the revenue synergies just mentioned, we expect to drive double-digit top line growth following the integration period, putting us among the top tier of our spine and orthopedic peers. After three years, revenue is expected to be around $1 billion with a double-digit compound annual growth rate. We expect this deal to be adjusted EBITDA accretive in dollars in the second year post-close and also be adjusted ROIC accretive once all of the synergies have been fully realized. By the end of 2025, gross margins will be greater than 70% and adjusted EBITDA margins will be in the mid-teens. One of Orthofix's differentiating features is a strong profitability profile and proven cash flow generation.
Combining that with the anticipated top line growth trajectory of the merger, along with the cost synergies we expect to realize, we will have the ability to self-fund various strategic initiatives we collectively view as core to the long-term success of the business. By leveraging the capital currently available to the company, we self-fund expansion and working capital without the need for dilutive equity financing. Now that I've provided an overview of the transaction, I'd like to hand the call over to SeaSpine's President and Chief Executive Officer, Keith Valentine, to provide more detail on the merger. Keith?
Hey, John. I want to echo the excitement and enthusiasm about this merger and what it means for everyone at both organizations. Our goal at SeaSpine has been to deliver transformative solutions at every level, giving surgeons life. I'm confident that together with Orthofix, we can accelerate our ability to deliver for our customers and their patients. Turning now to slide 8. As John just outlined, there are a number of product-specific benefits that come as highly complementary portfolios and growth segments across spine and orthopedics. This graphic represents how we will leverage our portfolio during a spine or orthopedic surgery with the use of our enabling technologies and including more and more of our biologics and regenerative technologies. The combined company has strong positions in spinal implants, biologics and regenerative technologies, enabling technologies, and orthopedics.
In aggregate, the new company would be attacking a large $20 billion total addressable market, with over $7 billion of that coming from fast-growing, focused growth segments where we each have distinct competitive advantages. The focused growth segments include motion preservation, enabling technologies in computer-aided surgery, long bone stimulation therapies, interbodies, DBMs, and portfolio advantages that come as a result of this merger. Turning to slide nine. An area of exciting growth in the spine and orthopedic space is the introduction and adoption of enabling technologies. The new company will have a complementary portfolio of enabling technologies that allows it to service the whole continuum of surgical care from preoperative planning through surgical navigation. Flagship enabling technologies include the 7D FLASH Navigation System, which is the only approved image guidance system that utilizes a novel and proprietary camera-based technology and machine vision algorithms.
The OrthoNext preoperative planning system, the only software tool on the market for deformity analysis and preoperative planning for pediatric orthopedic procedures. Not only do these represent a significant growth opportunity on their own, but they also facilitate the cross-selling of other portfolio products to be used as part of the procedure. Turning to slide 10, we will highlight our leading spinal hardware portfolio. With innovative products across the hardware business, we have strong positions within a number of high-growth segments in spine and address key product gaps for both companies. This merger will create a best-in-class cervical platform with NorthStar Posterior Cervical Fixation systems, 7D enabling technologies, a broad spectrum of biologic offerings, M6-C next generation artificial cervical disc. Plates such as Admiral anterior cervical plating system. Interbodies including WaveForm, CONSTRUX, Mini Ti Spacer System. The only simulation device on the market with an approved cervical indication.
Our clinical lumbar platform will be strong as well with Mariner pedicle screw system packaged in a streamlined offering designed to provide surgeons with strength and versatility. Another strong product in the market is the FORZA XP expandable spacer system, which offers titanium alloy expandable interbodies for PLIF and TLIF procedures. Can be expanded to fit the patient anatomy and has large graft windows. I'm very excited about the expanded breadth of bag the new company will have, which will increase our product offerings per procedure. This merger will create a company that is sized to support large distributor conversions. Turning to slide 11. The combined company will include CONSTRUX segment of orthopedics with a variety of products highlighted by the FITBONE platform, which includes the currently available intramedullary limb lengthening system and the under development FITSPINE scoliosis solution.
This merger will also help us better address the pediatric market. The new company will have a complementary portfolio of specialized hardware and enabling technologies, including specialized spine, limb deformity, limb reconstruction and software planning and imaging solutions that enable it to service the full patient continuum of care for a million-dollar market. Pediatrics is among the fastest-growing markets in orthopedics. Turning to slide 12. The next segment of the business, which we are incredibly excited about, is biologics and regenerative technologies. The combined company will offer industry-leading full spectrum portfolio of biologics and regenerative technologies to meet a variety of healing needs, both intraoperatively and post-operatively. Moving from left to right, we will offer a wide variety of high-quality biologics spanning cellular bone matrices or CBMs, which include the industry-leading Trinity Elite allograft.
Our most recent launch of the novel Virtuos Lyograft, as well as demineralized bone matrices or DBMs, which includes SeaSpine's OsteoTorrent and OsteoStrand product families. In combination with Orthofix's fiberFUSE mineralized collagen fibers, moving right to synthetics. With the Opus family of products, we have the osteoconductive matrix, osteoconductive bio-active graft for spine procedures, and magnesium injectable central synthetic. Growth factors is also an exciting new space for the combined organization to explore as we seek to bring the next evolution of recombinant bone growth factor technology to market through our strategic partnership with CGBio, a developer of innovative synthetic bone grafts currently used clinically in Asia for spine, orthopedic trauma and dental applications.
In addition to bringing one of the most comprehensive position as the leading player in the bone stimulation space, which provides surgeons and patients with post-operative and adjunctive and only approved cervical indication in the market with CervicalStim fusion therapy device and the recently launched AccelStim Bone Healing Therapy, a LIPUS device for the healing of bone, both fresh fracture and non-union fractures. Turning to slide 13. As a combined business, there are clear benefits from the complementary portfolios when it comes to both scale and diversification. A new company based on trailing twelve-month revenues through September 30, 2022, has done over $690 million in sales spread across the full business globally. We also have ambitions to quickly put ourselves among the fastest-growing companies in the industry by focusing on delivering innovation within high-growth verticals.
We believe that this combination of scale and growth will make us one of the most compelling investments in medical technology. Turning to slide 14. Another benefit of the merger is the expansion of our global operational footprint. While SeaSpine has historically been a US-focused organization, Orthofix has built a well-established international infrastructure that combines manufacturing and R&D with distribution. With an approximate 80% US and 20% international revenue split on a pro forma basis, the combined organization now has products distributed in 68 countries across 6 continents, supported by over 1,600 employees globally. Importantly, we expect to create opportunities for those employees. SeaSpine and Orthofix both recognize the valuable contributions that our employees make to our success. We expect the new company to reflect the capabilities and talent of both organizations.
Over time, we believe the creation of a broader, more diverse company will support even greater career development opportunities. Turning to slide 15. A key to successfully driving the adoption of products and the growth of a business in this industry is the ability to establish a network of high-quality distribution partners who have critical relationships with surgeons and hospitals. With our broader product and services portfolio, increased resources and deep pipeline, the new company will be able to attract and support larger dedicated distribution. We will also be able to invest in direct sales representatives in target markets to engage even more surgeon users for certain product segments. Turning to slide 15. From a financial impact, we believe there is an opportunity to drive meaningful revenue and cost synergies with the combined businesses.
Starting with revenue, the material expansion of the product portfolio and the increased size and geographic footprint of the company offer a number of potential revenue synergies. We now have the ability to address key product gaps for both companies, such as enabling technologies in motion preservation. More efficiently cross-sell products in the U.S., leverage SeaSpine's portfolio of products within Orthofix's well-established OUS commercial infrastructure, facilitate the conversion of larger distributors and increase per procedure revenue as more products are utilized in surgical procedures. We also expect to be able to realize meaningful cost synergies. We will be able to eliminate redundancies and streamline certain aspects of our operations. In total, we believe that we can take at least $40 million of annual operating expenses out of the combined P&L over the next three years.
As a result of these synergies, we expect this combination to be accretive to Orthofix's stand-alone adjusted EBITDA by year two, and approximately break even to Orthofix's stand-alone adjusted EPS by year three. In addition, we will find working capital and CapEx efficiencies through economies of scale and spinal implant set and inventory asset utilization, allowing us to reinvest additional cash back into the business for product innovation. This is significant, and the all-stock nature of this transaction allows shareholders from both companies to participate in the new company's growth and profitability upside. To summarize on slide 17, we believe this transaction creates one of the most compelling companies in the spine orthopedics industry and one of the more compelling companies in med tech.
The combination of highly complementary portfolios of products and procedural solutions transforms the new company into one of the largest, most innovative, fastest-growing companies in the space. Supported by a strengthened commercial infrastructure, we believe we can drive meaningful synergies and unlock tremendous value. Our strong capital structure further maximize the potential of our value creation initiatives, allowing the company to self-fund its growth initiatives without the need for dilutive equity financing. That concludes our prepared remarks. I would now like to open up the line for questions.
Thank you. If you would like to ask a question today, please press star followed by one on your telephone keypads. If you choose to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally. Our first question today comes from Matthew Blackman of Stifel. Mathew, please go ahead. Your line is open.
Good morning, everybody. Thank you so much for taking my questions and congratulations. Just a couple for me. Maybe for Keith and Jon, if you wanna chime in. Thinking through the strategic benefits which you laid out, there's some very clear portfolio and channel synergies, but maybe you can give us a specific example of what this transaction allows the combined company to do that perhaps something commercial, just anything tangible you could give us a sense of, and then just a couple of follow-ups.
Yeah. You know, I think one that we're most excited about is you look at the investments that have been made over the past couple years in SeaSpine's cervical portfolio, the ability to bring forward new anterior cervical fusion options, posterior cervical combined with enabling technology and new synergies that we think we can really, you know, have a very exciting sales opportunity for.
Yeah, Matt, this is John. Thanks for the question. Also, if you look at OUS, we have a very robust pipeline commercial channel there. With the biologics that SeaSpine has and 7D, it's a great opportunity to further accelerate that technology globally and utilize that distribution channel as well. Items like that is what we're looking at as far as really driving the growth.
All right. I appreciate that. Maybe can you give us some sense of, you know, you don't necessarily need a specific number, but maybe just some qualitative assessment of customer or account overlap between the two companies today? You know, clearly there are very real opportunities for cross-selling. That's number one. Then number two, I just wanted to confirm that in reading that slide seven, particularly the footnote, I wanna make sure I'm reading it correctly, but that financial framework of call it roughly $1 billion and revenue growth in the double-digit range does not include any revenue synergies. If that's the case, can you just give us some sense of magnitude of what potential revenue synergies you think could play out over time? Thanks. I'll get back in queue.
Yeah. You know, we really don't have the granularity by territory. I can tell you this, we feel very comfortable about just both of us being in this marketplace and knowing how our footprint is across the United States. I think there's much more opportunity for synergy and that will be defined over the course of time. There's a distance of time here between obviously announcing the deal and closing the deal and then all of the work that will be necessary in the field. I feel really good about the sales management teams and their ability to be able to work together to understand at the appropriate time how we will navigate the field.
I think, you know, you look at those opportunities we talked about before, cervical motion preservation being added to one part of the distribution channel, enabling technologies being added across the entire product range. Those are all exciting things that don't have overlap, and those are the areas that I wanna make sure we're most focused on. I'm really excited about how enabling technologies can help on the orthopedic side. I think without a doubt, there's gonna be loads of synergistic opportunities with more advanced distributors, larger distributors that we'll be able to recruit over time. Those are all the things that I wanna be most focused on and most opportunistic on. I don't think, I think that we have thoughtful folks in management that are gonna prevent the overlap from becoming the issue.
Instead, it's gonna be about the expansion and about the collaboration that we really want to, you know, firmly see.
Yeah. Keith said that great and very concisely, Matt. The other thing too is that at our current scale and looking at where we look to see our markets, we know our markets pretty well and our channel partners pretty well. We've not been able to share all the granular data as of date, but we feel really good about the 1+1 equals more than 2. We're in a good position on that, we believe.
Matt, Good morning. With regards to the revenue disclosure in the past, $2 billion, it really just reflects the natural momentum that SeaSpine has enjoyed for several quarters in terms of double-digit growth and the high single-digit growth that Orthofix is headed to. We know that from a combined basis, like Keith and John have both said, that we feel like there's a lot of net revenue synergies out there. That should provide upside to that model and help us on that path to $1 billion.
BTIG. Ryan, please go ahead. Your line is open.
All right. Jon, Doug, just when I thought I was out, you pull me back in. Congrats. I wanna talk about a couple questions here.
Can't get away from us, Ryan.
No, I can't get away from you guys. I wanna ask a couple questions, though. You know, there is obviously the products are very complementary. There is some overlap in hardware. You know, Jon, Keith, I'd love your thoughts about revenue dis-synergy. You know, what you may expect in terms of maybe phasing out some of the legacy Orthofix products for, say, a newer, refreshed, and higher growth portfolio from SeaSpine. How you think about, you know, those dynamics playing out over the next 12-24 months.
Yeah. Thanks, Ryan, for the question. This business is very unique in that there are high surgeon preferences, and so people that are naturally using Orthofix are using it for a reason. As new products come into the market, they will look at those and determine opportunity to put new products in front of surgeons, but also means we do. The beauty is we don't have to rationalize anything immediately to hit the numbers we're talking about. At our scale, we're able to round out those, both those products. Over time, it'll naturally occur just as well as the portfolios that are coming through. We both have pipelines that are product portfolio pipelines that are active right now, and those products will come in and lay over the top of the existing products, and we'll get the value out of that.
The uniqueness of our business allows us to utilize both of our portfolios to our advantage in moving forward.
Got it. Okay. You know, Keith, you've been in Spine, you know, for many years, as many people know. I'm curious kinda how you think about now taking over this company as, you know, some of the other areas of Orthofix. You know, bone stim has been kind of a mature market. You know, Orthofix has been a little subscale in pediatric orthopedics, obviously a very attractive area. How do you think about portfolio management for the business outside of Spine longer term, and how should investors think about that with the combined company?
Yeah. I think improving the product lines that SeaSpine already has, particularly the enabling technologies, offers new avenues. I think, and I personally feel strongly that as we are able to recruit and retain more exclusive distributors, they're gonna be able to cross-sell that broader portfolio. I think that the bone growth therapies area is one that has a number of you know, the ability for indications in spine specifically that no one else can talk about. That's exciting. That's exciting for distribution, that's exciting for expansion, and it's exciting for collaboration. I think that diversity of the divisions, especially the orthopedics group that has done a phenomenal job OUS and will continue to have growth opportunities in the US, which are very important, I think, to the entire health of the organization.
I'm excited about those other areas. I'm really excited too that we have the ability to bring technology to them in the enabling side and offer something new in the bag, if you will. Something that I think that group in Toronto specifically has the ability to cater and specifically look at those markets and do unique things that that sales force has an edge on. I view it as very complementary and excited to move forward with it.
Okay. The last question from me, investors, you know, certainly this is top of mind. I mean, the history in spine and M&A has been a challenging one, I think, to say the least, right? The risk and the worry that investors have is around distribution and the potential for distribution to potentially leave the combined organizations when, you know, when they do close. What can you say and what have you done to de-risk?
Just help investors feel at ease that this will be successful in the combined company. Thanks for taking the questions, everyone.
Yeah, I think, again, it goes back to you look across the United States and we're each stronger in different areas, largely. Again, the specifics we're gonna have to get to over time. Broadly speaking, I think we understand where each other's strengths are, and I think those strengths will continue to be capitalized upon. I think where there are areas of overlap, I think it's about being thoughtful. I think that the sales management teams from both sides will have the ability to really be thoughtful in how we approach it. I think often what happens when it's a much larger transaction, I think sometimes there's heavy-handed items that go on and make people nervous, and that's not our style.
I think our style has shown even during the process of diligence, we're very collaborative teams, we're very open-minded teams, and that's what we'll bring to the sales force over time and make sure that those decisions involve people, that there's clear communication, and that we're also doing it in really the focus on surgeons. Ultimately, we wanna make sure we continue to be the best provider for not only surgeons, but the patients that they treat. I think that needs to be a very common theme all the way down into the sales channel. I think that will build up trust, and we'll genuinely show that there's collaboration at heart, not necessarily anything else from what we've seen in the past with mergers and combinations in the sales field.
Yeah, Ryan, one other item too is that, as Keith and I talked about this merger, we shared, you know, philosophies about commercial channels and other items such as people. We've been rebuilding our commercial channel just as SeaSpine's been rebuilding their commercial channel. That's fresh. The people that we are adding understand what we're trying to build, and we're building trust with them as well as we go forward. We wanna convey that trust as we go into this next phase because there's room for a large distribution channel here, much more addition to that. We're looking forward to actually working with each of our channel partners, distributor partners, and building a larger overall channel for the combined companies.
Thanks for taking the questions, guys.
Thanks, Ryan.
Thank you.
Thank you. The next question goes to Rich Newitter of Truist. Rich, please go ahead. Your line is open.
Hi. Thanks for taking the questions, and congratulations on the transaction. Maybe a lot of questions I was thinking of have been asked, but you know, specifically as I look at your slide 13, and the combined company and the revenue mix that's there, I was just wondering, you know, as you think out to the target date that you've kind of indicated for turning EBITDA profitable and double-digit growth, and when revenue synergies will kick in, what, how do you see the business mix shaping up between bone growths, implants, biologics and orthopedics?
Do you think that mix stays largely the same or certain divisions in your mind envisioned to increase as a percentage of pie or potentially decreasing? I'd love to just hear your thoughts there and maybe you can weave into, you know, where you think investment will be heaviest between those.
Yeah, Rich, thanks for the question. It's John. We look to invest in all those areas. We've been under this investment strategy in BGT, specifically, not only investing in channel and building our physio channel for fresh fracture opportunities since we added AccelStim, which is new products, and then also people on the street. In our biologics area, we've done the same. In our orthopedics area we've been under an investment in our channel and product outside the US as well as inside the US. Those individual entities will continue to grow under the current plan and format until we, well, the combined company deems a different direction. We see those are great opportunity areas.
In the spine and biologics area, the combination of portfolio that comes together really creates a powerful combination. We look at continuing to invest in the area. We've got most of the gaps filled, but also second generation as well as expanding that overall portfolio. We look at as far as an investment there. We'll do it with discipline, with very specificity, but we see opportunity to grow each of those individual channels in the near term. As we go into the longer term, we'll make those decisions as the products and portfolios. We also talked about some of our views towards adding additional items organically and inorganically. Those are conversations we'll cover or discussions we'll come back to you in the future and have and share with you.
We see it as a very positive combination of products and also the teams that come together to basically drive investment and also growth in these areas.
Okay. That's helpful. Thank you. Just going back to Ryan's question a moment ago. You know, I do think this is probably gonna be one of the biggest focus areas. We've seen so many spine transactions over the last several decades. There's inevitably an integration kind of disruptive period before there's a stabilization and then eventually kind of a one plus one equals two situation. I'm just curious how you're thinking about potential for, you know, maybe a little bit, you know, disruption, dyssynergy initially. Do you feel like this is the transaction that just bucks the trend? If so, why?
You know, how do you think you'll guide the near-term trends in a few months here? Thanks.
Yeah, Rich Newitter, it's Jon Serbousek. Having been through a couple of those transactions. I can fully appreciate the dynamics that went on in those. What I find really different about this is it's a merger of equals. We're bringing two teams together, and we're building a company of the best and balance between the companies. I think that's a very different dynamic when you're looking at how you put together a product portfolio, how you put together a management team, how do you put together a commercial team. I think that's gonna give us an advantage. In conversation with Keith Valentine, we have very similar philosophies between these companies as far as go-to-market philosophies, how we manage people, how we build businesses. I think that's the collaboration that you'll see.
Oftentimes it's also, in assuming an executive chair role, I'm gonna still be around and basically be able to help Keith and the team be as successful as possible and but not get in their way. It comes down to that I see that as a powerful combination of merger of equals versus just an acquisition. Then basically, oftentimes the previous managed team goes away and you're left with assets, but not people and teams. Yeah. I would agree on all those points, Jon. Those are strong points of, I think, how we're gonna collaborate and why we feel so confident. I do feel this is different than some of the transactions that you're probably thinking about and giving reference to.
Part of that reason is where our presence is as companies and spine specifically across the United States. I think there's a much more balanced look of the United States when we get forward over the next, you know, 4-6 months, what have you. I think what you're gonna see is there's really very little overlap to deal with, and there's more opportunity to deal with. I think that's what will be different. I think also it comes down to, again, how we're gonna communicate and how we're gonna be transparent with those distributors and make sure, just as we've said from the beginning, they are partners with us and we treat partners in such a way that it brings confidence and clarity. Okay. Thanks for taking the questions, and congratulations.
Thank you. The next question goes to Kyle Rose of Canaccord. Kyle, please go ahead. Your line is open.
Great. Good morning, everybody, and congratulations on the deal here. I'm sure it's been a busy couple months. Just, you know, I'm sorry to belabor the point, but, you know, just wanna start. Nobody obviously plans for challenges or bumps in the roads or extended timelines from an integration perspective. Maybe just help us understand what's gonna happen over the course of the next six to 12 months to ensure a smooth transition with the teams. I just wanna be totally clear, when I look at this guidance number over the course of the next three years, you're not assuming any revenue dissynergies, correct? We should assume year-over-year growth starting day one upon the close.
Yeah. Thanks, Kyle. On the integration plan, we're right at the stage where, you know, Keith and I have been announced as far as being leading the company. What it comes down to, we still have the full integration plan to go through. We'll name the next leaders, and then basically we'll set together integration planning teams, and we'll basically be executing from there forward. In a very traditional way, we'll have additional assistance on that as well. That's gonna take place over the next several months, and we'll come back to you as more of that comes together. We are planning on a close in the first quarter of 2023, and we think this will be quite efficient.
In the early conversations that Keith and I have had, it seems to be pretty straightforward. We think we have a common thinking here, and so we're looking forward to a very smooth process. As far as the financial model, I'll let Doug handle that. Just to, Kyle, from a revenue dis-synergy perspective, we know there will be some disruption, but given our two footprints, and the way we look at it on the complementary nature of our product categories, we feel like on a net basis, that there'll be positive synergies. That's the way we're looking at it.
Okay. On the cost synergy side, I just wanna make sure that can you flesh that out a little bit for us with respect to the cadence and how we should expect those to play through? I mean, it sounds like just given the EBITDA accretive in year two on a dollar basis, it sounds like, you know, that $40 million is gonna be back-end loaded. Is that a fair assumption? Second part of that question is just, are any of those cost synergies tied towards anything on the revenue side?
We're gonna continue to invest in sales and sales growth and sales support. The combination and the synergies that we have will allow us the dry powder to continue to invest in the business, just like we've been discussing. With regards to the synergies themselves, we would expect that we would be sort of past the halfway point in year two. We realized that we were gonna be really judicious and disciplined about the way we perform the integration activities and but we are optimistic given all of the complementary, you know, things that we've talked about, culture, people, systems, and products that the integration will go really well.
I do think we'll get past the halfway point, and then we'll finish in year three.
Okay. Thank you very much for taking the questions.
Thank you. Thank you, Kyle.
Thank you. Our next question goes to Jeffrey Cohen of Ladenburg Thalmann. Jeffrey, please go ahead. Your line's open.
Hey, good morning. Thanks for taking our questions and congratulations on the news.
Thanks, Jeff.
Just a couple from current. Firstly, any or company A over, marketing and awareness as far as the deal going over the next six months prior to closing?
Jeff, I apologize, can you repeat that? You got a little bit garbled in the middle, and I missed the question.
Yep. Sorry about that. I wanted to know, with upcoming conferences and pertaining to the corporate entity and name and focus.
The conferences, yes. From a name perspective, that's gonna be out there and effort in the integration process of working through how we're gonna be thinking about that as a new organization. Don't have any insight yet, but it is something that we're excited to work on. I think it'll create some lively debate. On the conference side, coming up on conferences for us. Well, I mean, NASS is the nearest term. Yeah. The next conference will be hosting booth tours, and I'm sure we'll be pretty popular with this news coming out.
Yeah, I think that'll be a big focus for everybody who's attending NASS to understand more about the products and really how they fit together and what we've talked about with all the cross-selling opportunities between the combined portfolios. Thanks, Jon. Jeff, the other item too, which is gonna be.
Yeah.
Unique to this is that we're sitting here in the same room talking about kind of companies, and we'll continue to be independent companies until the close. We'll have the regular schedule. We typically are at most of the same conferences, whether it be NASS or CSRS or other activities in spine and orthopedic conferences will go on as planned, as they've been scheduled, so that won't change at all. All the usual places you've seen us individually, we'll be there, and then after the close we'll be there collectively.
Okay, got it. Lastly for us, could you talk a little bit about the commercial channels and commercial organization? We're trying to better understand both domestically as well as abroad as far as the go-to-market strategy for existing products. Will we see more for distribution partners as far as ex-US?
Yeah. Jeff, you know, I don't think the thinking has changed. I think both John and I have been very like-minded on as we look at distribution for our organizations separately, and first I'll talk about spine. There are opportunities across the United States where it does make more sense to be thinking about a direct presence, and I think we'll continue to look at those opportunities and make the same decisions depending on where those territories are and what the white space looks like and the talent that might be there to deploy direct. Obviously, as you look at the combined entity, it will be mostly a distribution style network with opportunities to use direct and be thoughtful with direct as it presents itself.
I don't think there is a distribution for the broader company being contemplated. Yeah, Keith, let me add to that as well. As we look at BGT, our BGT organization is a split between direct and distributors, and that will remain exactly as it is, as Keith highlighted. As well as in our orthopedic business, we have some subsidiaries where we have direct individuals in Europe, and then we also have distributors, true stocking distributors that we utilize in that regard, and those will remain exactly the same as well. Those we have zero contemplated changes there as a result of this integration and merger. We believe that we look for talent, and talent is what drives our decision wherever the marketplace is at.
Whatever product line or whatever, region of the world, we look for talent that wants to partner with us to grow a business. That's really our main theme going forward. We'll stop there, but it comes down to that. That's our mantra as far as talent.
No, that's great. Thanks for taking our questions. Congrats again.
Thanks, Jeff.
Thank you, and as a final reminder, if you would like to ask a question, please press star followed by one on your telephone keypads. Our next question goes to Jim Sidoti of Sidoti & Company. Jim, please go ahead, your line is open.
Good morning and thanks again for taking the questions. Can you talk a little bit about the timing on how this deal all came about? Is this something you've been discussing, you know, for the past several months, or is this something that came up relatively quickly?
You know, Jim, in our standard course of business, we always look at ways that we can increase value for our shareholders. As we looked at the ways that we could do that, in March of this year, we reached out to SeaSpine. We started having initial conversations there. They progressed at a pace and then, over time, we arrived here today. It comes down to. It's a way that we look at increasing shareholder value and basically growing our company, growing the collective company now, and then basically becoming a scaled company that has a phenomenal portfolio, a very strong distribution channel, and an excellent management team that's gonna take this company forward to do really great things in the future.
We're really looking forward to it. That's how it came about.
Okay. In Europe it sounds like SeaSpine had made the decision to maybe pull out of Europe, not deal with the additional costs for the MDR regulations. Does this change that? Because you have such an extensive presence in Europe and a strong relationship with some of those nations.
We actually, because of our orthopedic business, we have our head offices in Verona, Italy, and that's a very European-based business. We went through the full and are going through the full EU MDR in that regard, and it's a valued business for us. As noted in the results, it's a very high growth business for us. We looked at that. We also looked at because of some of our footprint as far as with M6, that we acquired via our Spinal Kinetics acquisition, that actually led us to be very strong in Europe in that regard. We went down the EU MDR pathway, and that way it gave us a natural position to stay in Europe with our spine because we had an infrastructure there.
That helped us make that decision in that regard. We're there right now, and so we're gonna continue our EU MDR as we go forward. The team that comes together will make those decisions on where that goes in the future, but it looks like a very good market for us. I think moving forward too, I think that as innovation continues to develop, you know, to have the opportunity to launch new products, I think that there's a talented group there in Europe that's been there quite a long time, and they can make the appropriate decisions at that time if new technology that's being introduced needs to also find its way to Europe. I think you make the appropriate business decision when that time comes.
It sounds like there might be an expanding opportunity for some of the Spine products in Europe going forward?
Well, I think we highlighted, Jim, in our remarks is that SeaSpine is strong in biologics and has 7D in Europe as well. We have a strong orthopedic channel, and we see a very good synergy there, and we'll expand from there, as Keith highlighted. We'll make business decisions on how far we expand on that, but we have a natural synergy right there today.
Got it. All right, thank you.
Thank you, Jim.
Thanks, Jim.
Thank you. Our final question goes to Dave Turkaly of JMP Securities. Dave, please go ahead. Your line is open.
Wow, I have a new firm as well. Congrats to you guys. A lot's been asked. I'm gonna try to sneak in a couple financial ones for either Doug Rice or John Bostjancic if they can share these. You know, as we look at EBITDA accretive, I was wondering if you might give us a dollar amount or range or something in terms of like what level that was. I mean, Orthofix has been obviously impacted by COVID. There's been a lot of spending on some new product initiatives. I'm trying to get a handle on the share count at that year three and then sort of like what EPS level are we talking about when we're assuming break even by year three.
I can start, John Bostjancic, and you can provide more color. Good question, Dave Turkaly. With regards to sort of the accretion overall, the benefits of the synergies, both top line and bottom line are really powerful in this combination because of the complementary nature and that we've discussed and the scale. With regards to sort of the path to expanding margins from standalone Orthofix today, yes, we'll be EBITDA accretive in terms of dollars in year two, and then margin in year three.
You can see with our double-digit% growth and the path to our revenue levels, sort of what that math does and puts us solidly in the mid-teens%, while still providing plenty of capital to invest in the business and our growth.
Just regarding the synergies as Doug had talked about before in the questions, right? It's a big focus on year two, trying to realize more of those synergies. The teams obviously spent a lot of time going through that to make sure that we're comfortable in identifying all those opportunities and make sure that we pursue them with the same discipline that we identified them and kind of through that timeline with a big focus on year two. Your other question, Dave, was about share count?
Yeah, I mean, I was just looking at the details behind. Go ahead. I'm just trying to get any financial model if you have a model that sort of shows the numbers. I was gonna try to verify that I can get to the same ones if you're willing to sort of share that. I understand maybe it's not easy, but yeah.
I don't have the.
That's all I was looking for.
Yeah. I don't have the exact number in front of me, but we're looking, you know, to effect the transaction when we close, we'll be at, sort of somewhere in the upper 30 million range, call it 38 million shares, and growing from there over, you know, over the next couple of years.
'Cause as of our 10-Q, we had over 37 million shares, plus there's about 1.2 million of exchangeable shares from the 7D acquisition. You can just apply the exchange ratio to give a good estimate of what the impact of the share issuance for the SeaSpine acquisition will be.
Great. Thank you.
Thanks, Dave.
Thank you. We have no further questions, so I'll hand the call back over to John for any closing remarks.
Yes. Listen, I appreciate that you take the time so early in the morning at such short notice. I mean, this is truly a transformational day for the spine and orthopedics market as we bring together two exceptional companies, and we're incredibly excited about the future of this organization. On behalf of both companies' boards, the management teams, we'd like to thank each and every one of you and our team members for the tremendous work. I know that Keith shares my views and this confidence going forward and looking forward to it. Thank you again for your interest. We'll continue to keep you updated as we move towards an anticipated closing in the first half of 2023. Thank you.
Thank you. This now concludes today's call. Thank you for joining. You may now disconnect your lines.