Net sales of $114.0 million, an increase of 1% on a reported basis and 5% on a constant currency basis over prior year
Global Orthopedics net sales growth of 19% on a constant currency basis driven by new product and channel investments
GAAP EPS of ($0.53) and adjusted EPS of $0.13
Orthofix and MTF Biologics recognized with the 2022 Spine Technology Award from Orthopedics This Week for Virtuos™ Lyograft, the first of its kind, shelf-stable and complete autograft substitute
Announced agreement to merge with SeaSpine, creating a leading global spine and orthopedics company
LEWISVILLE, Texas–(BUSINESS WIRE)–Orthofix Medical Inc. (NASDAQ:OFIX) today reported its financial results for the quarter ended September 30, 2022. Net sales were $114.0 million, earnings per share (“EPS”) was $(0.53), and adjusted EPS was $0.13.
“New product innovation and commercial channel execution delivered a strong performance during the third quarter,” said Orthofix President and Chief Executive Officer Jon Serbousek. “Global Orthopedics, Biologics, and Bone Growth Therapies drove topline growth as solid portfolio-wide sales were bolstered by exciting market adoption trends from a number of recently launched products such as AccelStim™ Bone Healing Therapy and Virtuos™ Lyograft.”
Continued Serbousek. “We are bullish about the future of Orthofix, even more so following the recent agreement to merge with SeaSpine. The combination of these two businesses will form an extremely well-positioned spine and orthopedics company with a unique profile of scale, growth, and profitability. It will be supported by a strong balance sheet capable of self-funding initiatives to deliver innovative solutions to improve patient outcomes on a global scale.”
Financial Results Overview
The following table provides net sales by major product category by reporting segment:
Three Months Ended September 30,
(Unaudited, U.S. Dollars, in thousands)
2022
2021
Change
Constant
Currency
Change
Bone Growth Therapies
$
46,531
$
45,168
3.0
%
3.0
%
Spinal Implants
25,857
28,151
(8.1
%)
(7.1
%)
Biologics
13,798
12,806
7.7
%
7.7
%
Global Spine
86,186
86,125
0.1
%
0.4
%
Global Orthopedics
27,810
26,303
5.7
%
19.0
%
Net sales
$
113,996
$
112,428
1.4
%
4.8
%
Gross profit decreased $0.7 million to $83.4 million. Gross margin decreased to 73.2% compared to 74.8% in the prior year period.
Net loss was $(10.7) million, or $(0.53) per share, compared to net loss of $(2.2) million, or $(0.11) per share in the prior year period. Adjusted net income was $2.7 million, or $0.13 per share, compared to adjusted net income of $2.0 million, or $0.10 per share in the prior year period.
EBITDA was $(1.5) million, compared to $5.0 million in the prior year period. Adjusted EBITDA was $14.3 million, or 12.5% of net sales, compared to $11.9 million, or 10.6% of net sales, in the prior year period.
Liquidity
As of September 30, 2022, cash totaled $51.7 million, compared to $87.8 million as of December 31, 2021. As of September 30, 2022, the Company had no borrowings under its five year $300 million secured revolving credit facility. For the first nine months of 2022, cash flow from operations decreased $20.6 million to $(13.9) million, while free cash flow decreased $25.1 million to $(31.1) million.
Business Outlook
As of the date hereof, the Company expects the following net sales results for the year ended December 31, 2022. These expectations are based on the current foreign currency exchange rates and do not include any additional exchange rate changes that may occur this year.
Current 2022 Outlook
Previous 2022 Outlook
(Unaudited, U.S. Dollars, in millions, except per share data)
Range
Range
Full year net sales
$457 – $463
$455 – $465
Full year net sales growth rates – reported
(2%) – 0%
(2%) – 0%
Full year net sales growth rates – constant currency
1% – 2%
0% – 2%
Full year adjusted EBITDA
$52 – $54
$53 – $57
Full year adjusted EBITDA as percentage of net sales 1
12%
12%
Full year adjusted EPS
$0.40-$0.50
$0.45-$0.55
1 Calculated using the midpoint of estimated full year net sales
The Company is not able to provide expectations of GAAP operating income or GAAP EPS, the closest comparable U.S. GAAP measures to Adjusted EBITDA and Adjusted EPS, respectively (each of which are non-GAAP measures), on a forward-looking basis because the Company is unable to predict without unreasonable efforts the ultimate outcome of matters (including legal proceedings, acquisition-related expenses, accounting fair value adjustments, and other such items) that will determine the quantitative amount of the items excluded from the applicable non-GAAP measure, which items are further described in the reconciliation tables and related descriptions below. These items are uncertain, depend on various factors, and could be material to the Company’s results computed in accordance with U.S. GAAP.
Conference Call
Orthofix will host a conference call today at 8:30 AM Eastern time to discuss the Company’s financial results for the third quarter of 2022. Interested parties may access the conference call by dialing (888) 330-2508 in the U.S. and Canada, and (240) 789-2735 in all other locations, and referencing the access code 9556380. A replay of the call will be available for three weeks by dialing (800) 770-2030 in the U.S. and Canada, and (647) 362-9199 in all other locations, and entering the access code 9556380. A webcast of the conference call may be accessed at ir.Orthofix.com.
Orthofix and SeaSpine to Combine in Merger of Equals
In a press release on, October 11, 2022, it was announced that the Company and SeaSpine have entered into a definitive agreement to combine in an all-stock merger of equals. For more details, please visit ir.Orthofix.com/events-and-presentations.
About Orthofix
Orthofix Medical Inc. is a global medical device company with a spine and orthopedics focus. The Company’s mission is to deliver innovative, quality-driven solutions while partnering with health care professionals to improve patient mobility. Headquartered in Lewisville, Texas, Orthofix’s spine and orthopedics products are distributed in more than 60 countries via the Company’s sales representatives and distributors. For more information, please visit www.orthofix.com.
Forward-Looking Statements
This communication contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, relating to our business and financial outlook, which are based on our current beliefs, assumptions, expectations, estimates, forecasts and projections. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “intends,” “predicts,” “potential,” or “continue” or other comparable terminology. These forward-looking statements are not guarantees of our future performance and involve risks, uncertainties, estimates and assumptions that are difficult to predict, including the risks described in Part I, Item 1A under the heading Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”), and in Part II, Item 1A under the heading Risk Factors in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2022. Factors that could cause or contribute to such differences may include, but are not limited to, (i) risks relating to the effects of the COVID-19 pandemic on our business, (ii) our ability to maintain operations to support our customers and patients in the near-term and to capitalize on future growth opportunities, (iii) risks associated with acceptance of surgical products and procedures by surgeons and hospitals, (iv) development and acceptance of new products or product enhancements, (v) clinical and statistical verification of the benefits achieved via the use of our products, (vi) our ability to adequately manage inventory, (vii) our ability to recruit and retain management and key personnel, (viii) global economic instability and potential supply chain disruption caused by Russia’s unlawful invasion of Ukraine and resulting sanctions, and (ix) the other risks and uncertainties more fully described in our periodic filings with the Securities and Exchange Commission (the “SEC”). To the extent that the COVID-19 pandemic continues to adversely affect our business and financial results, it may also have the effect of heightening many of the other risks described in Part I, Item 1A under the heading Risk Factors in our 2021 Form 10-K, such as our ability to generate sufficient cash flows to run our business and our ability to protect our information technology networks and infrastructure from unauthorized access, misuse, malware, phishing and other events that could have a security impact as a result of our remote working environment or otherwise. As a result of these various risks, our actual outcomes and results may differ materially from those expressed in these forward-looking statements.
This list of risks, uncertainties, and other factors is not complete. We discuss some of these matters more fully, as well as certain risk factors that could affect our business, financial condition, results of operations, and prospects, in reports we file from time-to-time with the SEC, which are available to read at www.sec.gov. Any or all forward-looking statements that we make may turn out to be wrong (due to inaccurate assumptions that we make or otherwise), and our actual outcomes and results may differ materially from those expressed in these forward-looking statements. You should not place undue reliance on any of these forward-looking statements. Further, any forward-looking statement speaks only as of the date hereof, unless it is specifically otherwise stated to be made as of a different date. We undertake no obligation to update, and expressly disclaim any duty to update, our forward-looking statements, whether as a result of circumstances or events that arise after the date hereof, new information, or otherwise.
ORTHOFIX MEDICAL INC.
Condensed Consolidated Statements of Operations
Three Months Ended
Nine Months Ended
September 30,
September 30,
(U.S. Dollars, in thousands, except share and per share data)
2022
2021
2022
2021
(Unaudited)
(Unaudited)
Net sales
$
113,996
$
112,428
$
338,484
$
339,415
Cost of sales
30,573
28,307
90,491
81,660
Gross profit
83,423
84,121
247,993
257,755
Sales and marketing
55,461
56,097
169,486
164,220
General and administrative
19,322
16,312
54,496
51,091
Research and development
11,943
12,360
35,913
36,378
Acquisition-related amortization and remeasurement
2,484
(335
)
(9,678
)
5,028
Operating income (loss)
(5,787
)
(313
)
(2,224
)
1,038
Interest expense, net
(277
)
(433
)
(1,059
)
(1,400
)
Other expense, net
(3,308
)
(1,789
)
(7,436
)
(3,528
)
Loss before income taxes
(9,372
)
(2,535
)
(10,719
)
(3,890
)
Income tax benefit (expense)
(1,344
)
364
(1,968
)
(1,677
)
Net loss
$
(10,716
)
$
(2,171
)
$
(12,687
)
$
(5,567
)
Net loss per common share:
Basic
$
(0.53
)
$
(0.11
)
$
(0.63
)
$
(0.28
)
Diluted
(0.53
)
(0.11
)
(0.63
)
(0.28
)
Weighted average number of common shares (in millions):
Basic
20.1
19.8
20.0
19.6
Diluted
20.1
19.8
20.0
19.6
ORTHOFIX MEDICAL INC.
Condensed Consolidated Balance Sheets
(U.S. Dollars, in thousands, except par value data)
September 30,
2022
December 31,
2021
(Unaudited)
Assets
Current assets
Cash and cash equivalents
$
51,660
$
87,847
Accounts receivable, net of allowances of $5,948 and $4,944, respectively
75,633
78,560
Inventories
100,277
82,974
Prepaid expenses and other current assets
19,325
20,141
Total current assets
246,895
269,522
Property, plant, and equipment, net
57,820
59,252
Intangible assets, net
47,513
52,666
Goodwill
71,317
71,317
Deferred income taxes
1,544
1,771
Other long-term assets
24,571
22,095
Total assets
$
449,660
$
476,623
Liabilities and shareholders’ equity
Current liabilities
Accounts payable
$
28,003
$
26,459
Current portion of finance lease liability
638
2,590
Other current liabilities
49,007
76,781
Total current liabilities
77,648
105,830
Long-term portion of finance lease liability
19,407
19,890
Other long-term liabilities
19,066
13,969
Total liabilities
116,121
139,689
Contingencies
Shareholders’ equity
Common shares $0.10 par value; 50,000 shares authorized;
20,007 and 19,837 issued and outstanding as of September 30,
2022 and December 31, 2021, respectively
2,001
1,983
Additional paid-in capital
328,387
313,951
Retained earnings
8,313
21,000
Accumulated other comprehensive loss
(5,162
)
—
Total shareholders’ equity
333,539
336,934
Total liabilities and shareholders’ equity
$
449,660
$
476,623
ORTHOFIX MEDICAL INC.
Non-GAAP Financial Measures
The following tables present reconciliations of operating income (loss), net income (loss), EPS, and net cash from operating activities, in each case calculated in accordance with U.S. generally accepted accounting principles (“GAAP”), to, as applicable, non-GAAP financial measures, referred to as “EBITDA,” “Adjusted EBITDA,” “Adjusted net income (loss),” “Adjusted EPS,” and “Free cash flow” that exclude items specified in the tables. The GAAP measures shown in the tables below represent the most comparable GAAP measure to the applicable non-GAAP measure(s) shown in the table. A more detailed explanation of the items excluded from these non-GAAP financial measures, as well as why management believes the non-GAAP financial measures are useful to them, is included following the reconciliations. The non-GAAP adjusted results shown below and within this press release, which exclude the items specified in the reconciliation tables below, should not be construed as a substitute for, or a better indicator of, the Company’s performance than the Company’s GAAP results.
EBITDA and Adjusted EBITDA
Three Months Ended September 30, 2022
(Unaudited, U.S. Dollars, in thousands)
Total Orthofix
Global Spine
Global Orthopedics
Corporate
Operating income (loss)
$
(5,787
)
$
5,960
$
(183
)
$
(11,564
)
Other income (expense), net
(3,308
)
(881
)
(1,868
)
(559
)
Depreciation and amortization
5,499
3,120
1,424
955
Amortization of acquired intangibles
2,071
1,917
154
—
EBITDA
$
(1,525
)
$
10,116
$
(473
)
$
(11,168
)
Share-based compensation
4,720
1,927
476
2,317
Foreign exchange impact
3,253
875
1,816
562
Strategic investments
3,392
51
158
3,183
Acquisition-related fair value adjustments
419
419
—
—
Loss on investment securities
(1
)
—
—
(1
)
Legal judgments/settlements
125
125
—
—
Succession and transition charges
68
(44
)
(7
)
119
Medical device regulation
2,590
1,917
678
(5
)
Business interruption – COVID-19
1,216
1,215
—
1
Adjusted EBITDA
$
14,257
$
16,601
$
2,648
$
(4,992
)
As a % of net sales
12.5
%
14.6
%
2.3
%
-4.4
%
Nine Months Ended September 30, 2022
(Unaudited, U.S. Dollars, in thousands)
Total Orthofix
Global Spine
Global Orthopedics
Corporate
Operating income (loss)
$
(2,224
)
$
34,878
$
(6,745
)
$
(30,357
)
Other income (expense), net
(7,436
)
(1,616
)
(4,345
)
(1,475
)
Depreciation and amortization
15,251
7,879
4,386
2,986
Amortization of acquired intangibles
6,347
5,634
713
—
EBITDA
$
11,938
$
46,775
$
(5,991
)
$
(28,846
)
Share-based compensation
13,417
5,338
1,329
6,750
Foreign exchange impact
7,486
1,912
4,328
1,246
Strategic investments
6,186
153
573
5,460
Acquisition-related fair value adjustments
(15,795
)
(15,795
)
—
—
Loss on investment securities
187
—
—
187
Legal judgments/settlements
466
241
223
2
Succession and transition charges
146
10
—
136
Medical device regulation
6,883
4,754
2,144
(15
)
Business interruption – COVID-19
1,875
1,856
18
1
Adjusted EBITDA
$
32,789
$
45,244
$
2,624
$
(15,079
)
As a % of net sales
9.7
%
13.4
%
0.8
%
-4.5
%
Three Months Ended September 30, 2021
(Unaudited, U.S. Dollars, in thousands)
Total Orthofix
Global Spine
Global Orthopedics
Corporate
Operating income (loss)
$
(313
)
$
10,042
$
(976
)
$
(9,379
)
Other income (expense), net
(1,789
)
(420
)
(1,231
)
(138
)
Depreciation and amortization
4,926
2,501
1,571
854
Amortization of acquired intangibles
2,225
1,785
440
—
EBITDA
$
5,049
$
13,908
$
(196
)
$
(8,663
)
Share-based compensation expense
3,839
1,590
490
1,759
Foreign exchange impact
1,573
426
1,013
134
Strategic investments
1,322
242
319
761
Acquisition-related fair value adjustments
(2,300
)
(2,300
)
—
—
Legal judgments/settlements
(321
)
443
(765
)
1
Succession and transition charges
21
30
—
(9
)
Medical device regulation
2,112
640
501
971
Business interruption – COVID-19
585
567
10
8
Adjusted EBITDA
$
11,880
$
15,546
$
1,372
$
(5,038
)
As a % of net sales
10.6
%
13.8
%
1.2
%
-4.5
%
Nine Months Ended September 30, 2021
(Unaudited, U.S. Dollars, in thousands)
Total Orthofix
Global Spine
Global Orthopedics
Corporate
Operating income (loss)
$
1,038
$
32,366
$
(4,875
)
$
(26,453
)
Other income (expense), net
(3,528
)
(638
)
(2,024
)
(866
)
Depreciation and amortization
15,457
7,754
4,906
2,797
Amortization of acquired intangibles
6,696
5,353
1,343
—
EBITDA
$
19,663
$
44,835
$
(650
)
$
(24,522
)
Share-based compensation expense
11,460
4,716
1,622
5,122
Foreign exchange impact
3,174
672
1,639
863
Strategic investments
3,883
394
2,053
1,436
Acquisition-related fair value adjustments
(825
)
(450
)
—
(375
)
Legal judgments/settlements
(319
)
393
(660
)
(52
)
Succession and transition charges
664
452
62
150
Medical device regulation
5,923
1,745
1,567
2,611
Business interruption – COVID-19
632
573
26
33
Adjusted EBITDA
$
44,255
$
53,330
$
5,659
$
(14,734
)
As a % of net sales
13.0
%
15.7
%
1.7
%
-4.3
%
Adjusted Net Income
Three Months Ended
September 30,
Nine Months Ended
September 30,
(Unaudited, U.S. Dollars, in thousands)
2022
2021
2022
2021
Net loss
$
(10,716
)
$
(2,171
)
$
(12,687
)
$
(5,567
)
Foreign exchange impact
3,253
1,573
7,486
3,174
Strategic investments
3,383
1,343
6,165
3,976
Acquisition-related fair value adjustments
419
(2,300
)
(15,795
)
(825
)
Amortization of acquired intangibles
2,070
2,232
6,352
6,713
Loss on investment securities
—
—
188
—
Legal judgments/settlements
125
(321
)
466
(319
)
Succession and transition charges
68
21
146
664
Medical device regulation
2,594
2,112
6,890
5,923
Business interruption – COVID-19
1,218
587
1,881
638
Long-term income tax rate adjustment
292
(1,096
)
1,111
(2,658
)
Adjusted net income
$
2,706
$
1,980
$
2,203
$
11,719
Adjusted EPS
Three Months Ended
September 30,
Nine Months Ended
September 30,
(Unaudited, per diluted share)
2022
2021
2022
2021
EPS
$
(0.53
)
$
(0.11
)
$
(0.63
)
$
(0.28
)
Foreign exchange impact
0.16
0.08
0.37
0.16
Strategic investments
0.17
0.07
0.31
0.20
Acquisition-related fair value adjustments
0.02
(0.12
)
(0.79
)
(0.04
)
Amortization of acquired intangibles
0.10
0.11
0.32
0.34
Loss on investment securities
—
—
0.01
—
Legal judgments/settlements
0.01
(0.02
)
0.02
(0.02
)
Succession and transition charges
—
—
0.01
0.03
Medical device regulation
0.13
0.11
0.34
0.30
Business interruption – COVID-19
0.06
0.03
0.09
0.03
Long-term income tax rate adjustment
0.01
(0.05
)
0.06
(0.13
)
Adjusted EPS
$
0.13
$
0.10
$
0.11
$
0.59
Weighted average number of diluted common shares (treasury stock method, in millions)
20.1
20.0
20.1
19.9
Cash Flow and Free Cash Flow
Nine Months Ended September 30,
(Unaudited, U.S. Dollars, in thousands)
2022
2021
Net cash from operating activities
$
(13,886
)
$
6,696
Net cash from investing activities
(18,634
)
(14,031
)
Net cash from financing activities
(1,576
)
(5,673
)
Effect of exchange rate changes on cash
(2,091
)
(598
)
Net change in cash and cash equivalents
$
(36,187
)
$
(13,606
)
Nine Months Ended September 30,
(Unaudited, U.S. Dollars, in thousands)
2022
2021
Net cash from operating activities
$
(13,886
)
$
6,696
Capital expenditures
(17,260
)
(12,781
)
Free cash flow
$
(31,146
)
$
(6,085
)
Constant Currency
Constant currency is a non-GAAP measure, which we calculate by using foreign currency rates from the comparable, prior-year period, to present net sales at comparable rates. Constant currency can be presented for numerous GAAP measures, but is most commonly used by management to analyze net sales without the impact of changes in foreign currency rates.
EBITDA
EBITDA is a non-GAAP financial measure, which we calculate by adding interest income (expense), net; income tax expense (benefit); and depreciation and amortization to net income. EBITDA provides management with additional insight to its results of operations. EBITDA is the primary metric used by our Chief Operating Decision Maker in managing our business.
Adjusted EBITDA, Adjusted Net Income (Loss) and Adjusted EPS
These non-GAAP financial measures provide management with additional insight to its results of operations and reflect the exclusion of the following items:
Share-based compensation expense – costs related to our share-based compensation plans, which include stock options, restricted stock, performance-based or market-based restricted stock, and our stock purchase plan; see the share-based compensation footnote in our Form 10-Q for the quarter ended September 30, 2022 for an allocation of these costs by consolidated statement of operations line item; note that certain share-based compensation costs are instead included within medical device regulation for 2021 and 2022
Foreign exchange impact – gains and losses related to foreign currency transactions, which are recorded as other income (expense), net
Strategic investments – costs related to our strategic investments, such as due diligence and integration costs, which are primarily recorded as general and administrative expenses
Acquisition-related fair value adjustments – comprised of (i) gains and losses related to remeasurement of contingent consideration to fair value, which are recorded as operating expenses and (ii) recognized costs related to acquired in-process research
Contacts
Orthofix Medical Inc.
Alexa Huerta
P: 214-937-3190
E: [email protected]