Orthofix Medical Inc. (NASDAQ:OFIX) Q1 2022 Earnings Conference Call May 6, 2022 8:30 AM ET Company Participants Jon Serbousek – Director, President and Chief Executive Officer Doug Rice – Chief Financial Officer Alexa Huerta – Senior Director of Investor Relations and Finance Conference Call Participants Mathew Blackman – Stifel Financial Corp. Jeffrey Cohen – Ladenburg Thalmann & Co. Inc. Jim Sidoti – Sidoti & Company, LLC Operator Good morning, everyone and welcome to today's Orthofix Medical First Quart ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark one) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Delaware 98-1340767 (State or other jurisdiction of incorporation or organization) 3451 Plano Parkway, Lewisville, Texas 75056 (Address of principal executive offices) (Zip Code) (214) 937-2000 (Registrant's telephone number, including area code) For the quarterly period ended March 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SEC ...

©2022 SeaSpine Orthopedics Corporation. All rights reserved | 1 Operate in the Now Keith C. Valentine President & Chief Executive Officer March 11, 2022  SeaSpine. Forward-looking Statements & Disclaimer This presentation is for informational purposes only and is not an offer to sell or a solicitation of an offer to buy any securities of SeaSpine Holdings Corp. ("SeaSpine" or the "Company"). This presentation includes certain information obtained from trade and statistical services, third-party publication ...

Orthofix Medical Inc. (NASDAQ:OFIX) Q4 2021 Results Conference Call February 25, 2022 8:30 AM ET Company Participants Alexa Huerta - Senior Director of Investor Relations Jon Serbousek - President & Chief Executive Officer Doug Rice - Chief Financial Officer Conference Call Participants Mathew Blackman - Stifel Jeffrey Cohen - Ladenburg Jim Sidoti - Sidoti & Company Operator Good morning and welcome to today's Orthofix Medical Inc. Fourth Quarter 2021 Earnings Conference Call. My name is Candy and I will be ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission File Number: 0-19961 ORTHOFIX MEDICAL INC. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) ...

Orthofix Medical Inc. (NASDAQ:OFIX) Q3 2021 Earnings Conference Call November 5, 2021 8:30 AM ET Company Participants Alexa Huerta - Senior Director of Investor Relations Jon Serbousek - President & Chief Executive Officer Doug Rice - Chief Financial Officer Conference Call Participants Mathew Blackman - Stifel Anthony Petrone - Jefferies Jeffrey Cohen - Ladenburg Thalmann Jim Sidoti - Sidoti & Company David Turkaly - JMP Securities Operator Good day, and thank you for standing by. Welcome to the Orthofix Q ...

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Orthofix Medical Inc.'s unaudited condensed consolidated financial statements and notes for Q3 2021 and FY2020 are presented [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased to **$500.39 million** by Q3 2021, driven by reduced cash and liabilities, with equity slightly increasing | Metric | Sep 30, 2021 (in thousands) | Dec 31, 2020 (in thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | | **Assets** | | | | Cash and cash equivalents | $82,710 | $96,291 | | Total current assets | $260,212 | $270,379 | | Total assets | $500,395 | $525,861 | | **Liabilities & Equity** | | | | Total current liabilities | $80,004 | $103,899 | | Total liabilities | $135,562 | $168,997 | | Total shareholders' equity | $364,833 | $356,864 | [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)) The company reported a net loss of **$2.17 million** in Q3 2021 and **$5.57 million** for the nine months, despite increased net sales | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net sales | $112,428 | $110,985 | $339,415 | $288,943 | | Gross profit | $84,121 | $84,742 | $257,755 | $216,125 | | Operating income (loss) | $(313) | $4,175 | $1,038 | $(9,971) | | Net income (loss) | $(2,171) | $4,654 | $(5,567) | $11,895 | | Basic EPS | $(0.11) | $0.24 | $(0.28) | $0.62 | | Diluted EPS | $(0.11) | $0.24 | $(0.28) | $0.61 | - Net sales increased by **1.3%** for the three months ended September 30, 2021, and by **17.5%** for the nine months ended September 30, 2021, compared to the respective prior-year periods[16](index=16&type=chunk) [Condensed Consolidated Statements of Changes in Shareholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) Shareholders' equity increased to **$364.83 million** by Q3 2021, driven by share-based compensation and common shares issued, despite net loss | Metric (in thousands) | At Dec 31, 2020 | At Sep 30, 2021 | | :-------------------------------- | :-------------- | :-------------- | | Total Shareholders' Equity | $356,864 | $364,833 | | Net loss (9 months) | N/A | $(5,816) | | Share-based compensation expense (9 months) | N/A | $11,470 | | Common shares issued, net (9 months) | N/A | $4,054 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow significantly decreased to **$6.70 million** for the nine months, leading to an overall decrease in cash and equivalents | Cash Flow Activity (in thousands) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash from operating activities | $6,696 | $51,981 | | Net cash from investing activities | $(14,031) | $(42,944) | | Net cash from financing activities | $(5,673) | $583 | | Net change in cash, cash equivalents, and restricted cash | $(13,606) | $9,897 | | Cash, cash equivalents, and restricted cash at end of period | $83,215 | $80,300 | [Notes to the Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20the%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Detailed notes provide crucial context on business, accounting policies, acquisitions, debt, contingencies, and financial performance [Note 1. Business, basis of presentation, and CARES Act](index=8&type=section&id=1.%20Business,%20basis%20of%20presentation,%20and%20CARES%20Act) Orthofix is a global medical device company; COVID-19 and CARES Act relief significantly impacted operations and financial reporting - Orthofix Medical Inc. is a global medical device company specializing in spine and orthopedics, distributing products in over **60** countries[19](index=19&type=chunk) - The company received **$13.9 million** from the CMS Accelerated and Advance Payment Program in April 2020, with recoupment starting in April 2021[24](index=24&type=chunk)[56](index=56&type=chunk)[106](index=106&type=chunk) - Deferred **$0.6 million** in social security payroll taxes under the CARES Act, which were fully repaid in January 2021[25](index=25&type=chunk)[107](index=107&type=chunk) [Note 2. Recently adopted accounting standards and recently issued accounting pronouncements](index=9&type=section&id=2.%20Recently%20adopted%20accounting%20standards%20and%20recently%20issued%20accounting%20pronouncements) ASU 2019-12 adoption for income tax accounting had no material impact on financial statements - Adopted ASU 2019-12 (Simplifying the accounting for income taxes) effective January 1, 2021, with no material impact on financial statements[28](index=28&type=chunk) [Note 3. Acquisitions](index=9&type=section&id=3.%20Acquisitions) Acquired intellectual property rights for up to **$10.0 million** from a related party, including **$1.0 million** cash and **$9.0 million** contingent consideration - Acquired intellectual property rights for up to **$10.0 million** on February 2, 2021, including **$1.0 million** cash and **$9.0 million** in contingent consideration[29](index=29&type=chunk)[113](index=113&type=chunk) - The transaction was accounted for as an asset acquisition, with contingent consideration recognized when applicable contingencies are resolved[29](index=29&type=chunk) [Note 4. Inventories](index=10&type=section&id=4.%20Inventories) Total inventories remained stable at **$84.68 million**, with a shift from finished products to field/consignment inventories | Inventory Category (in thousands) | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | Raw materials | $7,992 | $8,442 | | Work-in-process | $14,977 | $12,149 | | Finished products | $17,164 | $29,142 | | Field/consignment | $44,545 | $34,902 | | Total Inventories | $84,678 | $84,635 | [Note 5. Leases](index=10&type=section&id=5.%20Leases) ROU assets decreased to **$22.69 million** and lease liabilities to **$26.33 million** by Q3 2021 | Lease Metric (in thousands) | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------- | :----------- | :----------- | | Total ROU assets | $22,685 | $25,392 | | Total lease liabilities | $26,329 | $27,886 | | Operating cash flows from operating leases (9 months) | $3,469 | $3,170 | | Financing cash flows from finance leases (9 months) | $395 | $204 | [Note 6. Long-term debt](index=10&type=section&id=6.%20Long-term%20debt) No outstanding borrowings under credit facilities as of Q3 2021, with compliance to all financial covenants - No outstanding borrowings under the secured revolving credit facility or Italian lines of credit as of September 30, 2021[34](index=34&type=chunk)[103](index=103&type=chunk) - The company was in compliance with all required financial covenants[34](index=34&type=chunk)[103](index=103&type=chunk) [Note 7. Fair value measurements and investments](index=11&type=section&id=7.%20Fair%20value%20measurements%20and%20investments) Investments include Neo Medical equity (**$5.0 million**) and convertible loan (**$7.08 million**); Spinal Kinetics contingent consideration decreased to **$18.4 million** | Asset/Liability (in thousands) | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | Neo Medical preferred equity securities | $5,000 | $5,000 | | Neo Medical convertible loan agreement | $7,080 | $7,160 | | Spinal Kinetics contingent consideration | $(18,400) | $(35,400) | | Total Assets (Fair Value) | $12,080 | $12,160 | | Total Liabilities (Fair Value) | $(19,805) | $(37,216) | - A **$15.0 million** milestone payment for the Spinal Kinetics acquisition was achieved in Q1 2021 and paid in Q2 2021[43](index=43&type=chunk)[108](index=108&type=chunk) - The fair value of the remaining Spinal Kinetics contingent consideration was **$18.4 million** as of September 30, 2021, reflecting management's assumptions on future revenues[44](index=44&type=chunk)[109](index=109&type=chunk) [Note 8. Contingencies](index=12&type=section&id=8.%20Contingencies) Contingencies include **$7.7 million** for IMDP and a Brazilian legal dispute with **$0.5 million** restricted cash and **$0.8 million** accrual - Accrued **$7.7 million** for the Italian Medical Device Payback (IMDP) measure as of September 30, 2021[49](index=49&type=chunk) - Approximately **$0.5 million** of cash in Brazil is restricted due to a legal dispute with a former distributor, with an **$0.8 million** accrual related to this matter[50](index=50&type=chunk)[115](index=115&type=chunk) [Note 9. Accumulated other comprehensive income (loss)](index=13&type=section&id=9.%20Accumulated%20other%20comprehensive%20income%20(loss)) Accumulated other comprehensive income decreased to **$1.26 million** due to currency adjustments and Neo Medical loan unrealized loss | Component (in thousands) | Dec 31, 2020 | Sep 30, 2021 | | :----------------------- | :----------- | :----------- | | Currency Translation Adjustments | $1,833 | $(68) | | Neo Medical Convertible Loan | $1,419 | $1,332 | | Total Accumulated Other Comprehensive Income (Loss) | $3,252 | $1,264 | [Note 10. Revenue recognition and accounts receivable](index=13&type=section&id=10.%20Revenue%20recognition%20and%20accounts%20receivable) Net sales increased **1.3%** (Q3) and **17.5%** (9 months); Global Orthopedics grew, Global Spine declined in Q3, CMS liability decreased to **$7.9 million** | Segment/Category (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :----- | | Bone Growth Therapies | $45,168 | $47,066 | -4.0% | | Spinal Implants | $28,151 | $25,505 | 10.4% | | Biologics | $12,806 | $15,245 | -16.0% | | Global Spine | $86,125 | $87,816 | -1.9% | | Global Orthopedics | $26,303 | $23,169 | 13.5% | | Net sales | $112,428 | $110,985 | 1.3% | | Segment/Category (in thousands) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :----- | | Bone Growth Therapies | $137,821 | $120,888 | 14.0% | | Spinal Implants | $83,943 | $67,025 | 25.2% | | Biologics | $41,351 | $40,319 | 2.6% | | Global Spine | $263,115 | $228,232 | 15.3% | | Global Orthopedics | $76,300 | $60,711 | 25.7% | | Net sales | $339,415 | $288,943 | 17.5% | - The contract liability from the CMS Accelerated and Advance Payment Program decreased to **$7.9 million** as of September 30, 2021, due to recoupments[58](index=58&type=chunk)[59](index=59&type=chunk) [Note 11. Business segment information](index=15&type=section&id=11.%20Business%20segment%20information) Global Spine EBITDA decreased in Q3 but increased for nine months; Global Orthopedics negative EBITDA; Corporate expenses impacted total EBITDA | Segment EBITDA (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Global Spine | $13,908 | $19,960 | $44,835 | $38,670 | | Global Orthopedics | $(196) | $1,258 | $(650) | $(3,995) | | Corporate | $(8,663) | $(6,196) | $(24,522) | $(16,259) | | Total EBITDA | $5,049 | $15,022 | $19,663 | $18,416 | | Net Sales by Geography (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | U.S. (Consolidated) | $85,993 | $89,833 | $264,572 | $232,258 | | International (Consolidated) | $26,435 | $21,152 | $74,843 | $56,685 | | Total Net Sales | $112,428 | $110,985 | $339,415 | $288,943 | [Note 12. Acquisition-related Amortization and Remeasurement](index=16&type=section&id=12.%20Acquisition-related%20amortization%20and%20remeasurement) Acquisition-related amortization was a **$0.34 million** benefit in Q3, but a **$5.03 million** expense for nine months due to IPR&D and amortization | Component (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Changes in fair value of contingent consideration | $(2,300) | $(700) | $(2,375) | $(7,600) | | Amortization of acquired intangibles | $1,965 | $1,838 | $5,903 | $4,834 | | Acquired IPR&D | — | — | $1,500 | — | | Total | $(335) | $1,138 | $5,028 | $(2,766) | - Entered into an Exclusive License and Distribution Agreement with IGEA S.p.A, paying **$0.5 million** in Q2 2021 for acquired IPR&D costs[63](index=63&type=chunk)[114](index=114&type=chunk) [Note 13. Share-based Compensation](index=16&type=section&id=13.%20Share-based%20compensation) Share-based compensation expense was stable at **$3.84 million** in Q3, decreasing to **$11.47 million** for the nine-month period | Expense Category (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Cost of sales | $200 | $149 | $587 | $535 | | Sales and marketing | $831 | $668 | $2,505 | $2,897 | | General and administrative | $2,531 | $2,770 | $7,667 | $7,939 | | Research and development | $280 | $254 | $711 | $1,028 | | Total | $3,842 | $3,841 | $11,470 | $12,399 | [Note 14. Income Taxes](index=16&type=section&id=14.%20Income%20taxes) Effective tax rate was **14.4%** in Q3 and **(43.1%)** for nine months, influenced by losses, contingent consideration, and tax ruling | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Income tax benefit (expense) (in thousands) | $(364) | $607 | $1,677 | $(17,833) | | Effective tax rate | 14.4% | 11.5% | (43.1%) | 300.3% | - The effective tax rate for the nine months ended September 30, 2021, was significantly impacted by certain losses not benefited, remeasurement of contingent consideration, and a favorable tax ruling[66](index=66&type=chunk)[97](index=97&type=chunk) [Note 15. Earnings Per Share ("EPS")](index=17&type=section&id=15.%20Earnings%20per%20share%20(%22EPS%22)) Basic and diluted EPS were **$(0.11)** (Q3) and **$(0.28)** (9 months), with anti-dilutive stock options excluded from diluted EPS | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Weighted average common shares-basic | 19,769,823 | 19,335,718 | 19,633,782 | 19,217,057 | | Weighted average common shares-diluted | 19,769,823 | 19,398,567 | 19,633,782 | 19,319,302 | | Basic EPS | $(0.11) | $0.24 | $(0.28) | $0.62 | | Diluted EPS | $(0.11) | $0.24 | $(0.28) | $0.61 | - **2,055,405** weighted average outstanding stock options and restricted stock awards were not included in diluted EPS for the three months ended September 30, 2021, as their inclusion would have been anti-dilutive[70](index=70&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Orthofix's financial condition, operational results, COVID-19 impact, segment performance, and liquidity, including acquisitions and non-GAAP measures [Executive Summary](index=18&type=section&id=Executive%20Summary) Orthofix reported **$112.4 million** net sales in Q3 2021 (**1.3%** increase), with **double-digit growth** in Spinal Implants and Orthopedics, amidst COVID-19 uncertainty - Net sales reached **$112.4 million** in Q3 2021, an increase of **1.3%** compared to the prior year[76](index=76&type=chunk) - Achieved **double-digit growth** in global Spinal Implants and Orthopedics during Q3 2021[76](index=76&type=chunk) - The COVID-19 pandemic continues to cause uncertainty, affecting elective surgeries, travel, and potentially leading to supply chain disruptions and labor shortages[74](index=74&type=chunk)[75](index=75&type=chunk) [Results of Operations](index=18&type=section&id=Results%20of%20Operations) Net sales increased **1.3%** (Q3) and **17.5%** (9 months), but Q3 saw decreased gross profit margin and net operating losses | Metric (%) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net sales | 100.0 | 100.0 | 100.0 | 100.0 | | Gross profit | 74.8 | 76.4 | 75.9 | 74.8 | | Operating income (loss) | (0.3) | 3.8 | 0.3 | (3.5) | | Net income (loss) | (1.9) | 4.2 | (1.6) | 4.1 | [Net Sales by Product Category and Reporting Segment](index=19&type=section&id=Net%20Sales%20by%20Product%20Category%20and%20Reporting%20Segment) Q3 2021 Global Spine net sales decreased **1.9%**, while Global Orthopedics grew **13.5%**; nine-month sales showed strong growth for both | Segment/Category (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | Reported Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------- | | Bone Growth Therapies | $45,168 | $47,066 | -4.0% | | Spinal Implants | $28,151 | $25,505 | 10.4% | | Biologics | $12,806 | $15,245 | -16.0% | | Global Spine | $86,125 | $87,816 | -1.9% | | Global Orthopedics | $26,303 | $23,169 | 13.5% | | Net sales | $112,428 | $110,985 | 1.3% | | Segment/Category (in thousands) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | Reported Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------- | | Bone Growth Therapies | $137,821 | $120,888 | 14.0% | | Spinal Implants | $83,943 | $67,025 | 25.2% | | Biologics | $41,351 | $40,319 | 2.6% | | Global Spine | $263,115 | $228,232 | 15.3% | | Global Orthopedics | $76,300 | $60,711 | 25.7% | | Net sales | $339,415 | $288,943 | 17.5% | [Global Spine](index=19&type=section&id=Global%20Spine) Global Spine net sales decreased **1.9%** in Q3 due to COVID-19 impacts, but increased **15.3%** for nine months due to pandemic recovery - Bone Growth Therapies net sales decreased **4.0%** in Q3 2021, primarily due to increased COVID-19 restrictions affecting complex overnight procedures[78](index=78&type=chunk) - Spinal Implants net sales increased **10.4%** in Q3 2021, driven by growth in Spine Fixation internationally and Motion Preservation in the U.S[78](index=78&type=chunk) - For the nine months, Global Spine net sales increased **15.3%**, with Bone Growth Therapies up **14.0%**, Spinal Implants up **25.2%**, and Biologics up **2.6%**, reflecting recovery from the pandemic[79](index=79&type=chunk)[83](index=83&type=chunk) [Global Orthopedics](index=20&type=section&id=Global%20Orthopedics) Global Orthopedics net sales increased **13.5%** (Q3) and **25.7%** (9 months), driven by international orders and FITBONE growth - Global Orthopedics net sales increased **13.5%** in Q3 2021 and **25.7%** for the nine months ended September 30, 2021[81](index=81&type=chunk) - Growth was attributed to increased international stocking distributor orders, continued growth in the FITBONE product line, and recovery from COVID-19 impacts[84](index=84&type=chunk) [Gross Profit](index=20&type=section&id=Gross%20Profit) Gross profit decreased by **$0.6 million** (**-0.7%**) in Q3 due to mix and procurement costs, but increased **$41.6 million** (**+19.3%**) for nine months | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | % Change | | :-------------------- | :-------------------------- | :-------------------------- | :------- | | Gross profit | $84,121 | $84,742 | (0.7%) | | Gross margin | 74.8% | 76.4% | (1.5%) | | Metric (in thousands) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | % Change | | :-------------------- | :-------------------------- | :-------------------------- | :------- | | Gross profit | $257,755 | $216,125 | 19.3% | | Gross margin | 75.9% | 74.8% | 1.1% | - Q3 2021 gross profit decrease was mainly due to changes in geography and product mix and a **$1.0 million** increase in electronic procurement costs from a global semiconductor chip shortage[85](index=85&type=chunk) [Sales and Marketing Expense](index=21&type=section&id=Sales%20and%20Marketing%20Expense) Sales and marketing expense increased by **$3.2 million** (**+6.0%**) in Q3 and **$13.5 million** (**+9.0%**) for nine months, due to marketing and compensation | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | % Change | | :-------------------- | :-------------------------- | :-------------------------- | :------- | | Sales and marketing | $56,097 | $52,926 | 6.0% | | As a percentage of net sales | 49.9% | 47.7% | 2.2% | | Metric (in thousands) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | % Change | | :-------------------- | :-------------------------- | :-------------------------- | :------- | | Sales and marketing | $164,220 | $150,718 | 9.0% | | As a percentage of net sales | 48.4% | 52.2% | (3.8%) | - Increase in sales and marketing expense for the nine months was driven by a **$10.9 million** increase in variable compensation and a **$2.7 million** increase in marketing events, trade shows, and travel[89](index=89&type=chunk) [General and Administrative Expense](index=21&type=section&id=General%20and%20Administrative%20Expense) G&A expense decreased **$0.2 million** (**-1.4%**) in Q3 but increased **$1.6 million** (**+3.3%**) for nine months due to reversal of 2020 savings | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | % Change | | :-------------------- | :-------------------------- | :-------------------------- | :------- | | General and administrative | $16,312 | $16,541 | (1.4%) | | As a percentage of net sales | 14.5% | 14.9% | (0.4%) | | Metric (in thousands) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | % Change | | :-------------------- | :-------------------------- | :-------------------------- | :------- | | General and administrative | $51,091 | $49,453 | 3.3% | | As a percentage of net sales | 15.1% | 17.1% | (2.0%) | - The nine-month increase was largely due to the cessation of 2020 savings initiatives (e.g., temporary salary reductions, 401(k) match suspension) and increased medical claims costs in 2021[87](index=87&type=chunk) [Research and Development Expense](index=21&type=section&id=Research%20and%20Development%20Expense) R&D expense increased by **$2.4 million** (**+24.1%**) in Q3 and **$7.7 million** (**+26.8%**) for nine months, driven by EU regulations and new product development | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | % Change | | :-------------------- | :-------------------------- | :-------------------------- | :------- | | Research and development | $12,360 | $9,962 | 24.1% | | As a percentage of net sales | 11.0% | 9.0% | 2.0% | | Metric (in thousands) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | % Change | | :-------------------- | :-------------------------- | :-------------------------- | :------- | | Research and development | $36,378 | $28,691 | 26.8% | | As a percentage of net sales | 10.7% | 9.9% | 0.8% | - The increase in R&D expense was driven by **$4.1 million** related to EU medical device reporting regulations, increased spending on new product development, and the cessation of 2020 savings initiatives[92](index=92&type=chunk) [Acquisition-related Amortization and Remeasurement](index=22&type=section&id=Acquisition-related%20Amortization%20and%20Remeasurement) Acquisition-related amortization decreased by **$1.5 million** in Q3, but increased by **$7.8 million** for nine months due to IPR&D and amortization | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | % Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :------- | | Acquisition-related amortization and remeasurement | $(335) | $1,138 | (129.4%) | | As a percentage of net sales | (0.3%) | 1.0% | (1.3%) | | Metric (in thousands) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | % Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :------- | | Acquisition-related amortization and remeasurement | $5,028 | $(2,766) | (281.8%) | | As a percentage of net sales | 1.4% | (0.9%) | 2.3% | - The nine-month increase was primarily due to a **$5.5 million** increase in contingent consideration remeasurement, **$1.5 million** in acquired IPR&D assets, and **$1.1 million** in amortization of intangibles[93](index=93&type=chunk) [Non-operating Income and Expense](index=22&type=section&id=Non-operating%20Income%20and%20Expense) Interest expense decreased by **$0.3 million** (Q3) and **$0.7 million** (9 months); other income decreased by **$3.6 million** (Q3) and **$9.6 million** (9 months) | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | % Change | | :-------------------- | :-------------------------- | :-------------------------- | :------- | | Interest expense, net | $(433) | $(731) | (40.8%) | | Other income (expense), net | $(1,789) | $1,817 | (198.5%) | | Metric (in thousands) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | % Change | | :-------------------- | :-------------------------- | :-------------------------- | :------- | | Interest expense, net | $(1,400) | $(2,055) | (31.9%) | | Other income (expense), net | $(3,528) | $6,088 | (158.0%) | - The decrease in other income (expense), net, for the nine months was due to a **$5.0 million** foreign currency remeasurement loss and a **$4.7 million** decrease from the prior year's Provider Relief Fund[96](index=96&type=chunk) [Income Taxes](index=23&type=section&id=Income%20Taxes) Effective tax rate was **14.4%** (Q3) and **(43.1%)** (9 months), influenced by losses, remeasurement, and a favorable tax ruling | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | % Change | | :-------------------- | :-------------------------- | :-------------------------- | :------- | | Income tax (benefit) expense | $(364) | $607 | (160.0%) | | Effective tax rate | 14.4% | 11.5% | 2.9% | | Metric (in thousands) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | % Change | | :-------------------- | :-------------------------- | :-------------------------- | :------- | | Income tax (benefit) expense | $1,677 | $(17,833) | (109.4%) | | Effective tax rate | (43.1%) | 300.3% | (343.4%) | - A favorable tax ruling in Q1 2021 resulted in a net benefit of **$0.3 million** for the nine months ended September 30, 2021[67](index=67&type=chunk) [Segment Review](index=24&type=section&id=Segment%20Review) Total EBITDA decreased to **$5.05 million** in Q3 due to Global Spine decline and Corporate expenses, but increased to **$19.66 million** for nine months | Segment EBITDA (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Global Spine | $13,908 | $19,960 | $44,835 | $38,670 | | Global Orthopedics | $(196) | $1,258 | $(650) | $(3,995) | | Corporate | $(8,663) | $(6,196) | $(24,522) | $(16,259) | | Total EBITDA | $5,049 | $15,022 | $19,663 | $18,416 | [Liquidity and Capital Resources](index=24&type=section&id=Liquidity%20and%20Capital%20Resources) Cash and equivalents decreased to **$83.2 million**; operating cash flow declined by **$45.3 million**, resulting in **$(6.09) million** negative free cash flow | Cash Flow (in thousands) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | Change | | :----------------------- | :-------------------------- | :-------------------------- | :----- | | Net cash from operating activities | $6,696 | $51,981 | $(45,285) | | Net cash from investing activities | $(14,031) | $(42,944) | $28,913 | | Net cash from financing activities | $(5,673) | $583 | $(6,256) | | Net change in cash | $(13,606) | $9,897 | $(23,503) | | Free Cash Flow (in thousands) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | Change | | :---------------------------- | :-------------------------- | :-------------------------- | :----- | | Free cash flow | $(6,085) | $39,277 | $(45,362) | - The decrease in operating cash flow was primarily due to a **$17.5 million** decrease in net income, a **$10.1 million** net increase in non-cash gains/losses, and a **$38.0 million** net decrease in working capital[102](index=102&type=chunk) [Impact of COVID-19 and the CARES Act on Liquidity and Capital Resources](index=25&type=section&id=Impact%20of%20COVID-19%20and%20the%20CARES%20Act%20on%20Liquidity%20and%20Capital%20Resources) CARES Act provided **$13.9 million** from CMS, with **$7.9 million** remaining liability; deferred payroll taxes were fully repaid - The balance of the contract liability from the CMS Accelerated and Advance Payment Program was **$7.9 million** as of September 30, 2021, with recoupment ongoing[106](index=106&type=chunk) - All **$0.6 million** in deferred employer social security payroll tax payments under the CARES Act were repaid in January 2021[107](index=107&type=chunk) [Spinal Kinetics Contingent Consideration](index=25&type=section&id=Spinal%20Kinetics%20Contingent%20Consideration) A **$15.0 million** Spinal Kinetics milestone was paid; remaining **$30.0 million** milestone has a fair value of **$18.4 million** - A **$15.0 million** milestone payment for the Spinal Kinetics acquisition was achieved in Q1 2021 and paid in Q2 2021[108](index=108&type=chunk) - The remaining revenue-based milestone payment is **$30.0 million**, with an estimated fair value of **$18.4 million** as of September 30, 2021[109](index=109&type=chunk) [FITBONE Asset Acquisition](index=26&type=section&id=FITBONE%20Asset%20Acquisition) Acquired FITBONE system assets in February 2020; a **$2.0 million** contingent payment to Wittenstein is expected in Q1 2022 - Acquired assets for the FITBONE intramedullary lengthening system in February 2020[111](index=111&type=chunk) - A **$2.0 million** contingent payment to Wittenstein for manufacturing is expected in Q1 2022[111](index=111&type=chunk) [Neo Medical Convertible Loan](index=26&type=section&id=Neo%20Medical%20Convertible%20Loan) Loaned **CHF 4.6 million** (approx. **$6.4 million**) to Neo Medical SA via a convertible loan, bearing **8.0%** interest - Loaned **CHF 4.6 million** (approximately **$6.4 million**) to Neo Medical SA in October 2020 through a convertible loan agreement[112](index=112&type=chunk) - The convertible loan bears **8.0%** interest and matures in October 2024[112](index=112&type=chunk) [Related Party Transaction](index=26&type=section&id=Related%20Party%20Transaction) Acquired IP rights from a related party for up to **$10.0 million**, including **$1.0 million** upfront and **$9.0 million** contingent consideration - Acquired intellectual property rights from a related party for up to **$10.0 million** on February 2, 2021[113](index=113&type=chunk) - Consideration included **$1.0 million** at signing and **$9.0 million** in contingent consideration tied to milestones[113](index=113&type=chunk) [IGEA S.p.A Exclusive License and Distribution Agreement](index=26&type=section&id=IGEA%20S.p.A%20Exclusive%20License%20and%20Distribution%20Agreement) Entered exclusive license with IGEA S.p.A for U.S./Canada, with consideration up to **$4.0 million**, including **$0.5 million** paid in Q2 2021 - Entered an exclusive license and distribution agreement with IGEA S.p.A on April 7, 2021, for U.S. and Canada markets[114](index=114&type=chunk) - Consideration up to **$4.0 million**, with **$0.5 million** paid in Q2 2021 and remaining payments contingent on FDA milestones[114](index=114&type=chunk) [Brazil (Legal Dispute)](index=26&type=section&id=Brazil) Brazilian legal dispute resulted in **$0.5 million** restricted cash and an **$0.8 million** accrual - Approximately **$0.5 million** of cash in Brazil is restricted due to an ongoing legal dispute with a former distributor[115](index=115&type=chunk) - An accrual of **$0.8 million** related to this matter is classified within other current liabilities[115](index=115&type=chunk) [Off-balance Sheet Arrangements](index=26&type=section&id=Off-balance%20Sheet%20Arrangements) No material off-balance sheet arrangements as of September 30, 2021 - No material off-balance sheet arrangements as of September 30, 2021[116](index=116&type=chunk) [Contractual Obligations](index=26&type=section&id=Contractual%20Obligations) No material changes to contractual obligations since the December 31, 2020 Form 10-K - No material changes to contractual obligations since the December 31, 2020 Form 10-K[117](index=117&type=chunk) [Critical Accounting Estimates](index=26&type=section&id=Critical%20Accounting%20Estimates) No significant changes to critical accounting estimates since the December 31, 2020 Form 10-K - No significant changes to critical accounting estimates[119](index=119&type=chunk) [Recently Issued Accounting Pronouncements](index=27&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) No material impact expected from recently issued Accounting Standards Updates upon adoption - No material impact expected from recently issued Accounting Standards Updates upon adoption[120](index=120&type=chunk) [Non-GAAP Financial Measures](index=27&type=section&id=Non-GAAP%20Financial%20Measures) Defines non-GAAP financial measures (Constant Currency, EBITDA, Free Cash Flow) for transparency and comparison, acknowledging limitations - Non-GAAP measures (Constant Currency, EBITDA, Free Cash Flow) are used to provide transparency and facilitate comparisons, but have limitations[121](index=121&type=chunk)[122](index=122&type=chunk) - EBITDA is the primary metric used by the Chief Operating Decision Maker[124](index=124&type=chunk) - Free cash flow is calculated by subtracting capital expenditures from net cash from operating activities and indicates cash generated or used by normal business operations[125](index=125&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=27&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes to market risks since the December 31, 2020 Form 10-K - No material changes to market risks since the December 31, 2020 Form 10-K[126](index=126&type=chunk) [Item 4. Controls and Procedures](index=27&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded Orthofix's disclosure controls and procedures were effective as of September 30, 2021, with no material changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=27&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Disclosure controls and procedures were evaluated and deemed effective as of September 30, 2021 - Disclosure controls and procedures were evaluated and deemed effective as of September 30, 2021[127](index=127&type=chunk) [Changes in Internal Control over Financial Reporting](index=28&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) No material changes in internal control over financial reporting during the quarter - No material changes in internal control over financial reporting during the quarter[128](index=128&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=29&type=section&id=Item%201.%20Legal%20Proceedings) Legal proceedings information is incorporated by reference from Note 8 - Legal proceedings information is incorporated by reference from Note 8[129](index=129&type=chunk) [Item 1A. Risk Factors](index=29&type=section&id=Item%201A.%20Risk%20Factors) Supplements prior 10-K risk factors, highlighting continuing material impact of COVID-19 pandemic and supply chain disruptions - The COVID-19 pandemic and related supply chain/raw material disruptions (e.g., semiconductor chips) could continue to materially impact global operations, manufacturing, and financial condition[131](index=131&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=29&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No common stock repurchases were made during Q3 2021 - No repurchases of common stock were made during the third quarter of 2021[132](index=132&type=chunk) [Item 3. Defaults Upon Senior Securities](index=29&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Not applicable - Not applicable[133](index=133&type=chunk) [Item 4. Mine Safety Disclosures](index=29&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Not applicable - Not applicable[134](index=134&type=chunk) [Item 5. Other Information](index=29&type=section&id=Item%205.%20Other%20Information) No other matters to be reported - No other matters to be reported[135](index=135&type=chunk) [Item 6. Exhibits](index=29&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with Form 10-Q, including CEO/CFO certifications and Inline XBRL documents - Includes Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer and Chief Financial Officer[136](index=136&type=chunk) - Includes Section 1350 Certifications of each of the Chief Executive Officer and Chief Financial Officer[136](index=136&type=chunk) - Includes Inline XBRL Instance Document and Taxonomy Extension Documents[136](index=136&type=chunk)[137](index=137&type=chunk) SIGNATURES Report signed by Jon Serbousek (President & CEO) and Doug Rice (CFO) on November 5, 2021 - Report signed by Jon Serbousek, President and CEO, and Doug Rice, CFO, on November 5, 2021[142](index=142&type=chunk)

Financial Data and Key Metrics Changes - Total revenue for Q2 2021 was $121.4 million, representing a growth of approximately 66% compared to 2020 and 5% compared to 2019 [7][25] - Gross margin increased to over 77% in Q2 2021 from 68% in the prior year, indicating a return to pre-COVID margin levels [26][27] - Adjusted EBITDA for Q2 2021 was $18.4 million, compared to a loss of $5.6 million in Q2 2020 [31] Performance by Business Lines - Bone Growth Therapies (BGT) sales were $50 million, up 75% from Q2 2020, but flat compared to 2019 [8] - Spinal Implants revenue increased by 62% compared to 2020 and 30% compared to 2019, driven by strong performance in the U.S. [9] - The biologic portfolio saw a 34% increase compared to 2020, but was down 11% compared to 2019 [12] - Global Orthopedics sales were up 78% compared to 2020 and 4% compared to 2019 [13] Market Data and Key Metrics Changes - U.S. total net sales for Q2 2021 were up 4% over Q2 2019, while international sales were up 7% as reported [26] - The U.S. M6-C artificial cervical disc sales grew over 105% compared to Q2 2020 [9] Company Strategy and Industry Competition - The company is focusing on product innovation and differentiation, with 22 new spine and orthopedic products launched since January 2020 [20] - Strategic channel development is a priority, with U.S. strategic channel partners growing 30% compared to 2% for other distributors [21] - The company is expanding its biologics portfolio and investing in new technologies to support long-term growth [50] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the second half of 2021, expecting mid-single-digit growth compared to 2019 [51] - The company anticipates a strong recovery in procedure volumes as COVID-related restrictions ease [68] Other Important Information - Changes to the Board of Directors included the election of Cathy Burzik as the new Chair [14][15] - The company maintains a strong liquidity position with $81 million in cash at the end of Q2 2021 [33] Q&A Session Summary Question: What is the expected revenue shape for the second half of the year? - Management expects mid-single-digit growth in Q3 and Q4 compared to 2019, with similar cadence in both quarters [58] Question: How should models for 2022 be adjusted based on current performance? - Management indicated that mid-single-digit growth could be a good starting point for 2022 models [59] Question: What pull-through is being seen with the M6 product? - Currently, minimal pull-through is observed, but management is focused on improving this as they enhance their channel [63] Question: What is the view on backlog and competitive landscape for M6? - Management noted that there is still a backlog of patients needing surgical care, and they have not seen significant competitive impacts from new entrants [68] Question: Can you discuss the relationship with IGEA and the potential of Pulsed Ultrasound? - Management highlighted the positive effects of electrical stimulation for soft tissue and bone healing, with ongoing research into its efficacy [81]

PART I FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents Orthofix Medical Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, and cash flows, for the periods ended June 30, 2021 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased to **$502.0 million** as of June 30, 2021, primarily due to lower cash, while shareholders' equity slightly increased Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $79,968 | $96,291 | | Total current assets | $258,452 | $270,379 | | Total assets | $502,010 | $525,861 | | Total current liabilities | $81,646 | $103,899 | | Total liabilities | $139,726 | $168,997 | | Total shareholders' equity | $362,284 | $356,864 | [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)) Q2 2021 net sales increased **66.0%** to **$121.4 million**, resulting in **$2.4 million** net income, a significant turnaround from the prior year Statement of Operations Highlights (in thousands, except per share data) | Metric | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $121,394 | $73,135 | $226,987 | $177,958 | | Gross profit | $93,955 | $49,969 | $173,634 | $131,383 | | Operating income (loss) | $4,267 | $(21,000) | $1,351 | $(14,146) | | Net income (loss) | $2,420 | $(18,424) | $(3,396) | $7,241 | | Diluted EPS | $0.12 | $(0.96) | $(0.17) | $0.37 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities significantly decreased to **$0.3 million** for the six months ended June 30, 2021, leading to a **$16.3 million** total cash decrease Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash from operating activities | $264 | $30,094 | | Net cash from investing activities | $(9,792) | $(28,572) | | Net cash from financing activities | $(6,528) | $101,918 | | Net change in cash, cash equivalents, and restricted cash | $(16,299) | $102,988 | [Notes to the Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20the%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, including the **CARES Act** impact, asset acquisitions, and a **$20.7 million** contingent consideration liability for Spinal Kinetics - In April 2020, the Company received **$13.9 million** from the CMS Accelerated and Advance Payment Program as part of the CARES Act. As of June 30, 2021, the remaining liability is **$11.0 million**, with recoupment having started in April 2021[25](index=25&type=chunk)[56](index=56&type=chunk)[58](index=58&type=chunk) - On February 2, 2021, the Company acquired intellectual property rights in an asset acquisition for consideration of up to **$10.0 million**, consisting of **$1.0 million** upfront and **$9.0 million** in contingent milestones[30](index=30&type=chunk) - The estimated fair value of the remaining contingent consideration for the Spinal Kinetics acquisition was **$20.7 million** as of June 30, 2021. A **$15.0 million** milestone payment was made in Q2 2021[43](index=43&type=chunk)[44](index=44&type=chunk) Net Sales by Segment (Six Months Ended June 30, in thousands) | Segment | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Global Spine | $176,990 | $140,416 | 26.0% | | Global Orthopedics | $49,997 | $37,542 | 33.2% | | **Total Net Sales** | **$226,987** | **$177,958** | **27.6%** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the **66%** year-over-year increase in Q2 2021 net sales, improved gross margin, increased operating expenses, and decreased operating cash flow - Q2 2021 net sales increased **66%** year-over-year to **$121.4 million**, driven by the recovery of elective procedures from the COVID-19 pandemic's impact in the prior year[72](index=72&type=chunk)[75](index=75&type=chunk) Net Sales Growth by Segment (Q2 2021 vs Q2 2020) | Segment | Q2 2021 Sales (in thousands) | Reported Growth | Constant Currency Growth | | :--- | :--- | :--- | :--- | | Global Spine | $94,650 | 62.9% | 62.5% | | Global Orthopedics | $26,744 | 77.9% | 66.0% | | **Total** | **$121,394** | **66.0%** | **63.2%** | - Gross margin for Q2 2021 improved to **77.4%** from **68.3%** in Q2 2020, primarily due to higher sales volume, increased fixed cost absorption, and the absence of significant inventory-related charges that occurred in 2020[79](index=79&type=chunk)[82](index=82&type=chunk)[83](index=83&type=chunk) - Operating expenses (Sales & Marketing, G&A, R&D) increased compared to Q2 2020, largely because cost-saving initiatives implemented during the pandemic in 2020 (e.g., salary reductions, 401(k) match suspension) were no longer in place in 2021[84](index=84&type=chunk)[87](index=87&type=chunk)[88](index=88&type=chunk) - Net cash from operating activities decreased by **$29.8 million** for the first six months of 2021 compared to 2020, primarily due to a decrease in net income, changes in fair value of contingent consideration, and changes in working capital, including the CMS advance payment[97](index=97&type=chunk)[98](index=98&type=chunk)[99](index=99&type=chunk) - A contingent consideration milestone payment of **$15.0 million** related to the Spinal Kinetics acquisition was made in the second quarter of 2021[106](index=106&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=27&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes to the company's market risks have occurred since the 2020 Form 10-K disclosure - There have been no material changes to the company's market risks as disclosed in the 2020 Form 10-K[122](index=122&type=chunk) [Controls and Procedures](index=27&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the quarter - The President and CEO and the CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2021[124](index=124&type=chunk) - No change in internal control over financial reporting occurred during the quarter that has materially affected, or is reasonably likely to materially affect, the company's internal controls[125](index=125&type=chunk) PART II OTHER INFORMATION [Legal Proceedings](index=29&type=section&id=Item%201.%20Legal%20Proceedings) Ongoing legal matters include a **$7.3 million** accrual for the Italian Medical Device Payback and a **$1.7 million** dispute with a former Brazilian distributor - The company has accrued **$7.3 million** related to the Italian Medical Device Payback (IMDP) measure, though the final amount is uncertain[49](index=49&type=chunk) - An accrual of **$1.7 million** has been made for a legal dispute with a former Brazilian distributor, and approximately **$0.6 million** of the company's cash in Brazil remains frozen[50](index=50&type=chunk)[112](index=112&type=chunk) [Risk Factors](index=29&type=section&id=Item%201A.%20Risk%20Factors) Ongoing risks include the **COVID-19 pandemic's** impact on operations and supply chain, particularly the global shortage of semiconductor chips - The company highlights the continuing material risk from the COVID-19 pandemic on its global operations and supply chain[128](index=128&type=chunk) - A specific supply chain risk identified is the global shortage of semiconductor chips, which could affect the company's ability to manufacture certain products or require costly redesigns[128](index=128&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=29&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not repurchase any common stock during the second quarter of 2021 - The company made no repurchases of its common stock in the second quarter of 2021[129](index=129&type=chunk) [Defaults Upon Senior Securities](index=29&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is reported as not applicable - Not applicable[130](index=130&type=chunk) [Mine Safety Disclosures](index=29&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is reported as not applicable - Not applicable[131](index=131&type=chunk) [Other Information](index=29&type=section&id=Item%205.%20Other%20Information) No matters are reported under this item - There are no matters to be reported under this item[132](index=132&type=chunk) [Exhibits](index=29&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed, including amendments to incentive plans and required CEO/CFO certifications - Filed exhibits include amendments to the 2012 Long-Term Incentive Plan and the Stock Purchase Plan[133](index=133&type=chunk) - Required certifications from the Chief Executive Officer and Chief Financial Officer under Rule 13a-14(a)/15d-14(a) and Section 1350 are included as exhibits[133](index=133&type=chunk)

The New SeaSpine Accelerating the Pace of Innovation & Design May 2021 § SeaSpine ©2021 SeaSpine Orthopedics Corporation. All rights reserved. 1 Forward-looking Statements & Disclaimer This presentation includes statements that may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words "believe," "estimate," "expect," "anticipate," "project," "forecast" and similar expressions, or the negative thereof, among others, generally identify forward-look ...