[Report Overview](index=1&type=section&id=Report%20Overview) This section provides an overview of the company's SEC filing, forward-looking statements, and associated risks [Filing Information](index=1&type=section&id=Filing%20Information) This section details the company's SEC filing information, including its status as a large accelerated filer and common stock details - Orthofix Medical Inc. filed a Quarterly Report on Form 10-Q for the period ended September 30, 2020[2](index=2&type=chunk) - The registrant is a **large accelerated filer** and not a shell company[3](index=3&type=chunk)[4](index=4&type=chunk) Common Stock Information as of November 2, 2020 | Title of Class | Trading Symbol | Exchange Registered | |---|---|---| | Common stock, $0.10 par value per share | OFIX | Nasdaq Global Select Market | **Shares Issued and Outstanding:** 19,333,698 shares [Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) This section provides a cautionary note regarding forward-looking statements, highlighting inherent risks and uncertainties, particularly those related to the COVID-19 pandemic, and disclaims any obligation to update these statements - The report contains forward-looking statements based on current beliefs, assumptions, expectations, estimates, forecasts, and projections[10](index=10&type=chunk) - These statements are not guarantees of future performance and involve risks and uncertainties, including those detailed in Part II Item 1A (Risk Factors) and the 2019 Form 10-K[10](index=10&type=chunk) - Specific risks related to COVID-19 include delayed/cancelled surgeries, workforce disruptions, supply chain issues, customer payment defaults, and general economic weakness[10](index=10&type=chunk) - The company disclaims any obligation to update forward-looking statements[11](index=11&type=chunk) [PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, changes in shareholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, recent acquisitions, and the impact of the COVID-19 pandemic [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (September 30, 2020 vs. December 31, 2019) | Metric (in thousands) | Sep 30, 2020 | Dec 31, 2019 | Change (Absolute) | Change (%) | |---|---|---|---|---| | **Assets** | | | | | | Cash and cash equivalents | $79,810 | $69,719 | $10,091 | 14.5% | | Total current assets | $254,669 | $260,553 | $(5,884) | -2.3% | | Total assets | $517,132 | $495,620 | $21,512 | 4.3% | | **Liabilities** | | | | | | Total current liabilities | $93,379 | $84,883 | $8,496 | 10.0% | | Total liabilities | $162,236 | $167,989 | $(5,753) | -3.4% | | **Shareholders' Equity** | | | | | | Total shareholders' equity | $354,896 | $327,631 | $27,265 | 8.3% | [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)) Condensed Consolidated Statements of Operations (Three Months Ended September 30) | Metric (in thousands) | 2020 | 2019 | Change (Absolute) | Change (%) | |---|---|---|---|---| | Net sales | $110,985 | $113,499 | $(2,514) | -2.2% | | Gross profit | $84,742 | $88,603 | $(3,861) | -4.4% | | Operating income (loss) | $4,175 | $(18,882) | $23,057 | 122.1% | | Net income (loss) | $4,654 | $(40,498) | $45,152 | 111.5% | | Basic EPS | $0.24 | $(2.14) | $2.38 | 111.2% | | Diluted EPS | $0.24 | $(2.14) | $2.38 | 111.2% | Condensed Consolidated Statements of Operations (Nine Months Ended September 30) | Metric (in thousands) | 2020 | 2019 | Change (Absolute) | Change (%) | |---|---|---|---|---| | Net sales | $288,943 | $338,461 | $(49,518) | -14.6% | | Gross profit | $216,125 | $264,045 | $(47,920) | -18.1% | | Operating income (loss) | $(9,971) | $(22,879) | $12,908 | 56.4% | | Net income (loss) | $11,895 | $(40,148) | $52,043 | 129.6% | | Basic EPS | $0.62 | $(2.13) | $2.75 | 129.1% | | Diluted EPS | $0.61 | $(2.13) | $2.74 | 128.6% | [Condensed Consolidated Statements of Changes in Shareholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) Changes in Shareholders' Equity (Nine Months Ended September 30, 2020) | Metric (in thousands) | At Dec 31, 2019 | At Sep 30, 2020 | Change (Absolute) | |---|---|---|---| | Common Shares | $1,902 | $1,927 | $25 | | Additional Paid-in Capital | $271,019 | $285,203 | $14,184 | | Retained Earnings | $57,749 | $68,757 | $11,008 | | Accumulated Other Comprehensive Loss | $(3,039) | $(991) | $2,048 | | Total Shareholders' Equity | $327,631 | $354,896 | $27,265 | - Key changes include **net income of $11.9 million**, share-based compensation of **$12.4 million**, and common shares issued (net) of **$1.8 million** for the nine months ended September 30, 2020[18](index=18&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (Nine Months Ended September 30) | Cash Flow Activity (in thousands) | 2020 | 2019 | Change (Absolute) | |---|---|---|---| | Net cash from operating activities | $51,981 | $20,090 | $31,891 | | Net cash from investing activities | $(42,944) | $(21,281) | $(21,663) | | Net cash from financing activities | $583 | $(12,610) | $13,193 | | Net change in cash, cash equivalents, and restricted cash | $9,897 | $(14,686) | $24,583 | | Cash, cash equivalents, and restricted cash at end of period | $80,300 | $57,503 | $22,797 | - Operating cash flows significantly increased due to higher net income and changes in working capital, while investing activities saw a substantial increase in outflows primarily due to business acquisitions[19](index=19&type=chunk) [Notes to the Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20the%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) [Note 1. Business, basis of presentation, COVID-19 update, and CARES Act](index=8&type=section&id=Note%201.%20Business,%20basis%20of%20presentation,%20COVID-19%20update,%20and%20CARES%20Act) - Orthofix Medical Inc. is a global medical device company focused on musculoskeletal products and therapies, headquartered in Lewisville, Texas, distributing products in over 70 countries[20](index=20&type=chunk) - The COVID-19 pandemic negatively impacted net sales, particularly from March to May 2020, due to deferred elective surgeries, travel restrictions, and economic factors, with future impacts remaining uncertain[23](index=23&type=chunk)[25](index=25&type=chunk) - The company received **$13.9 million** from the CMS Accelerated and Advance Payment Program and **$4.7 million** from the Provider Relief Fund under the CARES Act, also deferring **$2.2 million** in employer social security payroll taxes[28](index=28&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk) [Note 2. Recently adopted accounting standards and recently issued accounting pronouncements](index=9&type=section&id=Note%202.%20Recently%20adopted%20accounting%20standards%20and%20recently%20issued%20accounting%20pronouncements) This note details the adoption of new accounting standards, including those for credit losses, goodwill impairment, fair value measurement, cloud computing, and reference rate reform, and their financial impact - Adopted ASU 2016-13 (Credit Losses) effective January 1, 2020, increasing allowance for expected credit losses by **$1.1 million** and decreasing retained earnings by **$0.9 million**[31](index=31&type=chunk)[66](index=66&type=chunk) - Adopted ASU 2017-04 (Goodwill Impairment) and ASU 2018-13 (Fair Value Measurement Disclosure) effective January 1, 2020, with no material impact on financial statements but affecting future impairment measurement and disclosures[32](index=32&type=chunk)[33](index=33&type=chunk) - Adopted ASU 2018-15 (Cloud Computing Implementation Costs) and ASU 2020-04 (Reference Rate Reform) effective January 1, 2020, and March 12, 2020, respectively, with no material current impact but expected future effects[34](index=34&type=chunk)[35](index=35&type=chunk) - Currently evaluating ASU 2019-12 (Simplifying the accounting for income taxes) effective January 1, 2021[36](index=36&type=chunk) [Note 3. Acquisitions](index=10&type=section&id=Note%203.%20Acquisitions) This note outlines the company's recent acquisition activities, including the purchase of FITBONE assets and a medical device distributor, detailing the consideration transferred and assets acquired - Acquired FITBONE intramedullary lengthening system assets from Wittenstein SE for **$18.0 million cash** on March 26, 2020, recording **$11.3 million in goodwill**[37](index=37&type=chunk)[39](index=39&type=chunk) FITBONE Acquisition - Preliminary Fair Values of Assets Acquired (in thousands) | Asset Acquired | Fair Value | |---|---| | Inventories | $528 | | Developed technology | $4,500 | | Customer relationships | $800 | | Trade name | $600 | | In-process research and development ("IPR&D") | $300 | | **Total identifiable assets acquired** | **$6,728** | | Goodwill | $11,272 | | **Total fair value of consideration transferred** | **$18,000** | - Acquired certain assets of a medical device distributor in July 2020 for up to **$7.6 million**, primarily customer relationships (**$7.34 million**) and assembled workforce (**$0.235 million**)[43](index=43&type=chunk) [Note 4. Inventories](index=12&type=section&id=Note%204.%20Inventories) This note provides a breakdown of inventory categories and their changes between reporting periods Inventories (in thousands) | Category | Sep 30, 2020 | Dec 31, 2019 | |---|---|---| | Raw materials | $7,779 | $9,587 | | Work-in-process | $12,050 | $14,027 | | Finished products | $26,384 | $20,712 | | Field/consignment | $36,646 | $38,071 | | **Total Inventories** | **$82,859** | **$82,397** | - Total inventories increased slightly by **$0.462 million** from December 31, 2019, to September 30, 2020, with a notable increase in finished products and a decrease in raw materials and work-in-process[44](index=44&type=chunk) [Note 5. Leases](index=12&type=section&id=Note%205.%20Leases) This note summarizes the company's lease portfolio and significant lease agreements Lease Portfolio Summary (in thousands) | Category | Sep 30, 2020 | Dec 31, 2019 | |---|---|---| | Total Right-of-Use (ROU) assets | $25,973 | $26,005 | | Total lease liabilities | $28,126 | $26,930 | - In March 2020, the company entered into a Contract Manufacturing and Supply Agreement (CMSA) with Wittenstein, accounted for as a finance lease, recognizing a **$1.9 million** finance lease liability and ROU asset[46](index=46&type=chunk) [Note 6. Other current liabilities](index=13&type=section&id=Note%206.%20Other%20current%20liabilities) This note details other current liabilities, specifically focusing on accruals and payments related to a U.S. restructuring plan - As of September 30, 2020, the company had a **$3.7 million** liability associated with a U.S. restructuring plan initiated in December 2019, primarily involving severance payments[47](index=47&type=chunk) - Additional accruals of **$1.1 million** and **$2.5 million** were recorded for the three and nine months ended September 30, 2020, respectively, with payments totaling **$1.1 million** and **$2.1 million**[47](index=47&type=chunk) [Note 7. Long-term debt](index=13&type=section&id=Note%207.%20Long-term%20debt) This note describes the company's long-term debt activities, including borrowings and repayments under its credit facilities - The company borrowed **$100.0 million** under its $300 million secured revolving credit facility in April 2020 as a precautionary measure due to COVID-19, but fully repaid the outstanding balance in the third quarter of 2020[48](index=48&type=chunk) - As of September 30, 2020, there were no outstanding borrowings under the secured revolving credit facility or the €5.5 million lines of credit in Italy, and the company was in compliance with all financial covenants[48](index=48&type=chunk)[49](index=49&type=chunk) [Note 8. Fair value measurements and investments](index=13&type=section&id=Note%208.%20Fair%20value%20measurements%20and%20investments) This note provides information on the fair value of financial liabilities, particularly contingent consideration related to acquisitions Fair Value of Financial Liabilities (in thousands) | Liability | Sep 30, 2020 | Dec 31, 2019 | |---|---|---| | Spinal Kinetics contingent consideration | $(35,100) | $(42,700) | | Other contingent consideration | $(375) | $0 | | Deferred compensation plan | $(1,366) | $(1,255) | | **Total Liabilities** | **$(36,841)** | **$(43,955)** | - The estimated fair value of Spinal Kinetics contingent consideration decreased by **$7.6 million** to **$35.1 million** as of September 30, 2020, primarily due to changes in management's forecast of future net sales of artificial discs, impacted by COVID-19 uncertainty[52](index=52&type=chunk)[53](index=53&type=chunk) - The company expects to pay **$14.7 million** of the Spinal Kinetics contingent consideration within the next twelve months, classifying it as a current liability[52](index=52&type=chunk) [Note 9. Contingencies](index=15&type=section&id=Note%209.%20Contingencies) This note details various contingencies, including accruals for the Italian Medical Device Payback and a legal dispute in Brazil - The company accrued **$6.3 million** related to the Italian Medical Device Payback (IMDP) as of September 30, 2020, with **$0.4 million** and **$1.1 million** expensed for the three and nine months ended September 30, 2020, respectively, though the actual liability remains uncertain[60](index=60&type=chunk) - Approximately **$0.5 million** of cash in Brazil was frozen in September 2019 due to a legal dispute with a former distributor, reclassified as restricted cash, with an accrual of **$1.3 million** as of September 30, 2020[61](index=61&type=chunk) [Note 10. Accumulated other comprehensive loss](index=15&type=section&id=Note%2010.%20Accumulated%20other%20comprehensive%20loss) This note explains the changes in accumulated other comprehensive loss, primarily driven by currency translation adjustments Changes in Accumulated Other Comprehensive Loss (in thousands) | Metric | Dec 31, 2019 | Sep 30, 2020 | Change | |---|---|---|---| | Currency Translation Adjustments | $(3,039) | $(991) | $2,048 | | **Total Accumulated Other Comprehensive Loss** | **$(3,039)** | **$(991)** | **$2,048** | - The accumulated other comprehensive loss improved by **$2.048 million**, primarily due to positive currency translation adjustments for the nine months ended September 30, 2020[62](index=62&type=chunk) [Note 11. Revenue recognition and accounts receivable](index=15&type=section&id=Note%2011.%20Revenue%20recognition%20and%20accounts%20receivable) This note provides a detailed breakdown of net sales by product category, discusses the impact of new accounting standards on credit losses, and outlines contract liabilities Net Sales by Product Category (Three Months Ended September 30) | Product Category (in thousands) | 2020 | 2019 | Change (%) | |---|---|---|---| | Bone Growth Therapies | $47,066 | $48,836 | -3.6% | | Spinal Implants | $25,505 | $22,947 | 11.1% | | Biologics | $15,245 | $16,308 | -6.5% | | **Global Spine** | **$87,816** | **$88,091** | **-0.3%** | | **Global Extremities** | **$23,169** | **$25,408** | **-8.8%** | | **Net sales** | **$110,985** | **$113,499** | **-2.2%** | Net Sales by Product Category (Nine Months Ended September 30) | Product Category (in thousands) | 2020 | 2019 | Change (%) | |---|---|---|---| | Bone Growth Therapies | $120,888 | $146,228 | -17.3% | | Spinal Implants | $67,025 | $69,076 | -3.0% | | Biologics | $40,319 | $48,784 | -17.4% | | **Global Spine** | **$228,232** | **$264,088** | **-13.6%** | | **Global Extremities** | **$60,711** | **$74,373** | **-18.4%** | | **Net sales** | **$288,943** | **$338,461** | **-14.6%** | - The adoption of ASU 2016-13 resulted in a **$1.1 million** increase in the allowance for expected credit losses and a **$0.9 million** decrease in retained earnings as of January 1, 2020[66](index=66&type=chunk) - Contract liabilities include a **$13.9 million** prepayment from CMS under the CARES Act, with **$6.9 million** classified as current and **$6.9 million** as long-term[71](index=71&type=chunk)[73](index=73&type=chunk) [Note 12. Business segment information](index=18&type=section&id=Note%2012.%20Business%20segment%20information) This note provides a breakdown of EBITDA by reporting segment and net sales by geographic destination EBITDA by Reporting Segment (in thousands) | Segment | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | |---|---|---|---|---| | Global Spine | $19,960 | $(6,033) | $38,670 | $21,065 | | Global Extremities | $1,258 | $1,229 | $(3,995) | $3,806 | | Corporate | $(6,196) | $(15,949) | $(16,259) | $(38,356) | | **Total EBITDA** | **$15,022** | **$(20,753)** | **$18,416** | **$(13,485)** | Net Sales by Geographic Destination (Nine Months Ended September 30, 2020) | Segment | U.S. (in thousands) | International (in thousands) | Total (in thousands) | |---|---|---|---| | Global Spine | $215,819 | $12,413 | $228,232 | | Global Extremities | $16,439 | $44,272 | $60,711 | | **Consolidated** | **$232,258** | **$56,685** | **$288,943** | [Note 13. Acquisition-related amortization and remeasurement](index=18&type=section&id=Note%2013.%20Acquisition-related%20amortization%20and%20remeasurement) This note details the changes in acquisition-related amortization and remeasurement, primarily driven by adjustments to contingent consideration fair value Acquisition-related Amortization and Remeasurement (in thousands) | Component | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | |---|---|---|---|---| | Changes in fair value of contingent consideration | $(700) | $22,270 | $(7,600) | $28,140 | | Amortization of acquired intangibles | $1,838 | $1,338 | $4,834 | $3,733 | | **Total** | **$1,138** | **$23,608** | **$(2,766)** | **$31,873** | - The significant decrease in total acquisition-related amortization and remeasurement for both periods is primarily due to a **$23.0 million** (Q3) and **$35.7 million** (YTD) decrease in the fair value of contingent consideration, largely driven by COVID-19's impact on estimated milestone payments[116](index=116&type=chunk) [Note 14. Share-based compensation](index=19&type=section&id=Note%2014.%20Share-based%20compensation) This note provides a breakdown of share-based compensation expense by category and highlights the overall decrease in expense Share-based Compensation Expense (in thousands) | Category | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | |---|---|---|---|---| | Stock options | $786 | $599 | $1,840 | $3,637 | | Time-based restricted stock awards and units | $1,632 | $3,805 | $6,804 | $8,462 | | Market-based restricted stock units | $1,049 | $1,092 | $2,529 | $4,015 | | Stock purchase plan | $374 | $348 | $1,226 | $1,264 | | **Total** | **$3,841** | **$5,844** | **$12,399** | **$17,378** | - Total share-based compensation decreased by **$2.0 million** for the three months and **$5.0 million** for the nine months ended September 30, 2020, primarily due to lower time-based and market-based restricted stock awards and units[80](index=80&type=chunk) [Note 15. Income taxes](index=19&type=section&id=Note%2015.%20Income%20taxes) This note presents the income tax expense (benefit) and effective tax rate, explaining significant factors influencing the rate Income Tax Expense (Benefit) and Effective Tax Rate | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | |---|---|---|---|---| | Income tax expense (benefit) (in thousands) | $607 | $13,656 | $(17,833) | $8,869 | | Effective tax rate | 11.5% | (50.9%) | 300.3% | (28.4%) | - The effective tax rate for the nine months ended September 30, 2020, was **300.3%**, significantly impacted by statute expirations related to unrecognized tax benefits and financial deductions not recognized for tax purposes[82](index=82&type=chunk)[120](index=120&type=chunk) - The CARES Act is not expected to have a significant impact on income tax expense for fiscal year 2020[83](index=83&type=chunk) [Note 16. Earnings per share ("EPS")](index=20&type=section&id=Note%2016.%20Earnings%20per%20share%20(%22EPS%22)) This note provides details on the calculation of basic and diluted earnings per share, including the weighted average common shares and the effect of dilutive securities Weighted Average Common Shares for Diluted EPS | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | |---|---|---|---|---| | Weighted average common shares-basic | 19,335,718 | 18,957,876 | 19,217,057 | 18,847,728 | | Effect of dilutive securities | 62,849 | 0 | 102,245 | 0 | | **Weighted average common shares-diluted** | **19,398,567** | **18,957,876** | **19,319,302** | **18,847,728** | - Approximately **1.77 million** (Q3 2020) and **1.53 million** (YTD 2020) weighted average outstanding stock options and restricted stock awards were excluded from diluted EPS calculations due to being anti-dilutive or not meeting vesting conditions[88](index=88&type=chunk) [Note 17. Subsequent Events](index=20&type=section&id=Note%2017.%20Subsequent%20Events) This note describes significant events occurring after the reporting period, including a new partnership and related financial investments - On October 1, 2020, the company partnered with Neo Medical SA, including a co-development agreement for cervical spine instruments and exclusive distribution rights for thoracolumbar solutions in certain U.S. accounts[89](index=89&type=chunk)[140](index=140&type=chunk) - As part of the Neo Medical partnership, Orthofix purchased **$5.0 million** in preferred stock and provided a CHF 4.6 million convertible loan (approx. **$5.0 million**) with an **8.0% interest rate**, maturing October 1, 2024[90](index=90&type=chunk)[141](index=141&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, condition, and operational results, highlighting the impact of COVID-19, key financial metrics, segment performance, liquidity, and critical accounting estimates [Executive Summary](index=21&type=section&id=Executive%20Summary) This summary provides an overview of Orthofix's business, recent financial performance, and the ongoing impact of the COVID-19 pandemic - Orthofix is a global medical device company focused on musculoskeletal products and therapies, distributing in over 70 countries[95](index=95&type=chunk) - Q3 2020 net sales were **$111.0 million**, an increase of **52% sequentially** and within **2%** of 2019 performance[100](index=100&type=chunk) - US Spinal Implants net sales increased **19% year-over-year** in Q3, and Motion Preservation sales increased over **400% year-over-year**[100](index=100&type=chunk) - The COVID-19 pandemic significantly impacted business, particularly from March to May 2020, due to deferred elective surgeries, with future effects remaining uncertain[96](index=96&type=chunk)[98](index=98&type=chunk) [Results of Operations](index=22&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, detailing changes in net sales, gross profit, operating expenses, and net income, and the factors influencing these changes Key Financial Metrics as % of Net Sales (Three Months Ended September 30) | Metric | 2020 (%) | 2019 (%) | Change (pp) | |---|---|---|---| | Net sales | 100.0 | 100.0 | 0.0 | | Cost of sales | 23.6 | 21.9 | 1.7 | | Gross profit | 76.4 | 78.1 | -1.7 | | Sales and marketing | 47.7 | 48.3 | -0.6 | | General and administrative | 14.9 | 18.6 | -3.7 | | Research and development | 9.0 | 7.0 | 2.0 | | Operating income (loss) | 3.8 | (16.6) | 20.4 | | Net income (loss) | 4.2 | (35.7) | 39.9 | Net Sales by Product Category (Three Months Ended September 30) | Product Category (in thousands) | 2020 | 2019 | Reported Change (%) | Constant Currency Change (%) | |---|---|---|---|---| | Bone Growth Therapies | $47,066 | $48,836 | -3.6% | -3.6% | | Spinal Implants | $25,505 | $22,947 | 11.1% | 10.7% | | Biologics | $15,245 | $16,308 | -6.5% | -6.5% | | **Global Spine** | **$87,816** | **$88,091** | **-0.3%** | **-0.4%** | | **Global Extremities** | **$23,169** | **$25,408** | **-8.8%** | **-11.5%** | | **Net sales** | **$110,985** | **$113,499** | **-2.2%** | **-2.9%** | - Gross profit decreased by **$3.9 million (4.4%)** for Q3 2020 and **$47.9 million (18.1%)** for the nine months, primarily due to non-cash inventory charges and lower procedure volumes from COVID-19[105](index=105&type=chunk)[110](index=110&type=chunk) - Sales and marketing expense decreased by **$1.9 million** (Q3) and **$14.6 million** (YTD) due to shifts in national sales conferences and increased virtual training[108](index=108&type=chunk)[109](index=109&type=chunk)[111](index=111&type=chunk) - General and administrative expense decreased by **$4.5 million** (Q3) and **$14.0 million** (YTD), driven by lower succession/transition charges, reduced strategic investment costs, and lower legal judgments[109](index=109&type=chunk)[112](index=112&type=chunk) - Research and development expense increased by **$2.0 million** (Q3) and **$2.5 million** (YTD) due to efforts to build internal teams for new product innovation and compliance with medical device reporting regulations[114](index=114&type=chunk)[115](index=115&type=chunk) - Acquisition-related amortization and remeasurement decreased significantly by **$22.5 million** (Q3) and **$34.6 million** (YTD), mainly due to a decrease in the fair value of contingent consideration related to the Spinal Kinetics acquisition, impacted by COVID-19 uncertainty[116](index=116&type=chunk) - Net income (loss) improved significantly, with a **$45.2 million** increase for Q3 2020 and a **$52.0 million** increase for the nine months, largely driven by the decrease in acquisition-related remeasurement and other income[17](index=17&type=chunk) [Segment Review](index=27&type=section&id=Segment%20Review) This section reviews the financial performance of the company's operating segments, focusing on EBITDA contributions and changes EBITDA by Segment (in thousands) | Segment | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | |---|---|---|---|---| | Global Spine | $19,960 | $(6,033) | $38,670 | $21,065 | | Global Extremities | $1,258 | $1,229 | $(3,995) | $3,806 | | Corporate | $(6,196) | $(15,949) | $(16,259) | $(38,356) | | **Total EBITDA** | **$15,022** | **$(20,753)** | **$18,416** | **$(13,485)** | - Global Spine EBITDA significantly improved, turning from a loss of **$6.0 million** in Q3 2019 to a profit of **$19.9 million** in Q3 2020, and increasing from **$21.1 million** to **$38.7 million** year-to-date[121](index=121&type=chunk) - Corporate EBITDA losses decreased substantially, from **$(15.9) million** to **$(6.2) million** in Q3 and from **$(38.4) million** to **$(16.3) million** year-to-date[121](index=121&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) This section analyzes the company's cash flows, liquidity position, and capital resources, including the impact of operating, investing, and financing activities Cash Flow Summary (Nine Months Ended September 30) | Cash Flow Activity (in thousands) | 2020 | 2019 | Change (Absolute) | |---|---|---|---| | Net cash from operating activities | $51,981 | $20,090 | $31,891 | | Net cash from investing activities | $(42,944) | $(21,281) | $(21,663) | | Net cash from financing activities | $583 | $(12,610) | $13,193 | | **Net change in cash, cash equivalents and restricted cash** | **$9,897** | **$(14,686)** | **$24,583** | Free Cash Flow (Nine Months Ended September 30) | Metric (in thousands) | 2020 | 2019 | Change (Absolute) | |---|---|---|---| | Net cash from operating activities | $51,981 | $20,090 | $31,891 | | Capital expenditures | $(12,704) | $(14,881) | $2,177 | | **Free cash flow** | **$39,277** | **$5,209** | **$34,068** | - Cash, cash equivalents, and restricted cash increased to **$80.3 million** at September 30, 2020, from **$70.4 million** at December 31, 2019[121](index=121&type=chunk) - Operating cash flows increased by **$31.9 million**, driven by a **$52.0 million** increase in net income and a **$23.3 million** increase from changes in working capital, including a **$13.9 million** prepayment from CMS[123](index=123&type=chunk)[124](index=124&type=chunk) - Investing cash outflows increased by **$21.7 million**, primarily due to the **$18.0 million** FITBONE acquisition and a **$5.0 million** purchase of Neo Medical preferred stock[126](index=126&type=chunk) - Financing cash flows increased by **$13.2 million**, largely due to the repayment of the **$100.0 million** revolving credit facility, offsetting the prior year's contingent consideration payment[126](index=126&type=chunk) - The company fully repaid its **$100.0 million** secured revolving credit facility in Q3 2020 and had no outstanding borrowings as of September 30, 2020[126](index=126&type=chunk) - The COVID-19 pandemic's impact on liquidity remains uncertain, with potential for continued decreases in elective surgeries and payment delays[134](index=134&type=chunk) [Critical Accounting Estimates](index=30&type=section&id=Critical%20Accounting%20Estimates) This section discusses the critical accounting estimates, specifically focusing on the allowance for expected credit losses and the significant judgments involved in its estimation - The allowance for expected credit losses, following ASU 2016-13 adoption, represents the uncollectible portion of receivables over their contractual life, considering past events, current conditions, and future economic forecasts[148](index=148&type=chunk) - Estimating ultimate collection involves significant assumptions and judgments, including contractual life, aging, historical collections, and payor reimbursement experience, with quarterly analysis and periodic testing[149](index=149&type=chunk) [Recently Issued Accounting Pronouncements](index=30&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) This section directs readers to Note 2 for detailed information on recently issued accounting pronouncements - Refer to Note 2 for detailed information regarding the status of recently issued accounting pronouncements[150](index=150&type=chunk) [Non-GAAP Financial Measures](index=31&type=section&id=Non-GAAP%20Financial%20Measures) This section explains the company's use of non-GAAP financial measures to provide enhanced transparency and facilitate financial comparisons - Non-GAAP measures like Constant Currency, EBITDA, and Free Cash Flow are used to provide greater transparency into management's financial and operational decision-making and to facilitate comparisons[152](index=152&type=chunk) - Constant currency adjusts net sales for foreign exchange rate changes, EBITDA is earnings before interest, taxes, depreciation, and amortization, and Free Cash Flow is operating cash flow minus capital expenditures[154](index=154&type=chunk)[155](index=155&type=chunk)[156](index=156&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there have been no material changes to the company's market risks since its Form 10-K for the year ended December 31, 2019 - No material changes to market risks were disclosed compared to the Form 10-K for the year ended December 31, 2019[157](index=157&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures as of September 30, 2020, and reports no material changes in internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of September 30, 2020[158](index=158&type=chunk) - There were no material changes in internal control over financial reporting during the quarter[159](index=159&type=chunk) [PART II. OTHER INFORMATION](index=32&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part provides additional information beyond the financial statements, covering legal proceedings, risk factors, equity sales, and exhibits [Item 1. Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 9 of the financial statements for information regarding legal proceedings - Information regarding legal proceedings is incorporated by reference from Note 9 to the Unaudited Condensed Consolidated Financial Statements[160](index=160&type=chunk) [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) This section supplements previously disclosed risk factors, focusing on the ongoing and unpredictable effects of the COVID-19 pandemic, the potential impact of FDA reclassification of bone growth stimulators, and the risks associated with the investment in Neo Medical SA - The COVID-19 pandemic has materially affected the business in 2020, primarily through significant reductions in elective surgery volumes, and is expected to cause further unpredictable effects[162](index=162&type=chunk)[164](index=164&type=chunk) - An FDA panel's recommendation to reclassify bone growth stimulator devices from Class III to Class II could increase future competition and negatively affect sales of these products[169](index=169&type=chunk)[172](index=172&type=chunk) - The company's **$10 million** investment and loan to Neo Medical SA carries the risk of not being recouped if Neo Medical's business is unsuccessful[173](index=173&type=chunk)[174](index=174&type=chunk)[175](index=175&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=33&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section states that the company did not repurchase any common stock during the third quarter of 2020 - No repurchases of common stock were made during the third quarter of 2020[176](index=176&type=chunk) [Item 3. Defaults Upon Senior Securities](index=33&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section indicates that there are no applicable defaults upon senior securities - Not applicable[177](index=177&type=chunk) [Item 4. Mine Safety Disclosures](index=33&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section indicates that there are no applicable mine safety disclosures - Not applicable[178](index=178&type=chunk) [Item 5. Other Information](index=34&type=section&id=Item%205.%20Other%20Information) This section states that there are no other matters to be reported under this heading - No matters to be reported under this heading[179](index=179&type=chunk) [Item 6. Exhibits](index=34&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including consulting agreements, certifications, and XBRL documents - Exhibits include consulting agreements, change in control and severance agreements, CEO/CFO certifications (Rule 13a-14(a)/15d-14(a) and Section 1350), and Inline XBRL documents[180](index=180&type=chunk) [SIGNATURES](index=35&type=section&id=SIGNATURES) This section contains the official signatures of the registrant's authorized officers, confirming the filing of the report [Signatures Details](index=35&type=section&id=Signatures%20Details) This section contains the official signatures of the registrant's authorized officers, confirming the filing of the report - The report was signed on November 5, 2020, by Jon Serbousek, President and Chief Executive Officer, Director, and Doug Rice, Chief Financial Officer[184](index=184&type=chunk)

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 For the quarterly period ended June 30, 2020 OR (Registrant's telephone number, including area code) ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Not applicable For the transition period from to . (Former name, former address and former fiscal year, if changed since last report) Commi ...

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Orthofix Medical Inc.'s unaudited Q1 2020 and 2019 consolidated financial statements are presented, detailing balance sheets, income, equity, cash flows, and notes on operations, acquisitions, and COVID-19 impact [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (U.S. Dollars, in thousands) | Metric (U.S. Dollars, in thousands) | March 31, 2020 | December 31, 2019 | | :---------------------------------- | :------------- | :---------------- | | **Assets** | | | | Total current assets | $239,995 | $260,553 | | Property, plant and equipment, net | $64,836 | $62,727 | | Intangible assets, net | $58,770 | $54,139 | | Goodwill | $82,646 | $71,177 | | Total assets | $493,490 | $495,620 | | **Liabilities** | | | | Total current liabilities | $65,961 | $84,883 | | Total liabilities | $138,121 | $167,989 | | **Shareholders' Equity** | | | | Total shareholders' equity | $355,369 | $327,631 | [Condensed Consolidated Statements of Income and Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income%20(Loss)) Condensed Consolidated Statements of Income and Comprehensive Income (Loss) (U.S. Dollars, in thousands, except per share data) | Metric (U.S. Dollars, in thousands, except per share data) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Change (YoY) | | :--------------------------------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Net sales | $104,823 | $109,112 | -3.9% | | Gross profit | $81,414 | $85,404 | -4.7% | | Operating income (loss) | $6,854 | $(4,448) | +$11,302 | | Income (loss) before income taxes | $5,633 | $(5,109) | +$10,742 | | Net income | $25,665 | $897 | +$24,768 | | Basic Net income per common share | $1.33 | $0.05 | +$1.28 | | Diluted Net income per common share | $1.32 | $0.05 | +$1.27 | | Comprehensive income (loss) | $23,954 | $(1,504) | +$25,458 | [Condensed Consolidated Statements of Changes in Shareholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) Condensed Consolidated Statements of Changes in Shareholders' Equity (U.S. Dollars, in thousands) | Metric (U.S. Dollars, in thousands) | At December 31, 2019 | At March 31, 2020 | | :---------------------------------- | :------------------- | :---------------- | | Total Shareholders' Equity | $327,631 | $355,369 | | Net income | - | $25,665 | | Other comprehensive loss, net of tax| - | $(1,711) | | Share-based compensation | - | $3,859 | | Common shares issued, net | - | $812 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (U.S. Dollars, in thousands) | Metric (U.S. Dollars, in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Change (YoY) | | :---------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Net cash from operating activities | $12,464 | $(1,039) | +$13,503 | | Net cash from investing activities | $(24,184) | $(11,316) | -$12,868 | | Net cash from financing activities | $315 | $(10,396) | +$10,711 | | Net change in cash, cash equivalents, and restricted cash | $(12,135) | $(22,981) | +$10,846 | | Cash, cash equivalents, and restricted cash at end of period | $58,268 | $49,208 | +$9,060 | [Notes to the Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20the%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) [Note 1. Business, basis of presentation, and COVID-19 update](index=8&type=section&id=1.%20Business,%20basis%20of%20presentation,%20and%20COVID-19%20update) - Orthofix Medical Inc. is a global medical device company specializing in musculoskeletal products and therapies, distributed in over 70 countries[20](index=20&type=chunk) - The COVID-19 pandemic has introduced significant uncertainty, impacting elective surgical procedures, potentially delaying customer payments, disrupting supply chains, and affecting overall financial conditions and liquidity, with the full extent of the impact still uncertain[24](index=24&type=chunk) - The CARES Act provided a **$3.0 million benefit** to the Company's Q1 2020 financial statements due to a beneficial rate difference on a potential federal loss carryback[25](index=25&type=chunk)[26](index=26&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) - The Company adopted ASU 2016-13 (Credit Losses) effective January 1, 2020, increasing the allowance for expected credit losses by **$1.1 million** and decreasing retained earnings by **$0.9 million**[27](index=27&type=chunk)[63](index=63&type=chunk) - ASU 2017-04 (Goodwill Impairment) was adopted prospectively, simplifying goodwill impairment measurement without immediate financial statement impact[28](index=28&type=chunk) - ASU 2020-04 (Reference Rate Reform) was adopted prospectively, providing temporary guidance for the transition away from LIBOR, with no material immediate financial impact but expected to affect future borrowing rates[31](index=31&type=chunk) - The Company is currently evaluating the impact of ASU 2019-12 (Simplifying the accounting for income taxes), effective January 1, 2021[33](index=33&type=chunk) [Note 3. Acquisitions](index=10&type=section&id=3.%20Acquisitions) - On March 26, 2020, Orthofix acquired assets related to the FITBONE intramedullary lengthening system from Wittenstein SE for **$18 million in cash**, recorded as a business combination[34](index=34&type=chunk) Acquired Asset (U.S. Dollars, in thousands) | Acquired Asset (U.S. Dollars, in thousands) | Fair Value | | :------------------------------------------ | :--------- | | Inventories | $528 | | Developed technology | $4,500 | | Customer relationships | $800 | | Trade name | $600 | | In-process research and development (IPR&D) | $440 | | Goodwill | $11,132 | | Total fair value of consideration transferred | $18,000 | - The acquisition resulted in **$11.1 million in goodwill**, assigned to the Global Extremities segment and expected to be tax-deductible[36](index=36&type=chunk) [Note 4. Inventories](index=11&type=section&id=4.%20Inventories) Inventory Category (U.S. Dollars, in thousands) | Inventory Category (U.S. Dollars, in thousands) | March 31, 2020 | December 31, 2019 | | :---------------------------------------------- | :------------- | :---------------- | | Raw materials | $7,479 | $9,587 | | Work-in-process | $10,618 | $14,027 | | Finished products | $35,242 | $20,712 | | Field/consignment | $29,405 | $38,071 | | Total Inventories | $82,744 | $82,397 | [Note 5. Leases](index=11&type=section&id=5.%20Leases) Lease Metric (U.S. Dollars, in thousands) | Lease Metric (U.S. Dollars, in thousands) | March 31, 2020 | December 31, 2019 | | :---------------------------------------- | :------------- | :---------------- | | Total Right-of-use assets | $27,441 | $26,005 | | Total lease liabilities | $28,516 | $26,930 | - In March 2020, the Company entered into a Contract Manufacturing and Supply Agreement (CMSA) with Wittenstein for the FITBONE product line, accounted for as a finance lease, resulting in a **$1.9 million lease finance liability** and related ROU asset[42](index=42&type=chunk)[43](index=43&type=chunk) [Note 6. Other current liabilities](index=12&type=section&id=6.%20Other%20current%20liabilities) - As of March 31, 2020, the Company had a **$4.4 million liability** related to a U.S. restructuring plan initiated in December 2019, which included personnel realignment and severance payments, with an additional **$1.2 million accrual** in Q1 2020 for a former executive's departure[44](index=44&type=chunk) [Note 7. Long-term debt](index=12&type=section&id=7.%20Long-term%20debt) - As of March 31, 2020, Orthofix had no borrowings under its **$300 million secured revolving credit facility** or its **€5.5 million lines of credit** in Italy, and was in compliance with all financial covenants[45](index=45&type=chunk) - Subsequent to quarter-end, on April 16, 2020, the Company borrowed **$100.0 million** under its secured revolving credit facility as a precautionary measure to increase cash position and preserve financial flexibility due to COVID-19 uncertainty[46](index=46&type=chunk) [Note 8. Fair value measurements and investments](index=12&type=section&id=8.%20Fair%20value%20measurements%20and%20investments) Liability (U.S. Dollars, in thousands) | Liability (U.S. Dollars, in thousands) | March 31, 2020 | December 31, 2019 | | :------------------------------------- | :------------- | :---------------- | | Contingent consideration | $(33,700) | $(42,700) | | Deferred compensation plan | $(1,235) | $(1,255) | | Total Liabilities | $(34,935) | $(43,955) | - The estimated fair value of the remaining contingent consideration for the Spinal Kinetics acquisition was **$33.7 million** as of March 31, 2020, a decrease of **$9.0 million** from December 31, 2019, primarily due to the impact of COVID-19 on future net sales forecasts[49](index=49&type=chunk)[50](index=50&type=chunk) [Note 9. Contingencies](index=14&type=section&id=9.%20Contingencies) - The Company accrued **$5.2 million** related to the Italian Medical Device Payback (IMDP) as of March 31, 2020, with significant judgment involved due to uncertainties in the law's implementation[58](index=58&type=chunk) - Approximately **$0.5 million of cash in Brazil** was reclassified to restricted cash due to an ongoing legal dispute with a former distributor, with an accrual of **$1.3 million** related to this matter as of March 31, 2020[59](index=59&type=chunk) [Note 10. Accumulated other comprehensive loss](index=14&type=section&id=10.%20Accumulated%20other%20comprehensive%20loss) Metric (U.S. Dollars, in thousands) | Metric (U.S. Dollars, in thousands) | Balance at December 31, 2019 | Other comprehensive loss | Balance at March 31, 2020 | | :---------------------------------- | :--------------------------- | :----------------------- | :------------------------ | | Currency Translation Adjustments | $(3,039) | $(1,711) | $(4,750) | | Total Accumulated Other Comprehensive Loss | $(3,039) | $(1,711) | $(4,750) | [Note 11. Revenue recognition and accounts receivable](index=14&type=section&id=11.%20Revenue%20recognition%20and%20accounts%20receivable) Product Category (U.S. Dollars, in thousands) | Product Category (U.S. Dollars, in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Change (YoY) | | :-------------------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Bone Growth Therapies | $45,443 | $47,283 | -3.9% | | Spinal Implants | $22,926 | $22,903 | 0.1% | | Biologics | $13,949 | $15,732 | -11.3% | | Global Spine Total | $82,318 | $85,918 | -4.2% | | Global Extremities | $22,505 | $23,194 | -3.0% | | Net sales Total | $104,823 | $109,112 | -3.9% | Net Sales Component (U.S. Dollars, in thousands) | Net Sales Component (U.S. Dollars, in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :----------------------------------------------- | :-------------------------------- | :-------------------------------- | | Product sales | $91,421 | $93,934 | | Marketing service fees | $13,402 | $15,178 | | Total Net sales | $104,823 | $109,112 | Allowance for Expected Credit Losses (U.S. Dollars, in thousands) | Allowance for Expected Credit Losses (U.S. Dollars, in thousands) | 2020 | | :---------------------------------------------------------------- | :--- | | Balance at December 31, 2019 | $3,987 | | Impact of adoption of ASU 2016-13 | $1,120 | | Current period provision for expected credit losses | $679 | | Writeoffs charged against the allowance and other | $(114) | | Effect of changes in foreign exchange rates | $(81) | | Balance at March 31, 2020 | $5,591 | [Note 12. Business segment information](index=16&type=section&id=12.%20Business%20segment%20information) Segment EBITDA (U.S. Dollars, in thousands) | Segment EBITDA (U.S. Dollars, in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Global Spine | $22,417 | $10,575 | | Global Extremities | $(1,894) | $(173) | | Corporate | $(8,140) | $(9,527) | | Total EBITDA | $12,383 | $875 | Net Sales by Geography (U.S. Dollars, in thousands) | Net Sales by Geography (U.S. Dollars, in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :-------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Global Spine U.S. | $77,106 | $79,526 | | Global Spine International | $5,212 | $6,392 | | Global Extremities U.S. | $6,043 | $6,598 | | Global Extremities International | $16,462 | $16,596 | | Consolidated U.S. | $83,149 | $86,124 | | Consolidated International | $21,674 | $22,988 | | Total Net sales | $104,823 | $109,112 | [Note 13. Acquisition-related amortization and remeasurement](index=17&type=section&id=13.%20Acquisition-related%20amortization%20and%20remeasurement) Component (U.S. Dollars, in thousands) | Component (U.S. Dollars, in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :------------------------------------- | :-------------------------------- | :-------------------------------- | | Changes in fair value of contingent consideration | $(9,000) | $5,400 | | Amortization of acquired intangibles | $1,418 | $1,057 | | Total | $(7,582) | $6,457 | [Note 14. Share-based compensation](index=17&type=section&id=14.%20Share-based%20compensation) Expense Category (U.S. Dollars, in thousands) | Expense Category (U.S. Dollars, in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :-------------------------------------------- | :-------------------------------- | :-------------------------------- | | Cost of sales | $181 | $187 | | Sales and marketing | $696 | $610 | | General and administrative | $2,530 | $4,564 | | Research and development | $452 | $324 | | Total Share-based compensation | $3,859 | $5,685 | Share-based Compensation Type (U.S. Dollars, in thousands) | Share-based Compensation Type (U.S. Dollars, in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--------------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Stock options | $304 | $2,112 | | Time-based restricted stock awards and units | $2,421 | $1,706 | | Market-based restricted stock units | $670 | $1,347 | | Stock purchase plan | $464 | $520 | | Total | $3,859 | $5,685 | [Note 15. Income taxes](index=18&type=section&id=15.%20Income%20taxes) Income Tax Metric | Income Tax Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :---------------- | :-------------------------------- | :-------------------------------- | | Effective tax rate| (355.6%) | 117.6% | - The effective tax rate for Q1 2020 was significantly impacted by a **$17.8 million net benefit** from statute expirations related to unrecognized tax benefits and anticipated benefits from the CARES Act[76](index=76&type=chunk)[77](index=77&type=chunk)[78](index=78&type=chunk) [Note 16. Earnings per share ("EPS")](index=18&type=section&id=16.%20Earnings%20per%20share%20(%22EPS%22)) Weighted Average Common Shares | Weighted Average Common Shares | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :----------------------------- | :-------------------------------- | :-------------------------------- | | Basic | 19,143,934 | 18,750,184 | | Diluted | 19,299,820 | 19,191,146 | [Note 17. Subsequent Events](index=19&type=section&id=17.%20Subsequent%20Events) - In April 2020, the Company received **$13.9 million** from the CMS Accelerated and Advance Payment Program and **$4.7 million** from the CARES Act Provider Relief Fund, both subject to repayment or eligibility criteria[81](index=81&type=chunk)[82](index=82&type=chunk) - As precautionary measures due to COVID-19, the Company borrowed **$100.0 million** from its credit facility, initiated temporary salary reductions for U.S. employees and the Board, and suspended its 401(k) match program until September 30, 2020[84](index=84&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Orthofix's Q1 2020 financial performance and condition, focusing on COVID-19's impact on operations, sales, liquidity, revenue, expenses, and cash flows [Executive Summary](index=20&type=section&id=Executive%20Summary) - Orthofix is a global medical device company focused on musculoskeletal products and therapies, distributing in over 70 countries[87](index=87&type=chunk) - Q1 2020 highlights include net sales of **$104.8 million** (-3.9%), net income of **$25.7 million** (+$24.8 million YoY), and an **$11.5 million increase in EBITDA**, largely due to reduced acquisition-related remeasurement expenses[90](index=90&type=chunk) - The Company completed the acquisition of assets for the FITBONE intramedullary lengthening system on March 26, 2020[90](index=90&type=chunk) [COVID-19 Update and Outlook](index=20&type=section&id=COVID-19%20Update%20and%20Outlook) - The COVID-19 pandemic has created significant uncertainty, impacting elective surgical procedures, capital markets, and potentially leading to economic recession, which could materially affect the Company's business, operations, and liquidity[89](index=89&type=chunk) - Future results and liquidity are expected to be materially impacted by decreased elective surgeries, potential payment delays from customers, supply chain disruptions, and extended 'shelter in place' orders[89](index=89&type=chunk) [Results of Operations](index=20&type=section&id=Results%20of%20Operations) Metric (as % of net sales) | Metric (as % of net sales) | Three Months Ended March 31, 2020 (%) | Three Months Ended March 31, 2019 (%) | | :------------------------- | :------------------------------------ | :------------------------------------ | | Net sales | 100.0 | 100.0 | | Cost of sales | 22.3 | 21.7 | | Gross profit | 77.7 | 78.3 | | Sales and marketing | 51.8 | 49.2 | | General and administrative | 17.0 | 18.8 | | Research and development | 9.5 | 8.5 | | Acquisition-related amortization and remeasurement | (7.2) | 5.9 | | Operating income (loss) | 6.6 | (4.1) | | Net income | 24.5 | 0.8 | Metric (U.S. Dollars, in thousands) | Metric (U.S. Dollars, in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | % Change | | :---------------------------------- | :-------------------------------- | :-------------------------------- | :------- | | Gross profit | $81,414 | $85,404 | (4.7%) | | Sales and marketing | $54,313 | $53,694 | 1.2% | | General and administrative | $17,865 | $20,472 | (12.7%) | | Research and development | $9,964 | $9,229 | 8.0% | | Acquisition-related amortization and remeasurement | $(7,582) | $6,457 | (217.4%) | | Interest expense, net | $(423) | $(257) | 64.6% | | Other expense, net | $(798) | $(404) | 97.5% | | Income tax expense (benefit) | $(20,032) | $(6,006) | 233.5% | - Gross profit decreased by **$4.0 million** due to lower net sales and increased inventory reserve expense, both impacted by COVID-19[96](index=96&type=chunk) - General and administrative expense decreased by **$2.6 million**, primarily due to lower succession and transition charges for executive officers and reduced strategic investment expenses[99](index=99&type=chunk) - Acquisition-related amortization and remeasurement decreased by **$14.0 million**, mainly due to a **$13.0 million reduction** in the fair value of contingent consideration for the Spinal Kinetics acquisition, driven by COVID-19's impact on future revenue forecasts[101](index=101&type=chunk)[103](index=103&type=chunk) [Net Sales by Product Category and Reporting Segment](index=21&type=section&id=Net%20Sales%20by%20Product%20Category%20and%20Reporting%20Segment) Product Category (U.S. Dollars, in thousands) | Product Category (U.S. Dollars, in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Reported Change | Constant Currency Change | | :-------------------------------------------- | :-------------------------------- | :-------------------------------- | :-------------- | :----------------------- | | Bone Growth Therapies | $45,443 | $47,283 | (3.9%) | (3.9%) | | Spinal Implants | $22,926 | $22,903 | 0.1% | 0.5% | | Biologics | $13,949 | $15,732 | (11.3%) | (11.3%) | | Global Spine Total | $82,318 | $85,918 | (4.2%) | (4.1%) | | Global Extremities | $22,505 | $23,194 | (3.0%) | (0.6%) | | Net sales Total | $104,823 | $109,112 | (3.9%) | (3.4%) | - Global Spine net sales decreased by **4.2%**, primarily due to a **3.9% decrease** in Bone Growth Therapies (COVID-19 impact on order volume) and an **11.3% decrease** in Biologics (loss of key distributor and COVID-19 impact) while Spinal Implants remained flat with Motion Preservation growth offset by declines in legacy Spine Fixation due to COVID-19[92](index=92&type=chunk)[93](index=93&type=chunk) - Global Extremities net sales decreased by **3.0%**, with a **$0.5 million negative impact** from foreign currency exchange rates and a **$0.6 million decrease** in U.S. sales due to COVID-19, partially offset by a **$0.4 million increase** in international sales (excluding currency effects)[93](index=93&type=chunk)[94](index=94&type=chunk) [Segment Review (EBITDA)](index=24&type=section&id=Segment%20Review) Segment EBITDA (U.S. Dollars, in thousands) | Segment EBITDA (U.S. Dollars, in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Global Spine | $22,417 | $10,575 | | Global Extremities | $(1,894) | $(173) | | Corporate | $(8,140) | $(9,527) | | Total EBITDA | $12,383 | $875 | [Liquidity and Capital Resources](index=24&type=section&id=Liquidity%20and%20Capital%20Resources) Cash Flow Activity (U.S. Dollars, in thousands) | Cash Flow Activity (U.S. Dollars, in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Change | | :---------------------------------------------- | :-------------------------------- | :-------------------------------- | :----- | | Net cash from operating activities | $12,464 | $(1,039) | $13,503| | Net cash from investing activities | $(24,184) | $(11,316) | $(12,868)| | Net cash from financing activities | $315 | $(10,396) | $10,711| | Net change in cash, cash equivalents and restricted cash | $(12,135) | $(22,981) | $10,846| Free Cash Flow (U.S. Dollars, in thousands) | Free Cash Flow (U.S. Dollars, in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Change | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | :----- | | Net cash from operating activities | $12,464 | $(1,039) | $13,503| | Capital expenditures | $(4,944) | $(4,916) | $(28) | | Free cash flow | $7,520 | $(5,955) | $13,475| - Cash, cash equivalents, and restricted cash decreased to **$58.3 million** at March 31, 2020, from **$70.4 million** at December 31, 2019, primarily due to the **$18.0 million cash payment** for the FITBONE acquisition[106](index=106&type=chunk) - Operating cash flows increased by **$13.5 million**, driven by a **$24.8 million increase** in net income and a **$3.5 million increase** from working capital changes, partially offset by a **$14.7 million net decrease** from non-cash gains/losses (contingent consideration fair value changes)[108](index=108&type=chunk) - Investing cash flows decreased by **$12.9 million**, mainly due to the **$18.0 million cash payment** for the FITBONE acquisition, partially offset by a **$5.2 million change** in cash paid for former distributor asset acquisitions[109](index=109&type=chunk)[116](index=116&type=chunk) - Financing cash flows increased by **$10.7 million**, primarily due to a **$13.7 million increase** from the payment of the Spinal Kinetics FDA Milestone in Q1 2019, offset by a **$3.2 million decrease** in net proceeds from common share issuance[109](index=109&type=chunk)[116](index=116&type=chunk) - The Company borrowed **$100.0 million** under its secured revolving credit facility in April 2020 as a precautionary measure to enhance liquidity amidst COVID-19 uncertainty[110](index=110&type=chunk)[116](index=116&type=chunk) [Critical Accounting Estimates](index=26&type=section&id=Critical%20Accounting%20Estimates) - The primary change to critical accounting estimates is the adoption of ASU 2016-13, which now requires the allowance for expected credit losses to represent the portion of receivables not expected to be collected over their contractual life, considering past events, current conditions, and future economic forecasts[125](index=125&type=chunk) [Non-GAAP Financial Measures](index=27&type=section&id=Non-GAAP%20Financial%20Measures) - The Company uses non-GAAP measures like Constant Currency (net sales without foreign currency impact), EBITDA (earnings before interest, taxes, depreciation, and amortization), and Free Cash Flow (net cash from operating activities minus capital expenditures) to provide transparency and facilitate comparisons of underlying operating performance[128](index=128&type=chunk)[130](index=130&type=chunk)[131](index=131&type=chunk)[132](index=132&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 the Company's market risks were reported compared to the 2019 Form 10-K disclosure - No material changes to market risks were reported compared to the 2019 Form 10-K[133](index=133&type=chunk) [Item 4. Controls and Procedures](index=28&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including CEO and CFO, deemed disclosure controls effective as of March 31, 2020, with no material changes to internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2020[134](index=134&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter[135](index=135&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 9 of the unaudited condensed consolidated financial statements - Legal proceedings information is referenced from Note 9 of the financial statements[137](index=137&type=chunk) [Item 1A. Risk Factors](index=29&type=section&id=Item%201A.%20Risk%20Factors) Updated risk factors from the 2019 Form 10-K highlight COVID-19's significant negative impact on business, operations, and financial condition, and potential increased competition from FDA down-classification of bone growth stimulators [COVID-19 Impact on Business and Operations](index=29&type=section&id=COVID-19%20Impact%20on%20Business%20and%20Operations) - The COVID-19 pandemic has caused significant disruptions, including postponement of non-essential surgeries, telework mandates, and global economic uncertainty, leading to decreased revenues and lower EPS in Q1 2020, with expected continued negative impacts[140](index=140&type=chunk)[142](index=142&type=chunk) - The severity, magnitude, and duration of COVID-19's impact are uncertain, potentially affecting supplier/distributor relationships, manufacturing, product shipments, customer spending, and employee access to facilities[142](index=142&type=chunk)[143](index=143&type=chunk) - The pandemic could heighten other risks, such as the need to generate sufficient cash flows for indebtedness and the ability to protect IT networks in a remote working environment[144](index=144&type=chunk) [Inability to Access Funding or the Terms on which such Funding is Available](index=30&type=section&id=Inability%20to%20Access%20Funding%20or%20the%20Terms%20on%20which%20such%20Funding%20is%20Available) - Due to COVID-19 uncertainty, the Company borrowed **$100 million** under its **$300 million secured revolving credit facility** in April 2020 to preserve cash for operations and strategic initiatives[146](index=146&type=chunk) - The credit agreement contains financial covenants (total net leverage ratio, interest coverage ratio) that the Company must maintain, and failure to do so could result in an event of default and acceleration of loans[148](index=148&type=chunk)[149](index=149&type=chunk) - Market dislocations from COVID-19 could lead lenders to become unwilling or unable to provide financing, potentially increasing financing costs or limiting access to funds, materially affecting financial condition[150](index=150&type=chunk) [Potential Down Classification of Bone Growth Stimulator Devices](index=30&type=section&id=Potential%20Down%20Classification%20of%20Bone%20Growth%20Stimulator%20Devices) - The FDA is considering reclassifying Class III bone growth stimulator products to Class II, which could increase future competition and negatively affect sales of Orthofix's market-leading products in this category[151](index=151&type=chunk)[152](index=152&type=chunk)[154](index=154&type=chunk) - The FDA had previously maintained Class III status in 2006 for safety and efficacy reasons, and the Company intends to oppose the down classification at the rescheduled Advisory Committee panel meeting[153](index=153&type=chunk)[154](index=154&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=31&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Company did not repurchase any of its common stock during the first quarter of 2020 - No repurchases of common stock were made during Q1 2020[155](index=155&type=chunk) [Item 3. Defaults Upon Senior Securities](index=31&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to the current report - Not applicable[156](index=156&type=chunk) [Item 4. Mine Safety Disclosures](index=31&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the current report - Not applicable[157](index=157&type=chunk) [Item 5. Other Information](index=31&type=section&id=Item%205.%20Other%20Information) There are no other matters to be reported under this heading - No other information to report[158](index=158&type=chunk) [Item 6. Exhibits](index=32&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications, and Inline XBRL documents Exhibit List | Exhibit Number | Description | | :------------- | :---------- | | 31.1* | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer | | 31.2* | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer | | 32.1* | Section 1350 Certifications of each of the Chief Executive Officer and Chief Financial Officer | | 101.INS* | Inline XBRL Instance Document | | 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | | 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | | 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | | 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | 104* | Cover Page Interactive Data File | SIGNATURES [Signatures](index=33&type=section&id=SIGNATURES) The report was duly signed on behalf of Orthofix Medical Inc. by its President and CEO, Jon Serbousek, and CFO, Doug Rice, on May 8, 2020 - The report was signed by Jon Serbousek, President and CEO, and Doug Rice, CFO, on May 8, 2020[165](index=165&type=chunk)

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, 2019 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) Delaware 98-1340767 (State or other jurisdiction of incorporat ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION 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. Washington, DC 20549 (Exact name of registrant as specified in its charter) FORM 10-Q (Mark one) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2019 (Registrant's telephone number, including ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION For the transition period from to . Commission File Number: 0-19961 ORTHOFIX MEDICAL INC. (Exact name of registrant as specified in its charter) Washington, DC 20549 FORM 10-Q (Mark one) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Delaware 98-1340767 (State or other jurisdictio ...

PART I FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for the quarter ended March 31, 2019, showing relatively flat net sales but a significant decrease in net income due to increased operating expenses and acquisition-related costs [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet highlights show cash and cash equivalents decreased to $46.7 million, while total assets increased to $479.3 million, and total shareholders' equity rose to $343.7 million as of March 31, 2019 | Balance Sheet Highlights (in thousands) | March 31, 2019 (Unaudited) | December 31, 2018 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $46,668 | $69,623 | | Total current assets | $224,338 | $244,639 | | Total assets | $479,316 | $466,641 | | **Liabilities & Equity** | | | | Total current liabilities | $63,654 | $85,908 | | Total liabilities | $135,634 | $131,244 | | Total shareholders' equity | $343,682 | $335,397 | [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)) Net sales remained flat at $109.1 million, but net income significantly decreased to $0.9 million from $5.2 million, primarily due to a substantial increase in acquisition-related amortization and remeasurement expenses | Income Statement (in thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net sales | $109,112 | $108,709 | | Gross profit | $85,404 | $84,562 | | Operating income (loss) | $(4,448) | $7,870 | | Net income | $897 | $5,226 | | Diluted EPS | $0.05 | $0.27 | - The company experienced a significant drop in operating income, moving from a **$7.9 million profit** in Q1 2018 to a **$4.4 million loss** in Q1 2019, primarily driven by a large increase in 'Acquisition-related amortization and remeasurement' expenses, which rose from $63 thousand to **$6.5 million**[16](index=16&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities improved slightly, but significant cash outflows from investing and financing activities led to a $23.0 million net decrease in cash, primarily due to acquisition-related payments | Cash Flow Summary (in thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net cash from operating activities | $(1,039) | $(3,560) | | Net cash from investing activities | $(11,316) | $(4,655) | | Net cash from financing activities | $(10,396) | $3,697 | | Net change in cash | $(22,981) | $(4,101) | - The significant use of cash in financing activities in Q1 2019 was primarily due to a **$13.7 million payment** for contingent consideration related to an acquisition[18](index=18&type=chunk) [Notes to the Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20the%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section details changes in reporting segments, adoption of new lease accounting standards, the Options Medical acquisition, and significant milestone payments and remeasurement expenses related to the Spinal Kinetics acquisition - Effective Q1 2019, the company changed its reportable business segments to Global Spine and Global Extremities to align with changes in how the business is managed and performance is reviewed[23](index=23&type=chunk)[69](index=69&type=chunk) - The company adopted the new lease accounting standard ASU 2016-02 on January 1, 2019, resulting in the recognition of **$20.2 million in lease assets** and **$20.5 million in lease liabilities**[24](index=24&type=chunk)[39](index=39&type=chunk) - On January 31, 2019, the company acquired certain assets of medical device distributor Options Medical, LLC for **$6.4 million**[36](index=36&type=chunk) - Following FDA approval for the M6-C artificial cervical disc on February 6, 2019, the company paid a **$15.0 million milestone obligation** related to the Spinal Kinetics acquisition, and the fair value of remaining contingent consideration was remeasured, resulting in a **$5.4 million expense**[55](index=55&type=chunk)[57](index=57&type=chunk) - In Brazil, approximately **$2.5 million of the company's cash** was frozen as part of an investigation but was subsequently ordered to be unfrozen in April 2019[62](index=62&type=chunk)[82](index=82&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2019 results, noting a slight increase in net sales, segment performance variations, and a significant drop in net income due to increased operating expenses and acquisition-related costs [Results of Operations](index=22&type=section&id=Results%20of%20Operations) Net sales increased slightly to $109.1 million, driven by Global Spine growth, while Global Extremities declined, and operating expenses surged, leading to an operating loss | Net Sales by Segment (in thousands) | Q1 2019 | Q1 2018 | % Change (Reported) | | :--- | :--- | :--- | :--- | | Global Spine | $85,918 | $81,205 | 5.8% | | Global Extremities | $23,194 | $27,504 | -15.7% | | **Total Net Sales** | **$109,112** | **$108,709** | **0.4%** | - The increase in General and Administrative expense was primarily driven by **$2.7 million in transition and succession charges** related to the announced retirement of the President and CEO[94](index=94&type=chunk) - Acquisition-related expenses surged by **$6.4 million**, mainly due to a **$5.4 million charge** for the remeasurement of contingent consideration for the Spinal Kinetics acquisition[74](index=74&type=chunk)[97](index=97&type=chunk) - The company's primary performance metric for segments has changed to EBITDA, with total EBITDA decreasing from **$15.2 million** in Q1 2018 to **$0.9 million** in Q1 2019[72](index=72&type=chunk)[100](index=100&type=chunk) [Liquidity and Capital Resources](index=26&type=section&id=Liquidity%20and%20Capital%20Resources) Cash and equivalents decreased by $23.0 million due to acquisition-related payments, while net cash used in operating activities improved, and free cash flow remained negative - The decrease in cash was largely a result of **$15.0 million paid** for the Spinal Kinetics FDA Milestone and **$6.4 million** for the acquisition of assets from Options Medical[101](index=101&type=chunk) | Free Cash Flow (Non-GAAP, in thousands) | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net cash from operating activities | $(1,039) | $(3,560) | | Capital expenditures | $(4,916) | $(3,438) | | **Free cash flow** | **$(5,955)** | **$(6,998)** | - The company had no borrowings under its **$125 million secured revolving credit facility** as of March 31, 2019[46](index=46&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes to the company's market risks were reported since the prior year-end disclosure - There have been no material changes to the company's market risks since the year-end 2018 disclosure[125](index=125&type=chunk) [Controls and Procedures](index=29&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of March 31, 2019[127](index=127&type=chunk) - No material changes to internal control over financial reporting occurred during the first quarter of 2019[128](index=128&type=chunk) PART II OTHER INFORMATION [Legal Proceedings](index=31&type=section&id=Item%201.%20Legal%20Proceedings) This section details contingencies including a $3.9 million accrual for the Italian Medical Device Payback and the unfreezing of $2.5 million in cash in Brazil - The company has accrued **$3.9 million** related to the Italian Medical Device Payback (IMDP) law, though the final liability could differ[61](index=61&type=chunk) - In Brazil, approximately **$2.5 million of the company's cash** was frozen in July 2018 as part of an industry-wide investigation, with a court ordering its unfreezing and return in April 2019[62](index=62&type=chunk)[82](index=82&type=chunk) [Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the company's risk factors were reported for the quarter compared to the prior annual report - No material changes to risk factors were reported for the quarter[131](index=131&type=chunk) [Other Items (Items 2, 3, 4, 5, 6)](index=31&type=section&id=Other%20Items) The company reported no unregistered sales of equity securities, stock repurchases, or defaults on senior securities during the first quarter - The company did not repurchase any of its common stock during the first quarter of 2019[132](index=132&type=chunk)

Part I [Business](index=4&type=section&id=Item%201.%20Business) Orthofix is a global medical device company specializing in musculoskeletal products and therapies across four reporting segments - Orthofix is a global medical device company focused on musculoskeletal products and therapies, with products distributed in over seventy countries[15](index=15&type=chunk) - In July 2018, the company changed its jurisdiction of organization from Curaçao to Delaware and changed its name to Orthofix Medical Inc[17](index=17&type=chunk) 2018 Net Sales by Business Segment | Business Segment | 2018 Net Sales % | | :--- | :--- | | Bone Growth Therapies | 43% | | Spinal Implants | 20% | | Biologics | 13% | | Orthofix Extremities | 24% | [Business Segments](index=4&type=section&id=Business%20Segments) The company's operations are divided into Bone Growth Therapies, Spinal Implants, Biologics, and Orthofix Extremities segments - The Bone Growth Therapies segment's strategy is to expand patient access to its noninvasive devices, leveraging its **STIM onTrack mobile app** to monitor patient adherence[24](index=24&type=chunk)[25](index=25&type=chunk) - The Spinal Implants segment was strengthened by the April 2018 acquisition of Spinal Kinetics, which added the **M6-C and M6-L artificial discs** to its portfolio; the M6-C disc received FDA approval in February 2019[40](index=40&type=chunk) - The Biologics segment exclusively markets **Trinity Evolution and Trinity ELITE** tissue forms through a partnership with MTF Biologics, which processes and supplies the tissues[42](index=42&type=chunk)[49](index=49&type=chunk) - The Orthofix Extremities segment focuses on pediatrics and deformity correction worldwide, leveraging its **TL-HEX system** and JuniOrtho pediatric brand[53](index=53&type=chunk)[64](index=64&type=chunk) [Product Development, IP, and Compliance](index=14&type=section&id=Product%20Development%2C%20IP%2C%20and%20Compliance) The company invested $33.2 million in R&D in 2018 and protects its technology through patents, trade secrets, and licenses Research and Development Expense (2016-2018) | Year | R&D Expense (in millions) | | :--- | :--- | | 2018 | $33.2 | | 2017 | $29.7 | | 2016 | $28.8 | - The company relies on a combination of patents, trade secrets, assignment and license agreements, and non-disclosure agreements to protect its proprietary intellectual property[70](index=70&type=chunk) [Government Regulation and Sales](index=15&type=section&id=Government%20Regulation%20and%20Sales) The company's products and sales practices are subject to extensive regulation by the FDA and other global authorities - Bone Growth Therapies products and the M6-C artificial cervical disc are classified as **class III** by the FDA, requiring the most stringent Premarket Approval (PMA) process[75](index=75&type=chunk) - The Biologics segment's allograft products (Trinity Evolution, Trinity ELITE) are regulated under the FDA's **Human Cell, Tissues and Cellular and Tissue-Based Products (HCT/P) framework**, not as medical devices[78](index=78&type=chunk) - Sales and marketing practices are subject to U.S. laws including the federal **Anti-Kickback Statute**, the Stark Law, the Civil False Claims Act, and HIPAA[85](index=85&type=chunk) [Competition, Manufacturing, and Employees](index=19&type=section&id=Competition%2C%20Manufacturing%2C%20and%20Employees) Orthofix competes with major medical device firms, relies on subcontracting, and employed 954 people worldwide as of year-end 2018 - Key competitors include **Zimmer Biomet, DJO Global, Medtronic, DePuy Synthes** (a division of Johnson & Johnson), and **Stryker Corp**[99](index=99&type=chunk) - The company subcontracts a substantial portion of component part manufacturing and relies on **MTF as the sole supplier** for its Trinity Evolution and Trinity ELITE HCT/Ps[101](index=101&type=chunk)[102](index=102&type=chunk) - As of December 31, 2018, the company had **954 employees worldwide**, with 686 in the U.S. and 268 in other locations[104](index=104&type=chunk) [Risk Factors](index=19&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from its legal environment, industry competition, third-party reliance, and financial exposures - The company has previously settled violations of the **Foreign Corrupt Practices Act (FCPA)** related to its Brazilian and Mexican subsidiaries and retained an independent compliance consultant which concluded its review in March 2018[109](index=109&type=chunk) - The business is subject to extensive government regulation by the FDA and other authorities, and a potential **FDA down-classification of Class III bone growth stimulators could increase competition**[119](index=119&type=chunk) - The company is dependent on third-party manufacturers, including a **sole-supplier relationship with MTF** for its Trinity Evolution and Trinity ELITE allografts[139](index=139&type=chunk) - A **$15 million loan to eNeura, Inc** matures on March 4, 2019, and the company does not expect to collect the full principal and interest on the maturity date[157](index=157&type=chunk)[159](index=159&type=chunk) [Properties](index=30&type=section&id=Item%202.%20Properties) Orthofix's principal facilities include a leased corporate headquarters in Texas and an owned manufacturing facility in Italy Principal Facilities | Location | Approx. Square Feet | Ownership | | :--- | :--- | :--- | | Lewisville, TX | 140,000 | Leased | | Sunnyvale, CA | 25,000 | Leased | | Verona, Italy | 38,000 | Owned | | Verona, Italy | 18,000 | Leased | | Verona, Italy | 9,000 | Leased | [Legal Proceedings](index=31&type=section&id=Item%203.%20Legal%20Proceedings) Material pending legal proceedings are detailed in Note 13 of the Notes to the Consolidated Financial Statements - A description of material pending legal proceedings is provided in **Note 13** of the Notes to the Consolidated Financial Statements[169](index=169&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=32&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on Nasdaq under the symbol "OFIX," and the company does not intend to pay dividends - The company's common stock is traded on the Nasdaq Global Select Market under the symbol **"OFIX"**[173](index=173&type=chunk) - The company has **not paid dividends in the past** and has no present intention to pay dividends in the foreseeable future[175](index=175&type=chunk) 2018 Quarterly Stock Price Range | Quarter | High | Low | | :--- | :--- | :--- | | First | $61.00 | $51.01 | | Second | $61.86 | $51.38 | | Third | $61.98 | $50.41 | | Fourth | $63.57 | $48.00 | [Selected Financial Data](index=33&type=section&id=Item%206.%20Selected%20Financial%20Data) This section presents a five-year summary of key financial data, showing net sales of $453.0 million for 2018 Selected Financial Data (2016-2018) | (U.S. Dollars, in thousands) | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | **Net sales** | $453,042 | $433,823 | $409,788 | | **Gross profit** | $356,414 | $340,786 | $321,935 | | **Operating income** | $30,094 | $40,811 | $21,067 | | **Net income (loss)** | $13,811 | $6,223 | $3,056 | | **Diluted EPS** | $0.72 | $0.34 | $0.17 | | **Total assets (at year-end)** | $466,641 | $405,354 | $372,103 | | **Shareholders' equity (at year-end)** | $335,397 | $296,608 | $263,477 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=35&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Net sales grew 4.4% in 2018, though operating income decreased due to acquisition costs and higher G&A expenses [Results of Operations](index=35&type=section&id=Results%20of%20Operations) Net sales growth in 2018 was driven by the Bone Growth Therapies and Spinal Implants segments, while the effective tax rate decreased significantly Net Sales by Reporting Segment (2017 vs. 2018) | (U.S. Dollars, in thousands) | 2018 | 2017 | % Change (Reported) | | :--- | :--- | :--- | :--- | | Bone Growth Therapies | $195,252 | $185,900 | 5.0% | | Spinal Implants | $91,658 | $81,957 | 11.8% | | Biologics | $59,684 | $62,724 | -4.8% | | Orthofix Extremities | $106,448 | $103,242 | 3.1% | | **Total Net Sales** | **$453,042** | **$433,823** | **4.4%** | - General and administrative expenses **increased by $12.6 million (17.5%)** in 2018, primarily due to $6.3 million in costs associated with the Spinal Kinetics acquisition and domestication, and a $5.5 million increase in share-based compensation[199](index=199&type=chunk)[200](index=200&type=chunk) - The effective tax rate **decreased from 80.0% in 2017 to 39.7% in 2018**, as the 2017 rate was significantly impacted by a one-time charge of $8.3 million related to the U.S. Tax Cuts and Jobs Act[212](index=212&type=chunk)[213](index=213&type=chunk) [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) Cash from operations increased, but overall cash decreased due to the Spinal Kinetics acquisition, while a $125 million credit facility remains undrawn Summary of Cash Flows (2018 vs. 2017) | (U.S. Dollars, in thousands) | 2018 | 2017 | | :--- | :--- | :--- | | Net cash from operating activities | $49,918 | $38,972 | | Net cash from investing activities | $(60,998) | $(16,474) | | Net cash from financing activities | $2,993 | $3,538 | | **Net change in cash** | **$(8,968)** | **$27,216** | - The acquisition of Spinal Kinetics involved a closing payment of **$45.0 million in cash**, with potential future milestone payments up to $60.0 million; the FDA approval of the M6-C disc in February 2019 triggered a **$15.0 million payment**[229](index=229&type=chunk)[230](index=230&type=chunk) - The company has a **$125 million secured revolving credit facility** that was undrawn as of December 31, 2018[226](index=226&type=chunk) [Critical Accounting Estimates](index=44&type=section&id=Critical%20Accounting%20Estimates) Management identifies critical accounting estimates in revenue recognition, intangible asset valuation, and fair value measurements - For stocking distributors, revenue is recognized upon shipment, and the transaction price is estimated based on historical collection experience, a change resulting from the adoption of **Topic 606** in 2018[245](index=245&type=chunk) - The valuation of intangible assets and goodwill from the Spinal Kinetics acquisition required significant judgment, including forecasting future operating results and estimating probabilities of success for **IPR&D projects**[249](index=249&type=chunk)[250](index=250&type=chunk)[251](index=251&type=chunk) - Fair value measurements for the eNeura debt security and the Spinal Kinetics contingent consideration are classified as **Level 3**, as they are based on significant unobservable inputs and internal assumptions[254](index=254&type=chunk)[255](index=255&type=chunk)[258](index=258&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=50&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are interest rate changes and foreign currency fluctuations, particularly against the Euro, Real, and Pound - The company's primary market risk exposures are changes in interest rates and foreign currency fluctuations, particularly the **U.S. Dollar against the Euro, Brazilian Real, or British Pound**[281](index=281&type=chunk)[284](index=284&type=chunk) - For the year ended December 31, 2018, the company recorded a **foreign currency loss of $3.3 million**[284](index=284&type=chunk) - A sensitivity analysis indicates that a 10% change in the value of the U.S. Dollar relative to foreign currencies would result in an **$8.6 million change in net sales** and a **$0.4 million change in operating income**[285](index=285&type=chunk) [Financial Statements and Supplementary Data](index=50&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section contains the company's audited consolidated financial statements and related notes for the fiscal year ended December 31, 2018 [Consolidated Balance Sheets](index=63&type=section&id=Consolidated%20Balance%20Sheets) Total assets grew to $466.6 million in 2018, driven by goodwill and intangible assets from the Spinal Kinetics acquisition Consolidated Balance Sheet Highlights (as of Dec 31) | (U.S. Dollars, in thousands) | 2018 | 2017 | | :--- | :--- | :--- | | Total Current Assets | $244,639 | $251,801 | | Goodwill | $72,401 | $53,565 | | Total Assets | $466,641 | $405,354 | | Total Current Liabilities | $85,908 | $79,406 | | Total Liabilities | $131,244 | $108,746 | | Total Shareholders' Equity | $335,397 | $296,608 | [Consolidated Statements of Income and Comprehensive Income](index=64&type=section&id=Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income) The company reported net income of $13.8 million and diluted EPS of $0.72 for the year ended December 31, 2018 Consolidated Income Statement Highlights (Year Ended Dec 31) | (U.S. Dollars, in thousands) | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Net Sales | $453,042 | $433,823 | $409,788 | | Gross Profit | $356,414 | $340,786 | $321,935 | | Operating Income | $30,094 | $40,811 | $21,067 | | Net Income from Continuing Operations | $13,811 | $7,291 | $3,497 | | Net Income | $13,811 | $6,223 | $3,056 | | Diluted EPS | $0.72 | $0.34 | $0.17 | [Consolidated Statements of Cash Flows](index=66&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations was $49.9 million, while investing activities used $61.0 million, primarily for an acquisition Consolidated Cash Flow Highlights (Year Ended Dec 31, 2018) | (U.S. Dollars, in thousands) | 2018 | | :--- | :--- | | Net cash from operating activities | $49,918 | | Net cash from investing activities | $(60,998) | | Net cash from financing activities | $2,993 | | Effect of exchange rate changes | $(881) | | **Net change in cash** | **$(8,968)** | | **Cash at end of year** | **$72,189** | [Controls and Procedures](index=50&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal controls over financial reporting were effective as of December 31, 2018 - Management concluded that as of December 31, 2018, the company's disclosure controls and procedures were **effective**[288](index=288&type=chunk) - Management concluded that the company's internal control over financial reporting was **effective** as of December 31, 2018; the assessment excluded Spinal Kinetics, which was acquired during the year[291](index=291&type=chunk) - The independent registered public accounting firm, Ernst & Young LLP, issued an **unqualified audit report** on the effectiveness of the company's internal control over financial reporting as of December 31, 2018[292](index=292&type=chunk)[296](index=296&type=chunk) Part III Information required by Part III is omitted from this Form 10-K and will be filed in the company's definitive proxy statement [Directors, Executive Compensation, and Corporate Governance](index=54&type=section&id=Items%2010-14) Information for Items 10 through 14 is incorporated by reference from the company's definitive proxy statement to be filed later - Information required by Items 10, 11, 12, 13 and 14 of Form 10-K is **omitted from this Annual Report** and will be filed in a definitive proxy statement or by an amendment to this Annual Report not later than 120 days after the end of the fiscal year[307](index=307&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=55&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists the financial statements and exhibits filed as part of the Form 10-K report - This section contains the index to consolidated financial statements and a list of all exhibits filed with the Form 10-K[314](index=314&type=chunk)