Orthofix Medical Inc. (NASDAQ:OFIX) Q1 2023 Results Conference Call May 9, 2023 4:30 PM ET Company Participants Alexa Huerta - Senior Director, Investor Relations Keith Valentine - President and Chief Executive Officer John Bostjancic - Chief Financial Officer Conference Call Participants Mathew Blackman - Stifel Operator Thank you for standing by. My name is Brendan, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Orthofix Medical Inc. Quarter One Earnings ...

```markdown PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents Orthofix Medical Inc.'s unaudited condensed consolidated financial statements, detailing the SeaSpine merger's financial impacts [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20as%20of%20March%2031%2C%202023%2C%20and%20December%2031%2C%202022) Presents the Company's financial position, highlighting significant changes due to the SeaSpine merger Condensed Consolidated Balance Sheets (March 31, 2023 vs. December 31, 2022) | Category | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | Change (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | | **Assets** | | | | | Total current assets | $410,041 | $255,990 | +$154,051 | | Property, plant, and equipment, net | $136,818 | $58,229 | +$78,589 | | Intangible assets, net | $122,129 | $47,388 | +$74,741 | | Goodwill | $202,711 | $71,317 | +$131,394 | | Total assets | $917,136 | $458,629 | +$458,507 | | **Liabilities** | | | | | Total current liabilities | $137,568 | $83,624 | +$53,944 | | Long-term borrowings under credit facility | $45,000 | $- | +$45,000 | | Total liabilities | $252,977 | $121,769 | +$131,208 | | **Shareholders' Equity** | | | | | Total shareholders' equity | $664,159 | $336,860 | +$327,299 | - The significant increases in total assets, liabilities, and shareholders' equity are primarily attributable to the merger with SeaSpine Holdings Corporation, completed on January 5, 2023[15](index=15&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk) [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)%20for%20the%20three%20months%20ended%20March%2031%2C%202023%20and%202022) Details the Company's financial performance, showing the impact of the SeaSpine merger on sales and losses Condensed Consolidated Statements of Operations (Three Months Ended March 31) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (YoY) | | :------------------------------------- | :------------------ | :------------------ | :----------- | | Net sales | $175,204 | $106,418 | +64.6% | | Cost of sales | $64,875 | $28,318 | +129.1% | | Gross profit | $110,329 | $78,100 | +41.3% | | Sales and marketing | $93,791 | $54,137 | +73.2% | | General and administrative | $48,811 | $19,328 | +152.5% | | Research and development | $23,307 | $11,212 | +107.9% | | Acquisition-related amortization and remeasurement | $4,134 | $(3,499) | +$7,633 | | Operating loss | $(59,714) | $(3,078) | $(56,636) | | Net loss | $(60,938) | $(4,460) | $(56,478) | | Basic Net loss per common share | $(1.71) | $(0.22) | $(1.49) | | Diluted Net loss per common share | $(1.71) | $(0.22) | $(1.49) | - The substantial increase in net sales and operating expenses, leading to a larger net loss, is primarily due to the inclusion of SeaSpine's results following the merger, along with increased acquisition-related costs and amortization[17](index=17&type=chunk)[34](index=34&type=chunk)[82](index=82&type=chunk) [Condensed Consolidated Statements of Changes in Shareholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity%20for%20the%20three%20months%20ended%20March%2031%2C%202023%2C%20and%202022) Outlines changes in equity, primarily driven by share issuance for the SeaSpine merger and net loss Condensed Consolidated Statements of Changes in Shareholders' Equity (Three Months Ended March 31, 2023) | Category | December 31, 2022 (in thousands) | Changes (in thousands) | March 31, 2023 (in thousands) | | :-------------------------------- | :----------------------------- | :--------------------- | :---------------------------- | | Common Shares Outstanding | 20,162 | +16,301 | 36,463 | | Common Shares | $2,016 | +$1,631 | $3,647 | | Additional Paid-in Capital | $334,969 | +$386,176 | $721,145 | | Retained Earnings (Accumulated Deficit) | $1,251 | $(60,938) | $(59,687) | | Accumulated Other Comprehensive Loss | $(1,376) | +$430 | $(946) | | Total Shareholders' Equity | $336,860 | +$327,299 | $664,159 | - The significant increase in **common shares outstanding** and **additional paid-in capital** is primarily due to the issuance of **16,047,315** common shares in connection with the SeaSpine merger[18](index=18&type=chunk)[30](index=30&type=chunk) - Retained earnings shifted to an accumulated deficit due to the net loss incurred during the quarter[18](index=18&type=chunk)[17](index=17&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20three%20months%20ended%20March%2031%2C%202023%20and%202022) Summarizes cash inflows and outflows, reflecting the merger's impact on operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31) | Activity | 2023 (in thousands) | 2022 (in thousands) | Change (YoY) | | :-------------------------------- | :------------------ | :------------------ | :----------- | | Net cash from operating activities | $(34,020) | $(7,709) | $(26,311) | | Net cash from investing activities | $17,084 | $(5,667) | +$22,751 | | Net cash from financing activities | $15,983 | $(2,233) | +$18,216 | | Net change in cash and cash equivalents | $(732) | $(15,930) | +$15,198 | | Cash and cash equivalents at end of period | $49,968 | $71,917 | $(21,949) | - Operating cash flow significantly decreased due to the net loss and changes in working capital, while investing activities saw a positive shift primarily from cash acquired in the SeaSpine merger. Financing activities turned positive due to new borrowings under the credit facility, partially offset by the repayment of SeaSpine's debt[19](index=19&type=chunk)[100](index=100&type=chunk) [Notes to the Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20the%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed explanations and disclosures supporting the condensed consolidated financial statements [Note 1. Business and Basis of Presentation](index=8&type=section&id=1.%20Business%20and%20basis%20of%20presentation) Describes the Company's business, the SeaSpine merger, and the basis for financial statement presentation - Orthofix Medical Inc. completed a merger with SeaSpine Holdings Corporation on January 5, 2023, creating a leading global spine and orthopedics company with a comprehensive portfolio of biologics, spinal hardware, bone growth therapies, specialized orthopedic solutions, and surgical navigation systems[20](index=20&type=chunk)[22](index=22&type=chunk) - The combined company's products are distributed in approximately **68** countries worldwide, with primary offices in Lewisville, Texas; Carlsbad, California; and Verona, Italy[20](index=20&type=chunk)[21](index=21&type=chunk) [Note 2. Recently Adopted Accounting Standards and Pronouncements](index=8&type=section&id=2.%20Recently%20adopted%20accounting%20standards%2C%20recently%20issued%20accounting%20pronouncements) Details recently adopted accounting standards and their impact, particularly from the SeaSpine merger - The Company adopted ASU 2021-08 (Business Combinations: Accounting for Contract Assets and Liabilities from Contracts with Customers) effective January 1, 2023, resulting in the recognition of **$2.2 million** in contract liabilities from acquired revenue contracts due to the SeaSpine merger[26](index=26&type=chunk) - The Company is currently evaluating the impact of ASU 2022-03 (Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions), effective January 1, 2024[27](index=27&type=chunk) [Note 3. Merger and Acquisitions](index=9&type=section&id=3.%20Merger%20and%20acquisitions) Provides comprehensive details on the SeaSpine merger, including consideration, purchase price allocation, and related costs - The all-stock merger with SeaSpine Holdings Corporation closed on January 5, 2023, with Orthofix as the accounting acquirer. Each SeaSpine common stock share was converted into **0.4163** shares of Orthofix common stock[28](index=28&type=chunk)[29](index=29&type=chunk) Total Estimated Fair Value of Consideration for SeaSpine Merger (as of January 5, 2023) | Component | Amount (in thousands) | | :-------------------------------------------------------------------------------- | :-------------------- | | Estimated fair value of shares issued in exchange for SeaSpine common shares | $365,237 | | Estimated fair value of Orthofix stock options and RSUs issued for SeaSpine equity awards | $11,508 | | **Total estimated fair value of consideration** | **$376,745** | Preliminary Purchase Price Allocation for SeaSpine Merger (as of January 5, 2023) | Category | Amount (in thousands) | | :-------------------------------- | :-------------------- | | Total identifiable assets acquired | $366,425 | | Total liabilities assumed | $121,074 | | Net identifiable assets acquired | $245,351 | | Total fair value of consideration transferred | $376,745 | | **Residual goodwill** | **$131,394** | - The Company recognized **$6.5 million** in acquisition-related costs expensed in Q1 2023. SeaSpine contributed **$60.9 million** in net sales and a net loss of **$27.9 million** from January 5 to March 31, 2023[34](index=34&type=chunk) Integration and Restructuring Costs (Three Months Ended March 31, 2023) | Cost Category | Amount (in millions) | | :-------------------------------- | :------------------- | | Compensation-related integration costs | $10.3 | | Fee paid to financial advisor to the Merger | $5.5 | | Professional fees / consulting fees | $4.2 | | Product rationalization charges | $0.7 | | Other costs to complete | $1.6 | | **Total Integration Costs** | **$22.3** | | **Restructuring Liability (March 31, 2023)** | | | Severance costs | $7.6 | | Retention costs | $1.3 | | Payroll taxes | $0.3 | | **Total Restructuring Liability** | **$9.2** | [Note 4. Inventories](index=11&type=section&id=4.%20Inventories) Details the composition and changes in inventories, significantly impacted by the SeaSpine merger Inventories (March 31, 2023 vs. December 31, 2022) | Category | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | Change (in thousands) | | :---------------- | :----------------------------- | :----------------------------- | :-------------------- | | Raw materials | $23,143 | $17,035 | +$6,108 | | Work-in-process | $58,472 | $19,243 | +$39,229 | | Finished products | $140,318 | $63,872 | +$76,446 | | **Total Inventories** | **$221,933** | **$100,150** | **+$121,783** | - The significant increase in inventories across all categories is largely attributable to the SeaSpine merger[39](index=39&type=chunk)[32](index=32&type=chunk) [Note 5. Leases](index=12&type=section&id=5.%20Leases) Summarizes the Company's lease portfolio, including ROU assets, lease liabilities, and cash flow impacts Lease Portfolio Summary (March 31, 2023 vs. December 31, 2022) | Category | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :---------------------- | :----------------------------- | :----------------------------- | | Total ROU assets | $38,386 | $24,148 | | Total lease liabilities | $41,498 | $26,905 | Supplemental Cash Flow Information Related to Leases (Three Months Ended March 31) | Category | 2023 (in thousands) | 2022 (in thousands) | | :---------------------------------------------------- | :------------------ | :------------------ | | Operating cash flows from operating leases | $1,674 | $1,068 | | Operating cash flows from finance leases | $214 | $222 | | Financing cash flows from finance leases | $160 | $2,141 | | ROU assets obtained in exchange for lease obligations | $15,316 | $4,470 | [Note 6. Long-term Debt](index=12&type=section&id=6.%20Long-term%20debt) Details changes in long-term debt, including new borrowings and repayment of SeaSpine's credit facility - On January 5, 2023, the Company terminated SeaSpine's credit facility, paying **$26.9 million**, including a **$0.6 million** prepayment premium[41](index=41&type=chunk) - The Company borrowed **$30.0 million** on January 3, 2023, and an additional **$15.0 million** on March 3, 2023, under its **$300.0 million** secured revolving credit facility, resulting in **$45.0 million** outstanding as of March 31, 2023, with an effective interest rate of **6.1%**[42](index=42&type=chunk) - The Company had no borrowings on its available lines of credit in Italy (€5.5 million or **$6.0 million**) as of March 31, 2023, and was in compliance with all financial covenants[43](index=43&type=chunk) [Note 7. Fair Value Measurements and Investments](index=13&type=section&id=7.%20Fair%20value%20measurements%20and%20investments) Presents fair value measurements for financial assets and liabilities, including contingent consideration Fair Value Measurements of Financial Assets and Liabilities (March 31, 2023 vs. December 31, 2022) | Category | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | **Assets** | | | | Neo Medical convertible loan agreements | $7,180 | $7,140 | | Neo Medical preferred equity securities | $6,084 | $6,084 | | Other investments | $1,829 | $1,726 | | **Total Assets** | **$15,093** | **$14,950** | | **Liabilities** | | | | Lattus contingent consideration | $(11,500) | $- | | Deferred compensation plan | $(1,415) | $(1,515) | | **Total Liabilities** | **$(12,915)** | **$(1,515)** | - The estimated fair value of Spinal Kinetics contingent consideration was zero as of March 31, 2023, as the revenue-based milestone was not achieved by April 30, 2023[53](index=53&type=chunk)[54](index=54&type=chunk) - The Company assumed a Lattus contingent consideration obligation of **$11.5 million** in connection with the SeaSpine merger, based on future net sales of certain Lateral Products[55](index=55&type=chunk)[56](index=56&type=chunk) [Note 8. Commitments and Contingencies](index=15&type=section&id=8.%20Commitments%20and%20Contingencies) Outlines the Company's commitments and potential liabilities, including merger-related options and IMDP accruals - As a result of the merger, the Company has options to purchase, or be required to purchase, distribution businesses from certain partners, potentially issuing an estimated **1.3 million** shares of common stock[58](index=58&type=chunk) - The Company accrued **$6.3 million** related to the Italian Medical Device Payback (IMDP) as of March 31, 2023, recording an expense of **$0.3 million** for the quarter, and is disputing the legality of these measures[61](index=61&type=chunk)[62](index=62&type=chunk) [Note 9. Accumulated Other Comprehensive Loss](index=15&type=section&id=9.%20Accumulated%20other%20comprehensive%20loss) Details the components and changes in accumulated other comprehensive loss for the period Components of Accumulated Other Comprehensive Loss (March 31, 2023 vs. December 31, 2022) | Component | December 31, 2022 (in thousands) | Other Comprehensive Income (Loss) (in thousands) | March 31, 2023 (in thousands) | | :-------------------------- | :----------------------------- | :--------------------------------------------- | :---------------------------- | | Currency Translation Adjustments | $(2,482) | $493 | $(1,989) | | Neo Medical Convertible Loans | $1,005 | $(137) | $868 | | Other Investments | $101 | $74 | $175 | | **Total Accumulated Other Comprehensive Loss** | **$(1,376)** | **$430** | **$(946)** | [Note 10. Revenue Recognition and Accounts Receivable](index=15&type=section&id=10.%20Revenue%20recognition%20and%20accounts%20receivable) Provides a breakdown of net sales by product category and details the allowance for expected credit losses Net Sales by Major Product Category (Three Months Ended March 31) | Product Category | 2023 (in thousands) | 2022 (in thousands) | Change (YoY) | | :-------------------------------- | :------------------ | :------------------ | :----------- | | Bone Growth Therapies | $47,714 | $41,948 | +13.7% | | Spinal Implants and Enabling Technologies | $60,862 | $26,615 | +128.7% | | Biologics | $40,630 | $14,092 | +188.3% | | **Global Spine** | **$149,206** | **$82,655** | **+80.5%** | | Global Orthopedics | $25,998 | $23,763 | +9.4% | | **Net sales** | **$175,204** | **$106,418** | **+64.6%** | Product Sales and Marketing Service Fees (Three Months Ended March 31) | Category | 2023 (in thousands) | 2022 (in thousands) | | :---------------------- | :------------------ | :------------------ | | Product sales | $162,248 | $92,608 | | Marketing service fees | $12,956 | $13,810 | | **Net sales** | **$175,204** | **$106,418** | Allowance for Expected Credit Losses (Three Months Ended March 31) | Category | 2023 (in thousands) | 2022 (in thousands) | | :------------------------------------------ | :------------------ | :------------------ | | Beginning balance | $6,419 | $4,944 | | Addition from SeaSpine Merger | $137 | $- | | Current period provision | $208 | $600 | | Write-offs and other | $(126) | $(104) | | Effect of foreign exchange rates | $53 | $(51) | | **Ending balance** | **$6,691** | **$5,389** | [Note 11. Business Segment Information](index=16&type=section&id=11.%20Business%20segment%20information) Presents financial information by business segment, including adjusted EBITDA and net sales by geography Adjusted EBITDA by Reporting Segment (Three Months Ended March 31) | Segment | 2023 (in thousands) | 2022 (in thousands) | | :------------------ | :------------------ | :------------------ | | Global Spine | $14,981 | $14,033 | | Global Orthopedics | $44 | $(804) | | Corporate | $(11,821) | $(6,120) | | **Consolidated Adjusted EBITDA** | **$3,204** | **$7,109** | Net Sales by Geographic Destination (Three Months Ended March 31) | Segment/Region | 2023 (in thousands) | 2022 (in thousands) | | :------------------- | :------------------ | :------------------ | | Global Spine - U.S. | $139,457 | $77,066 | | Global Spine - International | $9,749 | $5,589 | | Global Orthopedics - U.S. | $6,636 | $5,327 | | Global Orthopedics - International | $19,362 | $18,436 | | **Consolidated U.S. Net Sales** | **$146,093** | **$82,393** | | **Consolidated International Net Sales** | **$29,111** | **$24,025** | | **Total Net Sales** | **$175,204** | **$106,418** | [Note 12. Acquisition-Related Amortization and Remeasurement](index=17&type=section&id=12.%20Acquisition-related%20amortization%20and%20remeasurement) Details the components of acquisition-related amortization and remeasurement expenses for the period Components of Acquisition-Related Amortization and Remeasurement (Three Months Ended March 31) | Component | 2023 (in thousands) | 2022 (in thousands) | | :------------------------------------------ | :------------------ | :------------------ | | Amortization of acquired intangibles | $4,134 | $2,001 | | Changes in fair value of contingent consideration | $- | $(5,500) | | Acquired IPR&D | $- | $- | | **Total** | **$4,134** | **$(3,499)** | - The significant change from a benefit in 2022 to an expense in 2023 is primarily due to the absence of a fair value remeasurement benefit for Spinal Kinetics contingent consideration in 2023 and increased amortization of intangibles from the SeaSpine merger[72](index=72&type=chunk)[93](index=93&type=chunk) [Note 13. Share-Based Compensation](index=18&type=section&id=13.%20Share-based%20compensation) Summarizes share-based compensation expense by category and award type, reflecting merger impacts Share-Based Compensation Expense by Category (Three Months Ended March 31) | Category | 2023 (in thousands) | 2022 (in thousands) | | :------------------------------------------ | :------------------ | :------------------ | | Cost of sales | $471 | $211 | | Sales and marketing | $2,249 | $981 | | General and administrative | $9,104 | $3,218 | | Research and development | $1,196 | $(78) | | **Total** | **$13,020** | **$4,332** | Share-Based Compensation Expense by Award Type (Three Months Ended March 31) | Award Type | 2023 (in thousands) | 2022 (in thousands) | | :------------------------------------------ | :------------------ | :------------------ | | Stock options | $2,756 | $359 | | Time-based restricted stock awards and units | $9,846 | $2,170 | | Market-based / performance-based restricted stock units | $- | $1,444 | | Stock purchase plan | $418 | $359 | | **Total** | **$13,020** | **$4,332** | - The increase in share-based compensation expense is largely due to the conversion of SeaSpine equity awards into Orthofix common stock options (**1,889,812** shares) and time-based restricted stock (**490,338** shares) as part of the merger[73](index=73&type=chunk) [Note 14. Income Taxes](index=18&type=section&id=14.%20Income%20taxes) Details income tax expense and the effective tax rate, influenced by valuation allowances and losses Income Tax Expense and Effective Tax Rate (Three Months Ended March 31) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :------------------ | :------------------ | :------------------ | | Income tax expense | $611 | $71 | | Effective tax rate | (1.0%) | (1.6%) | - The increase in tax expense and the effective tax rate for Q1 2023 was primarily a result of changes in valuation allowances and financial statement losses not benefitted[75](index=75&type=chunk)[96](index=96&type=chunk) [Note 15. Earnings Per Share (EPS)](index=18&type=section&id=15.%20Earnings%20per%20share%20(%22EPS%22)) Presents weighted average common shares for EPS calculation and anti-dilutive exclusions Weighted Average Common Shares for EPS (Three Months Ended March 31) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :-------------------------------- | :------------------ | :------------------ | | Weighted average common shares-basic | 35,734 | 19,898 | | Weighted average common shares-diluted | 35,734 | 19,898 | - No adjustments were made to net income for EPS calculation. Approximately **7.2 million** and **2.5 million** weighted average outstanding stock options and restricted stock units were excluded from diluted EPS for Q1 2023 and Q1 2022, respectively, as their inclusion would have been anti-dilutive[76](index=76&type=chunk)[77](index=77&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 Q1 2023 financial performance, emphasizing the SeaSpine merger's impact on sales, expenses, and liquidity [Executive Summary](index=20&type=section&id=Executive%20Summary) Provides an overview of the Company's strategic position and key financial highlights post-merger - The newly merged Orthofix-SeaSpine organization is a leading global spine and orthopedics company, distributing products in approximately **68** countries[80](index=80&type=chunk) Key Financial Metrics (Three Months Ended March 31) | Metric | 2023 | 2022 | Change (YoY) | | :------------------------------------------ | :--------- | :--------- | :----------- | | Net sales | $175.2 million | $106.4 million | +65% (reported), +66% (constant currency) | | Global Spine net sales growth | 81% (reported), 81% (constant currency) | | | | Global Orthopedics net sales growth | 9% (reported), 14% (constant currency) | | | - The Company announced the full commercial launch of the Lattus Lateral Access System and the Fathom Pedicle-Based Retractor System, targeting an estimated **$1.8 billion** market for minimally invasive spine procedures[82](index=82&type=chunk) [Net Sales by Product Category and Reporting Segment](index=20&type=section&id=Net%20Sales%20by%20Product%20Category%20and%20Reporting%20Segment) Details net sales performance across product categories and reporting segments, highlighting growth drivers Net Sales by Product Category and Reporting Segment (Three Months Ended March 31) | Category | 2023 (in thousands) | 2022 (in thousands) | Reported Change | Constant Currency Change | | :-------------------------------- | :------------------ | :------------------ | :-------------- | :----------------------- | | Bone Growth Therapies | $47,714 | $41,948 | 13.7% | 13.7% | | Spinal Implants and Enabling Technologies | $60,862 | $26,615 | 128.7% | 129.1% | | Biologics | $40,630 | $14,092 | 188.3% | 188.2% | | **Global Spine** | **$149,206** | **$82,655** | **80.5%** | **80.6%** | | Global Orthopedics | $25,998 | $23,763 | 9.4% | 13.6% | | **Net sales** | **$175,204** | **$106,418** | **64.6%** | **65.7%** | [Global Spine Segment Performance](index=21&type=section&id=Global%20Spine) Analyzes the Global Spine segment's net sales growth, driven by the SeaSpine merger and product launches - Global Spine net sales increased by **$66.6 million** or **80.5%** to **$149.2 million**, primarily driven by the SeaSpine merger and organic growth[83](index=83&type=chunk) - Bone Growth Therapies net sales increased by **13.7%** due to more complex spine procedures, growth in the fracture sales channel, and the launch of AccelStim[83](index=83&type=chunk) - Spinal Implants and Enabling Technologies net sales surged by **128.7%**, mainly from SeaSpine's contribution, new distribution partners, and multiple new product launches[83](index=83&type=chunk) - Biologics net sales grew by **188.3%**, largely due to SeaSpine's contribution and the onboarding of new distribution partners, enhancing the Company's comprehensive biologics portfolio[83](index=83&type=chunk) [Global Orthopedics Segment Performance](index=22&type=section&id=Global%20Orthopedics) Examines the Global Orthopedics segment's net sales growth, attributed to new products and international orders - Global Orthopedics net sales increased by **$2.2 million** or **9.4%** to **$26.0 million**, with double-digit growth in both U.S. and international markets on a constant currency basis[84](index=84&type=chunk)[86](index=86&type=chunk) - Growth was attributed to investments in new product launches and commercial execution in the U.S., and an increase in international stocking distributor orders, partially offset by a **$1.0 million** decrease due to foreign currency exchange rates[86](index=86&type=chunk) [Gross Profit Analysis](index=22&type=section&id=Gross%20Profit) Analyzes gross profit and margin changes, primarily due to the SeaSpine merger and related inventory adjustments Gross Profit and Margin (Three Months Ended March 31) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (YoY) | | :------------------ | :------------------ | :------------------ | :----------- | | Gross profit | $110,329 | $78,100 | +41.3% | | Gross margin | 63.0% | 73.4% | (10.4%) | | Cost of sales | $64,875 | $28,318 | +129.1% | - Gross profit increased by **$32.2 million**, primarily due to the contribution of **$60.9 million** in net sales from SeaSpine[85](index=85&type=chunk)[87](index=87&type=chunk) - Gross margin decreased by **10.4** percentage points, offset by **$11.6 million** in amortization of inventory fair value step-up and **$0.7 million** in inventory-related charges from product rationalization post-merger[85](index=85&type=chunk)[87](index=87&type=chunk) [Sales and Marketing Expense Analysis](index=22&type=section&id=Sales%20and%20Marketing%20Expense) Details the increase in sales and marketing expenses, driven by the SeaSpine merger and higher sales volumes Sales and Marketing Expense (Three Months Ended March 31) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (YoY) | | :-------------------------- | :------------------ | :------------------ | :----------- | | Sales and marketing expense | $93,791 | $54,137 | +73.2% | | As a percentage of net sales | 53.5% | 50.9% | +2.6% | - The **$39.7 million** increase was largely due to the contribution of SeaSpine results and the overall increase in net sales, leading to higher variable expenses like commissions and bonus expenses[86](index=86&type=chunk)[88](index=88&type=chunk) - Sales and marketing expenses for Q1 2023 included **$1.9 million** in integration-related expenses, mainly severance and retention costs[88](index=88&type=chunk) [General and Administrative Expense Analysis](index=22&type=section&id=General%20and%20Administrative%20Expense) Examines the significant increase in G&A expenses, largely due to merger-related costs and SeaSpine's contribution General and Administrative Expense (Three Months Ended March 31) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (YoY) | | :-------------------------------- | :------------------ | :------------------ | :----------- | | General and administrative expense | $48,811 | $19,328 | +152.5% | | As a percentage of net sales | 27.9% | 18.2% | +9.7% | - The **$29.5 million** increase was primarily due to SeaSpine's contribution and **$17.3 million** in merger and integration-related expenses, including **$9.8 million** in professional fees (with a **$5.5 million** financial advisor payment) and **$7.0 million** in severance and retention costs[89](index=89&type=chunk)[91](index=91&type=chunk) - The increase was also driven by **$5.9 million** in higher share-based compensation expense due to a larger employee base post-merger and accelerated vesting of equity awards[91](index=91&type=chunk) [Research and Development Expense Analysis](index=23&type=section&id=Research%20and%20Development%20Expense) Analyzes the increase in R&D expenses, influenced by the SeaSpine merger and new product development initiatives Research and Development Expense (Three Months Ended March 31) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (YoY) | | :-------------------------- | :------------------ | :------------------ | :----------- | | Research and development expense | $23,307 | $11,212 | +107.9% | | As a percentage of net sales | 13.3% | 10.5% | +2.8% | - The **$12.1 million** increase was largely due to SeaSpine's contribution, **$1.6 million** in merger and integration-related expenses (mainly severance and retention costs), **$1.0 million** for European Union medical device regulation implementation, and **$0.8 million** for a development milestone with MTF Biologics[90](index=90&type=chunk)[92](index=92&type=chunk) [Acquisition-Related Amortization and Remeasurement Analysis](index=23&type=section&id=Acquisition-related%20Amortization%20and%20Remeasurement) Details the changes in acquisition-related amortization and remeasurement, impacted by contingent consideration and merger intangibles Acquisition-Related Amortization and Remeasurement (Three Months Ended March 31) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (YoY) | | :------------------------------------------ | :------------------ | :------------------ | :----------- | | Acquisition-related amortization and remeasurement | $4,134 | $(3,499) | (218.1%) | | As a percentage of net sales | 2.4% | (3.3%) | +5.7% | - The **$7.6 million** increase was driven by a **$5.5 million** benefit recognized in Q1 2022 from the remeasurement of Spinal Kinetics contingent consideration (which was not achieved in 2023) and a **$2.1 million** increase in amortization expense from intangible assets acquired in the SeaSpine merger[93](index=93&type=chunk) [Non-Operating Income and Expense Analysis](index=23&type=section&id=Non-operating%20Income%20and%20Expense) Examines changes in non-operating income and expense, including interest and foreign currency impacts Non-Operating Income and Expense (Three Months Ended March 31) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (YoY) | | :------------------ | :------------------ | :------------------ | :----------- | | Interest expense, net | $(1,289) | $(375) | +243.7% | | Other income (expense), net | $676 | $(936) | (172.2%) | - Net interest expense increased by **$0.9 million** due to a **$0.6 million** early termination prepayment penalty for SeaSpine's debt and a **$0.5 million** increase from borrowings on the secured revolving credit facility[94](index=94&type=chunk) - Other income (expense), net, increased by **$1.6 million**, primarily due to a **$1.8 million** favorable change in foreign currency exchange rates (a **$0.6 million** gain in 2023 vs. a **$1.2 million** loss in 2022)[94](index=94&type=chunk) [Income Taxes Analysis](index=24&type=section&id=Income%20Taxes) Analyzes income tax expense and effective tax rate, influenced by valuation allowances and unbenefited losses Income Tax Expense and Effective Tax Rate (Three Months Ended March 31) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :------------------ | :------------------ | :------------------ | | Income tax expense | $611 | $71 | | Effective tax rate | (1.0%) | (1.6%) | - The increase in tax expense was primarily due to changes in valuation allowances and financial statement losses not benefitted in Q1 2023[96](index=96&type=chunk) [Segment Review (Adjusted EBITDA)](index=24&type=section&id=Segment%20Review) Reviews Adjusted EBITDA performance by segment, highlighting the impact of corporate and merger-related costs Adjusted EBITDA by Reporting Segment (Three Months Ended March 31) | Segment | 2023 (in thousands) | 2022 (in thousands) | | :------------------ | :------------------ | :------------------ | | Global Spine | $14,981 | $14,033 | | Global Orthopedics | $44 | $(804) | | Corporate | $(11,821) | $(6,120) | | **Consolidated Adjusted EBITDA** | **$3,204** | **$7,109** | - Consolidated Adjusted EBITDA decreased from **$7.1 million** in 2022 to **$3.2 million** in 2023, primarily due to increased corporate expenses and SeaSpine merger-related costs, despite growth in Global Spine and a positive shift in Global Orthopedics[95](index=95&type=chunk) [Liquidity and Capital Resources](index=25&type=section&id=Liquidity%20and%20Capital%20Resources) Assesses the Company's liquidity and capital resources, detailing cash flow changes and merger impacts Cash Flow Summary (Three Months Ended March 31) | Activity | 2023 (in thousands) | 2022 (in thousands) | Change (YoY) | | :-------------------------------- | :------------------ | :------------------ | :----------- | | Net cash from operating activities | $(34,020) | $(7,709) | $(26,311) | | Net cash from investing activities | $17,084 | $(5,667) | +$22,751 | | Net cash from financing activities | $15,983 | $(2,233) | +$18,216 | | **Net change in cash and cash equivalents** | **$(732)** | **$(15,930)** | **+$15,198** | | Cash and cash equivalents at period end | $49,968 | $71,917 | $(21,949) | Free Cash Flow (Three Months Ended March 31) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change (YoY) | | :-------------------------- | :------------------ | :------------------ | :----------- | | Net cash from operating activities | $(34,020) | $(7,709) | $(26,311) | | Capital expenditures | $(11,835) | $(5,667) | $(6,168) | | **Free cash flow** | **$(45,855)** | **$(13,376)** | **$(32,479)** | - Operating cash flows decreased by **$26.3 million** due to a **$56.5 million** unfavorable change in net loss, partially offset by **$35.9 million** in favorable non-cash adjustments. Investing cash flows increased by **$22.8 million**, primarily from **$29.4 million** cash acquired in the SeaSpine merger[99](index=99&type=chunk)[100](index=100&type=chunk) - Financing cash flows increased by **$18.2 million**, driven by **$45.0 million** in new borrowings under the credit facility, partially offset by the **$26.9 million** repayment of SeaSpine's credit facility[100](index=100&type=chunk) [Credit Facilities](index=26&type=section&id=Credit%20Facilities) Details the Company's credit facilities, including new borrowings and the repayment of SeaSpine's debt - The Company borrowed **$45.0 million** under its **$300.0 million** secured revolving credit facility in Q1 2023 for working capital and merger-related expenses, with no borrowings outstanding on Italian lines of credit[101](index=101&type=chunk)[102](index=102&type=chunk) - SeaSpine's credit facility was terminated and repaid for **$26.9 million** on January 5, 2023, following the merger[101](index=101&type=chunk) [Other Financial Information](index=26&type=section&id=Other) Presents additional financial information, including license agreements and contingent consideration - The Company has remaining liabilities of **$2.0 million** under an Exclusive License and Distribution Agreement with IGEA S.p.A for selling IGEA products in the U.S. and Canada[104](index=104&type=chunk) - An upfront payment of **$1.4 million** was made to CGBio Co., Ltd. for an exclusive license and distribution agreement for rhBMP-2 bone growth materials in the U.S. and Canada[105](index=105&type=chunk) - The estimated fair value of the Lattus contingent consideration, assumed in the merger, was **$11.5 million** as of March 31, 2023, based on future net sales of Lateral Products[106](index=106&type=chunk) - As of March 31, 2023, the Company had no material off-balance sheet arrangements or significant changes to contractual obligations from its 2022 Form 10-K[107](index=107&type=chunk)[108](index=108&type=chunk) [Non-GAAP Financial Measures](index=27&type=section&id=Non-GAAP%20Financial%20Measures) Explains the Company's use of non-GAAP financial measures for enhanced transparency and comparability - The Company uses non-GAAP financial measures like Constant Currency, Adjusted EBITDA, and Free Cash Flow to provide greater transparency into its financial and operational decision-making and to facilitate comparisons[111](index=111&type=chunk) - Constant currency adjusts net sales for foreign currency rate changes. Adjusted EBITDA excludes interest, taxes, depreciation, amortization, share-based compensation, merger-related costs, and other specific items. Free Cash Flow is calculated as net cash from operating activities minus capital expenditures[113](index=113&type=chunk)[114](index=114&type=chunk)[115](index=115&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) There have been no material changes to the Company's market risks as disclosed in its Form 10-K for the year ended December 31, 2022 - No material changes to market risks were reported compared to the previous annual filing[116](index=116&type=chunk) [Item 4. Controls and Procedures](index=27&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls were effective as of March 31, 2023, with SeaSpine's internal controls excluded from the annual assessment post-merger - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2023[117](index=117&type=chunk) - SeaSpine, acquired on January 5, 2023, will be excluded from the Company's annual assessment of internal control over financial reporting for the year ending December 31, 2023, as permitted by SEC rules[118](index=118&type=chunk)[119](index=119&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[120](index=120&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=29&type=section&id=Item%201.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from Note 8 to the Unaudited Condensed Consolidated Financial Statements - Legal proceedings information is detailed in Note 8 of the financial statements[121](index=121&type=chunk) [Item 1A. Risk Factors](index=29&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed, except for a new risk factor concerning the potential adverse effects if financial institutions holding the Company's cash and cash equivalents fail, particularly regarding uninsured funds - No material changes to risk factors were reported, except for a new risk concerning the potential loss or delayed access to uninsured cash and cash equivalents held in deposit accounts at financial institutions, citing recent bank failures like SVB[122](index=122&type=chunk)[123](index=123&type=chunk)[124](index=124&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=29&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Company did not repurchase any common stock during the first quarter of 2023 - No repurchases of common stock were made during the first quarter of 2023[125](index=125&type=chunk) [Item 3. Defaults Upon Senior Securities](index=29&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to the Company for the reporting period - This item is not applicable[126](index=126&type=chunk) [Item 4. Mine Safety Disclosures](index=29&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company for the reporting period - This item is not applicable[127](index=127&type=chunk) [Item 5. Other Information](index=29&type=section&id=Item%205.%20Other%20Information) There are no other matters to be reported under this heading - No other information to report under this heading[128](index=128&type=chunk) [Item 6. Exhibits](index=29&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications and XBRL-related documents - The exhibits include Rule 13a-14(a)/15d-14(a) Certifications of the CEO and CFO, Section 1350 Certifications, and various Inline XBRL documents[129](index=129&type=chunk) SIGNATURES [Signatures](index=31&type=section&id=SIGNATURES) The report is duly signed on behalf of Orthofix Medical Inc. by its President and Chief Executive Officer, Keith Valentine, and Chief Financial Officer, John Bostjancic, as of May 9, 2023 - The report was signed by Keith Valentine, President and Chief Executive Officer, and John Bostjancic, Chief Financial Officer, on May 9, 2023[132](index=132&type=chunk) ```

Financial Data and Key Metrics Changes - SeaSpine's total revenue for Q4 2022 was $63.4 million, a 14% increase year-over-year, with U.S. growth at 16% [1] - Orthofix reported total revenue of $122.2 million for Q4 2022, a 2% decrease year-over-year on a reported basis, but flat on a constant currency basis [4] - Net loss for SeaSpine in Q4 2022 was $19 million, compared to a net loss of $18.8 million in Q4 2021 [3] - Orthofix's GAAP loss per share for Q4 2022 was $0.35, an improvement from a loss of $1.65 per share in Q4 2021 [9] Business Line Data and Key Metrics Changes - U.S. spinal implant revenue for SeaSpine increased by more than 23% in Q4 2022, while U.S. Biologics revenue grew by 20% [1][2] - Orthofix's Bone Growth Therapies (BGT) sales were $51 million, up 3% year-over-year [5] - Orthofix's Global Orthopedics revenue decreased by 2% on a reported basis but increased by 6% on a constant currency basis [6] Market Data and Key Metrics Changes - International spinal implant sales for SeaSpine were down 57% in Q4 2022 due to the exit from the European market [2] - Orthofix's international total net sales were $26.6 million, or 22% of total revenue, up 6% in constant currency over Q4 2021 [123] Company Strategy and Development Direction - The merger between Orthofix and SeaSpine aims to create a leading global spine and orthopedic company, focusing on innovative solutions and expanded commercial access [88][39] - The combined company plans to leverage complementary product portfolios to address unmet clinical needs in the musculoskeletal space [57] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the growth momentum from both standalone companies and the potential for synergy from the merger [39][40] - The company anticipates first quarter 2023 revenues in the range of $166 million to $170 million, representing 7% to 10% year-over-year constant currency growth [89] Other Important Information - Orthofix plans to host an Analyst Teach-In on March 13, 2023, to provide further insights into the merger and future growth strategies [11] - The company has no borrowings under its $300 million secured revolving credit facility as of December 31, 2022, but borrowed $30 million in January 2023 for working capital and merger-related expenses [38] Q&A Session Summary Question: Guidance during integration - Management indicated that they feel good about Q1 growth and are cautious about setting full-year expectations due to potential dis-synergy risks [15][40] Question: Sales force stability post-merger - Management noted early positive signs of sales force stability and cross-selling opportunities, with both legacy products being utilized together [18][45] Question: G&A expenditures and synergies - Management discussed that Q1 will see heavy deal-specific costs, with a transition to costs aimed at achieving synergies in subsequent quarters [22][115] Question: Segment reporting going forward - Management is still evaluating how to report segments and will provide more clarity by the first quarter reporting deadline [113] Question: Revenue synergies in 2023 guidance - Management confirmed that the 2023 guidance does not include material revenue synergies, but they are confident in mitigating dis-synergy risks [108][110]

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, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Address of principal executive offices) (Zip Code) (214) 937-2000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: For the transition period f ...

On October 11, 2022 Orthofix and SeaSpine announced an agreement to merge that is expected to close in the first quarter of 2023. Please also view the presentation and press release describing the merger, which are both posted on our website. 1 ORTHOFIX Improving patient mobility through innovation Forward-Looking Statements and Non-GAAP Financial Measures 2 2 Except for historical information contained herein, the statements made in this presentation constitute forward-looking statements that involve certa ...

Orthofix Medical, Inc. (NASDAQ:OFIX) Q3 2022 Earnings Conference Call November 3, 2022 8:30 AM ET Company Participants Alexa Huerta - Senior Director, IR Jon Serbousek - President, CEO & Director Douglas Rice - CFO & CAO Conference Call Participants David Turkaly - JMP Securities Mathew Blackman - Stifel, Nicolaus & Company Jeffrey Cohen - Ladenburg Thalmann & Co. James Sidoti - Sidoti & Company Operator Good morning. My name is Gavin and I will be your conference operator today. At this time, I would like ...

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 September 30, 2022 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 jurisd ...

ORTHOFIX® 1 Improving patient mobility through innovation Forward-Looking Statements and Non-GAAP Financial Measures 2 2 Except for historical information contained herein, the statements made in this presentation constitute forward-looking statements that involve certain risks and uncertainties. These forward-looking statements are based on our beliefs and expectations as of August 5, 2022, and we do not undertake any obligation to revise or update such forward looking statements, which speak only as of su ...

Orthofix Medical Inc. (NASDAQ:OFIX) Q2 2022 Earnings Conference Call August 5, 2022 8:30 AM ET Company Participants Alexa Huerta – Senior Director-Investor Relations Jon Serbousek – President and Chief Executive Officer Doug Rice – Chief Financial Officer Conference Call Participants Mathew Blackman – Stifel Jeffrey Cohen – Ladenburg Jim Sidoti – Sidoti and Company Operator Hello, and a warm welcome to Orthofix Medical’s Q2 2022 Earnings Call. My name is Melissa, and I’ll be your operator today. [Operator I ...

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, 2022 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 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 jurisdictio ...