Orthofix(OFIX) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for Q3 2023 was $184 million, representing a growth of 61% on a reported basis and 1.2% on a pro forma basis, with pro forma revenue growth of 8.4% after normalizing for a one-time stocking order in Q3 2022 [5][24] - Adjusted EBITDA for Q3 2023 was$ 13.5 million, a 36% improvement sequentially over Q2 2023 [5][30] - GAAP gross margins for Q3 2023 were 65%, down from 73% in Q3 2022, while adjusted gross margin was 71%, compared to 74% in the prior year [25][26] Business Line Data and Key Metrics Changes - Bone Growth Therapy (BGT) revenue reached a record $53.4 million, marking a 15% year-over-year increase and the third consecutive period of double-digit growth [10][24] - Spinal Implants, Biologics, and Enabling Technologies reported global revenue of$ 101 million, a decrease of 6% on a pro forma basis, but a normalized growth of 5.8% year-over-year when accounting for a large stocking order in the prior year [13] - Global Orthopedics segment revenue totaled $29.7 million, reflecting approximately 7% year-over-year growth, with a 14% increase in the US [19][25] Market Data and Key Metrics Changes - The US Orthopedics market showed strong growth momentum, driven by investments in sales and marketing, with a reported 14% growth [19] - Internationally, there was a 3% contraction on a constant currency basis, attributed to significant international stocking orders in Q3 2022 [20] Company Strategy and Development Direction - The company is focused on driving profitable growth and maintaining strong relationships with distributor and surgeon partners, with a robust pipeline of new distributors and products [22][23] - The integration of Orthofix and SeaSpine is progressing without significant disruption, and the company anticipates announcing a permanent CEO by the end of the year [9][21] Management's Comments on Operating Environment and Future Outlook - Management noted a complicated competitive environment with market turbulence affecting decision-making, but expressed confidence in the stability of the sales force and distributor relationships [43][50] - The company updated its 2023 revenue guidance to a range of$ 739 million to $744 million, reflecting a 5.4% to 6.2% pro forma growth over the prior year [22][35] Other Important Information - Cash and cash equivalents as of September 30, 2023, totaled$ 34 million, with $70 million of outstanding borrowings under a$ 175 million credit facility [32] - Free cash flow for Q3 2023 was an outflow of $21.9 million, attributed to investments in inventory and capital instruments [34] Q&A Session Summary Question: Can you walk us through the implied Q4 guide and what is driving it? - Management indicated that the guidance reflects a combination of sales dislocation and prudence due to market uncertainty, with a strong distributor pipeline [42][48] Question: What is the risk from larger distributors and the selling footprint? - Management expressed confidence in the stability of distributor relationships and ongoing onboarding of new distributors, despite a near-term slowdown in decision-making [50][51]