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Orthofix Reports Third Quarter 2021 Results

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  • OFIX
  • Net sales of $112 million, an increase of 1.3% over the prior year period

  • Double-digit growth over the prior year period for both global Spinal Implants and Orthopedics

  • More than 1,000 U.S. surgeons trained and 60,000 M6-C artificial cervical discs implanted worldwide to date

  • Launched Opus Mg Set synthetic bone void filler

  • Submitted AccelStim PMA application for the healing of fresh fractures

LEWISVILLE, Texas, November 05, 2021--(BUSINESS WIRE)--Orthofix Medical Inc. (NASDAQ:OFIX) today reported its financial results for the quarter ended September 30, 2021. Net sales were $112 million, earnings per share ("EPS") was $(0.11), and adjusted EPS was $0.10.

"I am proud of the tenacity of our team as they continue to implement our strategic initiatives despite the ongoing challenges of COVID, delivering double-digit growth in both our global Spinal Implants and Orthopedics businesses," said Orthofix President and Chief Executive Officer Jon Serbousek. "New products remain a growth driver in the business. The strong adoption of the M6-C™ artificial cervical disc continues as we recently passed the 60,000 worldwide implant mark, and sales of our FITBONE™ limb-lengthening system have accelerated throughout the year, resulting in third quarter revenue growing 30 percent sequentially."

"As we close out the year, we will be focused on driving top-line performance and exiting the year with mid-single digit growth. We expect this accelerated growth in the near term to come from the continued strength of the M6-C disc, the FITBONE system, and our recently bolstered 3D-printed titanium spinal interbody portfolio," continued Serbousek. "Over the long term, we have multiple initiatives in place, including diversification of our biologics portfolio with products like Opus™ Mg Set synthetic bone void filler and the planned expansion of our bone growth therapy portfolio with the AccelStim™ ultrasound bone healing therapy for the healing of fresh and nonunion fractures. We anticipate the recent PMA application will allow us to bring this innovative offering and new indication to market in 2022."

Financial Results Overview

The following table provides net sales by major product category by reporting segment:

Three Months Ended September 30,

(Unaudited, U.S. Dollars, in thousands)

2021

2020

Change

Constant
Currency
Change

Bone Growth Therapies

$

45,168

$

47,066

(4.0

%)

(4.0

%)

Spinal Implants

28,151

25,505

10.4

%

10.2

%

Biologics

12,806

15,245

(16.0

%)

(16.0

%)

Global Spine

86,125

87,816

(1.9

%)

(2.0

%)

Global Orthopedics

26,303

23,169

13.5

%

12.2

%

Net sales

$

112,428

$

110,985

1.3

%

1.0

%

Gross profit decreased $0.6 million to $84.1 million. Gross margin decreased to 74.8% compared to 76.4% in the prior year period.

Net loss was $(2.2) million, or $(0.11) per share, compared to net income of $4.7 million, or $0.24 per share in the prior year period. Adjusted net income was $2.0 million, or $0.10 per share, compared to adjusted net income of $6.0 million, or $0.31 per share in the prior year period.

EBITDA was $5.0 million, compared to $15.0 million in the prior year period. Adjusted EBITDA was $11.9 million, or 10.6% of net sales, compared to $19.7 million, or 17.8% of net sales, in the prior year period.

Liquidity

As of September 30, 2021, cash, cash equivalents, and restricted cash totaled $83.2 million compared to $96.8 million as of December 31, 2020. As of September 30, 2021, the Company had no borrowings under its five year $300 million secured revolving credit facility. Cash flow from operations decreased $45.3 million to $6.7 million, while free cash flow decreased $45.4 million to $(6.1) million. This decrease in cash was primarily attributable to the timing and repayment of certain funds received under the CARES Act and from a $15.0 million milestone payment made in 2021 based upon our M6-C artificial cervical disc sales volumes.

Business Outlook

The Company continues to monitor and evaluate the impact the global response to the COVID-19 pandemic has had, and will continue to have, on its operations and financial results. As of the date hereof, the Company expects the following net sales results for the year ended December 31, 2021. These projections also include the impact of any expected changes in foreign currency exchange rates.

Current 2021 Outlook

Previous 2021 Outlook

(Unaudited, U.S. Dollars, in millions, except per share data)

Low

High

Low

High

Net sales

$

460.0

1

$

464.0

1

$

468.0

$

474.0

Adjusted EBITDA

$

57.0

2

$

58.0

2

$

58.0

$

61.0

Adjusted EPS

$

0.71

3

$

0.75

3

$

0.74

$

0.82

1

Represents a year-over-year increase of 13.1% to 14.1% on a reported basis

2

Represents a year-over-year increase of 19.7% to 21.8%

3

Represents a year-over-year increase of 173.1% to 188.5%

The Company does not provide U.S. GAAP financial measures, other than net sales, on a forward-looking basis because the Company is unable to predict with reasonable certainty the ultimate outcome of legal proceedings, unusual gains and losses, acquisition-related expenses, accounting fair value adjustments, and other such items without unreasonable effort. These items are uncertain, depend on various factors, and could be material to the Company’s results computed in accordance with U.S. GAAP.

Conference Call

Orthofix will host a conference call today at 8:30 AM Eastern time to discuss the Company's financial results for the third quarter of 2021. Interested parties may access the conference call by dialing (833) 670-0709 in the U.S. and (343) 761-2533 outside the U.S., and referencing the conference ID 1889020. A replay of the call will be available for three weeks by dialing (800) 585-8367 in the U.S. or (416) 621-4642 outside the U.S., and entering the conference ID 1889020. A webcast of the conference call may be accessed at ir.Orthofix.com.

About Orthofix

Orthofix Medical Inc. is a global medical device company with a spine and orthopedics focus. The Company’s mission is to deliver innovative, quality-driven solutions while partnering with health care professionals to improve patient mobility. Headquartered in Lewisville, Texas, Orthofix’s spine and orthopedics products are distributed in more than 60 countries via the Company's sales representatives and distributors. For more information, please visit www.orthofix.com.

Forward-Looking Statements

This communication contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, relating to our business and financial outlook, which are based on our current beliefs, assumptions, expectations, estimates, forecasts and projections. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "projects," "intends," "predicts," "potential," or "continue" or other comparable terminology. These forward-looking statements are not guarantees of our future performance and involve risks, uncertainties, estimates and assumptions that are difficult to predict, including the risks described in Part I, Item 1A under the heading Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2020 (the "2020 Form 10-K"). Factors that could cause or contribute to such differences may include, but are not limited to, (i) risks relating to the effects of the COVID-19 pandemic on our business, including (A) surgeries that use our products being delayed or cancelled as a result of hospitals and surgery centers being closed or limited to life-threatening and/or essential procedures, (B) portions of our global workforce being unable to work fully and/or effectively due to illness, quarantines, government actions (including "shelter in place" orders or advisories), facility closures or other reasons related to the pandemic, (C) disruptions to our supply chain, (D) customers and payors being unable to satisfy contractual obligations to us, including the ability to make timely payment for purchases, (E) general economic weakness in markets in which we operate affecting customer spending, and (F) other unpredictable aspects of the pandemic; (ii) our ability to maintain operations to support our customers and patients in the near-term and to capitalize on future growth opportunities; (iii) risks associated with acceptance of surgical products and procedures by surgeons and hospitals, (iv) development and acceptance of new products or product enhancements, (v) clinical and statistical verification of the benefits achieved via the use of our products, (vi) our ability to adequately manage inventory, (vii) our ability to recruit and retain management and key personnel, and (viii) the other risks and uncertainties more fully described in our periodic filings with the Securities and Exchange Commission (the "SEC"). To the extent that the COVID-19 pandemic continues to adversely affect our business and financial results, it may also have the effect of heightening many of the other risks described in Part I, Item 1A under the heading Risk Factors in our 2020 Form 10-K, such as our ability to generate sufficient cash flows to run our business and our ability to protect our information technology networks and infrastructure from unauthorized access, misuse, malware, phishing and other events that could have a security impact as a result of our remote working environment or otherwise. As a result of these various risks, our actual outcomes and results may differ materially from those expressed in these forward-looking statements.

This list of risks, uncertainties and other factors is not complete. We discuss some of these matters more fully, as well as certain risk factors that could affect our business, financial condition, results of operations, and prospects, in reports we file from time-to-time with the SEC, which are available to read at www.sec.gov. Any or all forward-looking statements that we make may turn out to be wrong (due to inaccurate assumptions that we make or otherwise), and our actual outcomes and results may differ materially from those expressed in these forward-looking statements. You should not place undue reliance on any of these forward-looking statements. Further, any forward-looking statement speaks only as of the date hereof, unless it is specifically otherwise stated to be made as of a different date. We undertake no obligation to update, and expressly disclaim any duty to update, our forward-looking statements, whether as a result of circumstances or events that arise after the date hereof, new information, or otherwise.

ORTHOFIX MEDICAL INC.

Condensed Consolidated Statements of Operations

Three Months Ended

Nine Months Ended

September 30,

September 30,

(U.S. Dollars, in thousands, except share and per share data)

2021

2020

2021

2020

(unaudited)

Net sales

$

112,428

$

110,985

$

339,415

$

288,943

Cost of sales

28,307

26,243

81,660

72,818

Gross profit

84,121

84,742

257,755

216,125

Sales and marketing

56,097

52,926

164,220

150,718

General and administrative

16,312

16,541

51,091

49,453

Research and development

12,360

9,962

36,378

28,691

Acquisition-related amortization and remeasurement

(335

)

1,138

5,028

(2,766

)

Operating income (loss)

(313

)

4,175

1,038

(9,971

)

Interest expense, net

(433

)

(731

)

(1,400

)

(2,055

)

Other income (expense), net

(1,789

)

1,817

(3,528

)

6,088

Income (loss) before income taxes

(2,535

)

5,261

(3,890

)

(5,938

)

Income tax benefit (expense)

364

(607

)

(1,677

)

17,833

Net income (loss)

$

(2,171

)

$

4,654

$

(5,567

)

$

11,895

Net income (loss) per common share:

Basic

$

(0.11

)

$

0.24

$

(0.28

)

$

0.62

Diluted

(0.11

)

0.24

(0.28

)

0.61

Weighted average number of common shares:

Basic

19,769,823

19,335,718

19,633,782

19,217,057

Diluted

19,769,823

19,398,567

19,633,782

19,319,302

ORTHOFIX MEDICAL INC.

Condensed Consolidated Balance Sheets

(U.S. Dollars, in thousands, except share data)

September 30,
2021

December 31,
2020

(unaudited)

Assets

Current assets

Cash and cash equivalents

$

82,710

$

96,291

Restricted cash

505

530

Accounts receivable, net of allowances of $4,928 and $4,848, respectively

68,971

72,423

Inventories

84,678

84,635

Prepaid expenses and other current assets

23,348

16,500

Total current assets

260,212

270,379

Property, plant and equipment, net

58,784

63,613

Intangible assets, net

54,794

60,517

Goodwill

83,357

84,018

Deferred income taxes

22,745

25,042

Other long-term assets

20,503

22,292

Total assets

$

500,395

$

525,861

Liabilities and shareholders’ equity

Current liabilities

Accounts payable

$

19,437

$

23,118

Current portion of finance lease liability

2,570

510

Other current liabilities

57,997

80,271

Total current liabilities

80,004

103,899

Long-term portion of finance lease liability

20,044

22,338

Other long-term liabilities

35,514

42,760

Total liabilities

135,562

168,997

Contingencies

Shareholders’ equity

Common shares $0.10 par value; 50,000,000 shares authorized;

19,741,410 and 19,423,874 issued and outstanding as of September 30,

2021 and December 31, 2020, respectively

1,974

1,942

Additional paid-in capital

307,783

292,291

Retained earnings

53,812

59,379

Accumulated other comprehensive income

1,264

3,252

Total shareholders’ equity

364,833

356,864

Total liabilities and shareholders’ equity

$

500,395

$

525,861

ORTHOFIX MEDICAL INC.

Non-GAAP Financial Measures

The following tables present reconciliations of operating income (loss), net income (loss), EPS, and net cash from operating activities, in each case calculated in accordance with U.S. generally accepted accounting principles ("GAAP"), to, as applicable, non-GAAP financial measures, referred to as "EBITDA," "Adjusted EBITDA," "Adjusted net income (loss)," "Adjusted EPS," and "Free cash flow" that exclude items specified in the tables. A more detailed explanation of the items excluded from these non-GAAP financial measures, as well as why management believes the non-GAAP financial measures are useful to them, is included following the reconciliations.

EBITDA and Adjusted EBITDA

Three Months Ended September 30, 2021

(Unaudited, U.S. Dollars, in thousands)

Global Spine

Global Orthopedics

Corporate

Total Orthofix

Operating income (loss)

$

10,042

$

(976

)

$

(9,379

)

$

(313

)

Other income (expense), net

(420

)

(1,231

)

(138

)

(1,789

)

Depreciation and amortization

2,501

1,571

854

4,926

Amortization of acquired intangibles

1,785

440

2,225

EBITDA

$

13,908

$

(196

)

$

(8,663

)

$

5,049

Share-based compensation expense

1,590

490

1,759

3,839

Foreign exchange impact

426

1,013

134

1,573

Strategic investments

242

319

761

1,322

Acquisition-related fair value adjustments

(2,300

)

(2,300

)

Legal judgments/settlements

443

(765

)

1

(321

)

Succession and transition charges

30

(9

)

21

Medical device regulation

640

501

971

2,112

Business interruption - COVID-19

567

10

8

585

Adjusted EBITDA

$

15,546

$

1,372

$

(5,038

)

$

11,880

Nine Months Ended September 30, 2021

(Unaudited, U.S. Dollars, in thousands)

Global Spine

Global Orthopedics

Corporate

Total Orthofix

Operating income (loss)

$

32,366

$

(4,875

)

$

(26,453

)

$

1,038

Other income (expense), net

(638

)

(2,024

)

(866

)

(3,528

)

Depreciation and amortization

7,754

4,906

2,797

15,457

Amortization of acquired intangibles

5,353

1,343

6,696

EBITDA

$

44,835

$

...

)

$

(24,522

)

$

19,663

Share-based compensation expense

4,716

1,622

5,122