Orthofix Reports First Quarter 2021 Results

Rhea-AI Summary

Orthofix Medical reported Q1 2021 net sales of $105.6 million, reflecting a 0.7% increase year-over-year. The company faced challenges from the pandemic and severe weather, resulting in a net loss of $(5.8) million or $(0.30) EPS. Adjusted EPS was $0.17, up from $0.09 in Q1 2020. Gross profit decreased to $79.7 million with a gross margin of 75.5%. Liquidity remains stable with $95.1 million in cash. The company anticipates 2021 net sales of $455 million to $465 million, marking a projected 11.9% to 14.4% increase.

Positive

• Adjusted EPS increased to $0.17 from $0.09 year-over-year.
• Sales of the M6-C artificial cervical disc boosted revenue.
• Expectations for 2021 net sales raised to $455-$465 million, reflecting growth.

Negative

• Net loss of $(5.8) million compared to net income of $25.7 million in Q1 2020.
• Gross profit decreased by $1.7 million, leading to a lower gross margin of 75.5%.
• Cash flow from operations dropped to $2.4 million, down by $10 million.

Orthofix Medical Inc. (NASDAQ:OFIX) today reported its financial results for the quarter ended March 31, 2021. Net sales were $105.6 million, earnings per share (“EPS”) was $(0.30) and adjusted EPS was $0.17.

“We are excited about the topline performance of the business during the first quarter, particularly as we continued to contend with the headwinds of the global pandemic and the added challenges of the recent severe winter weather-related disruption,” said Orthofix President and Chief Executive Officer Jon Serbousek. “We are pleased with the positive revenue impact from initiatives we put into place in 2020, including a focus on new product introductions and the development of our U.S. commercial channel. Both our M6-C™ artificial cervical disc and the FITBONE® lengthening nail delivered during the quarter, and we saw positive revenue contributions from increased product adoption driven by new strategic distribution partners.”

“Looking forward into 2021, we plan to continue to generate commercial momentum and execute future product launches to drive growth. An unrelenting focus on operational execution, product innovation and differentiation, and our commercial channel will continue to be core tenets of our growth strategy. We expect that products such as the M6-C artificial cervical disc, the FITBONE limb lengthening system, and our recently bolstered 3D-printed titanium spinal interbody portfolio to be important drivers of that growth.”

Financial Results Overview

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

		Three Months Ended March 31,
(Unaudited, U.S. Dollars, in thousands)		2021				2020				Change				Constant Currency Change
Bone Growth Therapies		$	42,947			$	45,443				(5.5	%)			(5.5	%)
Spinal Implants			25,701				22,926				12.1	%			11.0	%
Biologics			13,692				13,949				(1.8	%)			(1.8	%)
Global Spine			82,340				82,318				0.0	%			(0.3	%)
Global Orthopedics 1			23,253				22,505				3.3	%			(2.5	%)
Net sales		$	105,593			$	104,823				0.7	%			(0.8	%)
1 Formerly referred to as Global Extremities

Gross profit decreased $1.7 million to $79.7 million. Gross margin decreased to 75.5% compared to 77.7% in the prior year period.

Net loss was $(5.8) million, or $(0.30) per share, compared to net income of $25.7 million, or $1.32 per share in the prior year period. Adjusted net income was $3.4 million, or $0.17 per share, compared to adjusted net income of $1.7 million, or $0.09 per share in the prior year period.

EBITDA was $1.8 million, compared to $12.4 million in the prior year period. Adjusted EBITDA was $14.0 million, or 13.3% of net sales, compared to $11.4 million, or 10.9% of net sales, in the prior year period.

Liquidity

As of March 31, 2021, cash, cash equivalents, and restricted cash totaled $95.1 million compared to $96.8 million as of December 31, 2020. As of March 31, 2021, the Company had no borrowings under its five year $300 million secured revolving credit facility. Cash flow from operations decreased $10.0 million to $2.4 million, while free cash flow decreased $9.9 million to $(2.3) million. Based primarily on the growth in M6-C artificial cervical disc sales volumes in the U.S., the company triggered a $15.0 million milestone payment during the first quarter in relation to its 2018 acquisition of Spinal Kinetics. The payment will be made during the second quarter of 2021.

IGEA S.p.A (“IGEA”) Exclusive License Agreement

Founded 40 years ago at the University of Modena, Italy, IGEA is a leader in the manufacturing and distribution of bone and joint cartilage stimulation systems and treats more than 20,000 patients every year. Orthofix entered into an exclusive license agreement to commercialize their innovative portfolio of bone, cartilage and soft tissue stimulation products in the U.S. and Canada. Under the terms of this agreement, Orthofix has the rights to pursue U.S. Food and Drug Administration approvals and commercialization of IGEA’s platform of orthopedic products, which are not currently available in the U.S. These products, which will be marketed under the Orthofix brand, will expand Orthofix’s bone growth therapies portfolio of Pulsed Electromagnetic Field (“PEMF”) products with additional treatment modalities and indications such as Low-intensity Pulsed Ultrasound (“LIPUS”) and Capacitive Coupling (“CC”) for fracture management. The license also includes new technologies designed to address joint inflammation, pain, and cartilage protection.

COVID-19 Impact

The global Coronavirus Disease 2019 ("COVID-19") pandemic has significantly affected the Company’s customers, communities, employees and business operations. The pandemic has led to the cancellation or deferral of elective surgeries and procedures, restrictions on travel, the implementation of physical distancing measures, and the temporary or permanent closure of businesses. However, the Company remains focused on protecting the health and wellbeing of its employees, partners, patients, and the communities in which it operates while assuring the continuity of its business operations.

As of the date hereof, the Company expects the following net sales results for the year ended December 31, 2021, and for the quarter ended March 31, 2021, including 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		$	455.0		1	$	465.0		1	$	445.0			$	460.0
Adjusted EBITDA		$	52.0		2	$	56.0		2	$	50.0			$	54.0
Adjusted EPS		$	0.52		3	$	0.62		3	$	0.45			$	0.55

1 Represents a year-over-year increase of 11.9% to 14.4% on a reported basis

2 Represents a year-over-year increase of 9.2% to 17.6%

3 Represents a year-over-year increase of 100.0% to 138.5%

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 first 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 2675149. A replay of the call will be available for three weeks by dialing (800) 585-8367 in the U.S. and (416) 621-4642 outside the U.S., and entering the conference ID 2675149. A webcast of the conference call may be accessed at ir.Orthofix.com.

About Orthofix

Orthofix Medical Inc. is a global medical device and biologics 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 over 70 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
		March 31,
(U.S. Dollars, in thousands, except share and per share data)		2021				2020
		(unaudited)
Net sales		$	105,593			$	104,823
Cost of sales			25,914				23,409
Gross profit			79,679				81,414
Sales and marketing			50,785				54,313
General and administrative			16,444				17,865
Research and development			10,897				9,964
Acquisition-related amortization and remeasurement			4,469				(7,582	)
Operating income (loss)			(2,916	)			6,854
Interest expense, net			(417	)			(423	)
Other expense, net			(2,690	)			(798	)
Income (loss) before income taxes			(6,023	)			5,633
Income tax benefit			207				20,032
Net income (loss)		$	(5,816	)		$	25,665
Net income (loss) per common share:
Basic		$	(0.30	)		$	1.33
Diluted			(0.30	)			1.32
Weighted average number of common shares:
Basic			19,526,872				19,143,934
Diluted			19,526,872				19,299,820

ORTHOFIX MEDICAL INC. Condensed Consolidated Balance Sheets
(U.S. Dollars, in thousands, except share data)		March 31, 2021				December 31, 2020
		(unaudited)
Assets
Current assets
Cash and cash equivalents		$	94,569			$	96,291
Restricted cash			488				530
Accounts receivable, net of allowances of $4,506 and $4,848, respectively			69,680				72,423
Inventories			84,180				84,635
Prepaid expenses and other current assets			14,434				16,500
Total current assets			263,351				270,379
Property, plant and equipment, net			62,467				63,613
Intangible assets, net			57,634				60,517
Goodwill			83,513				84,018
Deferred income taxes			26,140				25,042
Other long-term assets			20,769				22,292
Total assets		$	513,874			$	525,861
Liabilities and shareholders’ equity
Current liabilities
Accounts payable		$	21,056			$	23,118
Current portion of finance lease liability			2,514				510
Other current liabilities			75,491				80,271
Total current liabilities			99,061				103,899
Long-term portion of finance lease liability			20,283				22,338
Other long-term liabilities			39,712				42,760
Total liabilities			159,056				168,997
Contingencies
Shareholders’ equity
Common shares $0.10 par value; 50,000,000 shares authorized; 19,474,384 and 19,423,874 issued and outstanding as of March 31, 2021 and December 31, 2020, respectively			1,947				1,942
Additional paid-in capital			297,629				292,291
Retained earnings			53,563				59,379
Accumulated other comprehensive income			1,679				3,252
Total shareholders’ equity			354,818				356,864
Total liabilities and shareholders’ equity		$	513,874			$	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," "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 March 31, 2021
(Unaudited, U.S. Dollars, in thousands)		Global Spine				Global Orthopedics				Corporate				Total Orthofix
Operating income (loss)		$	8,112			$	(2,862	)		$	(8,166	)		$	(2,916	)
Other income (expense), net			(616	)			(1,438	)			(636	)			(2,690	)
Depreciation and amortization			2,615				1,620				973				5,208
Amortization of acquired intangibles			1,784				451				—				2,235
EBITDA		$	11,895			$	(2,229	)		$	(7,829	)		$	1,837
Share-based compensation			1,508				526				1,687				3,721
Foreign exchange impact			624				1,401				637				2,662
Strategic investments			—				1,100				311				1,411
Acquisition-related fair value adjustments			2,564				—				—				2,564
Legal judgments/settlements			(51	)			46				(54	)			(59	)
Succession and transition charges			30				—				—				30
Medical device regulation			503				507				814				1,824
Business interruption - COVID-19			2				6				13				21
Adjusted EBITDA		$	17,075			$	1,357			$	(4,421	)		$	14,011

		Three Months Ended March 31, 2020
(Unaudited, U.S. Dollars, in thousands)		Global Spine				Global Orthopedics				Corporate				Total Orthofix
Operating income (loss)		$	18,559			$	(2,706	)		$	(8,999	)		$	6,854
Other income (expense), net			(25	)			(541	)			(232	)			(798	)
Depreciation and amortization			2,465				1,353				1,091				4,909
Amortization of acquired intangibles			1,418				—				—				1,418
EBITDA		$	22,417			$	(1,894	)		$	(8,140	)		$	12,383
Share-based compensation			1,524				626				1,609				3,759
Foreign exchange impact			51				509				13				573
Strategic investments			12				8				445				465
Acquisition-related fair value adjustments			(9,000	)			—				—				(9,000	)
(Gain) loss on investment securities			—				—				219				219
Legal judgments/settlements			(431	)			221				376				166
Succession and transition charges			133				1,099				434				1,666
Medical device regulation			205				149				299				653
Business interruption - COVID-19			333				179				11				523
Adjusted EBITDA		$	15,244			$	897			$	(4,734	)		$	11,407

Adjusted Net Income
		Three Months Ended March 31,
(Unaudited, U.S. Dollars, in thousands)		2021				2020
Net income (loss)		$	(5,816	)		$	25,665
Foreign exchange impact			2,662				573
Strategic investments			1,452				465
Acquisition-related fair value adjustments			2,564				(9,000	)
Amortization of acquired intangibles			2,239				1,418
Loss on investment securities			—				219
Legal judgments/settlements			(59	)			166
Succession and transition charges			30				1,666
Medical device regulation			1,824				653
Business interruption - COVID-19			23				523
Long-term income tax rate adjustment			(1,479	)			(20,657	)
Adjusted net income		$	3,440			$	1,691

Adjusted EPS
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