Orthofix Reports Second Quarter 2018 Financial Results

August 06, 2018

LEWISVILLE, Texas–(BUSINESS WIRE)–Orthofix Medical Inc. (previously Orthofix International N.V.) (NASDAQ:OFIX) today reported its financial results for the second quarter ended June 30, 2018. Net sales were $111.5 million, diluted earnings per share from continuing operations was $0.05 and adjusted earnings per share from continuing operations was $0.42.

“During the second quarter, we made excellent progress on our operating and margin improvement goals despite the impact of unexpected currency headwinds and order timing on topline growth,” commented Brad Mason, Orthofix president and Chief Executive Officer. “Adjusted EBITDA performance in the period demonstrated our progress in driving efficiency to reduce operating expenses and achieve our stated goal of increasing Adjusted EBITDA margin in our organic business by at least 100 basis points this year and in each of the next two years. Operationally, we completed the acquisition and integration of Spinal Kinetics, realigned our business unit structure to help further accelerate long-term growth, positioned the company for the move of our corporate domicile from Curaçao to Delaware, that was completed July 31st, and significantly reduced inventories (excluding Spinal Kinetics) over prior year. We anticipate that these accomplishments will benefit Orthofix for many years to come.”

Corporate Realignment and Domestication to Delaware

In June, the Company realigned its four strategic business units around two pillars, Spine and Extremities. The distribution, branding and leadership of our bone growth therapy, spinal implants, biologics and Spinal Kinetics business units are being combined into one Orthofix Global Spine business to maximize opportunities from the acquisition of Spinal Kinetics and, in the long-term, better leverage the full spine portfolio to achieve both revenue acceleration and cost synergies.

On July 31, subsequent to shareholder approval, the Company’s corporate domicile was moved from Curaçao to Delaware. As a result of this transition, we are reducing our non-GAAP long-term effective tax rate from 35% to 29%, simplifying our operational structure and improving financial flexibility. Additionally, the name of the Company was changed from Orthofix International N.V. to Orthofix Medical Inc.

Financial Results Overview

The following table provides net sales by strategic business unit (“SBU”):

Gross margin increased 80 basis points compared to the prior year period primarily driven by continued improvement related to inventory management initiatives, partially offset by the addition of Spinal Kinetics acquisition-related inventory fair value adjustments. Non-GAAP net margin, an internal metric that the Company defines as gross profit less sales and marketing expenses, was $37.2 million compared to $35.3 million in the prior year period. As a percentage of net sales, non-GAAP net margin increased to 33.3% as compared to 32.4% in the prior year period, primarily due to the improvement in gross margin.

Net income from continuing operations was $0.9 million, or $0.05 per share, compared to $4.7 million, or $0.26 per share in the prior year period. Adjusted net income from continuing operations was $7.9 million, or $0.42 per share, compared to adjusted net income of $7.8 million, or $0.42 per share in the prior year period. Excluding the impact of the Spinal Kinetics operating loss in the period, adjusted net income was $8.5 million, or $0.45 per share, a 7.1% increase over prior year.

EBITDA was $6.8 million, compared to $14.0 million in the prior year period. Adjusted EBITDA was $22.0 million, or 19.7% of net sales, for the second quarter, compared to $20.5 million, or 18.8% of net sales, in the prior year period.

Liquidity

As of June 30, 2018, cash and cash equivalents were $45.7 million compared to $81.2 million as of December 31, 2017. As of June 30, 2018, the Company had no outstanding indebtedness and borrowing capacity of $125 million under its existing credit facility. Cash flow from operations was $13.0 million, an increase of $17.7 million, and free cash flow was 6.4 million, an increase of $19.6 million when compared to the same prior year period.

2018 Updated Outlook

For the year ending December 31, 2018, the Company expects the following results, assuming exchange rates are the same as those currently prevailing.

⁹ Calculated using a non-GAAP tax rate of 35% for the first and second quarters of 2018 and 29% for the third and fourth quarters of 2018 to reflect the expected impact of changing the Company’s jurisdiction of organization from Curaçao to the State of Delaware

Conference Call

Orthofix will host a conference call today at 4:30 PM Eastern time to discuss the Company’s financial results for the second quarter of 2018. Interested parties may access the conference call by dialing (844) 809-1992 in the U.S. and (612) 979-9886 outside the U.S., and referencing the conference ID 5556977. A replay of the call will be available for two weeks by dialing (855) 859-2056 in the U.S. and (404) 537-3406 outside the U.S., and entering the conference ID 5556977. A webcast of the conference call may be accessed by going to the Company’s website at www.orthofix.com, by clicking on the Investors link and then the Events and Presentations page.

About Orthofix

Orthofix Medical Inc. is a global medical device company focused on musculoskeletal products and therapies. The Company’s mission is to improve patients’ lives by providing superior reconstruction and regenerative musculoskeletal solutions to physicians worldwide. Headquartered in Lewisville, Texas, Orthofix’s spine and orthopedic extremities products are distributed in over seventy 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 (“the Exchange Act”), 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. Therefore, 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 further update any such statement, or the risk factors described in Part I, Item 1A under the heading Risk Factors in our Form 10-K for the year ended December 31, 2017 and other SEC filings, to reflect new information, the occurrence of future events or circumstances or otherwise.

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