Orthofix Reports Fourth Quarter and Full Year 2023 Results

March 5, 2024 |

18 min read

Orthofix Medical Inc. reported its financial results for the fourth quarter and year ended December 31, 2023, and issued guidance for the full year 2024.

Fourth quarter 2023 net sales of $200.4 million, an increase of 64% on a reported basis and 7% on a pro forma constant currency basis
Bone Growth Therapies net sales growth of 15% for the fourth quarter of 2023, marking four consecutive quarters with double-digit net sales increases, representing the strongest quarter of Bone Growth Therapies sales in the history of Orthofix
U.S. Orthopedic net sales growth of 11% for the full year 2023
U.S. spine fixation¹ net sales growth of 13.5% in Q4 2023 with net distributor additions since the third quarter of 2023
Fourth quarter 2023 net loss of $22 million; Non-GAAP Adjusted EBITDA of $20 million, or 10% of sales, representing 96% growth over the fourth quarter of 2022
Achieved $32 million in annualized merger-related synergies for the full year ended December 31, 2023

LEWISVILLE, Texas--(BUSINESS WIRE)-- Orthofix Medical Inc. (NASDAQ:OFIX) today reported its financial results for the fourth quarter and year ended December 31, 2023, and issued guidance for the full year 2024.

Fourth quarter net sales were $200.4 million, an increase of 64% on a reported basis and 7% on a pro forma constant currency basis. Net loss was $(22.2) million and earnings per share ("EPS") was $(0.59) on a reported basis, representing an improvement of 19% when compared to pro forma results for the prior year period. Non-GAAP adjusted EBITDA was $19.6 million for the fourth quarter, representing 96% growth over pro forma results for the fourth quarter of 2022.

Full year net sales were $746.6 million, an increase of 62% on a reported basis and 6% on a pro forma constant currency basis. Net loss was $(151.4) million and EPS was $(4.12). Non-GAAP adjusted EBITDA was $46.3 million for the full year, representing 69% growth over pro forma results for the full year of 2022.

“We are pleased to report another quarter of strong performance as Orthofix completes its first full year as a combined company with SeaSpine. We delivered accelerated growth exiting 2023 and demonstrated resilience, increased internal efficiencies and cost synergies,” said Massimo Calafiore, President and Chief Executive Officer of Orthofix. “I am thrilled to join Orthofix at such a pivotal moment in the Company’s story, wherein the business fundamentals are strong, we are well positioned to deliver profitable growth in 2024, and we are continuing to accelerate our leverage on revenue. After reflecting on my first two months in this role, it is evident that Orthofix’s balanced and complementary product mix offers a differentiated advantage across multiple markets. I look forward to leveraging that unique portfolio platform to drive future value through profitable growth.”

¹ Spine fixation is comprised of the Company's Spinal Implants product category, excluding motion preservation product offerings

Financial Results Overview

Fourth Quarter 2023 Net Sales and Financial Results

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

	Three Months Ended December 31,
(Unaudited, U.S. Dollars, in millions)	2023		2022		Change			Constant Currency Change
Bone Growth Therapies	$	58.8	$	51.0		15.3	%		15.3	%
Spinal Implants, Biologics, and Enabling Technologies		111.0		42.5		161.2	%		160.7	%
Global Spine		169.8		93.5		81.6	%		81.4	%
Global Orthopedics		30.6		28.7		6.8	%		2.7	%
Net sales	$	200.4	$	122.2		64.0	%		62.9	%

Further, the following table provides net sales by major product category by reporting segment on a pro forma basis:

	Three Months Ended December 31,
(Unaudited, U.S. Dollars, in millions)	2023		2022 Pro Forma		Change			Constant Currency Change
Bone Growth Therapies	$	58.8	$	51.0		15.3	%		15.3	%
U.S. Spinal Implants, Biologics and Enabling Technologies		100.6		96.4		4.4	%		4.4	%
International Spinal Implants, Biologics, and Enabling Technologies		10.4		10.3		0.7	%		0.1	%
Total Spinal Implants, Biologics, and Enabling Technologies		111.0		106.7		4.0	%		4.0	%
Global Spine		169.8		157.7		7.7	%		7.6	%
Global Orthopedics		30.6		28.7		6.8	%		2.7	%
Net sales	$	200.4	$	186.4		7.5	%		6.9	%

Gross margins were 68.2% for the fourth quarter ended December 31, 2023 and were 72.2% on a non-GAAP adjusted basis compared to pro-forma non-GAAP adjusted gross margin of 68.9% in the prior year period.

Net loss was $(22.2) million, or $(0.59) per share, compared to pro forma net loss of $(26.0) million, or $(0.73) per share in the prior year period. Non-GAAP adjusted EBITDA was $19.6 million, or 9.8% of net sales, compared to pro forma non-GAAP adjusted EBITDA of $10.0 million, or 5.4% of pro forma net sales, in the prior year period.

Full Year 2023 Net Sales and Financial Results

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

	Year Ended December 31,
(Unaudited, U.S. Dollars, in millions)	2023		2022		Change			Constant Currency Change
Bone Growth Therapies	$	212.5	$	187.2		13.5	%		13.5	%
Spinal Implants, Biologics, and Enabling Technologies		418.8		166.0		152.4	%		152.4	%
Global Spine		631.3		353.2		78.8	%		78.7	%
Global Orthopedics		115.3		107.5		7.2	%		5.2	%
Net sales	$	746.6	$	460.7		62.1	%		61.6	%

Further, the following table provides net sales by major product category by reporting segment on a pro forma basis:

	Year Ended December 31,
(Unaudited, U.S. Dollars, in millions)	2023		2022 Pro Forma		Change			Constant Currency Change
Bone Growth Therapies	$	212.5	$	187.2		13.5	%		13.5	%
U.S. Spinal Implants, Biologics and Enabling Technologies		379.4		352.5		7.6	%		7.6	%
International Spinal Implants, Biologics, and Enabling Technologies		39.4		53.6		(26.5	%)		(26.6	%)
Total Spinal Implants, Biologics, and Enabling Technologies**		418.8		406.0		3.1	%		3.1	%
Global Spine		631.3		593.3		6.4	%		6.4	%
Global Orthopedics		115.3		107.5		7.2	%		5.2	%
Net sales***	$	746.6	$	700.8		6.5	%		6.2	%

** Pro forma net sales for 2022 for Spinal Implants, Biologics, and Enabling Technologies include the impact of final Spinal Implant stocking orders to European distributors prior to SeaSpine's exit from that market. Excluding the impact of these transactions, net sales growth for this product category was 6.3% on a pro forma reported basis and pro forma constant currency basis.

*** Pro forma net sales for 2022 include the impact of final Spinal Implant stocking orders to European distributors prior to SeaSpine's exit from that market. Excluding the impact of these transactions, net sales growth was 8.4% on a pro forma reported basis and 8.1% on a pro forma constant currency basis.

Gross margins were 65.1% and were 71.4% on a non-GAAP adjusted basis compared to pro forma non-GAAP adjusted gross margin of 68.7% in the prior year.

Net loss was $(151.4) million, or $(4.12) per share, compared to pro forma net loss of $(84.8) million, or $(2.39) per share in the prior year. Non-GAAP adjusted EBITDA was $46.3 million, or 6.2% of net sales, compared to pro forma non-GAAP adjusted EBITDA of $27.4 million, or 3.9% of pro forma net sales, in the prior year period.

Liquidity

As of December 31, 2023, cash, cash equivalents, and restricted cash totaled $37.8 million compared to $50.7 million on December 31, 2022. As of December 31, 2023, the Company had $100.0 million in borrowings outstanding under its four year $150.0 million Financing Agreement. The Company subsequently borrowed an additional $15.0 million in January 2024.

Business Outlook

The Company is providing 2024 full year guidance as follows:

Net sales to range between $785 million to $795 million, representing implied growth of 5% to 7% year-over-year on a constant currency basis. These expectations are based on the current foreign currency exchange rates and do not take into account any additional potential exchange rate changes that may occur this year.
Non-GAAP adjusted EBITDA of $62 million to $67 million, representing a $15.7 million to $20.7 million increase, over the full year 2023
Exit Q4 2024 free cash flow positive

Conference Call

Orthofix will host a conference call today at 4:30 PM Eastern time to discuss the Company's financial results for the year ended December 31, 2023. Interested parties may access the conference call by dialing (888) 330-2508 in the U.S. and Canada, and (240) 789-2735 in all other locations, and referencing the access code 9556380. A replay of the call will be available for three weeks by dialing (800) 770-2030 in the U.S. and Canada, and (647) 362-9199 in all other locations, and entering the access code 9556380. A webcast of the conference call may be accessed at ir.Orthofix.com.

About Orthofix

Orthofix is a leading global spine and orthopedics company with a comprehensive portfolio of biologics, innovative spinal hardware, bone growth therapies, specialized orthopedic solutions and a leading surgical navigation system. Its products are distributed in more than 60 countries worldwide.

The Company is headquartered in Lewisville, Texas and has primary offices in Carlsbad, CA, with a focus on spine and biologics product innovation and surgeon education, and Verona, Italy, with an emphasis on product innovation, production, and medical education for orthopedics. The combined company’s global R&D, commercial and manufacturing footprint also includes facilities and offices in Irvine, CA, Toronto, Canada, Sunnyvale, CA, Wayne, PA, Olive Branch, MS, Maidenhead, UK, Munich, Germany, Paris, France, and São Paulo, Brazil. 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. Forward-looking statements in this communication include the Company's expectations regarding net sales and adjusted EBITDA for the year ended December 31, 2024. Forward-looking statements are not guarantees of our future performance, are based on our current expectations and assumptions regarding our business, the economy and other future conditions, and are subject to risks, uncertainties and changes in circumstances 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, 2023 (the “2023 Form 10-K”). Factors that could cause future results to differ from those expressed by forward-looking statements include, but are not limited to, (i) our ability to maintain operations to support our customers and patients in the near-term and to capitalize on future growth opportunities, (ii) risks associated with acceptance of surgical products and procedures by surgeons and hospitals, (iii) development and acceptance of new products or product enhancements, (iv) clinical and statistical verification of the benefits achieved via the use of our products, (v) our ability to adequately manage inventory, (vi) our ability to recruit and retain management and key personnel, (vii) global economic instability and potential supply chain disruption caused by Russia’s invasion of Ukraine and resulting sanctions, and (viii) the other risks and uncertainties more fully described in our periodic filings with the Securities and Exchange Commission (the “SEC”). 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, except as required by law.

The Company is unable to provide expectations of GAAP income (loss) before income taxes, the closest comparable GAAP measures to Adjusted EBITDA (which is a non-GAAP measure), on a forward-looking basis because the Company is unable to predict without unreasonable efforts the ultimate outcome of matters (including acquisition-related expenses, accounting fair value adjustments, and other such items) that will determine the quantitative amount of the items excluded in calculating Adjusted EBITDA, which items are further described in the reconciliation tables and related descriptions below. These items are uncertain, depend on various factors, and could be material to the Company’s results computed in accordance with GAAP.

ORTHOFIX MEDICAL INC. Condensed Consolidated Statements of Operations

	Three Months Ended						Year Ended
	December 31,						December 31,
(U.S. Dollars, in thousands, except share and per share data)	2023			2022			2023			2022
	(Unaudited)
Net sales	$	200,415		$	122,229		$	746,641		$	460,713
Cost of sales		63,785			33,053			260,368			123,544
Gross profit		136,630			89,176			486,273			337,169
Sales and marketing		97,749			59,324			385,736			228,810
General and administrative		34,535			25,470			144,659			79,966
Research and development		18,941			13,152			80,231			49,065
Acquisition-related amortization and remeasurement		3,720			2,274			14,757			(7,404	)
Operating loss		(18,315	)		(11,044	)		(139,110	)		(13,268	)
Interest expense, net		(4,500	)		(229	)		(8,631	)		(1,288	)
Other income (expense), net		766			4,286			(938	)		(3,150	)
Loss before income taxes		(22,049	)		(6,987	)		(148,679	)		(17,706	)
Income tax expense		(125	)		(75	)		(2,716	)		(2,043	)
Net loss	$	(22,174	)	$	(7,062	)	$	(151,395	)	$	(19,749	)

Net loss per common share:
Basic	$	(0.59	)	$	(0.35	)	$	(4.12	)	$	(0.98	)
Diluted		(0.59	)		(0.35	)		(4.12	)		(0.98	)
Weighted average number of common shares (in millions):
Basic		37.3			20.2			36.7			20.1
Diluted		37.3			20.2			36.7			20.1

ORTHOFIX MEDICAL INC. Condensed Consolidated Balance Sheets

(U.S. Dollars, in thousands, except par value data)	December 31, 2023			December 31, 2022

Assets
Current assets
Cash and cash equivalents	$	33,107		$	50,700
Restricted cash		4,650			—
Accounts receivable, net of allowances of $7,130 and $6,419, respectively		128,098			82,857
Inventories		222,166			100,150
Prepaid expenses and other current assets		32,422			22,283
Total current assets		420,443			255,990
Property, plant, and equipment, net		159,060			58,229
Intangible assets, net		117,490			47,388
Goodwill		194,934			71,317
Other long-term assets		33,388			25,705
Total assets	$	925,315		$	458,629
Liabilities and shareholders’ equity
Current liabilities
Accounts payable	$	58,357		$	27,598
Current portion of long-term debt		1,250			—
Current portion of finance lease liability		708			652
Other current liabilities		104,908			55,374
Total current liabilities		165,223			83,624
Long-term debt		93,107			—
Long-term portion of finance lease liability		18,532			19,239
Other long-term liabilities		49,723			18,906
Total liabilities		326,585			121,769
Contingencies
Shareholders’ equity
Common shares $0.10 par value; 100,000 shares authorized; 37,165 and 20,162 issued and outstanding as of December 31, 2023 and 2022, respectively		3,717			2,016
Additional paid-in capital		746,450			334,969
Retained earnings (accumulated deficit)		(150,144	)		1,251
Accumulated other comprehensive loss		(1,293	)		(1,376	)
Total shareholders’ equity		598,730			336,860
Total liabilities and shareholders’ equity	$	925,315		$	458,629

ORTHOFIX MEDICAL INC.
Non-GAAP Financial Measures

The following tables present reconciliations of various financial measures calculated in accordance with U.S. generally accepted accounting principles (“GAAP”), to various non-GAAP financial measures that exclude (or in the case of free cash flow, include) items specified in the tables. The GAAP measures shown in the tables below represent the most comparable GAAP measure to the applicable non-GAAP measure(s) shown in the table. For further information regarding the nature of these exclusions, why the Company believes that these non-GAAP financial measures provide useful information to investors, the specific manner in which management uses these measures, and some of the limitations associated with the use of these measures, please refer to the Company's Current Report on Form 8-K regarding this press release filed today with the SEC available on the SEC's website at www.sec.gov and on the “Investors” page of the Company’s website at www.orthofix.com.

Adjusted Gross Profit and Adjusted Gross Margin

	Three Months Ended December 31,
(Unaudited, U.S. Dollars, in thousands)	2023			Orthofix 2022			SeaSpine 2022			Pro Forma 2022
Gross profit	$	136,630		$	89,176		$	38,515		$	127,691
Share-based compensation expense		462			217			102			319
SeaSpine merger-related costs		214			—			—			—
Strategic investments		125			439			—			439
Acquisition-related fair value adjustments		7,037			—			—			—
Amortization/Depreciation of Acquired Long-Lived Assets		372			—			—			—
Medical device regulation		(72	)		1			—			1
Adjusted gross profit	$	144,768		$	89,833		$	38,617		$	128,450
Adjusted gross margin		72.2	%		73.5	%		60.2	%		68.9	%

	Year Ended December 31,
(Unaudited, U.S. Dollars, in thousands)	2023			Orthofix 2022			SeaSpine 2022			Pro Forma 2022
Gross profit	$	486,273		$	337,169		$	141,834		$	479,003
Share-based compensation expense		1,878			827			365			1,192
SeaSpine merger-related costs		6,861			—			—			—
Strategic investments		389			1,334			—			1,334
Acquisition-related fair value adjustments		36,044			—			208			208
Amortization/Depreciation of Acquired Long-Lived Assets		1,196			—			—			—
Medical device regulation		604			15			—			15
Adjusted gross profit	$	533,245		$	339,345		$	142,407		$	481,752
Adjusted gross margin		71.4	%		73.7	%		59.3	%		68.7	%

Adjusted EBITDA

	Three Months Ended December 31,
(Unaudited, U.S. Dollars, in thousands)	2023			Orthofix 2022			SeaSpine 2022			Pro Forma 2022
Loss before income taxes	$	(22,049	)	$	(6,987	)	$	(20,287	)	$	(27,274	)
Interest expense, net		4,500			229			202			431
Depreciation and amortization		13,969			7,421			4,349			11,770
Share-based compensation expense		3,167			4,923			3,412			8,335
Foreign exchange impact		(2,638	)		(4,195	)		(147	)		(4,342	)
SeaSpine merger-related costs		2,261			9,073			2,616			11,689
Strategic investments		389			771			(16	)		755
Acquisition-related fair value adjustments		6,486			200			—			200
(Gain) loss on investments		1,781			—			—			—
Litigation and investigation costs		8,842			337			1,066			1,403
Medical device regulation		1,927			3,481			—			3,481
Business interruption - COVID-19		—			513			—			513
Succession charges		1,006			—			—			—
Spinal set instrument replacement expense		—			—			2,630			2,630
European sales and marketing organization restructuring		—			—			426			426
Adjusted EBITDA	$	19,641		$	15,766		$	(5,749	)	$	10,017


	Year Ended December 31,
(Unaudited, U.S. Dollars, in thousands)	2023			Orthofix 2022			SeaSpine 2022			Pro Forma 2022
Loss before income taxes	$	(148,679	)	$	(17,706	)	$	(67,324	)	$	(85,030	)
Interest expense, net		8,631			1,288			644			1,932
Depreciation and amortization		53,063			29,019			17,187			46,206
Share-based compensation expense		35,707			18,443			13,584			32,027
Foreign exchange impact		(1,581	)		3,291			387			3,678
SeaSpine merger-related costs		36,623			12,010			4,028			16,038
Strategic investments		2,272			4,018			362			4,380
Acquisition-related fair value adjustments		33,393			(15,595	)		208			(15,387	)
(Gain) loss on investments		1,781			188			—			188
Litigation and investigation costs		14,453			803			1,610			2,413
Medical device regulation		9,446			10,261			—			10,261
Business interruption - COVID-19		—			2,387			—			2,387
Succession charges		1,176			146			—			146
Spinal set instrument replacement expense		—			—			7,179			7,179
European sales and marketing organization restructuring		—			—			984			984
Adjusted EBITDA	$	46,285		$	48,553		$	(21,151	)	$	27,402

Cash Flow and Free Cash Flow

	Year Ended December 31,
(Unaudited, U.S. Dollars, in thousands)	2023			Orthofix 2022			SeaSpine 2022			Pro Forma 2022
Net cash from operating activities	$	(45,753	)	$	(11,538	)	$	(38,157	)	$	(49,695	)
Net cash from investing activities		(33,131	)		(24,534	)		(40,325	)		(64,859	)
Net cash from financing activities		65,322			(78	)		24,654			24,576
Effect of exchange rate changes on cash		619			(997	)		140			(857	)
Net change in cash, cash equivalents, and restricted cash	$	(12,943	)	$	(37,147	)	$	(53,688	)	$	(90,835	)

	Year Ended December 31,
(Unaudited, U.S. Dollars, in thousands)	2023			Orthofix 2022			SeaSpine 2022			Pro Forma 2022
Net cash from operating activities	$	(45,753	)	$	(11,538	)	$	(38,157	)	$	(49,695	)
Capital expenditures		(62,050	)		(23,160	)		(37,752	)		(60,912	)
Free cash flow	$	(107,803	)	$	(34,698	)	$	(75,909	)	$	(110,607	)

Net Income and EPS

	Three Months Ended December 31,
(Unaudited, U.S. Dollars, in thousands, except share and per share data)	2023			Orthofix 2022			SeaSpine 2022			Pro Forma 2022
Net loss	$	(22,174	)	$	(7,062	)	$	(18,958	)	$	(26,020	)
Weighted average shares outstanding (in millions)		37.3			20.2			15.4			35.6
EPS	$	(0.59	)	$	(0.35	)	$	(1.23	)	$	(0.73	)

	Year Ended December 31,
(Unaudited, U.S. Dollars, in thousands, except share and per share data)	2023			Orthofix 2022			SeaSpine 2022			Pro Forma 2022
Net loss	$	(151,395	)	$	(19,749	)	$	(65,009	)	$	(84,758	)
Weighted average shares outstanding		36.7			20.1			15.4			35.5
EPS	$	(4.12	)	$	(0.98	)	$	(4.22	)	$	(2.39	)