Orthofix Medical (OFIX) 9 May 232023 Q1 Earnings call transcript

Thank you for standing by. My name is Brendan, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Orthofix Medical Inc. Quarter One Earnings Call. All lines have been placed on mute to prevent any background noise. there a remarks, session. speaker's the will question-and-answer be After [Operator Instructions].

Investor Senior you Relations, may of begin Huerta, Alexa Director the conference.

Thank Welcome to earnings good afternoon, first and XXXX call. you, quarter the operator, Orthofix everyone.

call today and Valentine; Officer, Joining me Financial on are and Officer, Chief Chief Bostjancic. President John Keith Executive the

statements undue During provide statements including our on historical The based of beliefs and in involve facts Investors place about forward-looking such to will on statements statements, statements, today, risks and than and not expectations, contained assurance forward-looking we objectives. this on our other May of making occur. uncertainties. earnings will make those reliance we are forward-looking guidance as no there any call as is statements any call, be matter expectations we strategies, forward-looking or beliefs, that XXXX. All statements plans, are the X, that goals cautioned are will such today's

revise forward-looking undertake any We update statements. or obligation do not to such

Some in call for the factors make statements XX, on our Risk XX-K to in us be ended future. made SEC year XX-Q factors by could X, the we the results different filings Factors from as XXXX May materially well the under the and XXXX forward-looking risk Form disclosed heading this cause December Form filed the include that actual afternoon, as additional

We XXXX for financial refer to financial in accordance wish short-term our reconciliations addition, that determined will of our and U.S. on today's non-GAAP may first GAAP matters trends, to measures order measures. financial results. financial investors these to as believe In U.S. to today's to we Please understand announcing long-term non-GAAP the call, in financial GAAP. various to review measures properly supplement a these our press release refer results quarter with

Keith. over I At call this the turn point, to will

companies and has X. performance The pleased and leading focused our Thank portfolios. execute you, And our across this these strong afternoon. you, opportunities spine am all a us leadership operational cross-selling everyone, Orthofix in quarter and team to on combination following thank the joining on continuing the the and on merger two I with of Alexa, January growth global and first remained financial of strategies for company. creates orthopedics new SeaSpine

Revenue million, reported of for of growth and forma XX% first the year-over-year. quarter was representing $XXX growth pro XX%

two believe is team January, our Our of via Since some our consistent we're to growth portfolios reach. tirelessly expanded stronger and strong benefits indicative commitment has starting deliver our organization. above-market through to more the the already I throughout innovative companies, commercial and our integrate the see worked aligned quarter to complementary products of of

some ask For operational book I'll questions. of commercial financial followed today's for I'll call performance we and on and each innovation the product remarks provide commentary more highlights start call, product by any for to XXXX before John your initiatives, year open my the including full Then updates. channel a category, with guidance detailed

and spine sales and XXXX, the growth the realignment totaling growth management Our of generated BGT a BGT, the more expand a the the channels. million each XX% management to to in teams and the management sales We focus revenue spine to invested In $XX of fracture to dedicated organization fracture we with channels. bring enjoyed Growth start Bone double-digit year or year-over-year in both division, and quarter. first solid Therapies in

in market share advantage us and taking to the well positioned the the cross-selling anticipated share in This to of following the accelerate of management fracture following spine launch opportunities AccelStim. merger take

of our to indications. recent fresh Our a adds already which most portfolio solution, indication fracture expansive

from growth in approved CervicalStim, the US only BGS device cervical spine Within SpineStim market. the we and generated channel, the both PMA

that sales will in the annual growth with throughout comp for pleased significant normalize low mid-single we’re the fairly XXXX. remainder first we to in of account XXXX believe inflection growth the of the rates to quarter, quarter While the in digits first

As line, generate we focus revenue majority of for franchise, the million, continue More motion and spinal both growth reported $XX a of the the mid-single spinal market, and XX% XX% reflecting U.S. legacy portfolios, year-over-year basis. on the preservation to that digit global franchise. we growth implants substantial reported that stabilizing on enabling pro-forma revenue, includes in fixation MX-C in companies’ growth we specifically, we technology product technologies, in where which as

growth utilization revenue. Overall, distributors generated multiple innovation launched our more efforts We high-volume on interest best efficiency the take and we share U.S. rationalizing past implants committed the revenue who remain by we overall the expect couple onboarded of the to and leading decisions portfolio enable continuous recent market increasing by critical surgeon we by product exclusive, asset was to the more have product sales that of to in years. with a the streamlined are systems within the spinal companies’ spinal both above in of driven years, implant therefore increase made growth leveraging offering to products market

in the commercial Screw cases. clinical foundational of of extension the the technology In address our spine announced of an we Mariner requirements launch full which unique platform, System, QX, Pedicle complex adult Mariner will Deformity deformity

unique the of a to in the and each the System, $X.X tilt, and solutions anatomy blade system, surgeon to full provide Retractor procedure Lateral precise optimizes anatomy. MIS patient’s we launches for market which to access surgery, providing dial addition, which a the to control during construct rigid lateral Retractor allows medial billion lateral procedures the In each Lattus length customized of Fathom Pedicle-Based expanded access the our with the challenging address

implants new territories announced and focused leadership in and biologics, smaller, U.S. defined the those more early we we team increase February, presence for sales our In to spinal markets.

key sales bring next for to distributor excited month. team our inaugural partners sales are We global company together our and that combined leadership meeting

of United the global generate outside This expanding of technology on to average that and enabling unit the in a of of announced we System distribution unit sale global year marked late an XXXX. providing earnout placed expected earnout its active the Flash have are the that respective our the the through revenue This are franchise, comes Flash X we units over XD institutions the Within States. look forward technologies is XD placement XXth the To reach market $X to utilizing million date, XXXth heels expanded our to under the arrangements significant System quarter the first of capabilities machine-vision value periods. per across world network. having

new used legacy system, Orthofix in System. which XD the signals integrated Flash XD implant our first utilizing be In launched we and first also System use case flexibility the spinal the ease a of we fully tools quarter, completed tracked four model, navigated percutaneous and to our of Flash

Journal a interoperative complex The in and noted And by XX% finally, with that we respectively. System pediatric the highlights operative and publication radiation approximately radiation the and study of XX average, the of time exposure a that XX% savings Orthopedics and Pediatric are pleased time system by cases. on Flash benefits reduced in when time study recent reduced XD using minutes

lines technology. combined continuum to able technologies across We are all of be product and the the leverage support to care this platform excited full to company now novel our with enabling growth of service to

for navigation cases have are on a more us sector accelerate We we seen and more in shift gains. believe planning to and systems and an relying the this share as opportunity creates

was of biologic on year onboarded a primarily revenue led pro and distribution we In process million, by generated, substantial to bone provides driven generated year-over in the Accell-based solutions, forma the a we of $XX where market. which that surgeons repair demineralized by the biologics, franchise global spectrum representing growth bone our surgeon revenue forma majority revenue basis, flagship in growth preference bone a and In The also pro cellular reported matrix on X% matrix of X% a basis. solutions, recently is and U.S. full Trinity the U.S., fusion promote biologics enhance growth with

There across selling use the entire portfolio opportunities Orthofix with in of improved outcomes. conjunction the are for cross patient biologics significant

by sales performance portfolio European and over channels OR. EVO efficient continued by bearing products Galaxy quarter Gemini acceleration totaling and with from XXXX our In These led up solution we pack U.S. the The our are and currency first commercial and of pick the the sales investments last driven million. reducing direct and fruit, are across diverse XXXX XX and constant systems. in product XX% the and sterile for over hospitals, TrueLok the launches. months are in both sales grew solid complexity single-use enjoying the in and markets, continued leadership global was of simple was surgeons This international a XXXX, launches U.S. at execution revenue $XX from orthopedics,

next Fitbone year offering in In continue investments platform. innovation, XXXX, intend introduce product to to we the from the targeting end of our

growth leading market continue our business. investments current designed product the in our innovation, programs than higher and channel, sales are Our education historic all to in Orthopedics medical

cross and are growth good all further opportunities XXXX still realize and While we that and to into reach. accelerated this generate in revenue leveraging highly be growth segments, later able complementary to us progress that of selling identifying many momentum help year these commercial we carry are to stages opportunities the between expand of believe to early and making we business portfolios our of to our

now can new first attract And implants remaining can spinal ours, efforts support, our quarter business. that supporting we announcement remain result that not removing we the the synergy results believe have as more through to step management biologics implants important strategic certainty dis- cautiously our To finally, risks we a in like spinal U.S. was business, experienced any in of any sales and that our we to is an first dis-synergies the paralysis revenue distribution. that and the date, navigate meaningful successfully optimistic for and responsible from merger uncertainty would

momentum a have full-year the continue factor guidance quarter. revenue $XXX momentum, XXXX. in Looking to million the $XXX ahead, to execute, between our to we encouraged major confidence and million in out are was coming first the That our we raising we the for have teams by of to

we integration with progressing respect to of realizing smoothly report the The we many ahead in expense prior outlined of communications. to companies pleased that are synergies are and two operating the plan is

our the combined further market with balance on and for share and portfolio, plenty expand to runway of a global scale. and footprint of commercial on growth seizing we our scale We’re opportunity a capture have

the is in seen the perspective, offerings, market our effective needs we’re revenue leverage surgeons utilization product experiencing, else of higher With demand cross and the ready initiatives like increased and is continuum what per selling, the I across all our XXXX spine some to markets macro trends I see and rebounding brings. can’t underlying and reward Orthofix, a and to to Competitive great commercial we team believe patients capitalize care. to that case, of organizations expansion and we’ve have steady wait Orthofix a within across volume innovative pressures developments robust position portfolio the will From like on. meet market and procedure

that, provide quarter to to robust at our turn the financials the the detailed and look year. for over more more I’ll financial to full guidance With call John provide first a in

and Keith, afternoon, Thanks, good everyone.

earlier, as XX% of of reported million, year As increase U.S. quarter total revenue, revenue a first and revenue of revenue Keith or on and prior outside totaled an basis. over noted for total the US a the was million, revenue. the XX% over In $XXX year, XXXX XX% was increase proforma prior the total or $XXX $XX the total XX% million,

the of revenue the sequentially fourth growth came both channels, XX% teens and The with spine AccelStim the XXXX. BGT high commercial quarter fracture to from compared in growing from

the over include sales, XX% motion On exit coming distributors, proforma were spinal on prior high-volume a U.S. down legacy driven with preservation, year, grew U.S. third the due were revenue by basis new, SeaSpine’s growth while to a proforma the from which quarter biologics XX% year. up last basis, from in European our portfolio. DBM market sales international implant implant X% significant of spinal onboarding

broad continue We to a portfolio biologics new in to for allows see targeted surgeon meet opportunities needs. approach our with will that

product This channel Beginning distribution Implants consolidate product since part quarter as sold the and we is last U.S. of Spinal XXXX, and stand-alone will quarter be predominantly biologics the same as category in of are the a showing typically technologies into Technology, are products are enabling spinal procedures, through we biologics the category. will used implants, quarter opportunity. as spine in earnout Enabling those same the second

that saw rates, constant and In growth products. digit new both at sales with the investments by we and driven international measured in Orthopedics, double currency channel when growth U.S.

conform the for gross XX%. quarter gross including of quarter points of XXX compared XX% of XXXX, gross GAAP basis revised SeaSpine XXXX. margin the the of to of was the the to a first XXXX XX% first increased adjusted On financial pro-forma for XX% XXXX first compared to estimate that quarter first Orthofix for Adjusted results the of to XX% quarter for first we the margin basis by to margin presentation, quarter XXXX. for was

not of quarter; driven which attributable that $XX.X GAAP legacy merger-related $XXX,XXX reflected instrument impairment results be which decrease The in value up SeaSpine’s margin, as charges spinal discontinuation GAAP the entirely dilutive financial fair almost rationalization business acquired quarter decisions; million charge for are we next amortized we similar gross greater quarters, during decisions the of Orthofix’s in on two step and following SeaSpine we of purchase first was a gross in overall to legacy estimate to and non-cash, XXXX excess charges that implant the margin attributable impact by XXX was Orthofix’s likely inventory for accounting the points. factors, acquired record amount, an to results. at obsolete related system the merger, finalize product to the expect and legacy those basis the directly to and dollar inventory SeaSpine approximately Recall

Likewise, impact the acquired adjusted of year-over-year gross gross the Orthofix’s decrease the is margin SeaSpine on in margin. entirely business overall legacy dilutive due adjusted to

scale adjusted spinal from from gross over of merger. increase set implant utilization we that time as expect other We generate efficiencies additional to and recognize the we to expect margins economies

is of well XXXX was compared XXXX the first and were XXXX. GAAP first up quarter as COVID-related quarter meeting in by were for for The national and expenses quarter for first GAAP primarily first of a for the marketing sales marketing organization in with integration-related XXXX. reasons. the Adjusted of in sales sales, cancelled XX% retention the sales XX% associated the net of from quarter, as costs costs in the driven to expenses severance related merger, to XXXX. in XX% and BGT That XX% increase meeting

awards XX% of GAAP quarter, XXXX by of higher to increase million first XX% the expenses G&A for XX% Adjusted to compared quarter quarter up sales, a equity-based more fees, retention base accelerated and advisor well vesting of of approximately result a other were expenses for certain of from G&A period. expenses directly from post-merger of of financial accrued of merger G&A a costs, in as including The $X.X than employee driven and as professional in $X compensation and as were merger, GAAP prior-year as stock-based the XX% first net costs. was million related the larger and other result first $X in million the severance the XXXX.

the at to expect retention quarter, record remainder expenses affected amounts dollar respective We throughout of those their XXXX, work dates. through albeit end lower additional employees severance per and as

MTF related associated merger, to milestone compensation compared an for development of increase the higher R&D was expense. retention in quarter, The the prior-year by first of for sales, spend Adjusted in and compliance, accrued GAAP period. severance the first XXXX. up net costs expenses of XXXX the were quarter to XX% GAAP from first XX% were and driven XX% expenses to R&D stock-based EU the with X% primarily R&D quarter MDR payment,

in R&D market. differentiated on focus innovative bringing Our and be the new to products continues to

$XXX,XXX by the of XXXX of Adjusted estimate $X.X first $X.X quarter adjusted the compared the the year of that to On was EBITDA SeaSpine a million of EBITDA of compared pro-forma increased million, quarter in period. to for loss for prior XXXX, results first $X.X basis XXXX. first a financial for we including quarter million the

synergies We begin expect remainder of of operating in realize the as increasing to year. through the increase to merger-related in quarters adjusted EBITDA XXXX an subsequent amount expense we

provides investor news is posted back operating results from margin on our today. performance gross and non-GAAP of A adjusted GAAP was industry. our presentation in this operating our and updated website financial period and reconciliation our the presented the of in period EBITDA that companies that Adjusted at afternoon. of other against we pro-forma EBITDA of we adjusted gross core the comparability a information that EBITDA A financial tables our to valuable reconciliation facilitates release adjusted of to margin issued believe measure is to adjusted is

million, March our outstanding XX, cash on have million $XXX XXXX under totaled and facility. we equivalents currently of million Cash borrowings $XX credit $XX and

expenditures, the free a quarter cash for outflow that respective $XX closing to cash spend the financial related the capital flows the advisors, Our in facilitate $XX spend assistance, cash and cash directly XXXX. each the includes and to items bonuses, company’s of post-closing to cash XXXX operating fees of was employees heavy million quarter than million including included the The significant success the employee flow, fees first of which paid more $XX an generated million of the as merger integration and well severance, as for paid professional merger, following,

to spend future to related revenue product cash million $XX growth upcoming launches. support inventory and

Keith between terms the $XXX we of the company year-over-year revenue X% million, as our of revenue previously conform to after growth $XXX million indicated, revenue XXXX to giving reclassifications XXXX that financial and $XXX approximately year of full Orthofix. anticipated for combined In for reporting effect to compared to reported expect be to X% guidance, to pro-forma SeaSpine’s which represents full-year million

I’d by full January between for the not results that any first or included X year like quarter generated pro-forma guidance. remind the pre-merger X, GAAP combined period XXXX in revenue XXXX, nor to company’s through Also, is revenue in the January everyone revenue SeaSpine

of expense in million, second increase more adjusted operating with generated fully and revenue half For realize year in we of to adjusted adjusted range more that million XX% to our gross the as $XX of anticipated in XX% synergies. be EBITDA year than the XX% of the full a our expect for XXXX, margin EBITDA range a $XX to we will and be

spinal generating from by synergies of of integrate redundant redundant three program in common, and included in in R&D, with year million in portfolio synergies G&A, $XX Marketing, and We corporate Sales still many system those systems. reduction than expense more we implants coming IT from post-merger, overhead very related and meaningful as of spending and IT the a a costs operating overlapping bulk cases, headcount anticipate

those We million of expect in to more $XX alone. synergies than realize XXXX

Costs to headcount more with costs related achieve for costs spending future to those are in largely in severance quarters XXXX, than those total synergies $XX amounts We million. of to $XX retention million still remaining and synergies. expected anticipate

our to Given the burn for free to we expect flow approximately XXXX. merger non-recurring cash full-year the large $XXX cash spend XXXX, million related in be

confident the year and P&L and However, as all to as gain our realize healthy borrowing leverage that, increase expense very of spending a maintain the those that operating we fully have we under we throughout we to sufficient capacity revenue balance. finance credit facility more remain cash will synergies,

As we will get additional further guidance metrics. process, into provide to the continue we integration and reporting

I At the wrap the Keith up. like this call to point, would turn over to

field like the I expand our teams future patient would continuing of from for as quarter about for to Before XXXX to specifically we all first sales am thank our closing look four I excited also I presence. market commitment open the of and this loyalty the their rest to the our continuing accomplish months we during of line combined the to has into able for organization on thank forward like momentum employees beyond. transition. and of and extremely merger. the Orthofix to I am very questions, our since Orthofix during of first place time proud of strengthen the been and would what the

questions. line open the please for At this point, operator,

Your first comes line question from the Instructions] of Matthew [Operator Blackman.

now Your is open. line

was Keith deal Okay, five to taking start, I my months thank John, Maybe it's of and it which announced an about in call revenues and months you think couple. transaction it three-year you a billion EBITDA provided what questions. since you. eight the the since Appreciate, and closed have got first something margins. neighborhood call mid-teens $X been combined about I and the outlook, you’re in aspirational we'll

low in numbers, looking still million I a to think range, is and frankly, we're which both Just our 'XX, CAGR. $XXX the at consensus in closer near double-digit coming

outlook any we very really provided thoughts several about So in question been on to months initial is you those thinking financial for how should last mileposts updated relative I that be seat guess back admittedly that September? the now my longer-term in the you've

Yes. Matt. question. Hey, It's Thanks John. for the

companies' and and by looking bases, deeper that's that approach And balanced had more to to so at portfolios going collective product accompanied dive we've right, We're geographies. both to time P&L the growth the into increasing organizations, definitely revenue take collective targeted distributor leverage. now a

and to P&L growth is increasing going stakeholders leverage. costs we mean, I at more environment, growth don't approach a think we longer So in all our strategy, and market to term current balanced the this an from benefit think winning are

products a accompany little our demonstrates goal at bit the market, cognizant above that the to more evolving that So because and investments market of innovation, on through we're on generating meeting the a our efficiency the grow financial strategy market we're the taking that's exceeds right? customers' launching that we're of We cost to through much share focused got those of making is a still revenue needs, level that want and a those still sure we're on with operational just grow but capital. focus from to more the ROI

evolving too, comprehensive portfolios minimize the have of helping the clinical and So we're organization, the and more the to overall to more you're our very manage. they're have But alive goal, customers. managing, product the is right? exposure needs some only help complexity you meet low-margin look products to try complexity extent our reduce keep the to of product those our at that and We to there going lines

come hidden those hidden that there's lot revenue margins. contribution sustaining a with and older So diminishing costs, lines product with of opportunity costs

margin, higher to definitely we focus efficient minimizing portfolio we're going the go that our at look forward. we're on so there as more revenue and exposure So generating really

a revenue a right? absolutely will leverage not going translates a learned because more but particularly to on that market, be So equal, in ultimately in above-market we've the P&L want is in think taking disciplined Again, rate created that market grow. balanced an more all bottom we spinal shows to still I implant all we're line. demonstrate it more approach to be more we So bit approach how the share, we're selective growth

sense I than it's if a it leverage in so ‘XX we prove could maybe growth. more so on and maybe line makes ‘XX, thinking $X revenue but aggressive of or that billion Okay, translate conservative, ton the whether that, top about should think be I mid-teens

it's growth, profitable focus. the that's So

Definitely more [indiscernible]. balanced Yes. a approach. That’s

And then on I the wanted the a franchises. of just couple first into quarter, dig to

really First, a spinal think year- what over-year implant solid despite performance was comp. I tough

help you items. hoping couple a of So could on

and less drag one biologics throw spine headwinds of portfolio performance out of early those tough much something First, is work one being still was then if suggests hardware lagging that or that MX this portfolio just Is be market manifesting is it's growth, U.S. to other still this to Fixation going out there, upside I'll there I any appreciate like some how synergies? are or else? or The quantitatively Orthofix it. And related. maybe a the way the complex better accelerated versus tease But sequentially. probably our XQ qualitatively of market Spinal

Thanks, Matt. Yes.

a few side. So implant spinal details on the

we think benefit a did of I as mentioned. you both, see

hospitals had a year, if being this with issues where you of headwinds, versus I surgical a still recovery. from you related quarter had full more remember, recovery, market be and capacity. that think at I Part able the to consistent quarter we nice think, can COVID is last will, as some has

And so I going both those think that on. are of things

but got nice launch sell, of quarter go as have able couple as to just full to of the the in systems create you for good able us the couple especially as well saw with a the to past ability a into momentum ability the an opportunity interbody things, retraction products have to side, weeks, as more retraction not meaning us screw, be with few first pedicle the being orthobiologics. procedural One well. a over -- the We also

to And XD a the uptick had even selling seeing Firebird pedicle about are We've in had that complete because that sell. We've procedural ability more cases SKU we're opportunity, I that with momentum think systems. excited were seeing so we're new procedural cross-sell. distributors done and

they're we the product hoped and move. that the about So portfolio we're help seeing as and just excited integration get anticipated field seeing the to broader had able

orthobiologics, on it question the interesting. your is Now

think seen group continue quite not I We've good it the franchise but rates. to to in ability drive still having hospital growth robust. nice also that the systems, across DBM seeing uptake. only larger the is We're country still seeing buying

I when think some I allograft you best and systems a product look to But States what opportunity. takes broadly. there doing have what higher-priced see to as United very and comes still take takes it at you across We're Trinity offering. opportunity. the it's some the the puts the is when puts to I is fortunate feel that their a and hospital ability think they're sell and in with cell-based strong pricing

the Appreciated. in gate. on I’ll hop of out back the queue, congrats but a great quarter first

[Technical difficulty] this afternoon.

of first out your leverage quarter Orthofix. appreciate excited to the successful momentum have and we a interest We coming in are