Financial

Orthofix Reports Third Quarter 2018 Financial Results

October 29, 2018

LEWISVILLE, Texas–(BUSINESS WIRE)–Orthofix Medical Inc. (previously Orthofix International N.V.) (NASDAQ:OFIX) today reported its financial results for the third quarter ended September 30, 2018. Net sales were $111.7 million, net loss per share from continuing operations was $0.07 and adjusted earnings per share from continuing operations was $0.43.

“In addition to solid financial performance on both the top line and adjusted EBITDA in the third quarter, we made significant operational progress in the alignment of our Bone Growth Therapy, Spinal Implants and Biologics segments into Orthofix Spine,” said Brad Mason, Orthofix President and Chief Executive Officer. “We believe that our market-leading technologies in osteogenesis stimulation and stem cell allografts, together with the M6 cervical disc, once it is approved by the U.S. Food and Drug Administration, will uniquely position us in the spine market overall and particularly in the cervical spine segment. We also believe this combination of spine products in conjunction with our historical strength in Orthofix Extremities provides the platforms for us to drive accelerating growth as we move into 2019 and for the foreseeable future.”

Financial Results Overview

The following table provides net sales by reporting segments:

Three Months Ended September 30,
(Unaudited, U.S. Dollars, in thousands) 2018 2017 Change Constant

Currency

Change

Bone Growth Therapies1 $ 48,059 $ 44,427 8.2 % 8.2 %
Spinal Implants2 22,102 20,155 9.7 %

4

10.0 %

4

Biologics 14,636 15,218 (3.8 %)

5

(3.8 %)

5

Orthofix Extremities3 26,911 25,447 5.8 % 7.5 %
Net sales $ 111,708 $ 105,247 6.1 %

6

6.6 %

6

1 Formerly referred to as BioStim
2 Formerly referred to as Spine Fixation
3 Formerly referred to as Extremity Fixation
4 Excluding Spinal Kinetics, net sales decreased 4.5% on a reported basis and 4.3% on a constant currency basis
5 Excluding the contractual reduction in fee for marketing services, the growth year over year was 3.7% on a reported and constant currency basis
6 Excluding Spinal Kinetics and the contractual reduction in fee for marketing services, the increase was 4.5% on a reported basis and 5.0% on a constant currency basis

 

Gross margin increased 100 basis points compared to the prior year period primarily driven by costs savings from our 2017 U.S. restructuring initiative and continued improvement related to inventory management initiatives. Non-GAAP net margin, an internal metric that the Company defines as gross profit less sales and marketing expenses, was $37.8 million compared to $34.0 million in the prior year period. As a percentage of net sales, non-GAAP net margin increased to 33.8% as compared to 32.3% in the prior year period, primarily due to the improvement in gross margin and improvements in commission rates.

GAAP net loss from continuing operations was ($1.2) million, or ($0.07) per share, compared to net income of $3.3 million, or $0.18 per share in the prior year period. This decrease was primarily driven by changes in the fair value of contingent consideration associated with the acquisition of Spinal Kinetics and an unrealized loss on investment securities recognized during the third quarter of 2018. Adjusted net income from continuing operations was $8.2 million, or $0.43 per share, compared to adjusted net income of $7.7 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 $9.5 million, or $0.50 per share, a 19.0% increase over prior year.

EBITDA was $3.6 million, compared to $14.5 million in the prior year period. Adjusted EBITDA was $21.4 million, or 19.2% of net sales, for the third quarter, compared to $21.1 million, or 20.1% of net sales, in the prior year period.

Liquidity

As of September 30, 2018, cash, cash equivalents, and restricted cash totaled $56.2 million compared to $81.2 million as of December 31, 2017. As of September 30, 2018, the Company had no outstanding indebtedness and borrowing capacity of $125 million under its existing credit facility. Cash flow from operations was $28.8 million, an increase of $19.7 million, and free cash flow was $18.1 million, an increase of $22.3 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.

Previous 2018 Outlook Current 2018 Outlook
(Unaudited, U.S. Dollars, in millions, except per share data) Low High Low High
Net sales $ 450.0 $ 456.0 $ 451.0 1 $ 455.0 1
Net income from continuing operations $ 18.3 $ 19.7 $

11.4

$

12.7

Adjusted EBITDA $ 85.0 $ 87.0 $ 85.5 $ 87.0
EPS from continuing operations $ 0.97 $ 1.04 $

0.60

$

0.67

Adjusted EPS from continuing operations $ 1.66 $ 1.72 $ 1.70 $ 1.75
1

Represents a year-over-year increase of 4.0% to 4.9% on a reported basis

Conference Call

Orthofix will host a conference call today at 4:30 PM Eastern time to discuss the Company’s financial results for the third 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 6295495. 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 6295495. 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.

ORTHOFIX MEDICAL INC.
Condensed Consolidated Statements of Operations
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited, U.S. Dollars, in thousands, except share and per share data) 2018 2017 2018 2017
Net sales $ 111,708 $ 105,247 $ 331,964 $ 316,927
Cost of sales 24,020 23,717 71,002 69,475
Gross profit 87,688 81,530 260,962 247,452
Sales and marketing 49,898 47,493 151,695 146,496
General and administrative 22,705 18,068 64,457 56,759
Research and development 9,598 6,935 24,426 21,246
Changes in fair value of contingent consideration 1,580 2,689
Operating income 3,907 9,034 17,695 22,951
Interest income (expense), net (181 ) (15 ) (615 ) 106
Other income (expense), net (5,054 ) 479 (5,785 ) (3,284 )
Income (loss) before income taxes (1,328 ) 9,498 11,295 19,773
Income tax benefit (expense) 115 (6,150 ) (6,346 ) (13,998 )
Net income (loss) from continuing operations (1,213 ) 3,348 4,949 5,775
Discontinued operations
Income (loss) from discontinued operations 65 (3 ) (1,762 )
Income tax benefit (expense) 2 43 (6 ) 642
Net income (loss) from discontinued operations 2 108 (9 ) (1,120 )
Net income (loss) $ (1,211 ) $ 3,456 $ 4,940 $ 4,655
Net income (loss) per common share—basic
Net income (loss) from continuing operations $ (0.07 ) $ 0.18 $ 0.26 $ 0.32
Net income (loss) from discontinued operations 0.01 (0.06 )
Net income (loss) per common share—basic $ (0.07 ) $ 0.19 $ 0.26 $ 0.26
Net income (loss) per common share—diluted
Net income (loss) from continuing operations $ (0.07 ) $ 0.18 $ 0.26 $ 0.31
Net income (loss) from discontinued operations 0.01 (0.06 )
Net income (loss) per common share—diluted $ (0.07 ) $ 0.19 $ 0.26 $ 0.25
Weighted average number of common shares:
Basic 18,562,204 18,180,845 18,460,848 18,071,093
Diluted 18,562,204 18,572,791 18,864,169 18,394,542

 

 

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Josh Sandberg

Josh Sandberg is the President of Ortho Sales Partners and Partner for The De Angelis Group. He also serves as Co-Founder and Editor of OrthoSpineNews.

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