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Orthofix Medical Inc. - Quarter Report: 2022 September (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark one)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2022

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to .

Commission File Number: 0-19961

 

img220792011_0.jpg 

ORTHOFIX MEDICAL INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

98-1340767

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

3451 Plano Parkway,

Lewisville, Texas

 

75056

(Address of principal executive offices)

 

(Zip Code)

(214) 937-2000

(Registrant’s telephone number, including area code)

 

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated filer

Accelerated filer

 

 

 

 

Non-Accelerated filer

Smaller Reporting Company

 

 

 

 

 

 

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of October 31, 2022, 20,007,946 shares of common stock were issued and outstanding.

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common stock, $0.10 par value per share

 

OFIX

 

Nasdaq Global Select Market

 

 


 

Table of Contents

 

 

 

 

 

 

Page

PART I

 

FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

4

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2022 and 2021

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2022 and 2021

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021

 

7

 

 

 

 

 

 

 

Notes to the Unaudited Condensed Consolidated Financial Statements

 

8

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

18

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

27

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

27

 

 

 

 

 

PART II

 

OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

28

 

 

 

 

 

Item 1A.

 

Risk Factors

 

28

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

31

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

31

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

31

 

 

 

 

 

Item 5.

 

Other Information

 

31

 

 

 

 

 

Item 6.

 

Exhibits

 

32

 

 

 

 

 

SIGNATURES

 

33

 

2


 

Forward-Looking Statements

This Quarterly Report 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. Forward-looking statements include, but are not limited to, statements about:

our intentions, beliefs, and expectations regarding our operations, sales, expenses, and future financial performance;
our operating results;
our plans for future products and enhancements of existing products;
anticipated growth and trends in our business;
the timing of and our ability to maintain and obtain regulatory clearances or approvals;
our belief that our cash and cash equivalents, investments, and access to our revolving line of credit will be sufficient to satisfy our anticipated cash requirements;
our expectations regarding our revenues, customers, and distributors;
our expectations regarding our costs, suppliers, and manufacturing abilities;
our beliefs and expectations regarding our market penetration and expansion efforts;
our expectations regarding the benefits and integration of acquired businesses and/or products and our ability to make future acquisitions and successfully integrate any such future-acquired businesses;
our anticipated trends and challenges in the markets in which we operate; and
our expectations and beliefs regarding and the impact of investigations, claims, and litigation.

These forward-looking statements are not guarantees of future performance and involve risks, uncertainties, estimates, and assumptions that are difficult to predict. 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. Potential risks and uncertainties that could cause actual results to differ materially include, but are not limited to, those set forth in Part I, Item 1A under the heading Risk Factors; Part II, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations; and elsewhere throughout the Annual Report on Form 10-K for the year ended December 31, 2021, and in any other documents incorporated by reference. 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.

Trademarks

Solely for convenience, our trademarks and trade names in this report are referred to without the ® and ™ symbols, but such references should not be construed as any indicator that we will not assert, to the fullest extent under applicable law, our rights thereto.

3


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ORTHOFIX MEDICAL INC.

Condensed Consolidated Balance Sheets

 

(U.S. Dollars, in thousands, except par value data)

 

September 30,
2022

 

 

December 31,
2021

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

51,660

 

 

$

87,847

 

Accounts receivable, net of allowances of $5,948 and $4,944, respectively

 

 

75,633

 

 

 

78,560

 

Inventories

 

 

100,277

 

 

 

82,974

 

Prepaid expenses and other current assets

 

 

19,325

 

 

 

20,141

 

Total current assets

 

 

246,895

 

 

 

269,522

 

Property, plant, and equipment, net

 

 

57,820

 

 

 

59,252

 

Intangible assets, net

 

 

47,513

 

 

 

52,666

 

Goodwill

 

 

71,317

 

 

 

71,317

 

Deferred income taxes

 

 

1,544

 

 

 

1,771

 

Other long-term assets

 

 

24,571

 

 

 

22,095

 

Total assets

 

$

449,660

 

 

$

476,623

 

 

 

 

 

 

 

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

28,003

 

 

$

26,459

 

Current portion of finance lease liability

 

 

638

 

 

 

2,590

 

Other current liabilities

 

 

49,007

 

 

 

76,781

 

Total current liabilities

 

 

77,648

 

 

 

105,830

 

Long-term portion of finance lease liability

 

 

19,407

 

 

 

19,890

 

Other long-term liabilities

 

 

19,066

 

 

 

13,969

 

Total liabilities

 

 

116,121

 

 

 

139,689

 

Contingencies (Note 7)

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

Common shares $0.10 par value; 50,000 shares authorized;
    
20,007 and 19,837 issued and outstanding as of September 30,
    2022 and December 31, 2021, respectively

 

 

2,001

 

 

 

1,983

 

Additional paid-in capital

 

 

328,387

 

 

 

313,951

 

Retained earnings

 

 

8,313

 

 

 

21,000

 

Accumulated other comprehensive loss

 

 

(5,162

)

 

 

 

Total shareholders’ equity

 

 

333,539

 

 

 

336,934

 

Total liabilities and shareholders’ equity

 

$

449,660

 

 

$

476,623

 

The accompanying notes form an integral part of these condensed consolidated financial statements

4


 

ORTHOFIX MEDICAL INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

(Unaudited, U.S. Dollars, in thousands, except per share data)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net sales

 

$

113,996

 

 

$

112,428

 

 

$

338,484

 

 

$

339,415

 

Cost of sales

 

 

30,573

 

 

 

28,307

 

 

 

90,491

 

 

 

81,660

 

Gross profit

 

 

83,423

 

 

 

84,121

 

 

 

247,993

 

 

 

257,755

 

Sales and marketing

 

 

55,461

 

 

 

56,097

 

 

 

169,486

 

 

 

164,220

 

General and administrative

 

 

19,322

 

 

 

16,312

 

 

 

54,496

 

 

 

51,091

 

Research and development

 

 

11,943

 

 

 

12,360

 

 

 

35,913

 

 

 

36,378

 

Acquisition-related amortization and remeasurement (Note 11)

 

 

2,484

 

 

 

(335

)

 

 

(9,678

)

 

 

5,028

 

Operating income (loss)

 

 

(5,787

)

 

 

(313

)

 

 

(2,224

)

 

 

1,038

 

Interest expense, net

 

 

(277

)

 

 

(433

)

 

 

(1,059

)

 

 

(1,400

)

Other expense, net

 

 

(3,308

)

 

 

(1,789

)

 

 

(7,436

)

 

 

(3,528

)

Loss before income taxes

 

 

(9,372

)

 

 

(2,535

)

 

 

(10,719

)

 

 

(3,890

)

Income tax benefit (expense)

 

 

(1,344

)

 

 

364

 

 

 

(1,968

)

 

 

(1,677

)

Net loss

 

$

(10,716

)

 

$

(2,171

)

 

$

(12,687

)

 

$

(5,567

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.53

)

 

$

(0.11

)

 

$

(0.63

)

 

$

(0.28

)

Diluted

 

 

(0.53

)

 

 

(0.11

)

 

 

(0.63

)

 

 

(0.28

)

Weighted average number of common shares:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

20,091

 

 

 

19,770

 

 

 

20,007

 

 

 

19,634

 

Diluted

 

 

20,091

 

 

 

19,770

 

 

 

20,007

 

 

 

19,634

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss, before tax

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on debt securities

 

 

(236

)

 

 

513

 

 

 

(749

)

 

 

(115

)

Currency translation adjustment

 

 

(2,105

)

 

 

(719

)

 

 

(4,413

)

 

 

(1,901

)

Other comprehensive loss, before tax

 

 

(2,341

)

 

 

(206

)

 

 

(5,162

)

 

 

(2,016

)

Income tax benefit (expense) related to other comprehensive loss

 

 

 

 

 

(128

)

 

 

 

 

 

28

 

Other comprehensive loss, net of tax

 

 

(2,341

)

 

 

(334

)

 

 

(5,162

)

 

 

(1,988

)

Comprehensive loss

 

$

(13,057

)

 

$

(2,505

)

 

$

(17,849

)

 

$

(7,555

)

The accompanying notes form an integral part of these condensed consolidated financial statements

5


 

ORTHOFIX MEDICAL INC.

Condensed Consolidated Statements of Changes in Shareholders’ Equity

 

(Unaudited, U.S. Dollars, in thousands)

 

Number of
Common
Shares
Outstanding

 

 

Common
Shares

 

 

Additional
Paid-in
Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Total
Shareholders’
Equity

 

At December 31, 2021

 

 

19,837

 

 

$

1,983

 

 

$

313,951

 

 

$

21,000

 

 

$

 

 

$

336,934

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,460

)

 

 

 

 

 

(4,460

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,162

)

 

 

(1,162

)

Share-based compensation expense

 

 

 

 

 

 

 

 

4,332

 

 

 

 

 

 

 

 

 

4,332

 

Common shares issued, net

 

 

5

 

 

 

1

 

 

 

(70

)

 

 

 

 

 

 

 

 

(69

)

At March 31, 2022

 

 

19,842

 

 

$

1,984

 

 

$

318,213

 

 

$

16,540

 

 

$

(1,162

)

 

$

335,575

 

Net income

 

 

 

 

 

 

 

 

 

 

 

2,489

 

 

 

 

 

 

2,489

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,659

)

 

 

(1,659

)

Share-based compensation expense

 

 

 

 

 

 

 

 

4,460

 

 

 

 

 

 

 

 

 

4,460

 

Common shares issued, net

 

 

158

 

 

 

16

 

 

 

1,065

 

 

 

 

 

 

 

 

 

1,081

 

At June 30, 2022

 

 

20,000

 

 

$

2,000

 

 

$

323,738

 

 

$

19,029

 

 

$

(2,821

)

 

$

341,946

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(10,716

)

 

 

 

 

 

(10,716

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,341

)

 

 

(2,341

)

Share-based compensation expense

 

 

 

 

 

 

 

 

4,729

 

 

 

 

 

 

 

 

 

4,729

 

Common shares issued, net

 

 

7

 

 

 

1

 

 

 

(80

)

 

 

 

 

 

 

 

 

(79

)

At September 30, 2022

 

 

20,007

 

 

$

2,001

 

 

$

328,387

 

 

$

8,313

 

 

$

(5,162

)

 

$

333,539

 

 

 

(Unaudited, U.S. Dollars, in thousands)

 

Number of
Common
Shares
Outstanding

 

 

Common
Shares

 

 

Additional
Paid-in
Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Total
Shareholders’
Equity

 

At December 31, 2020

 

 

19,424

 

 

$

1,942

 

 

$

292,291

 

 

$

59,379

 

 

$

3,252

 

 

$

356,864

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(5,816

)

 

 

 

 

 

(5,816

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,573

)

 

 

(1,573

)

Share-based compensation expense

 

 

 

 

 

 

 

 

3,721

 

 

 

 

 

 

 

 

 

3,721

 

Common shares issued, net

 

 

51

 

 

 

5

 

 

 

1,617

 

 

 

 

 

 

 

 

 

1,622

 

At March 31, 2021

 

 

19,475

 

 

$

1,947

 

 

$

297,629

 

 

$

53,563

 

 

$

1,679

 

 

$

354,818

 

Net income

 

 

 

 

 

 

 

 

 

 

 

2,420

 

 

 

 

 

 

2,420

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(81

)

 

 

(81

)

Share-based compensation expense

 

 

 

 

 

 

 

 

3,907

 

 

 

 

 

 

 

 

 

3,907

 

Common shares issued, net

 

 

194

 

 

 

20

 

 

 

1,200

 

 

 

 

 

 

 

 

 

1,220

 

At June 30, 2021

 

 

19,669

 

 

$

1,967

 

 

$

302,736

 

 

$

55,983

 

 

$

1,598

 

 

$

362,284

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(2,171

)

 

 

 

 

 

(2,171

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(334

)

 

 

(334

)

Share-based compensation expense

 

 

 

 

 

 

 

 

3,842

 

 

 

 

 

 

 

 

 

3,842

 

Common shares issued, net

 

 

72

 

 

 

7

 

 

 

1,205

 

 

 

 

 

 

 

 

 

1,212

 

At September 30, 2021

 

 

19,741

 

 

$

1,974

 

 

$

307,783

 

 

$

53,812

 

 

$

1,264

 

 

$

364,833

 

The accompanying notes form an integral part of these condensed consolidated financial statements

6


 

ORTHOFIX MEDICAL INC.

Condensed Consolidated Statements of Cash Flows

 

 

Nine Months Ended
September 30,

 

(Unaudited, U.S. Dollars, in thousands)

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(12,687

)

 

$

(5,567

)

Adjustments to reconcile net loss to net cash from operating activities

 

 

 

 

 

 

Depreciation and amortization

 

 

21,598

 

 

 

22,153

 

Amortization of operating lease assets, debt costs, and other assets

 

 

2,321

 

 

 

2,645

 

Provision for expected credit losses

 

 

1,713

 

 

 

376

 

Deferred income taxes

 

 

21

 

 

 

2,228

 

Share-based compensation expense

 

 

13,521

 

 

 

11,470

 

Interest and gain (loss) on valuation of investment securities

 

 

254

 

 

 

(305

)

Change in fair value of contingent consideration

 

 

(17,200

)

 

 

(2,375

)

Other

 

 

1,124

 

 

 

743

 

Changes in operating assets and liabilities, net of effects of acquisitions

 

 

 

 

 

 

Accounts receivable

 

 

51

 

 

 

2,729

 

Inventories

 

 

(20,019

)

 

 

(866

)

Prepaid expenses and other current assets

 

 

16

 

 

 

(6,987

)

Accounts payable

 

 

3,955

 

 

 

(2,983

)

Other current liabilities

 

 

(4,571

)

 

 

(3,951

)

Contract liability (Note 9)

 

 

(4,791

)

 

 

(5,951

)

Payment of contingent consideration

 

 

 

 

 

(6,595

)

Other long-term assets and liabilities

 

 

808

 

 

 

(68

)

Net cash from operating activities

 

 

(13,886

)

 

 

6,696

 

Cash flows from investing activities

 

 

 

 

 

 

Capital expenditures for property, plant, and equipment

 

 

(16,159

)

 

 

(11,560

)

Capital expenditures for intangible assets

 

 

(1,101

)

 

 

(1,221

)

Contingent consideration payments related to asset acquisitions

 

 

(1,500

)

 

 

 

Other investing activities

 

 

126

 

 

 

(1,250

)

Net cash from investing activities

 

 

(18,634

)

 

 

(14,031

)

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from issuance of common shares

 

 

2,400

 

 

 

6,238

 

Payments related to withholdings for share-based compensation

 

 

(1,467

)

 

 

(2,184

)

Payments related to finance lease obligation

 

 

(2,441

)

 

 

(395

)

Payment of contingent consideration

 

 

 

 

 

(8,405

)

Other financing activities

 

 

(68

)

 

 

(927

)

Net cash from financing activities

 

 

(1,576

)

 

 

(5,673

)

Effect of exchange rate changes on cash

 

 

(2,091

)

 

 

(598

)

Net change in cash, cash equivalents, and restricted cash

 

 

(36,187

)

 

 

(13,606

)

Cash, cash equivalents, and restricted cash at the beginning of period

 

 

87,847

 

 

 

96,821

 

Cash, cash equivalents, and restricted cash at the end of period

 

$

51,660

 

 

$

83,215

 

 

 

 

 

 

 

 

Components of cash, cash equivalents, and restricted cash at the end of period

 

 

 

 

 

 

Cash and cash equivalents

 

$

51,660

 

 

$

82,710

 

Restricted cash

 

 

 

 

 

505

 

Cash, cash equivalents, and restricted cash at the end of period

 

$

51,660

 

 

$

83,215

 

 

 

 

 

 

 

 

Noncash investing activities - Purchase of intangible assets

 

$

2,000

 

 

$

 

The accompanying notes form an integral part of these condensed consolidated financial statements

7


 

ORTHOFIX MEDICAL INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

1. Business and basis of presentation

Description of the Business

Orthofix Medical Inc. and its subsidiaries (the “Company”) is a global medical device 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 orthopedic products are distributed in more than 60 countries via the Company's sales representatives and distributors.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Pursuant to these rules and regulations, certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair statement have been included. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Form 10-K for the year ended December 31, 2021. Operating results for the three and nine months ended September 30, 2022, are not necessarily indicative of the results that may be expected for other interim periods or the year ending December 31, 2022.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, the Company evaluates its estimates, including those related to revenue recognition; contractual allowances; allowances for expected credit losses; inventories; valuation of intangible assets; goodwill; fair value measurements, including contingent consideration; litigation and contingent liabilities; tax matters; and share-based compensation. Actual results could differ from these estimates.

2. Recently issued accounting pronouncements

The Company considers the applicability and impact of all accounting standards updates ("ASUs"). Recently issued ASU's that are determined to potentially affect the Company's condensed consolidated financial statements are summarized below:

Topic

 

Description of Guidance

 

Effective Date

 

Status of Company's Evaluation

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (ASU 2022-03)

 

Clarifies the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and introduces new disclosure requirements for equity securities subject to contractual sale restrictions. Certain of the provisions are to be applied retrospectively with other provisions applied prospectively.

 

January 1, 2024

 

The Company is currently evaluating the impact this ASU may have on its consolidated financial statements.

Other recently issued ASUs, excluding those ASUs which have already been disclosed as adopted or described above, were assessed and determined not applicable, or are expected to have minimal impact on the Company's condensed consolidated financial statements. Furthermore, there have been no material changes during the nine months ended September 30, 2022, to the Company's application of significant accounting policies and estimates as described in the Company’s Form 10-K for the year ended December 31, 2021.

8


 

3. Inventories

Inventories were as follows:

(U.S. Dollars, in thousands)

 

September 30,
2022

 

 

December 31,
2021

 

Raw materials

 

$

17,511

 

 

$

9,589

 

Work-in-process

 

 

16,540

 

 

 

15,096

 

Finished products

 

 

66,226

 

 

 

58,289

 

Inventories

 

$

100,277

 

 

$

82,974

 

Inventory previously reported as field/consignment has been reclassified to finished products to conform with current period presentation.

 

4. Leases

A summary of the Company’s lease portfolio as of September 30, 2022, and December 31, 2021, is presented in the table below:

(U.S. Dollars, in thousands)

 

Classification

 

September 30,
2022

 

 

December 31,
2021

 

Right-of-use assets ("ROU assets")

 

 

 

 

 

 

Operating leases

 

Other long-term assets

 

$

6,819

 

 

$

3,155

 

Finance leases

 

Property, plant and equipment, net

 

 

17,613

 

 

 

18,600

 

Total ROU assets

 

 

 

$

24,432

 

 

$

21,755

 

 

 

 

 

 

 

 

 

 

Lease Liabilities

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

Operating leases

 

Other current liabilities

 

$

1,503

 

 

$

1,834

 

Finance leases

 

Current portion of finance lease liability

 

 

638

 

 

 

2,590

 

Long-term

 

 

 

 

 

 

 

 

Operating leases

 

Other long-term liabilities

 

 

5,443

 

 

 

1,443

 

Finance leases

 

Long-term portion of finance lease liability

 

 

19,407

 

 

 

19,890

 

Total lease liabilities

 

 

 

$

26,991

 

 

$

25,757

 

Supplemental cash flow information related to leases was as follows:

(U.S. Dollars, in thousands)

 

Nine Months Ended
September 30, 2022

 

 

Nine Months Ended
September 30, 2021

 

Cash paid for amounts included in the measurement of lease liabilities

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

3,001

 

 

$

3,469

 

Operating cash flows from finance leases

 

 

665

 

 

 

680

 

Financing cash flows from finance leases

 

 

2,441

 

 

 

395

 

ROU assets obtained in exchange for lease obligations

 

 

 

 

 

 

Operating leases

 

 

5,429

 

 

 

460

 

Finance leases

 

 

 

 

 

149

 

 

 

5. Long-term debt

As of September 30, 2022, the Company had no borrowings outstanding under the secured revolving credit facility and was in compliance with all required financial covenants.

In addition, the Company had no borrowings on its available lines of credit in Italy, which provide up to an aggregate amount of €5.5 million ($5.4 million) as of September 30, 2022.

 

9


 

6. Fair value measurements and investments

The fair value measurements of the Company’s financial assets and liabilities measured on a recurring basis were as follows:

 

 

September 30,
2022

 

 

December 31,
2021

 

(U.S. Dollars, in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Neo Medical convertible loan agreements

 

$

 

 

$

 

 

 

5,600

 

 

$

5,600

 

 

$

7,148

 

Neo Medical preferred equity securities

 

 

 

 

 

6,084

 

 

 

 

 

 

6,084

 

 

 

5,413

 

Bone Biologics equity securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

309

 

Other investments

 

 

 

 

 

 

 

 

1,611

 

 

 

1,611

 

 

 

1,505

 

Total

 

$

 

 

$

6,084

 

 

$

7,211

 

 

$

13,295

 

 

$

14,375

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Spinal Kinetics contingent consideration

 

$

 

 

$

 

 

 

 

 

$

 

 

$

(17,200

)

Deferred compensation plan

 

 

 

 

 

(1,206

)

 

 

 

 

 

(1,206

)

 

 

(1,314

)

Total

 

$

 

 

$

(1,206

)

 

$

 

 

$

(1,206

)

 

$

(18,514

)

Neo Medical Convertible Loan Agreements and Equity Investment

In October 2020, the Company purchased preferred equity securities of Neo Medical SA, a privately held Swiss-based company developing a new generation of products for spinal surgery ("Neo Medical"), for consideration of $5.0 million. The Company also entered into a Convertible Loan Agreement pursuant to which Orthofix loaned Neo Medical CHF 4.6 million, or $5.0 million at the date of issuance (the “Convertible Loan”). In October 2021, the Company entered into an additional Convertible Loan Agreement (the “Additional Convertible Loan”), pursuant to which the Company loaned Neo Medical an additional CHF 0.6 million, or $0.7 million as of the date of issuance.

The equity securities are recorded in other long-term assets and are considered an investment that does not have a readily determinable fair value. As such, the Company measures this investment at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer.

The table below presents a reconciliation of the beginning and ending balances of the Company’s investment in Neo Medical preferred equity securities:

(U.S. Dollars, in thousands)

 

2022

 

 

2021

 

Fair value of Neo Medical preferred equity securities at January 1

 

$

5,413

 

 

$

5,000

 

Conversion of loan into preferred equity securities

 

 

671

 

 

 

 

Fair value of Neo Medical preferred equity securities at September 30

 

 

6,084

 

 

 

5,000

 

Cumulative unrealized gain on Neo Medical preferred equity securities

 

 

413

 

 

 

 

The Company made an election to convert the Additional Convertible Loan into shares of Neo Medical’s preferred equity securities in January 2022. The remaining Convertible Loan is recorded in other long-term assets as an available for sale debt security as of September 30, 2022. The Convertible Loan is recorded at fair value, with applicable interest recorded in interest income. The fair value of the Convertible Loan is based upon significant unobservable inputs, including the use of option-pricing models, Monte Carlo simulations for certain periods, and a probability-weighted discounted cash flow model, requiring the Company to develop its own assumptions. Therefore, the Company categorized these investments as Level 3 financial assets.

Some of the more significant unobservable inputs used in the fair value measurement of the Convertible Loan include applicable discount rates, implied volatility, the likelihood and projected timing of repayment or conversion, and projected cash flows in support of the estimated enterprise value of Neo Medical. Holding other inputs constant, changes in these assumptions could result in a significant change in the fair value of the Convertible Loan. If the amortized cost of the Convertible Loan exceeds its estimated fair value, the security is deemed to be impaired, and must be evaluated for the recognition of a credit loss. As of September 30, 2022, the Company has not recognized any credit loss related to the Convertible Loan.

10


 

The following table provides a reconciliation of the beginning and ending balances of the Convertible Loans, measured at fair value using significant unobservable inputs (Level 3):

(U.S. Dollars, in thousands)

 

2022

 

 

2021

 

Fair value of Neo Medical Convertible Loans at January 1

 

$

7,148

 

 

$

7,160

 

Interest recognized in interest income, net

 

 

326

 

 

 

305

 

Foreign currency remeasurement recognized in other expense, net

 

 

(437

)

 

 

(270

)

Unrealized loss recognized in other comprehensive loss

 

 

(766

)

 

 

(115

)

Conversion of loan into preferred equity securities

 

 

(671

)

 

 

 

Fair value of Neo Medical Convertible Loans at September 30

 

 

5,600

 

 

 

7,080

 

Amortized cost basis of Neo Medical Convertible Loans at September 30

 

 

5,425

 

 

 

5,314

 

The following table provides quantitative information related to certain key assumptions utilized within the valuation as of September 30, 2022:

(U.S. Dollars, in thousands)

 

Fair Value as of
 September 30, 2022

 

 

Unobservable inputs

 

Estimate

 

Neo Medical Convertible Loan

 

$

5,600

 

 

Cost of equity discount rate

 

 

17.4

%

 

 

 

 

 

Implied volatility

 

 

70.2

%

Bone Biologics Equity Securities

Until August of 2022, the Company held an investment in common stock of Bone Biologics Inc. (“Bone Biologics”, NASDAQ: BBLG), a developer of orthobiologic products. The Company disposed of its remaining holdings in Bone Biologics equity securities during the third quarter of 2022. Changes in the fair value of the investment recorded during the nine months ended September 30, 2022 and 2021, are shown in the table below:

(U.S. Dollars, in thousands)

 

2022

 

 

2021

 

Fair Value of Bone Biologics equity securities at January 1

 

$

309

 

 

$

 

Fair value adjustments recognized in other expense, net

 

 

(183

)

 

 

 

Proceeds from the disposition of equity securities

 

 

(126

)

 

 

 

Fair Value of Bone Biologics equity securities at September 30

 

$

 

 

$

 

Other Investments

Other investments represent assets and investments recorded at fair value that are not deemed to be material for disclosure on an individual basis. The fair value of these assets is based upon significant unobservable inputs, such as probability-weighted discounted cash flow models, requiring the Company to develop its own assumptions. Therefore, the Company has categorized these assets as Level 3 financial assets. As of September 30, 2022, this balance was classified within other long-term assets.

Spinal Kinetics Contingent Consideration

The Company recognized a contingent consideration obligation in connection with the acquisition of Spinal Kinetics in 2018. The Spinal Kinetics contingent consideration consists of potential milestone payments of up to $60.0 million in cash. The contingent milestone payments included (i) $15.0 million upon U.S. Food and Drug Administration (“FDA”) approval of the M6-C artificial cervical disc (the “FDA Milestone”) and (ii) revenue-based milestone payments of up to $45.0 million in connection with sales of the acquired artificial discs. To trigger the applicable payments, milestones must be achieved within five years of April 30, 2018. The FDA Milestone was achieved and paid in 2019 and a revenue-based milestone payment, totaling $15.0 million, was achieved and paid in 2021 upon meeting certain net sales targets.

The estimated fair value of the remaining Spinal Kinetics contingent consideration, attributable to a revenue-based milestone, was concluded to be zero as of September 30, 2022, as the Company does not expect to achieve the milestone prior to April 30, 2023. The estimated fair value reflects assumptions made by management as of September 30, 2022, such as the expected timing and volume of elective procedures and the impact of these procedures on future revenues. Any changes in fair value are recorded as an operating expense within acquisition-related amortization and remeasurement.

11


 

The following table provides a reconciliation of the beginning and ending balances for the Spinal Kinetics contingent consideration measured at estimated fair value using significant unobservable inputs (Level 3):

 

(U.S. Dollars, in thousands)

 

2022

 

 

2021

 

Spinal Kinetics contingent consideration estimated fair value at January 1

 

$

17,200

 

 

$

35,400

 

Decrease in fair value recognized in acquisition-related amortization and remeasurement

 

 

(17,200

)

 

 

(2,000

)

Payment made

 

 

 

 

 

(15,000

)

Spinal Kinetics contingent consideration estimated fair value at September 30

 

$

 

 

$

18,400

 

 

7. Contingencies

In addition to the matters described below, in the normal course of its business, the Company is involved in various lawsuits from time to time and may be subject to certain other contingencies. The Company believes any losses related to these matters are individually and collectively immaterial as to a possible loss and range of loss.

Italian Medical Device Payback (“IMDP”)

In 2015, the Italian Parliament introduced rules for entities that supply goods and services to the Italian National Healthcare System. A key provision of the law is a ‘payback’ measure, requiring medical device companies in Italy to make payments to the Italian government if medical device expenditures exceed regional maximum ceilings. Companies are required to make payments equal to a percentage of expenditures exceeding maximum regional caps. There is considerable uncertainty about how the law will operate and what the exact timeline is for finalization or payment. The Company’s current assessment of the IMDP involves significant judgment regarding the expected scope and actual implementation terms of the measure as the latter have not been clarified to date by Italian authorities. The Company accounts for the estimated cost of the IMDP as sales and marketing expense and periodically reassesses this liability based upon current facts and circumstances. As a result, the Company recorded expense of $0.3 million and $0.9 million for the three and nine months ended September 30, 2022, and expense of $0.6 million and $1.1 million for the three and nine months ended September 30, 2021, respectively. As of September 30, 2022, the Company has accrued $5.3 million related to the IMDP, which it has classified within other long-term liabilities; however, the actual liability could be higher or lower than the amount accrued once the law has been clarified by the Italian authorities.

8. Accumulated other comprehensive loss

The components of and changes in accumulated other comprehensive loss were as follows:

 

(U.S. Dollars, in thousands)

 

Currency
Translation
Adjustments

 

 

Neo Medical Convertible Loans

 

 

Other Investments

 

 

Accumulated Other
Comprehensive Loss

 

Balance at December 31, 2021

 

$

(711

)

 

$

711

 

 

$

 

 

$

 

Other comprehensive loss

 

 

(4,413

)

 

 

(766

)

 

 

17

 

 

 

(5,162

)

Income taxes

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2022

 

$

(5,124

)

 

$

(55

)

 

$

17

 

 

$

(5,162

)

 

9. Revenue recognition and accounts receivable

Revenue Recognition

The Company has two reporting segments, which consist of Global Spine and Global Orthopedics. Within the Global Spine reporting segment there are three product categories: Bone Growth Therapies, Spinal Implants, and Biologics.

12


 

The table below presents net sales by major product category by reporting segment:

 

 

 

Three Months Ended September 30,

 

(U.S. Dollars, in thousands)

 

2022

 

 

2021

 

 

Change

 

Bone Growth Therapies

 

$

46,531

 

 

$

45,168

 

 

 

3.0

%

Spinal Implants

 

 

25,857

 

 

 

28,151

 

 

 

-8.1

%

Biologics

 

 

13,798

 

 

 

12,806

 

 

 

7.7

%

Global Spine

 

 

86,186

 

 

 

86,125

 

 

 

0.1

%

Global Orthopedics

 

 

27,810

 

 

 

26,303

 

 

 

5.7

%

Net sales

 

$

113,996

 

 

$

112,428

 

 

 

1.4

%

 

 

 

Nine Months Ended September 30,

 

(U.S. Dollars, in thousands)

 

2022

 

 

2021

 

 

Change

 

Bone Growth Therapies

 

$

136,244

 

 

$

137,821

 

 

 

-1.1

%

Spinal Implants

 

 

80,693

 

 

 

83,943

 

 

 

-3.9

%

Biologics

 

 

42,686

 

 

 

41,351

 

 

 

3.2

%

Global Spine

 

 

259,623

 

 

 

263,115

 

 

 

-1.3

%

Global Orthopedics

 

 

78,861

 

 

 

76,300

 

 

 

3.4

%

Net sales

 

$

338,484

 

 

$

339,415

 

 

 

-0.3

%

Product Sales and Marketing Service Fees

The table below presents product sales and marketing service fees, which are both components of net sales:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(U.S. Dollars, in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Product sales

 

$

100,485

 

 

$

100,004

 

 

$

296,652

 

 

$

299,214

 

Marketing service fees

 

 

13,511

 

 

 

12,424

 

 

 

41,832

 

 

 

40,201

 

Net sales

 

$

113,996

 

 

$

112,428

 

 

$

338,484

 

 

$

339,415

 

 

Product sales primarily consist of the sale of bone growth therapies devices, spinal implants products, and orthopedics products. Marketing service fees are received from MTF Biologics based on total sales of biologics tissues and relate solely to the Global Spine reporting segment.

Accounts receivable and related allowances

The following table provides a detail of changes in the Company’s allowance for expected credit losses for the three and nine months ended September 30, 2022 and 2021:

 

(U.S. Dollars, in thousands)

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Allowance for expected credit losses beginning balance

 

$

5,589

 

 

$

4,471

 

 

$

4,944

 

 

$

4,848

 

Current period provision for expected credit losses

 

 

574

 

 

 

590

 

 

 

1,713

 

 

 

376

 

Write-offs charged against the allowance and other

 

 

10

 

 

 

(54

)

 

 

(236

)

 

 

(134

)

Effect of changes in foreign exchange rates

 

 

(225

)

 

 

(79

)

 

 

(473

)

 

 

(162

)

Allowance for expected credit losses ending balance

 

$

5,948

 

 

$

4,928

 

 

$

5,948

 

 

$

4,928

 

Contract Liabilities

The Company’s contract liabilities largely related to a prepayment of $13.9 million received in April 2020 from the Centers for Medicare and Medicaid Service ("CMS") as part of the Accelerated and Advance Payment Program of the Coronavirus Aid, Relief, and Economic Security Act. The remaining balance of the contract liability was recouped by CMS during the second quarter of 2022.

13


 

The following table provides a detail of changes in the Company’s contract liability associated with the Accelerated and Advanced Payment Program for the three and nine months ended September 30, 2022 and 2021:

(U.S. Dollars, in thousands)

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Contract liability beginning balance

 

$

 

 

$

10,971

 

 

$

4,791

 

 

$

13,851

 

Recoupment recognized in net sales

 

 

 

 

 

(3,071

)

 

 

(4,791

)

 

 

(5,951

)

Contract liability ending balance

 

$

 

 

$

7,900

 

 

$

 

 

$

7,900

 

Other Contract Assets

The Company’s contract assets, excluding accounts receivable (“Other Contract Assets”), largely consist of payments made to certain distributors to obtain contracts, gain access to customers in certain territories, and to provide the benefit of exclusive distribution of the Company's products. Other Contract Assets are included in other long-term assets or other current assets, dependent upon the original term of the related agreement, and totaled $1.3 million and $1.4 million as of September 30, 2022, and December 31, 2021, respectively.

10. Business segment information

The Company has two reporting segments: Global Spine and Global Orthopedics. The primary metric used in managing the Company is earnings before interest, tax, depreciation, and amortization (“EBITDA”). Corporate activities comprise operating expenses and activities not directly identifiable within the two reporting segments, such as human resources, finance, legal, and information technology functions. The table below presents EBITDA by reporting segment:

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

(U.S. Dollars, in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Global Spine

 

$

10,116

 

 

$

13,908

 

 

$

46,775

 

 

$

44,835

 

Global Orthopedics

 

 

(473

)

 

 

(196

)

 

 

(5,991

)

 

 

(650

)

Corporate

 

 

(11,168

)

 

 

(8,663

)

 

 

(28,846

)

 

 

(24,522

)

Total EBITDA

 

$

(1,525

)

 

$

5,049

 

 

$

11,938

 

 

$

19,663

 

Depreciation and amortization

 

 

(7,570

)

 

 

(7,151

)

 

 

(21,598

)

 

 

(22,153

)

Interest expense, net

 

 

(277

)

 

 

(433

)

 

 

(1,059

)

 

 

(1,400

)

Loss before income taxes

 

$

(9,372

)

 

$

(2,535

)

 

$

(10,719

)

 

$

(3,890

)

 

Geographical information

The table below presents net sales by geographic destination for each reporting segment and for the consolidated Company:

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

(U.S. Dollars, in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Global Spine

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

81,414

 

 

$

79,983

 

 

$

244,379

 

 

$

246,815

 

International

 

 

4,772

 

 

 

6,142

 

 

$

15,244

 

 

 

16,300

 

Total Global Spine

 

 

86,186

 

 

 

86,125

 

 

 

259,623

 

 

 

263,115

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Global Orthopedics

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

 

6,588

 

 

 

6,010

 

 

 

18,818

 

 

 

17,757

 

International

 

 

21,222

 

 

 

20,293

 

 

 

60,043

 

 

 

58,543

 

Total Global Orthopedics

 

 

27,810

 

 

 

26,303

 

 

 

78,861

 

 

 

76,300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

 

88,002

 

 

 

85,993

 

 

 

263,197

 

 

 

264,572

 

International

 

 

25,994

 

 

 

26,435

 

 

 

75,287

 

 

 

74,843

 

Net sales

 

$

113,996

 

 

$

112,428

 

 

$

338,484

 

 

$

339,415

 

 

14


 

 

11. Acquisition-related amortization and remeasurement

Acquisition-related amortization and remeasurement consists of (i) amortization related to intangible assets acquired through business combinations or asset acquisitions, (ii) remeasurement of any related contingent consideration arrangements, and (iii) recognized costs associated with acquired in-process research and development (“IPR&D”) assets, which are recognized immediately upon acquisition. Components of acquisition-related amortization and remeasurement are as follows:

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

(U.S. Dollars, in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Amortization of acquired intangibles

 

$

2,070

 

 

$

1,965

 

 

$

6,122

 

 

$

5,903

 

Changes in fair value of contingent consideration

 

 

(986

)

 

 

(2,300

)

 

 

(17,200

)

 

 

(2,375

)

Acquired IPR&D

 

 

1,400

 

 

 

 

 

 

1,400

 

 

 

1,500

 

Total

 

$

2,484

 

 

$

(335

)

 

$

(9,678

)

 

$

5,028

 

On July 30, 2022, the Company entered into an exclusive License and Distribution Agreement (the "License Agreement") with CGBio Co., Ltd. (“CGBio”), a developer of innovative, synthetic bone grafts. The Agreement grants Orthofix the exclusive right to conduct pre-clinical and clinical studies, commercialize, promote, market, and sell the Novosis recombinant human bone morphogenetic protein-2 (rhBMP-2) bone growth materials and other future tissue regenerative solutions in the U.S. and Canada. As consideration, the Company agreed to pay CGBio an upfront payment of $1.4 million with additional payments contingent upon the achievement of specified development milestones. The $1.4 million upfront payment was paid in the third quarter of 2022 and was recognized as acquired IPR&D costs, which was then immediately expensed.

 

12. Share-based compensation

Components of share-based compensation expense are as follows:

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

(U.S. Dollars, in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Cost of sales

 

$

195

 

 

$

200

 

 

$

611

 

 

$

587

 

Sales and marketing

 

 

948

 

 

 

831

 

 

 

2,929

 

 

 

2,505

 

General and administrative

 

 

3,285

 

 

 

2,531

 

 

 

9,461

 

 

 

7,667

 

Research and development

 

 

301

 

 

 

280

 

 

 

520

 

 

 

711

 

Total

 

$

4,729

 

 

$

3,842

 

 

$

13,521

 

 

$

11,470

 

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

(U.S. Dollars, in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Stock options

 

$

294

 

 

$

382

 

 

$

858

 

 

$

1,441

 

Time-based restricted stock awards and units

 

 

2,467

 

 

 

1,819

 

 

 

7,047

 

 

 

5,565

 

Market-based / performance-based restricted stock units

 

 

1,626

 

 

 

1,212

 

 

 

4,567

 

 

 

3,162

 

Stock purchase plan

 

 

342

 

 

 

429

 

 

 

1,049

 

 

 

1,302

 

Total

 

$

4,729

 

 

$

3,842

 

 

$

13,521

 

 

$

11,470

 

 

 

During the three months ended September 30, 2022 and 2021, the Company issued 7,057 and 72,281 shares, respectively, of common stock related to stock purchase plan issuances, stock option exercises, and the vesting of restricted stock awards and units. During the nine months ended September 30, 2022 and 2021, the Company issued 169,921 and 317,536 shares, respectively, of common stock related to stock purchase plan issuances, stock option exercises, and the vesting of restricted stock awards and units.

13. Income taxes

Generally, income tax provisions for interim periods are based on an estimated annual income tax rate, adjusted for discrete tax items, with any changes affecting the estimated annual effective tax rate recorded in the interim period in which the change occurs. Due to the impact of losses not benefitted by the Company’s U.S. and Italian operations, the Company determined the estimated annual effective tax rate method would not provide a reliable estimate of the Company’s overall annual effective tax rate. As such, the Company has calculated the tax provision using the actual effective rate for the three and nine months ended September 30,

15


 

2022. Due to the impact of temporary differences on the U.S. current tax liability without any deferred tax benefit, the actual effective rate may vary in future quarters.

For the three months ended September 30, 2022 and 2021, the effective tax rate was (14.3%) and 14.4%, respectively. For the nine months ended September 30, 2022 and 2021, the effective tax rate was (18.4%) and (43.1%), respectively. The primary factors affecting the Company’s effective tax rate for the three and nine months ended September 30, 2022, were certain losses not benefitted.

14. Earnings per share (“EPS”)

The Company uses the two-class method of computing basic EPS due to the existence of non-vested restricted stock awards with nonforfeitable rights to dividends or dividend equivalents (referred to as participating securities). For the three and nine months ended September 30, 2022, no significant adjustments were made to net income for purposes of calculating basic and diluted EPS.

The following is a reconciliation of the weighted average shares used in diluted EPS computations.

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

(In thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Weighted average common shares-basic

 

 

20,091

 

 

 

19,770

 

 

 

20,007

 

 

 

19,634

 

Effect of dilutive securities

 

 

 

 

 

 

 

 

 

 

 

 

Unexercised stock options and stock purchase plan

 

 

 

 

 

 

 

 

 

 

 

 

Unvested restricted stock units

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares-diluted

 

 

20,091

 

 

 

19,770

 

 

 

20,007

 

 

 

19,634

 

 

There were 2.4 million and 2.1 million weighted average outstanding stock options and restricted stock units not included in the diluted EPS computation for the three months ended September 30, 2022 and 2021, respectively, and 2.2 million and 1.6 million weighted average outstanding stock options and restricted stock units not included in the diluted EPS computation for the nine months ended September 30, 2022 and 2021, respectively, because inclusion of these awards was anti-dilutive or, for performance-based and market-based restricted stock units, all necessary conditions had not been satisfied by the end of the respective period.

15. Subsequent Events

Merger Agreement with SeaSpine

On October 10, 2022, Orthofix Medical Inc. (“Orthofix”), through a wholly-owned subsidiary, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with SeaSpine Holdings Corporation (“SeaSpine”). Pursuant to the Merger Agreement, and subject to approval of Orthofix stockholders and SeaSpine stockholders and the satisfaction or waiver of other specified closing conditions, the Orthofix and SeaSpine businesses will combine in an all-stock merger of equals. The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, the Company's wholly-owned subsidiary will merge with and into SeaSpine (the “Merger”), with SeaSpine continuing as a wholly-owned subsidiary of Orthofix following the transaction.

Subject to the terms and conditions of the Merger Agreement, at the effective time and as a result of the Merger, each share of common stock of SeaSpine issued and outstanding immediately prior to the effective time of the Merger will be converted into the right to receive 0.4163 shares of common stock of Orthofix. In addition, at the effective time and as a result of the Merger, Orthofix will assume SeaSpine’s existing equity incentive plans in connection with the Merger, and outstanding SeaSpine equity awards will be automatically converted into Orthofix equity awards (on the same vesting schedule and other terms and conditions as existed prior to such conversion). The conversion of such equity awards will occur at the same exchange ratio as applies to SeaSpine common stock in the Merger, and the exercise price of converted SeaSpine stock options will also be correspondingly adjusted.

Upon completion of the Merger, Orthofix stockholders will own approximately 56.5% of the combined company on a fully diluted basis and SeaSpine stockholders will own approximately 43.5%.

Pursuant to the terms of the Merger Agreement, as of the effective time of the Merger, the board of directors of the combined company will consist of nine individuals, including five individuals who are nominees of the board of directors of Orthofix immediately prior to the effective time and four individuals who are nominees of the board of directors of SeaSpine immediately prior to the effective time. The Merger Agreement contemplates that Jon Serbousek will serve as Executive Chairman of the Board, and Keith Valentine will serve as President and Chief Executive Officer and as a member of the Board.

16


 

The transaction is expected to close in the first quarter of 2023, subject to approval by both companies’ shareholders and customary closing conditions and regulatory approvals.










 

17


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of Orthofix Medical Inc.’s (sometimes referred to as “we,” “us” or “our”) financial condition and results of our operations should be read in conjunction with the “Forward-Looking Statements” and our condensed consolidated financial statements and related notes thereto appearing elsewhere in this Form 10-Q.

Executive Summary

We are a global medical device company with a spine and orthopedics focus. Our mission is to deliver innovative, quality-driven solutions as we partner with health care professionals to improve patient mobility. Headquartered in Lewisville, Texas, our spine and orthopedic products are distributed in more than 60 countries via our sales representatives and distributors. For more information, please visit www.Orthofix.com.

Notable financial metrics in the third quarter of 2022 and recent achievements include the following:

Net sales of $114.0 million, an increase of 1% on a reported basis and 5% on a constant currency basis over prior year
Global Orthopedics net sales growth of 19% on a constant currency basis driven by new product and channel investments
Orthofix and MTF Biologics recognized with the 2022 Spine Technology Award from Orthopedics This Week for Virtuos Lyograft, the first of its kind, shelf-stable and complete autograft substitute
Announced agreement to merge with SeaSpine, creating a leading global spine and orthopedics company
 

Results of Operations

The following table provides certain items in our condensed consolidated statements of operations as a percent of net sales:

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2022
(%)

 

 

2021
(%)

 

 

2022
(%)

 

 

2021
(%)

 

Net sales

 

 

100.0

 

 

 

100.0

 

 

 

100.0

 

 

 

100.0

 

Cost of sales

 

 

26.8

 

 

 

25.2

 

 

 

26.7

 

 

 

24.1

 

Gross profit

 

 

73.2

 

 

 

74.8

 

 

 

73.3

 

 

 

75.9

 

Sales and marketing

 

 

48.7

 

 

 

49.9

 

 

 

50.1

 

 

 

48.4

 

General and administrative

 

 

16.9

 

 

 

14.5

 

 

 

16.1

 

 

 

15.1

 

Research and development

 

 

10.5

 

 

 

11.0

 

 

 

10.6

 

 

 

10.7

 

Acquisition-related amortization and remeasurement

 

 

2.2

 

 

 

(0.3

)

 

 

(2.8

)

 

 

1.4

 

Operating income (loss)

 

 

(5.1

)

 

 

(0.3

)

 

 

(0.7

)

 

 

0.3

 

Net loss

 

 

(9.4

)

 

 

(1.9

)

 

 

(3.7

)

 

 

(1.6

)

Net Sales by Product Category and Reporting Segment

The following tables provide net sales by major product category by reporting segment:

 

 

Three Months Ended
September 30,

 

 

Percentage Change

 

(U.S. Dollars, in thousands)

 

2022

 

 

2021

 

 

Reported

 

 

Constant Currency

 

Bone Growth Therapies

 

$

46,531

 

 

$

45,168

 

 

 

3.0

%

 

 

3.0

%

Spinal Implants

 

 

25,857

 

 

 

28,151

 

 

 

-8.1

%

 

 

-7.1

%

Biologics

 

 

13,798

 

 

 

12,806

 

 

 

7.7

%

 

 

7.7

%

Global Spine

 

 

86,186

 

 

 

86,125

 

 

 

0.1

%

 

 

0.4

%

Global Orthopedics

 

 

27,810

 

 

 

26,303

 

 

 

5.7

%

 

 

19.0

%

Net sales

 

$

113,996

 

 

$

112,428

 

 

 

1.4

%

 

 

4.8

%

 

18


 

 

 

 

Nine Months Ended
September 30,

 

 

Percentage Change

 

(U.S. Dollars, in thousands)

 

2022

 

 

2021

 

 

Reported

 

 

Constant Currency

 

Bone Growth Therapies

 

$

136,244

 

 

$

137,821

 

 

 

-1.1

%

 

 

-1.1

%

Spinal Implants

 

 

80,693

 

 

 

83,943

 

 

 

-3.9

%

 

 

-3.0

%

Biologics

 

 

42,686

 

 

 

41,351

 

 

 

3.2

%

 

 

3.2

%

Global Spine

 

 

259,623

 

 

 

263,115

 

 

 

-1.3

%

 

 

-1.1

%

Global Orthopedics

 

 

78,861

 

 

 

76,300

 

 

 

3.4

%

 

 

12.7

%

Net sales

 

$

338,484

 

 

$

339,415

 

 

 

-0.3

%

 

 

2.0

%

Global Spine

Global Spine offers the following Product categories:

-
Bone Growth Therapies, which manufactures, distributes, sells, and provides support services for market leading devices that enhance bone fusion. Bone Growth Therapies uses distributors and sales representatives to sell its devices and provide associated services to hospitals, healthcare providers, and patients.
-
Spinal Implants, which designs, develops and markets a broad portfolio of motion preservation and spine fixation implant products used in surgical procedures of the spine. Spinal Implants distributes its products globally through a network of distributors and sales representatives to sell spine products to hospitals and healthcare providers.
-
Biologics, which provides a portfolio of regenerative products and tissue forms that allow physicians to successfully treat a variety of spinal and orthopedic conditions. Biologics markets its tissues to hospitals and healthcare providers, primarily in the U.S., through a network of employed and independent sales representatives.

Three months ended September 30, 2022 compared to 2021

Net sales of $86.2 million, an increase of $0.1 million or 0.1%

Bone Growth Therapies net sales increased $1.4 million or 3.0%, largely driven by the successful commercial roll-out of our AccelStim Bone Healing Therapy, which was launched late in the second quarter of 2022, and higher order volumes
Spinal Implants net sales decreased $2.3 million or 8.1%, primarily due to a change in procedure mix in the U.S. for Spinal Fixation, large international orders in 2021 that did not reoccur, as well as global competitive headwinds in Motion Preservation
Biologics net sales increased $1.0 million or 7.7%, driven by successful new product introductions, such as FiberFuse and Virtuos

 

Nine months ended September 30, 2022 compared to 2021

Net sales of $259.6 million, a decrease of $3.5 million or 1.3%

Bone Growth Therapies net sales decreased $1.6 million or 1.1%, primarily driven by a continued slowdown in complex procedure volumes due to hospital restrictions at the beginning of the year and continued staffing issues, which impacted complex spine procedures, partially offset by the successful commercial roll-out of our AccelStim Bone Healing Therapy in 2022
Spinal Implants net sales decreased $3.3 million or 3.9%, primarily due to a change in procedure mix in the U.S. for Spinal Fixation, lower-than-expected complex procedures case volumes earlier in the year, as well as global competitive headwinds in Motion Preservation
Biologics net sales increased $1.3 million or 3.2%, driven by successful new product introductions, such as FiberFuse and Virtuos

 

19


 

Global Orthopedics

Global Orthopedics offers products and solutions that allow physicians to successfully treat a variety of orthopedic conditions specifically related to limb reconstruction and deformity correction unrelated to the spine. Global Orthopedics distributes its products globally through a network of distributors and sales representatives to sell orthopedic products to hospitals and healthcare providers.

Three months ended September 30, 2022 compared to 2021

Net sales of $27.8 million, an increase of $1.5 million or 5.7%

Double-digit growth in the U.S. and internationally on a constant currency basis from strategic investments in our commercial channels and momentum from new product introductions
Partially offset by a decrease of $3.5 million due to movement in foreign currency exchange rates

Nine months ended September 30, 2022 compared to 2021

Net sales of $78.9 million, an increase of $2.6 million or 3.4%

Double-digit growth internationally on a constant currency basis paired with solid growth in the U.S. from strategic investments in our commercial channels and momentum from new product introductions
Partially offset by a decrease of $7.1 million due to movement in foreign currency exchange rates

Gross Profit

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(U.S. Dollars, in thousands)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

Net sales

 

$

113,996

 

 

$

112,428

 

 

 

1.4

%

 

$

338,484

 

 

$

339,415

 

 

 

(0.3

%)

Cost of sales

 

 

30,573

 

 

 

28,307

 

 

 

8.0

%

 

 

90,491

 

 

 

81,660

 

 

 

10.8

%

Gross profit

 

$

83,423

 

 

$

84,121

 

 

 

(0.8

%)

 

$

247,993

 

 

$

257,755

 

 

 

(3.8

%)

Gross margin

 

 

73.2

%

 

 

74.8

%

 

 

(1.6

%)

 

 

73.3

%

 

 

75.9

%

 

 

-2.7

%

Three months ended September 30, 2022 compared to 2021

Gross profit decreased $0.7 million

Decrease in gross profit driven primarily by increased inventory reserves related to set builds to support an expanding sales force and increased safety stock requirements driven by the risk of global supply chain disruption
Decrease also driven by unfavorable changes in shipping costs, increased manufacturing overhead costs, and unfavorable movements in foreign currency exchange rates
Partially offset by favorable changes in sales mix

Nine months ended September 30, 2022 compared to 2021

Gross profit decreased $9.8 million

Decrease in gross profit driven primarily by changes in our sales mix as well increased inventory reserves related to set builds for an expanding sales force and increased safety stock requirements driven by the risk of global supply chain disruption
Decrease also driven by unfavorable changes in shipping costs, increased manufacturing overhead costs, and unfavorable movements in foreign currency exchange rates

Sales and Marketing Expense

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(U.S. Dollars, in thousands)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

Sales and marketing

 

$

55,461

 

 

$

56,097

 

 

 

(1.1

%)

 

$

169,486

 

 

$

164,220

 

 

 

3.2

%

As a percentage of net sales

 

 

48.7

%

 

 

49.9

%

 

 

(1.2

%)

 

 

50.1

%

 

 

48.4

%

 

 

1.7

%

 

20


 

Three months ended September 30, 2022 compared to 2021

Sales and marketing expense decreased $0.6 million

Decrease of $1.8 million attributable to differences in the timing of certain sales meetings and conferences in 2022 as compared to 2021
Partially offset by an increase of $0.9 million in commission expenses, largely resulting from changes in sales volume and sales mix

Nine months ended September 30, 2022 compared to 2021

Sales and marketing expense increased $5.3 million

Significant increases in travel, sales events, and surgeon and sales education trainings as in-person events have largely resumed in 2022
Significant increase also attributable to the hiring of additional sales and marketing headcount to support growth and initiatives across all product lines

General and Administrative Expense

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(U.S. Dollars, in thousands)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

General and administrative

 

$

19,322

 

 

$

16,312

 

 

 

18.5

%

 

$

54,496

 

 

$

51,091

 

 

 

6.7

%

As a percentage of net sales

 

 

16.9

%

 

 

14.5

%

 

 

2.4

%

 

 

16.1

%

 

 

15.1

%

 

 

1.0

%

Three months ended September 30, 2022 compared to 2021

General and administrative expense increased $3.0 million

Increase of $2.6 million on strategic investments, primarily attributable to due diligence and deal-related costs related to the pending merger with SeaSpine
Increase of $0.8 million in share-based compensation expenses as the tenure of our new management team increases
Partially offset by a decrease in other compensation costs, partly stemming from the departure of certain former executives and from macroeconomic pressures on certain variable compensation expenses

Nine months ended September 30, 2022 compared to 2021

General and administrative expense increased $3.4 million

Increase of $3.0 million on strategic investments, primarily attributable to due diligence and deal-related costs related to the pending merger with SeaSpine
Increase of $1.8 million in share-based compensation expenses as the tenure of our new management team increases
Partially offset by a decrease in other compensation costs, partly stemming from the departure of certain former executives and from macroeconomic pressures on certain variable compensation expenses

Research and Development Expense

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(U.S. Dollars, in thousands)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

Research and development

 

$

11,943

 

 

$

12,360

 

 

 

(3.4

%)

 

$

35,913

 

 

$

36,378

 

 

 

(1.3

%)

As a percentage of net sales

 

 

10.5

%

 

 

11.0

%

 

 

(0.5

%)

 

 

10.6

%

 

 

10.7

%

 

 

(0.1

%)

Three months ended September 30, 2022 compared to 2021

Research and development expense decreased $0.4 million

Decrease in integration activities attributable to certain recent asset acquisitions, as well as a decline in costs associated with certain clinical studies
Partially offset by an increase related to costs to comply with the European Union Medical Device Regulations and increases in new product development expenses

21


 

Nine months ended September 30, 2022 compared to 2021

Research and development expense decreased $0.5 million

Decrease of $0.8 million related to the attainment of a development milestone with MTF Biologics achieved in 2021 that did not recur in 2022
Decrease in integration activities attributable to certain recent asset acquisitions
Partially offset by an increase related to costs to comply with the European Union Medical Device Regulations and increases in new product development expenses

Acquisition-related Amortization and Remeasurement

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(U.S. Dollars, in thousands)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

Acquisition-related amortization and remeasurement

 

$

2,484

 

 

$

(335

)

 

 

(841.5

%)

 

$

(9,678

)

 

$

5,028

 

 

 

(292.5

%)

As a percentage of net sales

 

 

2.2

%

 

 

(0.3

%)

 

 

2.5

%

 

 

(2.9

%)

 

 

1.4

%

 

 

(4.3

%)

Acquisition-related amortization and remeasurement consists of (i) amortization related to intangible assets acquired through business combinations or asset acquisitions, (ii) remeasurement of any related contingent consideration arrangement, and (iii) recognized costs associated with acquired in-process research and development assets, which are recognized immediately upon acquisition.

Three months ended September 30, 2022 compared to 2021

Acquisition-related amortization and remeasurement increased $2.8 million

Increase of $1.4 million in costs associated with acquired in-process research and development assets, which are recognized immediately upon acquisition, related to our License and Distribution Agreement with CGBio Co., Ltd.
Increase of $1.3 million related to the remeasurement of potential revenue-based milestone payments associated with the Spinal Kinetics acquisition as we recorded a benefit of $1.0 million in 2022 compared to a benefit of $2.3 million in 2021

Nine months ended September 30, 2022 compared to 2021

Acquisition-related amortization and remeasurement decreased $14.7 million

Decrease of $15.2 million related to the remeasurement of potential revenue-based milestone payments associated with the Spinal Kinetics acquisition, as we do not expect to achieve the remaining revenue-based milestone prior to April 30, 2023, based on current net sales trends
Partially offset by an increase of $0.4 million associated with the reassessment of contingent consideration associated with the acquisition of a former distributor recognized in 2021

Non-operating Income and Expense

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(U.S. Dollars, in thousands)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

Interest expense, net

 

$

(277

)

 

$

(433

)

 

 

(36.0

%)

 

$

(1,059

)

 

$

(1,400

)

 

 

(24.4

%)

Other expense, net

 

 

(3,308

)

 

 

(1,789

)

 

 

84.9

%

 

 

(7,436

)

 

 

(3,528

)

 

 

110.8

%

Three months ended September 30, 2022 compared to 2021

Other expense, net increased $1.5 million

Increase in expense primarily associated with movements in foreign currency exchange rates and the resulting gains and/or losses recorded in each period, with the change primarily attributable to the strengthening of the U.S. Dollar against the Euro in 2022

Nine months ended September 30, 2022 compared to 2021

Other expense, net increased $3.9 million

22


 

Increase in expense primarily associated with movements in foreign currency exchange rates and the resulting gains and/or losses recorded in each period, with the change primarily attributable to the strengthening of the U.S. Dollar against the Euro in 2022

Income Taxes

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(U.S. Dollars, in thousands)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

Income tax expense

 

$

1,344

 

 

$

(364

)

 

 

(469.2

%)

 

$

1,968

 

 

$

1,677

 

 

 

17.4

%

Effective tax rate

 

 

(14.3

%)

 

 

14.4

%

 

 

(28.7

%)

 

 

(18.4

%)

 

 

(43.1

%)

 

 

24.7

%

Three months ended September 30, 2022 compared to 2021

Increase in tax expense compared to the prior year period was primarily a result of changes in valuation allowances

Nine months ended September 30, 2022 compared to 2021

Increase in tax expense compared to the prior year period was primarily a result of changes in valuation allowances

Segment Review

Our business is managed through two reporting segments: Global Spine and Global Orthopedics. The primary metric used in managing the business by segment is EBITDA (which is described further in Note 10 to the Notes to the Unaudited Condensed Consolidated Financial Statements contained herein). The following table presents EBITDA by segment and reconciles consolidated EBITDA to loss before income taxes:

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

(U.S. Dollars, in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Global Spine

 

$

10,116

 

 

$

13,908

 

 

$

46,775

 

 

$

44,835

 

Global Orthopedics

 

 

(473

)

 

 

(196

)

 

 

(5,991

)

 

 

(650

)

Corporate

 

 

(11,168

)

 

 

(8,663

)

 

 

(28,846

)

 

 

(24,522

)

Total EBITDA

 

$

(1,525

)

 

$

5,049

 

 

$

11,938

 

 

$

19,663

 

Depreciation and amortization

 

 

(7,570

)

 

 

(7,151

)

 

 

(21,598

)

 

 

(22,153

)

Interest expense, net

 

 

(277

)

 

 

(433

)

 

 

(1,059

)

 

 

(1,400

)

Loss before income taxes

 

$

(9,372

)

 

$

(2,535

)

 

$

(10,719

)

 

$

(3,890

)

Liquidity and Capital Resources

Cash and cash equivalents at September 30, 2022, totaled $51.7 million compared to $87.8 million at December 31, 2021.

 

 

Nine Months Ended September 30,

 

(U.S. Dollars, in thousands)

 

2022

 

 

2021

 

 

Change

 

Net cash from operating activities

 

$

(13,886

)

 

$

6,696

 

 

$

(20,582

)

Net cash from investing activities

 

 

(18,634

)

 

 

(14,031

)

 

 

(4,603

)

Net cash from financing activities

 

 

(1,576

)

 

 

(5,673

)

 

 

4,097

 

Effect of exchange rate changes on cash

 

 

(2,091

)

 

 

(598

)

 

 

(1,493

)

Net change in cash and cash equivalents

 

$

(36,187

)

 

$

(13,606

)

 

$

(22,581

)


The following table presents free cash flow, a non-GAAP financial measure, which is calculated by subtracting capital expenditures from net cash from operating activities:

 

 

Nine Months Ended September 30,

 

(U.S. Dollars, in thousands)

 

2022

 

 

2021

 

 

Change

 

Net cash from operating activities

 

$

(13,886

)

 

$

6,696

 

 

$

(20,582

)

Capital expenditures

 

 

(17,260

)

 

 

(12,781

)

 

 

(4,479

)

Free cash flow

 

$

(31,146

)

 

$

(6,085

)

 

$

(25,061

)

 

23


 

Operating Activities

Cash flows from operating activities decreased $20.6 million

Decrease in net income of $7.1 million
Net decrease of $13.6 million for non-cash gains and losses, largely related to changes in the fair value of contingent consideration
Net decrease of less than $0.1 million relating to changes in working capital accounts, primarily attributable to changes in inventories, accounts payable, prepaid expenses and other current assets, and the payment of a contingent consideration milestone in the prior year
 

Two of our primary working capital accounts are accounts receivable and inventory. Days sales in receivables were 61 days at September 30, 2022, compared to 56 days at September 30, 2021. Inventory turns decreased to 1.2 times as of September 30, 2022 compared to 1.3 times as of September 30, 2021.

Investing Activities

Cash flows from investing activities decreased $4.6 million

Decrease of $4.5 million associated with capital expenditures compared to the prior year period
Decrease of $1.5 million associated with the payment of a contingent consideration milestone related to an asset acquisition in 2022
Partially offset by an increase in other investing activities of $1.4 million

Financing Activities

Cash flows from financing activities increased $4.1 million

Increase of $8.4 million associated with cash paid in 2021 for the achievement of a revenue-based milestone associated with the Spinal Kinetics acquisition; the milestone payment totaled $15.0 million with a portion of the payment reflected in both operating and financing activities
Decrease in net proceeds of $3.1 million from the issuance of common shares, primarily related to the exercise of stock options in the prior year period
Decrease of $2.0 million related to the conclusion of the FITBONE Contract Manufacturing and Supply Agreement with Wittenstein
Increase of $0.9 million attributable to other financing activities

Credit Facilities

As of September 30, 2022, we had no borrowings outstanding under our secured revolving credit facility. In addition, we had no borrowings outstanding under our available lines of credit in Italy, which provide up to an aggregate amount of €5.5 million ($5.4 million). We were in compliance with all required financial covenants as of September 30, 2022.

Other

For information regarding contingencies, see Note 7 to the Notes to the Unaudited Condensed Consolidated Financial Statements contained herein.

Merger Agreement with SeaSpine

24


 

On October 10, 2022, Orthofix Medical Inc. (“Orthofix”), through a wholly-owned subsidiary, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with SeaSpine Holdings Corporation (“SeaSpine”). Pursuant to the Merger Agreement, and subject to approval of Orthofix stockholders and SeaSpine stockholders and the satisfaction or waiver of other specified closing conditions, the Orthofix and SeaSpine businesses will combine in an all-stock merger of equals. The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, the Company's wholly-owned subsidiary will merge with and into SeaSpine (the “Merger”), with SeaSpine continuing as a wholly-owned subsidiary of Orthofix following the transaction.

The transaction is expected to close in the first quarter of 2023, subject to approval by both companies’ shareholders and customary closing conditions and regulatory approvals. For additional discussion of this matter, see Note 15 of the Notes to the Unaudited Condensed Consolidated Financial Statements.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)

In April 2020, we received $13.9 million in funds from the Centers for Medicare and Medicaid Service ("CMS") Accelerated and Advance Payment Program under the CARES Act. Recoupment of amounts received under the CMS Accelerated and Advance Payment Program was completed in the second quarter of 2022.

Spinal Kinetics Contingent Consideration

As part of the consideration for the Spinal Kinetics acquisition, we agreed to make contingent milestone payments of up to $60.0 million. One milestone payment, which was for $15.0 million, became due upon FDA approval of Spinal Kinetics’ M6-C artificial cervical disc, which was achieved and paid in 2019. A revenue-based milestone payment, totaling $15.0 million, was achieved and paid in 2021 upon meeting certain net sales targets.

The remaining milestone payment is a revenue-based milestone payment of $30.0 million in connection with future sales of the acquired artificial discs. The fair value of the contingent consideration arrangement was concluded to be zero as of September 30, 2022, as we do not expect to achieve the milestone prior to the deadline of April 30, 2023. For additional discussion of this matter, see Note 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements.

Neo Medical Convertible Loan

In October 2020, we entered into a Convertible Loan Agreement (the “Convertible Loan”) with Neo Medical SA, a privately held Swiss-based Medtech company (“Neo Medical”), whereby we loaned CHF 4.6 million ($5.0 million as of the issuance date) to Neo Medical. The loan bears interest at 8.0%, with interest due semi-annually. The Convertible Loan matures in October 2024; however, if a change in control of Neo Medical occurs prior to maturity, the Convertible Loan shall become immediately due upon such event.

Related Party Transaction

In February 2021, we entered into a technology assignment and royalty agreement with a medical device technology company partially owned and controlled by the wife of President and Chief Executive Officer, Jon Serbousek, whereby we acquired the intellectual property rights to certain assets for consideration of up to $10.0 million. Consideration was comprised of $1.0 million due at signing and $9.0 million in contingent consideration, dependent upon multiple milestones, such as receipt of 510(k) clearance or the attainment of certain net sales targets. None of the contingent consideration has been achieved as of September 30, 2022.

IGEA S.p.A Exclusive License and Distribution Agreement

In April 2021, we entered into an Exclusive License and Distribution Agreement (the “License Agreement”) with IGEA S.p.A (“IGEA”), an Italian manufacturer and distributor of bone and cartilage stimulation systems. Per the terms of the License Agreement, we have the exclusive right to sell IGEA products in the U.S. and Canada. As consideration for the License Agreement, we agreed to pay up to $4.0 million, of which $0.5 million was paid in the second quarter of 2021, with certain payments contingent upon achieving an FDA milestone. We received FDA approval for the AccelStim device in May 2022, triggering an obligation to pay the remaining $3.5 million of consideration, of which $1.5 million was paid in the second quarter of 2022. Of the remaining $2.0 million obligation, $1.0 million is classified within other current liabilities, which is due to be paid on the first anniversary of FDA approval, and $1.0 million is classified within other long-term liabilities, which is due to be paid on the second anniversary of FDA approval. The License Agreement also includes certain minimum purchase requirements.

CGBio Co., Ltd. Exclusive License and Distribution Agreement

On July 30, 2022, we entered into a long-term strategic License and Distribution Agreement (the “Agreement”) with CGBio Co., Ltd. (“CGBio”), a developer of innovative, synthetic bone grafts. The agreement grants us the exclusive right to conduct pre-clinical and

25


 

clinical studies, commercialize, promote, market, and sell the Novosis recombinant human bone morphogenetic protein-2 (rhBMP-2) bone growth materials and other future tissue regenerative solutions in the U.S. and Canada. As consideration, we paid CGBio an upfront payment of $1.4 million with additional payments contingent upon the achievement of specified development milestones.

Off-balance Sheet Arrangements

As of September 30, 2022, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, cash flows, liquidity, capital expenditures or capital resources that are material to investors.

Contractual Obligations

There have been no material changes in any of our material contractual obligations as disclosed in our Form 10-K for the year ended December 31, 2021.

Critical Accounting Estimates

Our discussion of operating results is based upon the condensed consolidated financial statements and accompanying notes. The preparation of these statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Our critical accounting estimates are detailed in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021. There have been no significant changes to our critical accounting estimates.

Recently Issued Accounting Pronouncements

See Note 2 of the Notes to the Unaudited Condensed Consolidated Financial Statements for detailed information regarding the status of recently issued or adopted accounting pronouncements. As of September 30, 2022, we do not expect any of the issued Accounting Standards Updates to materially affect our condensed consolidated financial statements upon adoption.

Non-GAAP Financial Measures

We believe that providing non-GAAP financial measures that exclude certain items provides investors with greater transparency to the information used by senior management in its financial and operational decision-making. We believe it is important to provide investors with the same non-GAAP metrics used to supplement information regarding the performance and underlying trends of our business operations to facilitate comparisons to historical operating results and internally evaluate the effectiveness of our operating strategies. Disclosure of these non-GAAP financial measures also facilitates comparisons of our underlying operating performance with other companies in the industry that also supplement their GAAP results with non-GAAP financial measures.

The non-GAAP financial measures used in this filing may have limitations as analytical tools, and should not be considered in isolation or as a replacement for GAAP financial measures. Some of the limitations associated with the use of these non-GAAP financial measures are that they exclude items that reflect an economic cost that can have a material effect on cash flows.

Constant Currency

Constant currency is calculated by using foreign currency rates from the comparable, prior-year period to present net sales at comparable rates. Constant currency can be presented for numerous GAAP measures, but is most commonly used by management to analyze net sales without the impact of changes in foreign currency rates.

EBITDA

EBITDA is a non-GAAP metric defined as earnings before interest income (expense), income taxes, depreciation, and amortization. EBITDA is the primary metric used by our Chief Operating Decision Maker in managing the business.

Free Cash Flow

Free cash flow is calculated by subtracting capital expenditures from net cash from operating activities. Management uses free cash flow as an important indicator of how much cash is generated or used by our normal business operations, including capital expenditures. Management uses free cash flow as a measure of progress on its capital efficiency and cash flow initiatives.

 

26


 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our market risks as disclosed in our Form 10-K for the year ended December 31, 2021.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) designed to provide reasonable assurance that the information required to be disclosed in reports filed or submitted under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. These include controls and procedures designed to ensure that this information is accumulated and communicated to management, including our President and Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management, with the participation of the President and Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2022. Based on this evaluation, our President and Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of September 30, 2022.

Changes in Internal Control over Financial Reporting

 

There was no change in our internal control over financial reporting, known to the President and Chief Executive Officer or the Chief Financial Officer that occurred for the quarterly period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

27


 

PART II. OTHER INFORMATION

For information regarding legal proceedings, see Note 7 to the Notes to the Unaudited Condensed Consolidated Financial Statements contained herein, which is incorporated by reference into this Part II, Item 1.

Item 1A. Risk Factors

The following risk factors supplement and should be read in conjunction with those contained in the risk factors disclosed in the “Risk Factors” section of our Form 10-K for the year ended December 31, 2021, except as follows.

Risks Related to the Pending Merger with SeaSpine

The merger is subject to conditions, some or all of which may not be satisfied, or completed on a timely basis, if at all. Failure to complete the merger could have material adverse effects on Orthofix and SeaSpine.

The completion of the merger is subject to a number of conditions, including, among other things, the receipt of the Orthofix stockholder approval and the SeaSpine stockholder approval and receipt of certain regulatory approvals, which make the completion and timing of the merger uncertain. The failure to satisfy all of the required conditions could delay the completion of the merger for a significant period of time or prevent it from occurring at all. There can be no assurance that the conditions to the completion of the merger will be satisfied or waived or that the merger will be completed.

If the merger is not completed, each of Orthofix and SeaSpine may be materially adversely affected and, without realizing any of the benefits of having completed the merger, will be subject to a number of risks, including the following:

the market price of Orthofix common stock or SeaSpine common stock could decline;
Orthofix or SeaSpine could owe a substantial termination fee to the other party in specified circumstances;
if the merger agreement is terminated and the Orthofix Board or the SeaSpine Board seeks another business combination, Orthofix stockholders or SeaSpine stockholders, as applicable, cannot be certain that Orthofix or SeaSpine, as applicable, will be able to find a party willing to enter into a transaction on terms equivalent to or more attractive than the terms that the other party has agreed to in the merger agreement;
time and resources, financial and other, committed by Orthofix’s and SeaSpine’s management to matters relating to the merger could otherwise have been devoted to pursuing other beneficial opportunities;
Orthofix or SeaSpine may experience negative reactions from the financial markets or from its customers, suppliers or employees; and
Orthofix and SeaSpine will each be required to pay its costs relating to the merger, such as legal, accounting, financial advisory and printing fees, whether or not the merger is completed (subject to certain exceptions).

In addition, if the merger is not completed, each of Orthofix and SeaSpine could be subject to litigation related to any failure to complete the merger or related to any enforcement proceeding commenced against such party to perform its obligations under the merger agreement. Any of these risks could materially and adversely impact Orthofix’s or SeaSpine’s ongoing business, financial condition, financial results and stock price.

Similarly, delays in the completion of the merger could, among other things, result in additional transaction costs, loss of revenue or other negative effects associated with delay and uncertainty about completion of the merger and could materially and adversely impact Orthofix’s and SeaSpine’s ongoing business, financial condition, financial results and stock price following the completion of the merger.

The merger is subject to the expiration or termination of applicable waiting periods and the receipt of approvals, consents or clearances from several regulatory authorities that may impose conditions that could have an adverse effect on Orthofix, SeaSpine or the combined company or, if not obtained, could prevent completion of the merger.

Before the merger may be completed, any applicable waiting period (and any extension thereof) under the HSR Act relating to the completion of the merger must have expired or been terminated and any authorization or consent from a governmental authority required to be obtained with respect to the merger under certain other applicable foreign regulatory laws must have been obtained. In deciding whether to grant the required regulatory authorization or consent, the relevant governmental entities will consider the effect of the merger within their relevant jurisdiction, including, among other things, the impact on the parties’ respective customers and suppliers. The terms and conditions of the authorizations and consents that are granted, if any, may impose requirements, limitations or costs or place restrictions on the conduct of the combined company’s business or may materially delay the completion of the merger.

28


 

Under the merger agreement, Orthofix and SeaSpine have agreed to use their respective reasonable best efforts to obtain such authorizations and consents, and each of Orthofix and SeaSpine has agreed take all actions, and to do promptly, or cause to be done, and to assist and cooperate with each other in doing, all things necessary, proper or advisable under applicable laws to carry out the intent and purposes of the merger agreement and to consummate the transactions contemplated by the merger agreement. However, Orthofix’s and SeaSpine’s obligations to take such actions are subject to limitations, including that neither Orthofix nor SeaSpine will be required to divest, sell, dispose of, or license or agree to divest, sell, dispose of, or license any assets, businesses, rights or operations.

In addition, at any time before or after the completion of the merger, and notwithstanding the termination of applicable waiting periods, the applicable U.S. or foreign regulatory authorities or any state attorney general could take such action under antitrust or applicable foreign investment laws as such party deems necessary or desirable in the public interest. Such action could include, among other things, seeking to enjoin the completion of the merger or seeking divestiture of substantial assets of the parties. In addition, in some circumstances, a third party could initiate a private action challenging, seeking to enjoin, or seeking to impose conditions on the merger. Orthofix and SeaSpine may not prevail and may incur significant costs in defending or settling any such action.

There can be no assurance that the conditions to the completion of the merger set forth in the merger agreement relating to applicable regulatory laws will be satisfied.

The merger agreement contains provisions that limit Orthofix’s and SeaSpine’s ability to pursue alternatives to the merger, could discourage a potential competing transaction counterparty of Orthofix or SeaSpine from making a favorable alternative transaction proposal, and provide that, in specified circumstances, each of Orthofix and SeaSpine would be required to pay a termination fee.

The merger agreement contains provisions that make it more difficult for SeaSpine to sell its business to a party other than Orthofix, or for Orthofix to sell its business. These provisions include a general prohibition on each party soliciting any acquisition proposal. Further, there are only limited exceptions to each party’s agreement that its board of directors will not withdraw or modify in a manner adverse to the other party the recommendation of its board of directors in favor of the adoption of the merger agreement, in the case of SeaSpine, or the approval of the stock issuance, in the case of Orthofix, and the other party generally has a right to attempt to match any acquisition proposal that may be made. However, at any time prior to the adoption of the merger agreement by SeaSpine stockholders, in the case of SeaSpine, or the approval of the Orthofix share issuance proposal by Orthofix stockholders, in the case of Orthofix, such party’s board of directors is permitted to make an adverse recommendation change if it determines in good faith that the failure to take such action would be reasonably likely to be inconsistent with its fiduciary duties under applicable law.

In some circumstances, upon termination of the merger agreement, SeaSpine would be required to pay a termination fee of approximately $10.6 million to Orthofix, and in some circumstances, upon termination of the merger agreement, Orthofix would be required to pay a termination fee of approximately $13.7 million to SeaSpine, each as contemplated by the merger agreement.

The parties believe these provisions are reasonable and not preclusive of other offers, but these restrictions might discourage a third party that has an interest in acquiring all or a significant part of either SeaSpine or Orthofix from considering or proposing an acquisition proposal, even if that party was prepared to pay consideration with a higher per-share value than the currently proposed merger consideration, in the case of SeaSpine, or that party was prepared to enter into an agreement that may be favorable to Orthofix or its stockholders, in the case of Orthofix. Furthermore, the termination fees described above may result in a potential competing acquirer proposing to pay a lower per-share price to acquire the applicable party than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable by such party in certain circumstances.

 

The exchange ratio is fixed and will not be adjusted in the event of any change in either Orthofix’s or SeaSpine’s stock price.

Upon completion of the merger, each issued and outstanding share of SeaSpine common stock (other than excluded shares) will be converted into the right to receive the merger consideration, which is equal to 0.4163 fully paid and nonassessable shares of Orthofix common stock (and, if applicable, cash in lieu of fractional shares). This exchange ratio was fixed in the merger agreement and will not be adjusted for changes in the market price of either Orthofix common stock or SeaSpine common stock.

It is impossible to accurately predict the market price of Orthofix common stock at the completion of the merger and, therefore, impossible to accurately predict the market value of the shares of Orthofix common stock that SeaSpine stockholders will receive in the merger. The market price for Orthofix common stock may fluctuate both prior to the completion of the merger and thereafter for a variety of reasons, including, among others, general market and economic conditions, the demand for Orthofix’s or SeaSpine’s products and services, changes in laws and regulations, other changes in Orthofix’s and SeaSpine’s respective businesses, operations, prospects and financial results of operations, market assessments of the likelihood that the merger will be completed,

29


 

and the expected timing of the merger. Many of these factors are beyond Orthofix’s and SeaSpine’s control. As a result, the market value represented by the exchange ratio will also vary.

Each party is subject to business uncertainties and contractual restrictions while the merger is pending, which could adversely affect each party’s business and operations.

In connection with the pendency of the merger, it is possible that some customers, suppliers and other persons with whom Orthofix and/or SeaSpine has a business relationship may delay or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationships with Orthofix or SeaSpine, as the case may be, as a result of the merger or otherwise, which could negatively affect Orthofix’s or SeaSpine’s respective revenues, earnings and/or cash flows, as well as the market price of Orthofix common stock or SeaSpine common stock, regardless of whether the merger is completed.

Under the terms of the merger agreement, each of Orthofix and SeaSpine is subject to certain restrictions on the conduct of its business prior to completing the merger, which may adversely affect its ability to execute certain of its business strategies, including the ability in certain cases to modify or terminate contracts, acquire or dispose of assets, incur indebtedness, pay dividends, incur capital expenditures or settle claims. Such limitations could adversely affect each of Orthofix’s and SeaSpine’s business and operations prior to the completion of the merger.

Each of the risks described above may be exacerbated by delays or other adverse developments with respect to the completion of the merger.

Completion of the merger may trigger change in control or other provisions in certain distributor, customer and other agreements to which Orthofix or SeaSpine is a party, which may have an adverse impact on the combined company’s business and results of operations following completion of the merger.

The completion of the merger may trigger change in control and other provisions in certain agreements to which Orthofix or SeaSpine is a party. If Orthofix or SeaSpine is unable to negotiate waivers of those provisions, counterparties may exercise their rights and remedies under the agreements, including terminating the agreements or seeking monetary damages or equitable remedies. Even if Orthofix and SeaSpine are able to negotiate consents or waivers, the counterparties may require a fee for such waivers or seek to renegotiate the agreements on terms less favorable to Orthofix or SeaSpine. Any of the foregoing or similar developments may have an adverse impact on the combined company’s business and results of operations following completion of the merger.

Uncertainties associated with the merger may cause a loss of management personnel and other key employees, which could adversely affect the future business and operations of the combined company following completion of the merger.

Orthofix and SeaSpine are dependent on the experience and industry knowledge of their officers and other key employees to execute their business plans. The combined company’s success after the completion of the merger will depend in part upon the ability of the combined company to retain certain key management personnel and employees of Orthofix and SeaSpine. Prior to the completion of the merger, current and prospective employees of Orthofix and SeaSpine may experience uncertainty about their roles following the completion of the transactions, which may have an adverse effect on the ability of each of Orthofix and SeaSpine to attract or retain key management and other key personnel. In addition, no assurance can be given that the combined company, after the completion of the merger, will be able to attract or retain key management personnel and other key employees to the same extent that Orthofix and SeaSpine have previously been able to attract or retain their own employees.

Orthofix’s executive officers and directors and SeaSpine’s executive officers and directors have interests in the merger that may be different from, or in addition to, Orthofix’s stockholders’ and SeaSpine’s stockholders’ interests.

When considering the recommendation of the Orthofix Board that Orthofix stockholders approve the Orthofix share issuance proposal and the recommendation of the SeaSpine Board that the SeaSpine stockholders approve the SeaSpine merger proposal, such stockholders should be aware that certain directors and executive officers of Orthofix and directors and executive officers of SeaSpine have certain interests in the merger that may be different from, or in addition to, the interests of such stockholders. The Orthofix Board was aware of the interests of Orthofix’s directors and executive officers, the SeaSpine Board was aware of the interests of SeaSpine’s directors and executive officers, and each board considered such interests, among other matters, when it approved the merger agreement and in making its recommendations to its stockholders. Additional interests of the executive officers of Orthofix in the merger include certain performance stock unit achievement rights and certain post separation cash severance and equity acceleration rights, in each as a result of the Orthofix Board’s determination to treat the transaction as a “Change in Control” under applicable agreements and equity plans. Additional interests of the directors include continued service on the board of the combined company or certain equity acceleration rights in the event that the director is not continuing. Additional interests of the directors and executive officers of SeaSpine in the merger include (i) the payment of certain severance and other

30


 

benefits upon a qualifying termination of employment or service following the completion of the merger, (ii) continued employment or service on the board of the combined company and (iii) the continued provision of indemnification and insurance coverage for current and former directors and executive officers of SeaSpine in accordance with the merger agreement. As a result of these interests, these directors (as applicable) and executive officers might be more likely to support and to vote in favor of the proposals described in this joint proxy statement/prospectus than if they did not have these interests. Orthofix stockholders and SeaSpine stockholders should consider whether these interests might have influenced these directors (as applicable) and executive officers to recommend adopting the merger agreement.

Following the merger, the composition of the combined company board of directors will be different than the composition of the current Orthofix Board or the current SeaSpine Board.

The Orthofix Board currently consists of nine directors and the SeaSpine Board currently consists of nine directors. Upon completion of the merger, the board of directors of the combined company will consist of nine directors, including five directors designated by Orthofix and four directors designated by SeaSpine. This new composition of the board of directors of the combined company may affect the future decisions of the combined company.

Other Risk Factors

The conflict between Russia and Ukraine may continue to cause global economic instability and potentially disrupt supply chains.

In February 2022, Russia unlawfully invaded Ukraine, creating an ongoing humanitarian and global security crisis. In response, the U.S. and many other countries have imposed robust sanctions on Russia and may impose additional sanctions in the future. The ongoing invasion has caused significant damage and disruption to various aspects of the global economy. We have never conducted any meaningful business within Russia, and do not believe that the invasion will have material direct effects on our business or operations. However, we cannot predict the broader and longer-term consequences of this conflict or the sanctions imposed in response, and such consequences could include, among other things, general disruptions to global finance markets, exchange rates, and worldwide supply chains. Geopolitical instability and uncertainty resulting from the invasion could potentially have a negative impact on our ability to sell to, ship products to, collect payments from, and support customers in certain regions based on trade restrictions, embargoes and export control law restrictions, and logistics restrictions. These considerations could adversely affect our costs, risks, and efficiencies related to our supply chain and logistics. The potential effects of the conflict between Russia and Ukraine also could affect many of the other risk factors described in Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

We have not made any repurchases of our common stock during the third quarter of 2022.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

There are no matters to be reported under this heading.

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Item 6. Exhibits

 

   2.1

 

Agreement and Plan of Merger, dated as of October 10, 2022, by and among Orthofix Medical Inc., Orca Merger Sub Inc. and SeaSpine Holdings Corporation (filed as an exhibit to the Company’s Current Report on Form 8-K dated October 11, 2022 and incorporated herein by reference).

 

 

 

   3.1

 

Amended and Restated Bylaws of Orthofix Medical Inc. (filed as an exhibit to the Company’s Current Report on Form 8-K dated October 11, 2022 and incorporated herein by reference).

 

 

 

  31.1*

 

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.

 

 

 

  31.2*

 

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.

 

 

 

  32.1*

 

Section 1350 Certifications of each of the Chief Executive Officer and Chief Financial Officer.

 

 

 

  101.INS*

 

Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).

 

 

 

  101.SCH*

 

Inline XBRL Taxonomy Extension Schema Document.

 

 

 

  101.CAL*

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

 

 

 

  101.DEF*

 

Inline XBRL Taxonomy Extension Definition Linkbase Document.

 

 

 

  101.LAB*

 

Inline XBRL Taxonomy Extension Label Linkbase Document.

 

 

 

  101.PRE*

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

 

 

 

  104*

 

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

* Filed herewith.

 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

ORTHOFIX MEDICAL INC.

 

 

Date: November 3, 2022

By:

 

/s/ JON SERBOUSEK

 

Name:

 

Jon Serbousek

 

Title:

 

President and Chief Executive Officer, Director

 

 

 

 

Date: November 3, 2022

By:

 

/s/ DOUG RICE

 

Name:

 

Doug Rice

 

Title:

 

Chief Financial Officer

 

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