8-K
Orthofix Medical Inc. (OFIX)
UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
| Date of Report (Date of earliest event reported): March 06, 2023 |
|---|
ORTHOFIX MEDICAL INC.
(Exact name of Registrant as Specified in Its Charter)
| Delaware | 0-19961 | 98-1340767 |
|---|---|---|
| (State or Other Jurisdiction<br>of Incorporation) | (Commission File Number) | (IRS Employer<br>Identification No.) |
| 3451 Plano Parkway | ||
| Lewisville, Texas | 75056 | |
| (Address of Principal Executive Offices) | (Zip Code) | |
| Registrant’s Telephone Number, Including Area Code: (214) 937-2000 | ||
| --- |
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading<br>Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common stock, $0.10 par value per share | OFIX | Nasdaq Global Select Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
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. ☐
Item 2.02. Results of Operations and Financial Condition.
On March 6, 2023, Orthofix Medical Inc. (the “Company”) issued a news release announcing, among other things, its financial results for the fourth quarter and year ended December 31, 2022. As the merger with SeaSpione Holdings Corporation ("SeaSpine") was completed on January 5, 2023, the news release also includes the stand-alone financial results of SeaSpine for the fourth quarter and year ended December 31, 2022. A copy of the press release is furnished herewith as Exhibit 99.1 and attached hereto.
The information furnished in this Item 2.02, including the exhibit furnished herewith as Exhibit 99.1, will not be treated as “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section. This information will not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or into another filing under the Exchange Act, unless that filing expressly incorporates by reference this Item 2.02 of this report.
Discussion of Non-GAAP Financial Measures
Constant Currency
Constant currency is a non-GAAP measure, which the Company calculates 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.
Free Cash Flow
Free cash flow is a non-GAAP financial measure, which is calculated by subtracting capital expenditures from cash flow from operating activities. Free cash flow is an important indicator of how much cash is generated or used by the Company's normal business operations, including capital expenditures. Management uses free cash flow to measure progress on its capital efficiency and cash flow initiatives.
EBITDA
EBITDA is a non-GAAP financial measure, which the Company calculate by adding interest income (expense), net; income tax expense (benefit); and depreciation and amortization to net income. EBITDA provides management with additional insight to its results of operations. EBITDA is the primary metric used by the Company's Chief Operating Decision Maker in managing the business.
Adjusted EBITDA, Adjusted Net Income (Loss) and Adjusted EPS for Stand-Alone Orthofix Financial Results
These non-GAAP financial measures utilized in the Orthofix stand-alone financial results provide management with additional insight to its results of operations and reflect the exclusion of the following items:
• Share-based compensation expense – Costs related to the Company's share-based compensation plans, which include stock options, restricted stock, performance-based or market-based restricted stock, and a stock purchase plan; see the share-based compensation footnote in the Company's Form 10-K for the year ended December 31, 2022 for an allocation of these costs by consolidated statement of operations line item. It should be noted that certain share-based compensation costs are instead included within medical device regulation for 2021 and 2022. Management excludes this item when evaluating the Company's operating performance as it represents a non-cash expense.
• Foreign exchange impact – Gains and losses related to foreign currency transactions, which are recorded as other income (expense), net. Management excludes this item when evaluating the Company's operating results as at is primarily a non-cash expense or benefit and is non-operating in nature.
• Strategic investments – Costs related to the Company's strategic investments, such as due diligence and integration costs, which are primarily recorded as general and administrative expenses. These acquisition and integration-related charges are not factored into the evaluation of the Company's performance by management because they are of a temporary nature, not related to the Company's core operating performance, and as the frequency and amount of such charges vary significantly based on the timing and magnitude of the Company's acquisition transactions.
• Acquisition-related fair value adjustments – Comprised of (i) gains and losses related to remeasurement of contingent consideration to fair value, which are recorded as operating expenses and (ii) recognized costs related to acquired in-process research and development ("IPR&D") assets, which were expensed immediately. Management excludes this item when evaluating the Company's operating results as the remasurement of contingent consideration is primarily non-cash in nature and as the frequency and amount of IPR&D charges can vary significantly based on the timing and magnitude of the Company's acquisition transactions.
• Amortization of acquired intangibles – Amortization of intangible assets acquired in business combinations or asset acquisitions, including items such as developed technologies, customer relationships, trade names, manufacturing agreements, and other intangible assets, and any impairment of acquired goodwill, which are recorded in cost of sales or
operating expenses. Management excludes this item when evaluating the Company's operating performance as it represents a non-cash expense.
• (Gain) Loss on investment securities – Net gains or losses recognized (realized or unrealized) within other income (expense), net relating to certain of our investments. Management excludes this item when evaluating the Company's operating performance as it typically represents a non-cash gain or loss and is not related to the Company's core operating performance.
• Legal judgments/settlements – Adverse or favorable legal judgments or negotiated legal settlements, which are recorded as general and administrative expenses. Management excludes this item when evaluating the Company's operating results as these costs and/or benefits can vary significantly based on the timing and magnitude of litigation matters.
• Succession and transition charges – Costs related to the transition of certain named executive officers and certain targeted restructuring costs, including any cessation and onboarding amounts, accelerated share-based compensation expense, consulting services, and other related expenses, which are primarily recorded as general and administrative expenses. Management excludes this item when evaluating the Company's operating results as these costs associated with events that are not expected to recur at a similar frequency and magnitude in the future.
• Medical device regulation – Incremental costs incurred (i) to establish initial compliance with the regulations set forth by the European Union Medical Device Regulation (“MDR”) and the U.S. Food and Drug Administration related to our currently-approved medical devices, which are recorded primarily as research and development expenses, and (ii) related to rationalization of certain product lines that we do not expect to continue to market subsequent to the effective date of these regulations, which are recorded primarily as costs of sales. Management excludes this item when evaluating the Company's operating results as these costs associated with events that are not expected to recur at a similar frequency and magnitude in the future.
• Business interruption – COVID-19 – Gains and losses related to the realized effects the COVID-19 pandemic has had on our business operations, which consist primarily of (i) certain legislative relief received as a result of the COVID-19 pandemic, (ii) costs associated with the redesign of certain products in response to supply chain disruption, and (iii) incremental costs incurred to enhance the safety and sanitation of our facilities. Management excludes this item when evaluating the Company's operating results as these costs associated with events that are not expected to recur at a similar frequency and magnitude in the future.
• Long-term income tax rate adjustment – Reflects management’s expectation of a long-term normalized effective tax rate of 27% for 2021 and 28% for the fiscal year 2022 results and outlook, which is based on current tax law and current expected adjusted income; actual reported tax expense will ultimately be based on GAAP earnings and may differ from the expected long-term normalized effective tax rate due to a variety of factors, including the resolutions of issues arising from tax audits with various tax authorities, the ability to realize deferred tax assets, and the tax impact of certain reconciling items that are excluded in determining Adjusted Net Income and Adjusted EPS.
Adjusted EBITDA and Adjusted Gross Margin for SeaSpine Stand-Alone Financial Results
Adjusted EBITDA and Adjusted Gross Margin are measures used by management for purposes of:
• supplementing the financial results and forecasts reported to the Company's board of directors;
• evaluating, managing and benchmarking the operating performance of the Company;
• establishing internal operating budgets;
• enhancing comparability from period to period; and
• comparing performance with internal forecasts and targeted business models.
Adjusted EBITDA consists of GAAP net loss before interest, taxes, depreciation and amortization and excludes the impact of the following items:
• Fixed NanoMetalene supplier processing charge – This charge relates to the future fixed payments that SeaSpine is obligated to make to a supplier in connection with securing and maintaining long-term backup processing capacity for its NanoMetalene franchise. Because SeaSpine no longer anticipates utilizing the backup processor for a meaningful portion of its future NanoMetalene supply needs throughout the term of the payment stream, SeaSpine recorded a loss on this future contractual obligation in the fourth quarter of 2021. Management excludes this item when evaluating the Company's operating performance because the frequency of such charge is expected to be highly unusual and nonrecurring.
• Spinal set instrument replacement expenses – The cost of purchased instruments used to replace damaged instruments in existing sets is recorded directly to instrument replacement expense. Management excludes this item when evaluating the Company's operating performance because it is, in nature and substance, very similar to depreciation expense recorded over time for spinal set instruments deployed to new sets.
• Stock-based compensation – Management excludes this item when evaluating the Company's operating performance because it is a non-cash expense.
• European sales and marketing organization restructuring– Management excludes this item when evaluating the Company’s operating performance because these charges are associated with an event that is not expected to recur at a similar magnitude in the future.
• Litigation special charges – Management excludes legal fees and any litigation settlement costs associated with onboarding competitive distributor partners in a compliant manner when evaluating the Company’s operating performance because these charges are associated with events that are not expected to recur at a similar frequency and magnitude in the future.
• Purchase accounting inventory fair market value adjustments – Purchase accounting inventory fair market value adjustments consist of the increase to cost of goods sold that occur as a result of expensing the “step up” in the fair value of acquired inventory that SeaSpine purchased in connection with acquisitions as that inventory is sold during the financial period. Management excludes this item when evaluating the Company’s operating performance because it is not related to its core operating performance and because it is a non-cash expense for which the frequency and amount of such charges may vary significantly based on the level of inventory on hand at the time of acquisition.
• Acquisition and integration-related charges – Acquisition and integration-related charges include (i) legal, accounting, and other outside consultant expenses directly related to acquisitions and (ii) costs related to acquisition integration, including systems, operations, retention and severance. These acquisition and integration-related charges are not factored into the evaluation of the Company's performance by management after completion of acquisitions because they are of a temporary nature, they are not related to the Company's core operating performance and the frequency and amount of such charges vary significantly based on the timing and magnitude of the Company's acquisition transactions.
• Business combination charges related to Orthofix – Legal, accounting, and other outstide consultant expenses or costs directly related to the merger of SeaSpine and Orthofix. Management excludes this item when evaluating the Company’s operating performance because these charges are associated with an event that is not expected to recur at a similar magnitude in the future.
Adjusted Gross Margin represents GAAP gross margin excluding the impact of the following items recorded to cost of goods sold:
• Technology-related intangible asset amortization expense – Management excludes this item when evaluating the Company's operating performance because it is a non-cash expense.
• Fixed NanoMetalene supplier processing charge – See above under, the "Adjusted EBITDA" heading for a description of this charge and the reason management excludes it when evaluating the Company's operating performance.
• Purchase accounting inventory fair market value adjustments – See above under the "Adjusted EBITDA" heading for a description of these charges and the reason management excluded them when evaluating the Company’s operating performance.
Usefulness and Limitations of Non-GAAP Financial Measures
Management uses non-GAAP measures to evaluate performance period-over-period, analyze the underlying trends in our business, assess performance relative to competitors, and establish operational goals and forecasts that are used in allocating resources. Management uses these non-GAAP measures as the basis for evaluating the ability of the underlying operations to generate cash. In addition, management uses these non-GAAP measures to further its understanding of the performance of our business units.
Material Limitations Associated with the Use of Non-GAAP Financial Measures
The non-GAAP financial measures used in this press release 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 and can have a material effect on cash flows. Similarly, certain non-cash expenses, such as share-based compensation, do not directly impact cash flows, but are part of total compensation costs accounted for under GAAP.
Compensation for Limitations Associated with Use of Non-GAAP Financial Measures
We compensate for the limitations of our non-GAAP financial measures by relying upon GAAP results to gain a complete picture of our performance. The GAAP results provide management with the ability to further understand our performance based on a defined set of criteria. Management believes that the non-GAAP measures reflect the underlying operating results of our businesses and provide an important measure of our overall performance. We provide detailed reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures above and encourage investors to review these reconciliations.
Usefulness of Non-GAAP Financial Measures to Investors
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. Management believes it is important to provide investors with the same non-GAAP metrics it uses to supplement information regarding the performance and underlying trends of our business operations in order to facilitate comparisons to our historical operating results and internally evaluate the effectiveness of our operating strategies. We believe that 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.
Item 7.01 Regulation FD Disclosure.
The news release furnished in Exhibit 99.1 also provides an update on the Company’s business outlook, that is intended to be within the safe harbor provided by the Private Securities Litigation Reform Act of 1995 (the “Act”) as comprising forward looking statements within the meaning of the Act.
The information furnished in this Item 7.01, including the exhibit furnished herewith as Exhibit 99.1, will not be treated as “filed” for the purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section. This information will not be deemed incorporated by reference into any filing under the Securities Act, or into another filing under the Exchange Act, unless that filing expressly incorporates by reference this Item 7.01 of this report.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
| 99.1 | News release, dated March 6, 2023 |
|---|---|
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Orthofix Medical Inc. | |
|---|---|
| By: | /s/ Patrick Keran |
| Patrick Keran<br><br>Chief Legal Officer |
Date: March 6, 2023
EX-99
Exhibit 99.1
Orthofix Medical Reports Orthofix and SeaSpine Fourth Quarter and Full-Year 2022 Results
LEWISVILLE, Texas — March 6, 2023 — (NASDAQ:OFIX) The merger of Orthofix Medical Inc. ("Orthofix") and SeaSpine Holdings Corporation ("SeaSpine") became effective as of January 5, 2023. This news release includes the financial results of stand-alone Orthofix and stand-alone SeaSpine for the fourth quarter and full year ended December 31, 2022. As such, these financial results do not include any potential accounting adjustments the merger may have on future net sales or operating results.
Orthofix Fourth Quarter Highlights
• Net sales of $122.2 million, a decrease of 2% on a reported basis and flat on a constant currency basis over prior year
• Bone Growth Therapies net sales growth of approximately 3%, driven by the commercial roll-out of AccelStim™ Bone Healing Therapy and channel investments
• Global Orthopedics net sales growth of over 6% on a constant currency basis driven by new product launches and channel investments
SeaSpine Fourth Quarter Highlights
• Net sales of $63.4 million, an increase of 14% on a reported basis over prior year and an increase of 18% when adjusted to exclude the impact of SeaSpine’s exit from the European Spinal Implants market in the third quarter of 2022
• U.S. Spinal Implants and Orthobiologics net sales growth of 23% and 20%, respectively, driven by recently launched products and expanded distribution
• A record twelve 7D FLASH Technology System units placed in the fourth quarter, and the achievement of 100th unit placement milestone
“We are proud of the strong revenue results for the fourth quarter of 2022 within the legacy SeaSpine U.S. Spinal Implants and Orthobiologics portfolios as well as within the Orthofix Bone Growth Therapies and Global Orthopedics portfolios,” said Keith Valentine, President and Chief Executive Officer of Orthofix. “Following the completion of the merger on January 5th, we have begun our focused integration of these two highly complementary businesses to realize the meaningful synergy opportunities that we identified. We will continue to deliver innovative and differentiated solutions to both our surgeon and hospital partners, helping them provide the best treatment to their patients through a full continuum of care from pre-operative planning through post-surgical recovery. Our revenue guidance for the first quarter and the full year 2023 assumes minimal realization of potential revenue synergies, which we believe will accelerate as we move into 2024.”
Fourth Quarter Financial Results Overview
Orthofix Stand-Alone Fourth Quarter Net Sales and Financial Results
| Orthofix | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Three Months Ended December 31, | ||||||||||
| (Unaudited, U.S. Dollars, in thousands) | 2022 | 2021 | Change | Constant<br>Currency<br>Change | ||||||
| Bone Growth Therapies | $ | 51,003 | $ | 49,627 | 2.8 | % | 2.8 | % | ||
| Spinal Implants | 28,852 | 31,150 | (7.4 | %) | (6.6 | %) | ||||
| Biologics | 13,696 | 15,071 | (9.1 | %) | (9.1 | %) | ||||
| Global Spine | 93,551 | 95,848 | (2.4 | %) | (2.1 | %) | ||||
| Global Orthopedics | 28,678 | 29,216 | (1.8 | %) | 6.4 | % | ||||
| Net sales | $ | 122,229 | $ | 125,064 | (2.3 | %) | (0.1 | %) |
Gross margin decreased to 73.0% compared to 73.4% in the prior year period.
Net loss was $(7.1) million, or $(0.35) per share, compared to net loss of $(32.8) million, or $(1.65) per share in the prior year period. Adjusted net income was $3.8 million, or $0.19 per share, compared to adjusted net income of $5.4 million, or $0.27 per share in the prior year period.
EBITDA was $0.7 million, compared to $10.0 million in the prior year period. Adjusted EBITDA was $15.8 million, or 12.9% of net sales, compared to $17.0 million, or 13.6% of net sales, in the prior year period.
As of December 31, 2022, Orthofix's cash totaled $50.7 million, compared to $87.8 million as of December 31, 2021. As of December 31, 2022, Orthofix had no borrowings under its five year $300 million secured revolving credit facility; however, on January 3, 2023, and March 3, 2023, Orthofix borrowed $30.0 million and $15.0 million, respectively, under this credit facility to fund (i) the repayment of the outstanding balance on SeaSpine’s credit facility, (ii) certain merger-related expenses, and (iii) working capital purposes.
SeaSpine Stand-Alone Fourth Quarter Net Sales and Financial Results
| SeaSpine | |||||||
|---|---|---|---|---|---|---|---|
| Three Months Ended December 31, | |||||||
| (Unaudited, U.S. Dollars, in thousands) | 2022 | 2021 | Percentage Change | ||||
| U.S. Spinal Implants and Enabling Technologies | $ | 30,637 | $ | 27,315 | 12.2 | % | |
| U.S. Orthobiologics | 27,454 | 22,860 | 20.1 | % | |||
| U.S. Net Sales | 58,091 | 50,175 | 15.8 | % | |||
| International Net Sales | 5,282 | 5,413 | (2.4 | %) | |||
| Net sales | $ | 63,373 | 55,588 | 14.0 | % |
Gross margin increased to 62.5% compared to 53.7% in the prior year period. Adjusted gross margin was 63.8% compared to 61.6% in the prior year period.
Net loss was $(19.0) million, or $(0.51) per share, compared to net loss of $(18.8) million, or $(0.52) per share in the prior year period. Adjusted EBITDA was $(5.7) million, or (9.1)% of net sales, compared to $(6.8) million, or (12.2)% of net sales in the prior year period.
As of December 31, 2022, SeaSpine's cash totaled $29.4 million, compared to $83.1 million as of December 31, 2021. As of December 31, 2022, SeaSpine had $26.2 million in borrowing outstanding under its credit facility, which was subsequently repaid in full on January 5, 2023, in connection with the merger.
Full Year Financial Results Overview
Orthofix Stand-Alone Full Year Net Sales and Financial Results
| Orthofix | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Year Ended December 31, | ||||||||||
| (U.S. Dollars, in thousands) | 2022 | 2021 | Change | Constant<br>Currency<br>Change | ||||||
| Bone Growth Therapies | $ | 187,247 | $ | 187,448 | (0.1 | %) | (0.1 | %) | ||
| Spinal Implants | 109,546 | 115,094 | (4.8 | %) | (4.0 | %) | ||||
| Biologics | 56,381 | 56,421 | (0.1 | %) | (0.1 | %) | ||||
| Global Spine | 353,174 | 358,963 | (1.6 | %) | (1.4 | %) | ||||
| Global Orthopedics | 107,539 | 105,516 | 1.9 | % | 11.0 | % | ||||
| Net sales | $ | 460,713 | $ | 464,479 | (0.8 | %) | 1.5 | % |
Gross profit decreased $12.4 million to $337.2 million. Gross margin decreased to 73.2% compared to 75.3% in the prior year period.
Net loss was $(19.7) million, or $(0.98) per share, compared to net loss of $(38.4) million, or $(1.95) per share in the prior year period. Adjusted net income was $6.0 million, or $0.30 per share, compared to adjusted net income of $17.2 million, or $0.86 per share in the prior year period.
EBITDA was $12.6 million, compared to $29.7 million in the prior year period. Adjusted EBITDA was $48.6 million, or 10.5% of net sales, compared to $61.3 million, or 13.2% of net sales, in the prior year period.
SeaSpine Stand-Alone Full Year Net Sales and Financial Results
| SeaSpine | |||||||
|---|---|---|---|---|---|---|---|
| Year Ended December 31, | |||||||
| (U.S. Dollars, in thousands) | 2022 | 2021 | Percentage Change | ||||
| U.S. Spinal Implants and Enabling Technologies | $ | 107,170 | $ | 88,192 | 21.5 | % | |
| U.S. Orthobiologics | 97,049 | 83,249 | 16.6 | % | |||
| U.S. Net Sales | 204,219 | 171,441 | 19.1 | % | |||
| International Net Sales | 33,312 | 20,010 | 66.5 | % | |||
| Net sales | $ | 237,531 | 191,451 | 24.1 | % |
Gross profit increased $33.0 million to $147.6 million. Gross margin increased to 62.1% compared to 59.9% in the prior year period. Adjusted gross margin was 63.8% compared to 63.5% in the prior year period.
Net loss was $(65.0) million, or $(1.76) per share, compared to net loss of $(54.3) million, or $(1.62) per share in the prior year period. Adjusted EBITDA was $(21.2) million, or (8.9)% of net sales, compared to $(22.9) million, or (12.0)% of net sales in the prior year period.
Business Outlook
As of the date hereof, the combined company expects the following net sales results for the quarter ended March 31, 2023, and the year ended December 31, 2023. These expectations are based on the current foreign currency exchange rates and do not assume any additional exchange rate changes that may occur this year and exclude the 2023 revenue results for SeaSpine for the four-day period prior to the closing of the merger .
| Current 2023 Outlook | ||||
|---|---|---|---|---|
| (Unaudited, U.S. Dollars, in millions) | Low | High | ||
| Expected net sales for the first quarter | $ | 166 | $ | 170 |
| Expected full year net sales | 743 | 753 |
The Company expects to provide additional elements of financial guidance in the future.
Conference Call
Orthofix will host a conference call today at 4:30 PM Eastern time to discuss the financial results for the fourth quarter and year ended December 31, 2022. Reported results include those for stand-alone Orthofix as well as stand-alone SeaSpine, which was merged into Orthofix effective January 5, 2023. Interested parties may access the conference call by dialing (888) 330-2508 in the U.S. and Canada, and (240) 789-2735 in all other locations, and referencing the access code 9556380. A replay of the call will be available for three weeks by dialing (800) 770-2030 in the U.S. and Canada, and (647) 362-9199 in all other locations, and entering the access code 9556380. A webcast of the conference call may be accessed at ir.Orthofix.com.
About Orthofix
The newly merged Orthofix-SeaSpine organization is a leading global spine and orthopedics company with a comprehensive portfolio of biologics, innovative spinal hardware, bone growth therapies, specialized orthopedic solutions and a leading surgical navigation system. Its products are distributed in 68 countries worldwide. The Company intends to announce a new name for the Orthofix-SeaSpine organization in the future, but in the interim will continue to operate under the Orthofix name.
The Company is headquartered in Lewisville, Texas, and has primary offices in Carlsbad, CA, with a focus on spinal product innovation and surgeon education, and Verona, Italy, with an emphasis on product innovation, production, and medical education for Orthopedics. The Orthofix-SeaSpine organization’s global R&D, commercial and manufacturing footprint also includes facilities and offices in Irvine, CA, Toronto, Canada, Sunnyvale, CA, Wayne, PA, Olive Branch, MS, Maidenhead, UK, Munich, Germany, Paris, France, and Sao Paolo, Brazil. For more information, please visit www.orthofix.com.
Forward-Looking Statements
This communication contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, relating to our business and financial outlook, which are based on our current beliefs, assumptions, expectations, estimates, forecasts and projections. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “intends,” “predicts,” “potential,” or “continue” or other comparable terminology. In this news release, such forward-looking statements include, but are not limited, to, statements relating to: our ability to continue to deliver innovative and differentiated solutions to both our surgeon and hospital partners and to help them provide the best treatment to their patients; and our revenue guidance for the first quarter and the full year 2023, including our belief that realization of potential revenue synergies will accelerate as we move into 2024. These forward-looking statements are not guarantees of our future performance and involve risks, uncertainties, estimates and assumptions that are difficult to predict, including the risks described under the heading “Risk Factors” in Orthofix’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the Securities and Exchange Commission (the “SEC”) on March 6, 2023, as well as subsequent Quarterly Reports on Form 10-Q and other information filed with the SEC. Factors that could cause or contribute to such differences may include, but are not limited to, (i) risks related to the integration of the legacy Orthofix and SeaSpine businesses and the ability of the combined company to realize the expected long-term financial and other benefits of the merger; (i) risks relating to the effects of the COVID-19 pandemic on our business, (iii) our ability to maintain operations to support our customers and patients in the near-term and to capitalize on future growth opportunities, (iv) risks associated with acceptance of surgical products and procedures by surgeons and hospitals, (v) development and acceptance of new products or product enhancements, (vi) clinical and statistical verification of the benefits achieved via the use of our products, (vii) our ability to adequately manage inventory, (viii) our ability to recruit and retain management and key personnel (including in connection with disruptions and uncertainties that may occur as the legacy Orthofix and SeaSpine businesses are integrated and the respective management and leadership teams are combined), (ix) global economic instability and potential supply chain disruption, including as a result of Russia’s invasion of Ukraine and resulting sanctions, and (x) the other risks and uncertainties more fully described in our periodic filings with the Securities and Exchange Commission (the “SEC”).
This list of risks, uncertainties, and other factors is not complete. We discuss some of these matters more fully, as well as certain risk factors that could affect our business, financial condition, results of operations, and prospects, in reports we file from time-to-time with the SEC, which are available to read at www.sec.gov. Any or all forward-looking statements that we make may turn out to be inaccurate (due to inaccurate assumptions that we make or otherwise), and our actual outcomes and results may differ materially from those expressed in these forward-looking statements. You should not place undue reliance on any of these forward-looking statements. Further, any forward-looking statement speaks only as of the date hereof, unless it is specifically otherwise stated to be made as of a different date. We undertake no obligation to update, and expressly disclaim any duty to update, our forward-looking statements, whether as a result of circumstances or events that arise after the date hereof, new information, or otherwise.
| Company Contact |
|---|
| Orthofix Medical Inc. |
| Alexa Huerta |
| P: 214-937-3190 |
| E: alexahuerta@orthofix.com |
ORTHOFIX MEDICAL INC.
Condensed Consolidated Statements of Operations
| Three Months Ended | Year Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, | December 31, | |||||||||||
| (U.S. Dollars, in thousands, except share and per share data) | 2022 | 2021 | 2022 | 2021 | ||||||||
| (Unaudited) | ||||||||||||
| Net sales | $ | 122,229 | $ | 125,064 | $ | 460,713 | $ | 464,479 | ||||
| Cost of sales | 33,053 | 33,254 | 123,544 | 114,914 | ||||||||
| Gross profit | 89,176 | 91,810 | 337,169 | 349,565 | ||||||||
| Sales and marketing | 59,324 | 57,098 | 228,810 | 221,318 | ||||||||
| General and administrative | 25,470 | 18,262 | 79,966 | 69,353 | ||||||||
| Research and development | 13,152 | 13,243 | 49,065 | 49,621 | ||||||||
| Acquisition-related amortization and remeasurement | 2,274 | 12,560 | (7,404 | ) | 17,588 | |||||||
| Operating income (loss) | (11,044 | ) | (9,353 | ) | (13,268 | ) | (8,315 | ) | ||||
| Interest expense, net | (229 | ) | (437 | ) | (1,288 | ) | (1,837 | ) | ||||
| Other expense, net | 4,286 | 185 | (3,150 | ) | (3,343 | ) | ||||||
| Loss before income taxes | (6,987 | ) | (9,605 | ) | (17,706 | ) | (13,495 | ) | ||||
| Income tax benefit (expense) | (75 | ) | (23,207 | ) | (2,043 | ) | (24,884 | ) | ||||
| Net loss | $ | (7,062 | ) | $ | (32,812 | ) | $ | (19,749 | ) | $ | (38,379 | ) |
| Net loss per common share: | ||||||||||||
| Basic | $ | (0.35 | ) | $ | (1.65 | ) | $ | (0.98 | ) | $ | (1.95 | ) |
| Diluted | (0.35 | ) | (1.65 | ) | (0.98 | ) | (1.95 | ) | ||||
| Weighted average number of common shares (in millions): | ||||||||||||
| Basic | 20.2 | 19.9 | 20.1 | 19.7 | ||||||||
| Diluted | 20.2 | 19.9 | 20.1 | 19.7 |
ORTHOFIX MEDICAL INC.
Condensed Consolidated Balance Sheets
| (U.S. Dollars, in thousands, except par value data) | December 31, 2021 | |||
|---|---|---|---|---|
| Assets | ||||
| Current assets | ||||
| Cash and cash equivalents | 50,700 | $ | 87,847 | |
| Accounts receivable, net of allowances of 6,419 and 4,944, respectively | 82,857 | 78,560 | ||
| Inventories | 100,150 | 82,974 | ||
| Prepaid expenses and other current assets | 22,283 | 20,141 | ||
| Total current assets | 255,990 | 269,522 | ||
| Property, plant, and equipment, net | 58,229 | 59,252 | ||
| Intangible assets, net | 47,388 | 52,666 | ||
| Goodwill | 71,317 | 71,317 | ||
| Other long-term assets | 25,705 | 23,866 | ||
| Total assets | 458,629 | $ | 476,623 | |
| Liabilities and shareholders’ equity | ||||
| Current liabilities | ||||
| Accounts payable | 27,598 | $ | 26,459 | |
| Current portion of finance lease liability | 652 | 2,590 | ||
| Other current liabilities | 55,374 | 76,781 | ||
| Total current liabilities | 83,624 | 105,830 | ||
| Long-term portion of finance lease liability | 19,239 | 19,890 | ||
| Other long-term liabilities | 18,906 | 13,969 | ||
| Total liabilities | 121,769 | 139,689 | ||
| Contingencies | ||||
| Shareholders’ equity | ||||
| Common shares 0.10 par value; 50,000 shares authorized; 20,162 and 19,837 issued and outstanding as of December 31, 2022 and 2021, respectively | 2,016 | 1,983 | ||
| Additional paid-in capital | 334,969 | 313,951 | ||
| Retained earnings | 1,251 | 21,000 | ||
| Accumulated other comprehensive loss | (1,376 | ) | — | |
| Total shareholders’ equity | 336,860 | 336,934 | ||
| Total liabilities and shareholders’ equity | 458,629 | $ | 476,623 |
All values are in US Dollars.
ORTHOFIX MEDICAL INC. Non-GAAP Financial Measures
The following tables present reconciliations of operating income (loss), net income (loss), EPS, and net cash from operating activities, in each case calculated in accordance with U.S. generally accepted accounting principles (“GAAP”), to, as applicable, non-GAAP financial measures, referred to as "EBITDA," "Adjusted EBITDA," "Adjusted net income (loss)," "Adjusted EPS," and "Free cash flow" that include or exclude items specified in the tables. The GAAP measures shown in the tables below represent the most comparable GAAP measure to the applicable non-GAAP measure(s) shown in the table. For further information regarding why the Company believes that these non-GAAP financial measures provide useful information to investors, the specific manner in which management uses these measures, and some of the limitations associated with the use of these measures, please refer to the Company's Current Report on Form 8-K regarding this press release filed today with the Securities and Exchange Commission ("SEC") available on the SEC's website at www.sec.gov and on the “Investors” page of the Company’s website at www.orthofix.com.
EBITDA and Adjusted EBITDA
| Three Months Ended December 31, 2022 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Unaudited, U.S. Dollars, in thousands) | Total Orthofix | Global Spine | Global Orthopedics | Corporate | ||||||||
| Operating income (loss) | $ | (11,044 | ) | $ | 8,184 | $ | (1,901 | ) | $ | (17,327 | ) | |
| Other income (expense), net | 4,286 | 990 | 2,258 | 1,038 | ||||||||
| Depreciation and amortization | 5,348 | 2,784 | 1,440 | 1,124 | ||||||||
| Amortization of acquired intangibles | 2,073 | 1,916 | 157 | — | ||||||||
| EBITDA | $ | 663 | $ | 13,874 | $ | 1,954 | $ | (15,165 | ) | |||
| Share-based compensation | 4,917 | 1,980 | 507 | 2,430 | ||||||||
| Foreign exchange impact | (4,195 | ) | (1,052 | ) | (2,192 | ) | (951 | ) | ||||
| Strategic investments | 9,844 | 41 | 498 | 9,305 | ||||||||
| Acquisition-related fair value adjustments | 200 | 200 | — | — | ||||||||
| Loss on investment securities | — | — | — | — | ||||||||
| Legal judgments/settlements | 337 | 156 | 131 | 50 | ||||||||
| Succession and transition charges | — | — | — | — | ||||||||
| Medical device regulation | 3,487 | 1,740 | 1,743 | 4 | ||||||||
| Business interruption - COVID-19 | 513 | 509 | 2 | 2 | ||||||||
| Adjusted EBITDA | $ | 15,766 | $ | 17,448 | $ | 2,643 | $ | (4,325 | ) | |||
| As a % of net sales | 12.9 | % | 14.3 | % | 2.2 | % | -3.5 | % | ||||
| Year Ended December 31, 2022 | ||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| (Unaudited, U.S. Dollars, in thousands) | Total Orthofix | Global Spine | Global Orthopedics | Corporate | ||||||||
| Operating income (loss) | $ | (13,268 | ) | $ | 43,062 | $ | (8,646 | ) | $ | (47,684 | ) | |
| Other income (expense), net | (3,150 | ) | (626 | ) | (2,087 | ) | (437 | ) | ||||
| Depreciation and amortization | 20,599 | 10,663 | 5,826 | 4,110 | ||||||||
| Amortization of acquired intangibles | 8,420 | 7,550 | 870 | — | ||||||||
| EBITDA | $ | 12,601 | $ | 60,649 | $ | (4,037 | ) | $ | (44,011 | ) | ||
| Share-based compensation | 18,334 | 7,318 | 1,836 | 9,180 | ||||||||
| Foreign exchange impact | 3,291 | 860 | 2,136 | 295 | ||||||||
| Strategic investments | 16,028 | 194 | 1,071 | 14,763 | ||||||||
| Acquisition-related fair value adjustments | (15,595 | ) | (15,595 | ) | — | — | ||||||
| Loss on investment securities | 188 | — | — | 188 | ||||||||
| Legal judgments/settlements | 803 | 397 | 354 | 52 | ||||||||
| Succession and transition charges | 146 | 10 | — | 136 | ||||||||
| Medical device regulation | 10,370 | 6,494 | 3,887 | (11 | ) | |||||||
| Business interruption - COVID-19 | 2,387 | 2,365 | 20 | 2 | ||||||||
| Adjusted EBITDA | $ | 48,553 | $ | 62,692 | $ | 5,267 | $ | (19,406 | ) | |||
| As a % of net sales | 10.5 | % | 13.6 | % | 1.1 | % | -4.2 | % | ||||
| Three Months Ended December 31, 2021 | ||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| (Unaudited, U.S. Dollars, in thousands) | Total Orthofix | Global Spine | Global Orthopedics | Corporate | ||||||||
| Operating income (loss) | $ | (9,353 | ) | $ | 9,016 | $ | (9,484 | ) | $ | (8,885 | ) | |
| Other income (expense), net | 185 | (279 | ) | (233 | ) | 697 | ||||||
| Depreciation and amortization | 5,189 | 2,613 | 1,557 | 1,019 | ||||||||
| Amortization of acquired intangibles | 14,013 | 1,829 | 12,184 | — | ||||||||
| EBITDA | $ | 10,034 | $ | 13,179 | $ | 4,024 | $ | (7,169 | ) | |||
| Share-based compensation expense | 3,956 | 1,645 | 523 | 1,788 | ||||||||
| Foreign exchange impact | 807 | 294 | 564 | (51 | ) | |||||||
| Strategic investments | 1,817 | 429 | 276 | 1,112 | ||||||||
| Acquisition-related fair value adjustments | (1,190 | ) | (1,195 | ) | — | 5 | ||||||
| (Gain) loss on investment securities | (643 | ) | — | — | (643 | ) | ||||||
| Legal judgments/settlements | 352 | 69 | 279 | 4 | ||||||||
| Succession and transition charges | 75 | 30 | 8 | 37 | ||||||||
| Medical device regulation | 2,111 | 1,008 | 545 | 558 | ||||||||
| Business interruption - COVID-19 | (312 | ) | 2,297 | (2,618 | ) | 9 | ||||||
| Adjusted EBITDA | $ | 17,007 | $ | 17,756 | $ | 3,601 | $ | (4,350 | ) | |||
| As a % of net sales | 13.6 | % | 14.2 | % | 2.9 | % | -3.5 | % | ||||
| Year Ended December 31, 2021 | ||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| (Unaudited, U.S. Dollars, in thousands) | Total Orthofix | Global Spine | Global Orthopedics | Corporate | ||||||||
| Operating income (loss) | $ | (8,315 | ) | $ | 41,382 | $ | (14,359 | ) | $ | (35,338 | ) | |
| Other income (expense), net | (3,343 | ) | (917 | ) | (2,257 | ) | (169 | ) | ||||
| Depreciation and amortization | 20,647 | 10,367 | 6,464 | 3,816 | ||||||||
| Amortization of acquired intangibles | 20,708 | 7,182 | 13,526 | — | ||||||||
| EBITDA | $ | 29,697 | $ | 58,014 | $ | 3,374 | $ | (31,691 | ) | |||
| Share-based compensation expense | 15,416 | 6,361 | 2,145 | 6,910 | ||||||||
| Foreign exchange impact | 3,981 | 966 | 2,203 | 812 | ||||||||
| Strategic investments | 5,700 | 823 | 2,329 | 2,548 | ||||||||
| Acquisition-related fair value adjustments | (2,015 | ) | (1,645 | ) | — | (370 | ) | |||||
| (Gain) loss on investment securities | (643 | ) | — | — | (643 | ) | ||||||
| Legal judgments/settlements | 33 | 462 | (381 | ) | (48 | ) | ||||||
| Succession and transition charges | 739 | 482 | 70 | 187 | ||||||||
| Medical device regulation | 8,034 | 2,753 | 2,112 | 3,169 | ||||||||
| Business interruption - COVID-19 | 320 | 2,870 | (2,592 | ) | 42 | |||||||
| Adjusted EBITDA | $ | 61,262 | $ | 71,086 | $ | 9,260 | $ | (19,084 | ) | |||
| As a % of net sales | 13.2 | % | 15.3 | % | 2.0 | % | -4.1 | % |
Adjusted Net Income
| Three Months Ended<br>December 31, | Year Ended<br>December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Unaudited, U.S. Dollars, in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||
| Net loss | $ | (7,062 | ) | $ | (32,812 | ) | $ | (19,749 | ) | $ | (38,379 | ) |
| Foreign exchange impact | (4,195 | ) | 807 | 3,291 | 3,981 | |||||||
| Strategic investments | 9,841 | 1,837 | 16,006 | 5,813 | ||||||||
| Acquisition-related fair value adjustments | 200 | (1,190 | ) | (15,595 | ) | (2,015 | ) | |||||
| Amortization of acquired intangibles | 2,073 | 14,019 | 8,425 | 20,732 | ||||||||
| (Gain) loss on investment securities | — | (643 | ) | 188 | (643 | ) | ||||||
| Legal judgments/settlements | 337 | 352 | 803 | 33 | ||||||||
| Succession and transition charges | — | 75 | 146 | 739 | ||||||||
| Medical device regulation | 3,491 | 2,111 | 10,381 | 8,034 | ||||||||
| Business interruption - COVID-19 | 514 | (310 | ) | 2,395 | 328 | |||||||
| Long-term income tax rate adjustment | (1,402 | ) | 21,195 | (291 | ) | 18,537 | ||||||
| Adjusted net income | $ | 3,797 | $ | 5,441 | $ | 6,000 | $ | 17,160 |
Adjusted EPS
| Three Months Ended<br>December 31, | Year Ended<br>December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Unaudited, per diluted share) | 2022 | 2021 | 2022 | 2021 | ||||||||
| EPS | $ | (0.35 | ) | $ | (1.65 | ) | $ | (0.98 | ) | $ | (1.95 | ) |
| Foreign exchange impact | (0.21 | ) | 0.04 | 0.16 | 0.20 | |||||||
| Strategic investments | 0.49 | 0.09 | 0.79 | 0.29 | ||||||||
| Acquisition-related fair value adjustments | 0.01 | (0.06 | ) | (0.77 | ) | (0.10 | ) | |||||
| Amortization of acquired intangibles | 0.10 | 0.70 | 0.42 | 1.04 | ||||||||
| Loss on investment securities | — | (0.03 | ) | 0.01 | (0.03 | ) | ||||||
| Legal judgments/settlements | 0.02 | 0.02 | 0.04 | — | ||||||||
| Succession and transition charges | — | — | 0.01 | 0.04 | ||||||||
| Medical device regulation | 0.17 | 0.11 | 0.52 | 0.40 | ||||||||
| Business interruption - COVID-19 | 0.03 | (0.02 | ) | 0.12 | 0.02 | |||||||
| Long-term income tax rate adjustment | (0.07 | ) | 1.07 | (0.02 | ) | 0.95 | ||||||
| Adjusted EPS | $ | 0.19 | $ | 0.27 | $ | 0.30 | $ | 0.86 | ||||
| Weighted average number of diluted common shares (treasury stock method, in millions) | 20.3 | 20.0 | 20.1 | 20.0 |
Cash Flow and Free Cash Flow
| Year Ended December 31, | ||||||
|---|---|---|---|---|---|---|
| (U.S. Dollars, in thousands) | 2022 | 2021 | ||||
| Net cash from operating activities | $ | (11,538 | ) | $ | 18,475 | |
| Net cash from investing activities | (24,534 | ) | (23,013 | ) | ||
| Net cash from financing activities | (78 | ) | (3,621 | ) | ||
| Effect of exchange rate changes on cash | (997 | ) | (815 | ) | ||
| Net change in cash and cash equivalents | $ | (37,147 | ) | $ | (8,974 | ) |
| Year Ended December 31, | ||||||
| --- | --- | --- | --- | --- | --- | --- |
| (Unaudited, U.S. Dollars, in thousands) | 2022 | 2021 | ||||
| Net cash from operating activities | $ | (11,538 | ) | $ | 18,475 | |
| Capital expenditures | (23,160 | ) | (19,592 | ) | ||
| Free cash flow | $ | (34,698 | ) | $ | (1,117 | ) |
SEASPINE HOLDINGS CORPORATION
Condensed Consolidated Statements of Operations
| Three Months Ended | Year Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, | December 31, | |||||||||||
| (U.S. Dollars, in thousands, except share and per share data) | 2022 | 2021 | 2022 | 2021 | ||||||||
| (Unaudited) | ||||||||||||
| Net sales | $ | 63,373 | $ | 55,589 | $ | 237,531 | $ | 191,451 | ||||
| Cost of sales | 23,780 | 25,727 | 89,920 | 76,864 | ||||||||
| Gross profit | 39,593 | 29,862 | 147,611 | 114,587 | ||||||||
| Sales and marketing | 36,208 | 30,886 | 131,726 | 107,299 | ||||||||
| General and administrative | 16,137 | 10,889 | 54,035 | 42,944 | ||||||||
| Research and development | 6,625 | 6,388 | 24,720 | 22,006 | ||||||||
| Intangible amortization | 855 | 739 | 3,423 | 3,316 | ||||||||
| Operating loss | (20,232 | ) | (19,040 | ) | (66,293 | ) | (60,978 | ) | ||||
| Other (expense) income, net | (55 | ) | (157 | ) | (1,031 | ) | 5,532 | |||||
| Loss before income taxes | (20,287 | ) | (19,197 | ) | (67,324 | ) | (55,446 | ) | ||||
| Income tax benefit | 1,329 | 411 | 2,315 | 1,100 | ||||||||
| Net loss | $ | (18,958 | ) | $ | (18,786 | ) | $ | (65,009 | ) | $ | (54,346 | ) |
| Net loss per common share: | ||||||||||||
| Basic | $ | (0.51 | ) | $ | (0.52 | ) | $ | (1.76 | ) | $ | (1.62 | ) |
| Diluted | (0.51 | ) | (0.52 | ) | (1.76 | ) | (1.62 | ) | ||||
| Weighted average number of common shares (in millions): | ||||||||||||
| Basic | 37.0 | 36.5 | 37.0 | 33.6 | ||||||||
| Diluted | 37.0 | 36.5 | 37.0 | 33.6 |
SEASPINE HOLDINGS CORPORATION
Condensed Consolidated Balance Sheets
| (U.S. Dollars, in thousands, except par value data) | December 31, 2021 | ||||
|---|---|---|---|---|---|
| Assets | |||||
| Current assets | |||||
| Cash and cash equivalents | 29,418 | $ | 83,106 | ||
| Accounts receivable, net of allowances of 137 and 74, respectively | 42,311 | 36,231 | |||
| Inventories | 84,580 | 72,299 | |||
| Prepaid expenses and other current assets | 4,404 | 4,328 | |||
| Total current assets | 160,713 | 195,964 | |||
| Property, plant, and equipment, net | 62,379 | 46,892 | |||
| Right of use assets | 16,019 | 6,948 | |||
| Intangible assets, net | 46,985 | 42,056 | |||
| Goodwill | 84,595 | 84,595 | |||
| Long-term trade receivable | 4,203 | — | |||
| Other assets | 1,465 | 812 | |||
| Total assets | 376,359 | $ | 377,267 | ||
| Liabilities and shareholders’ equity | |||||
| Current liabilities | |||||
| Accounts payable | 20,724 | $ | 20,301 | ||
| Accrued compensation | 12,695 | 8,769 | |||
| Accrued commissions | 13,537 | 9,877 | |||
| Short-term lease liability | 2,463 | 2,234 | |||
| Deferred revenue | 2,180 | 1,545 | |||
| Other accrued expenses and current liabilities | 10,114 | 10,255 | |||
| Total current liabilities | 61,713 | 52,981 | |||
| Long-term borrowings under credit facility | 26,240 | — | |||
| Long-term lease liability | 14,787 | 5,866 | |||
| Deferred tax liability, net | 1,746 | 4,308 | |||
| Contingent consideration liabilities | 11,579 | 83 | |||
| Other long-term liabilities | — | 1,665 | |||
| Total liabilities | 116,065 | 64,903 | |||
| Contingencies | |||||
| Shareholders’ equity | |||||
| Common stock, 0.01 par value; 120,000 authorized; 38,205 and 36,584 shares issued and outstanding at December 31, 2022 and 2021, respectively | 382 | 366 | |||
| Additional paid-in capital | 597,308 | 584,031 | |||
| Accumulated other comprehensive income | 1,216 | 1,570 | |||
| Accumulated deficit | (338,612 | ) | (273,603 | ) | |
| Total shareholders’ equity | 260,294 | 312,364 | |||
| Total liabilities and shareholders’ equity | 376,359 | $ | 377,267 |
All values are in US Dollars.
SEASPINE HOLDINGS CORPORATION Non-GAAP Financial Measures
SeaSpine presents two financial measures in this press release not reported in accordance with GAAP: adjusted gross margin and adjusted EBITDA loss. Adjusted gross margin represents GAAP gross margin excluding the impact of the following items recorded to cost of goods sold: technology-related intangible asset amortization expense, nonrecurring, fixed NanoMetalene supplier processing charge, and purchase accounting inventory fair market value adjustment charges. Adjusted EBITDA loss represents earnings (loss) before interest, taxes, depreciation and amortization and excludes the impact of: other income / expense, fixed NanoMetalene supplier processing charge, spinal set instrument replacement and impairment expenses, stock-based compensation, non-recurring employee severance and other charges related to the restructuring of SeaSpine’s European sales and marketing organization, litigation special charges, purchase accounting inventory fair market value adjustment charges, acquisition and integration-related charges, and charges associated with SeaSpine's business combination with Orthofix. A reconciliation of GAAP gross margin to adjusted gross margin and of GAAP net loss to adjusted EBITDA loss for all periods presented in this press release appears in the financial tables below.
The Company believes that the presentation of SeaSpine's adjusted gross margin and adjusted EBITDA loss provides important supplemental information to management and investors regarding financial and business trends relating to legacy SeaSpine's historical results of operations. For further information regarding why the Company believes that these non-GAAP financial measures provide useful information to investors, the specific manner in which management uses these measures, and some of the limitations associated with the use of these measures, please refer to the Company's Current Report on Form 8-K regarding this press release filed today with the SEC available on the SEC's website at www.sec.gov and on the “Investors” page of the Company’s website at www.orthofix.com.
Adjusted EBITDA
| Three Months Ended<br>December 31, | Year Ended<br>December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Unaudited, U.S. Dollars, in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||
| GAAP net loss | $ | (18,958 | ) | $ | (18,786 | ) | $ | (65,009 | ) | $ | (54,346 | ) |
| Non-GAAP adjustments: | ||||||||||||
| Depreciation and intangible asset amortization expense | 4,349 | 3,653 | 17,187 | 13,933 | ||||||||
| Other expense (income) | 55 | 157 | 1,031 | (5,532 | ) | |||||||
| Income tax (benefit) provision | (1,329 | ) | (411 | ) | (2,315 | ) | (1,100 | ) | ||||
| Fixed NanoMetalene supplier processing charge | — | 3,704 | — | 3,704 | ||||||||
| Spinal set instrument replacement expense | 2,630 | 1,239 | 7,179 | 3,904 | ||||||||
| Stock-based compensation | 3,412 | 3,065 | 13,584 | 11,856 | ||||||||
| European sales and marketing organization restructuring | 426 | 161 | 984 | 1,826 | ||||||||
| Litigation special charges | 1,066 | — | 1,610 | — | ||||||||
| Purchase accounting inventory fair market value adjustments | — | 125 | 208 | 542 | ||||||||
| Acquisition and integration-related charges (7D Surgical) | (16 | ) | 305 | 362 | 2,302 | |||||||
| Business combination charges related to Orthofix | 2,616 | — | 4,028 | — | ||||||||
| Adjusted EBITDA loss | (5,749 | ) | (6,788 | ) | (21,151 | ) | (22,911 | ) |
Adjusted Gross Profit and Adjusted Gross Margin
| Three Months Ended<br>December 31, | Year Ended<br>December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Unaudited, U.S. Dollars, in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||
| Net sales | $ | 63,373 | $ | 55,589 | $ | 237,531 | $ | 191,451 | ||||
| Less: Cost of sales | 23,780 | 25,727 | 89,920 | 76,864 | ||||||||
| Gross profit | 39,593 | 29,862 | 147,611 | 114,587 | ||||||||
| Add back: | ||||||||||||
| Technology-related intangible asset amortization | 864 | 551 | 3,821 | 2,718 | ||||||||
| Fixed NanoMetalene supplier processing charge | — | 3,704 | — | 3,704 | ||||||||
| Purchase accounting inventory fair market value adjustments | — | 125 | 208 | 542 | ||||||||
| Adjusted gross profit | 40,457 | 34,242 | 151,640 | 121,551 | ||||||||
| Adjusted gross margin (Adjusted gross profit / Net sales) | 63.8 | % | 61.6 | % | 63.8 | % | 63.5 | % |
Cash Flow and Free Cash Flow
| Year Ended December 31, | ||||||
|---|---|---|---|---|---|---|
| (U.S. Dollars, in thousands) | 2022 | 2021 | ||||
| Net cash from operating activities | $ | (38,157 | ) | $ | (33,512 | ) |
| Net cash from investing activities | (40,325 | ) | (55,358 | ) | ||
| Net cash from financing activities | 24,654 | 95,545 | ||||
| Effect of exchange rate changes on cash | 140 | (382 | ) | |||
| Net change in cash and cash equivalents | $ | (53,688 | ) | $ | 6,293 | |
| Year Ended December 31, | ||||||
| --- | --- | --- | --- | --- | --- | --- |
| (Unaudited, U.S. Dollars, in thousands) | 2022 | 2021 | ||||
| Net cash from operating activities | $ | (38,157 | ) | $ | (33,512 | ) |
| Capital expenditures | (37,752 | ) | (26,041 | ) | ||
| Free cash flow | $ | (75,909 | ) | $ | (59,553 | ) |
Source
Orthofix Medical Inc.