Conference Transcript - OFIX 2026-03-02

Caitlin Roberts, Analyst — Canaccord Genuity

All right, good morning, and thank you for joining us at this year's Canon Gorge Annuity Musculoskeletal Conference. My name is Caitlin Roberts, and I'm one of the medical device analysts here at Canon Gorge Annuity. I'm here with OrthoFix, a global medical device company specializing in differentiated orthopedic and spinal solutions. We're very pleased to be joined today by Julie Andrews, CFO, and Julie Dewey, Chief Investor Relations and Communications Officer. And before we begin, I want to remind everyone of any relevant disclosures, which can be found on our conference and our firm website. We'll begin with a fireside chat, and I'll try to leave a few minutes at the end for any questions from the audience. So with that, we'll get started. Just let's start off with the Q4, since you guys announced earnings last week. What do you really want investors to understand coming out of the results?

Julie Andrews, CFO

Yeah, thank you, Caitlin. It's good to be here this morning. So Q4 for us capped a quarter of meaningful operational progress for the company and I think really demonstrated that our strategy is working. We exited the year with strong growth and strong momentum across our businesses, continuing growth with our BGT business, bone growth therapies, and our U.S. limb reconstruction business, and improving performance in spine where we completed our distributor transitions for the year. We also delivered our eighth quarter of EBITDA margin expansion and had a strong, positive free cash flow, underscoring our discipline and our choices that we're making and the scalability of our model. So now I think, you know, as we kind of go into 2026, we have a fully aligned commercial channel, strong financial foundation, and a robust innovation pipeline. So we're excited about the groundwork that we laid and where we're going.

Caitlin Roberts, Analyst — Canaccord Genuity

That's great. and guidance is calling for five and a half percent pro forma growth at the midpoint 70 bps of adjusted EBITDA margin expansion and free cash flow positivity in fiscal year 26 how are you thinking about the cadence of these goals throughout the year yeah so we expect

Julie Andrews, CFO

normalized normal procedure volume and seasonality throughout the year net sales growth in the first half of the year is expected to be approximately five percent and then six percent in the second half of the year as a reminder q1 has one less selling day q2 has one additional selling day and then q1 will also have some impact about one percent for total company related to the cms pilot program on the bgt business and then as it relates to that top line further how are you thinking about growth within each of the segments yeah so you know within each of the segments we continue to expect bone growth therapies to be a steady performer growing you know above market growth after we kind of get through q1 we don't expect the cms pilot program to be a material impact for the year our u.s limb reconstruction business we expect will return to double digit growth in the second half of the year after we finalize some sun setting of non-core products that we did towards the end of last year spine we expect you know we exited 2025 on a good kind of momentum and so we expect improved performance throughout the year in spine. And then 7D, while it's a smaller part of our portfolio, it is very meaningful to us, especially as it's contributing to our spine fixation growth. We are intentionally moving our strategy away from capital sales and shifting it more of an earn-out program, so we'll have some overall impact to the growth specifically in that space, but we'll see the growth on the spine fixation business.

Caitlin Roberts, Analyst — Canaccord Genuity

and then what are your biggest levers this year you would say to drive out performance on the top

Julie Andrews, CFO

and the bottom lines yeah i mean it's all about commercial execution on the top line on the bottom line margin improvement we have some specific targeted programs that we're working on to improve margin and then continuing with our you know focus on financial discipline and building operational momentum that we've established over the last couple of years so you know again the scalability of our model we think is really starting to show with the EBITDA margin expansion that we've had over the past couple of years we this year with our guidance we'll have since 2023 more than doubled our EBITDA for the over that time period and then also returning to free cash flow positivity for the full year expected in 2026 we were near break even in 2025 after exiting a year two years ago with $100 million in use of cash.

Caitlin Roberts, Analyst — Canaccord Genuity

And then, you know, just something else that you announced on your earnings call, just the long-range plan goals being pushed out one year from 2027 to 2028, but the same goals. What was the rationale for pushing these out? And then why did the spine channel upgrades really cause that pushing out? And then any risk to the targets getting pushed out or changed further given the channel upgrades?

Julie Andrews, CFO

Yeah, thank you. The decision to recalibrate the timeline from 27 to 28 was really to fully capture the benefit of the spine channel optimization that we exited throughout 2025. The recalibration of that timeline doesn't speak to the end markets or our belief in our ability to succeed in those end markets, but more around just the timeline of shifting as we really spent time in 2025 upgrading our channel. We felt like it was absolutely the right long-term move to do to upgrade our channel, but it will require us more time to fully see the benefits to materialize. Those are now mainly behind us. The commercial channel is fully aligned, and we're seeing healthier momentum as we start this year and as we exited 2025. We feel confident in the timeline that we've established. We've got the heavy lifting behind us on the channel optimization. We did sign up some new IDN accounts at the end of the year last year. And so we believe the business is set up well for 2026 and beyond.

Caitlin Roberts, Analyst — Canaccord Genuity

And then maybe just turning to spine even further with these upgrades, just maybe speak to the efforts last year. You noted you were done with the upgrades, but then, you know, are these really best practices that you'll continue to utilize going forward?

Julie Andrews, CFO

Yeah, I mean, the significant work that we did, we would say, is done, is behind us. But, of course, if there's always an opportunity to make changes in certain specific targeted areas, we will take advantage of that. You know, I think one of the things that is encouraging to us, if you look at our business, now over 75% of our business is with our top 30 distributors. If you go back to 2024, that was less than 50%. So we've really done a significant job to consolidate our channel, which is really important. and so we have an aligned channel, they're focused, they're true partners and so we really feel good about where we are. But of course if there's opportunity in specific areas we'll take advantage of that.

Caitlin Roberts, Analyst — Canaccord Genuity

And then what would you say your selling points are to the distributors and the surgeons as a smaller company in the space? Is there anything such as gaps in your portfolio that would make a surgeon or distributor hold back from becoming a customer?

Julie Andrews, CFO

Yeah, so I mean I think our selling points are focused. We do have differentiated technology and, you know, we're able to partner in a very nimble way. Our innovation pipeline now is stronger than it's been in recent years. We're making meaningful and continued enhancements to 7D, which helps them with their business and is a growth catalyst for our partners. And we don't, you know, at this point see any significant gaps in our portfolio. We feel like we have a broad base that you can really represent all of the therapies that your physician would need.

Caitlin Roberts, Analyst — Canaccord Genuity

and then also the landscape is really continuing to evolve competitively as certain strategics really shed their spine businesses others maintain a steady focus have how have you been able to really capitalize on that disruption in the marketplace yeah i mean so we've been able to

Julie Andrews, CFO

take advantage of that in 2025 with you know bringing new distributors on and we think that you know anytime there's disruption it can create opportunity and as we see that opportunity if it make sense for us with our goals we'll take advantage of that opportunity and then maybe

Caitlin Roberts, Analyst — Canaccord Genuity

we'll touch on 7d further where did you end 2025 with 7d from an adoption perspective yeah so we

Julie Andrews, CFO

don't specifically talk about placements but our earn out placements were 30 percent up above 2024 so strong activity in the year and then you know another thing with those placements is that we saw that our placement accounts collectively were over 50% of their volume commitment. So really strong usage with those earnouts that we're placing that we're really seeing high attachment to our other products and the ability for it to pull through. So very encouraging results.

Caitlin Roberts, Analyst — Canaccord Genuity

And, you know, 7D really has this imageless workflow and quick registration, which are positive selling points. I mean, how much have those, you know, the radiation reduction really been selling points to doctors and is it something they're increasingly concerned about

Julie Andrews, CFO

yeah I think you know it has become more of a discussion a more frequent discussion and is increasingly getting awareness over the past few years that trend is only continuing and what we consistently hear is that you know clinicians are concerned about their exposure but not only their exposure the OR staff exposure as well as their patients and so as this you know kind of is continuing it perfectly kind of aligns with what 7D can provide you know in an OR from a you know radiation free or 98% radiation free environment in the OR. And then just reception in different

Caitlin Roberts, Analyst — Canaccord Genuity

sites of care what's your mix currently between inpatient versus outpatient ASC placements of

Julie Andrews, CFO

70? Yeah so we again we don't specifically talk about that but you know 7D is very well positioned to succeed in either care setting. Its footprint is, you know, small, and so it can succeed either in a hospital setting or in the ASC setting, and we have, you know, examples where it's doing well in both of those care settings.

Caitlin Roberts, Analyst — Canaccord Genuity

And then can you speak to the pipeline? Any new features you plan to add to the system in the coming years?

Julie Andrews, CFO

Yeah, so, you know, what I would say is that those features, while we're not going to talk about them specifically, that they're focused on the themes that make 7D so attractive, which is workflow efficiency, clinical precision, and reduced radiation exposure. So those are the areas where we're really focusing as we think about what's next for 7D and bringing new technology to that.

Caitlin Roberts, Analyst — Canaccord Genuity

Maybe just rounding out this channel and talking about biologics. So on the earnings call, I think you noted a renewed focus on biologics. And how have the spine distribution upgrades really impacted this business? And what have you done internally to refocus?

Julie Andrews, CFO

Yeah. So, you know, over the past year or so, we have seen some softness in biologics, particularly as we've worked through this channel optimization on spine. And so we've really taken steps to re-energize this business. We've made some internal changes in terms of optimizing our sales channel and our leadership. We're, you know, strengthening kind of our oversight of that business and investing more in clinical data for that business. And we're excited about what we're seeing, you know, as we start to Q4 or Q1, excuse me.

Caitlin Roberts, Analyst — Canaccord Genuity

And just maybe to understand the channel a bit better, does a distributor necessarily have to carry your biologics with your spinal implants or can these be separate lines of business? Do most end up utilizing both?

Julie Andrews, CFO

Yeah, generally speaking, you know, a spine distributor will also carry our biologics bag as well, but we're not limited to that, so we can go beyond. And so where it makes sense, you know, in addition, we're seeing opportunity with our limb reconstruction business that it's not just a spine platform, but can also be used with limb reconstruction. So, you know, we see opportunity beyond just our spine channel, which makes it, you know, a great durable business for us.

Caitlin Roberts, Analyst — Canaccord Genuity

Maybe just turning to limb recon, you renamed the segment this quarter from orthopedics. Just give us maybe the rationale for the switch. Yeah.

Julie Andrews, CFO

So we renamed our orthopedics business to limb reconstruction. We believe it more accurately reflects kind of our strategic priority and our strategic focus. You know, the old name orthopedics was also often conflated with hips and knees, which wasn't our business in what we did. So the new name for us highlights kind of our differentiation, our differentiated portfolio and the surgeons that we're really supporting. And so it really focuses on four high-value clinical areas, limb preservation, limb lengthening, complex fracture management and extremity and deformity correction and better reflects what we do and what we provide in the marketplace. And we've talked a lot about the the spine

Caitlin Roberts, Analyst — Canaccord Genuity

distribution upgrades you've made but maybe talk to the U.S. ortho go-to-market strategy here and

Julie Andrews, CFO

how greenfield is it for you guys? Yeah so it's still very much a greenfield the U.S. is still very much a greenfield opportunity for us the limb reconstruction business is primarily the majority of the business is international right now outside the U.S. and about 70% and about 30% in the U.S. so we see a significant opportunity there's a 2.6 billion dollar TAM in the markets that we play in and we see a significant opportunity to focus there there's not other companies that are focused on it we believe in the same way that we are right now and so we're excited you know we're continuing to see enthusiasm from our distributors that are looking to partner or the company that's bringing these unique capabilities to the market.

Caitlin Roberts, Analyst — Canaccord Genuity

And then what products do you have left to fully launch or even just launch initially in the U.S. in this segment? Anything new to the product portfolio coming down the pipeline that you want to highlight?

Julie Andrews, CFO

Yeah, so we are still focused on launching our TruLock Elevate product line and our FitBone, Bone Transport, as well as Trochoteric Nails. So those were launches last year. they are market development opportunities so there is a you know a long ramp to get where we want to get and make those meaningful we're also looking at you know helping additional bring additional technology to that automate those procedures and so really investing we believe that that's an area that's really untapped today in the marketplace and we're focusing on and you noted the business

Caitlin Roberts, Analyst — Canaccord Genuity

is pretty leveraged to international at this point. What's really the strategy over time, and do you expect to become more leveraged to the U.S. versus international?

Julie Andrews, CFO

Yeah, so our international Limrecon business is definitely more penetrated than the U.S. It's a very important part of our business. It's where the business started back in 1980, was really around this business in Verona, Italy, and so we will continue. It'll continue to be a meaningful part of our portfolio, but we believe that in the U.S., really to make the business what it needs to be. We also need to have a focus on the U.S. And so that's really the transition you've seen from us over the past, I would say, you know, 18 months or so, is we brought on new leadership and we really refocused and really defined ourselves as a limb recon company.

Caitlin Roberts, Analyst — Canaccord Genuity

And you've had pretty high growth in the U.S. recently. I mean, how long do you expect to really sustain that high growth trajectory?

Julie Andrews, CFO

Yeah, I mean, we see, you know, that being sustained in that, you know, our U.S. limb recon business will grow faster than the overall company growth rate over a number of years. Again, it's a really large TAM. We've got really compelling technology that we're bringing into that space, and we're just really at the beginning of that journey.

Caitlin Roberts, Analyst — Canaccord Genuity

And maybe let's quickly touch on M&A. How are you viewing the opportunities in the space? Where would you like to bolster your portfolio inorganically?

Julie Andrews, CFO

So, I mean, we always keep our eye on external opportunities. Right now, we're focused on running the business and generating positive free cash flow. But if something makes sense, you know, I'd say more of a tuck-in type of thing, we would definitely be looking at that. And we're kind of now at the phase with, you know, what we've done financially with strengthening our balance sheet over the past two years that we're able to consider those things and take them on.

Caitlin Roberts, Analyst — Canaccord Genuity

Awesome. And then just maybe wrapping up, anything you want to leave investors with about the business and about the quarter to highlight as we finish up? Yeah, thank you.

Julie Andrews, CFO

Yeah, I mean, Orthofix today is, I think, fundamentally a stronger company than it was a couple of years ago. We're commercially aligned, innovative, innovation-driven, and we have a much greater financial discipline than we've had at any point in our recent past. Our financial foundation is strong, and so we're very excited as we're looking forward. I think from my perspective, the opportunity that we have ahead is very meaningful and makes OrthoFix a compelling story and a place where we can create long-term shareholder value.

Caitlin Roberts, Analyst — Canaccord Genuity

Wonderful. A few minutes left if anybody has any questions in the audience. All right, we can wrap up early then.

Operator

A shout-out for the lunch panel. Our chief enabling technologies officer, Bo Standish, will be participating. So if you're interested in learning more about 7D and a few things that Julie talked about in terms of that, lunchtime panel today.

Caitlin Roberts, Analyst — Canaccord Genuity

Thank you, Julie. Great shout out. Thank you, everyone.

Operator

Thank you.