10-Q 1 ofix-20220331.htm 10-Q 10-Q
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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 March 31, 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

 

img220786246_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 May 2, 2022, 19,911,974 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 March 31, 2022 and December 31, 2021

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2022 and 2021

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2022 and 2021

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 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

 

16

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

22

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

22

 

 

 

 

 

PART II

 

OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

23

 

 

 

 

 

Item 1A.

 

Risk Factors

 

23

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

23

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

23

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

23

 

 

 

 

 

Item 5.

 

Other Information

 

23

 

 

 

 

 

Item 6.

 

Exhibits

 

24

 

 

 

 

 

SIGNATURES

 

25

 

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 share data)

 

March 31,
2022

 

 

December 31,
2021

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

71,917

 

 

$

87,847

 

Accounts receivable, net of allowances of $5,389 and $4,944, respectively

 

 

72,466

 

 

 

78,560

 

Inventories

 

 

88,832

 

 

 

82,974

 

Prepaid expenses and other current assets

 

 

21,888

 

 

 

20,141

 

Total current assets

 

 

255,103

 

 

 

269,522

 

Property, plant, and equipment, net

 

 

58,513

 

 

 

59,252

 

Intangible assets, net

 

 

50,171

 

 

 

52,666

 

Goodwill

 

 

71,317

 

 

 

71,317

 

Deferred income taxes

 

 

1,930

 

 

 

1,771

 

Other long-term assets

 

 

24,959

 

 

 

22,095

 

Total assets

 

$

461,993

 

 

$

476,623

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

27,448

 

 

$

26,459

 

Current portion of finance lease liability

 

 

610

 

 

 

2,590

 

Other current liabilities

 

 

60,152

 

 

 

76,781

 

Total current liabilities

 

 

88,210

 

 

 

105,830

 

Long-term portion of finance lease liability

 

 

19,730

 

 

 

19,890

 

Other long-term liabilities

 

 

18,478

 

 

 

13,969

 

Total liabilities

 

 

126,418

 

 

 

139,689

 

Contingencies (Note 7)

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

Common shares $0.10 par value; 50,000,000 shares authorized;
    
19,841,822 and 19,836,937 issued and outstanding as of March 31,
    2022 and December 31, 2021, respectively

 

 

1,984

 

 

 

1,983

 

Additional paid-in capital

 

 

318,213

 

 

 

313,951

 

Retained earnings

 

 

16,540

 

 

 

21,000

 

Accumulated other comprehensive loss

 

 

(1,162

)

 

 

 

Total shareholders’ equity

 

 

335,575

 

 

 

336,934

 

Total liabilities and shareholders’ equity

 

$

461,993

 

 

$

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
March 31,

 

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

 

2022

 

 

2021

 

Net sales

 

$

106,418

 

 

$

105,593

 

Cost of sales

 

 

28,318

 

 

 

25,914

 

Gross profit

 

 

78,100

 

 

 

79,679

 

Sales and marketing

 

 

54,137

 

 

 

50,785

 

General and administrative

 

 

19,328

 

 

 

16,444

 

Research and development

 

 

11,212

 

 

 

10,897

 

Acquisition-related amortization and remeasurement (Note 11)

 

 

(3,499

)

 

 

4,469

 

Operating loss

 

 

(3,078

)

 

 

(2,916

)

Interest expense, net

 

 

(375

)

 

 

(417

)

Other expense, net

 

 

(936

)

 

 

(2,690

)

Loss before income taxes

 

 

(4,389

)

 

 

(6,023

)

Income tax benefit (expense)

 

 

(71

)

 

 

207

 

Net loss

 

$

(4,460

)

 

$

(5,816

)

 

 

 

 

 

 

 

Net loss per common share:

 

 

 

 

 

 

Basic

 

$

(0.22

)

 

$

(0.30

)

Diluted

 

 

(0.22

)

 

 

(0.30

)

Weighted average number of common shares:

 

 

 

 

 

 

Basic

 

 

19,897,695

 

 

 

19,526,872

 

Diluted

 

 

19,897,695

 

 

 

19,526,872

 

 

 

 

 

 

 

 

Other comprehensive loss, before tax

 

 

 

 

 

 

Unrealized loss on debt securities

 

 

(674

)

 

 

(726

)

Currency translation adjustment

 

 

(488

)

 

 

(1,027

)

Other comprehensive loss, before tax

 

 

(1,162

)

 

 

(1,753

)

Income tax benefit related to other comprehensive loss

 

 

 

 

 

180

 

Other comprehensive loss, net of tax

 

 

(1,162

)

 

 

(1,573

)

Comprehensive loss

 

$

(5,622

)

 

$

(7,389

)

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, except share data)

 

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

 

 

19,836,937

 

 

$

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

 

 

4,885

 

 

 

1

 

 

 

(70

)

 

 

 

 

 

 

 

 

(69

)

At March 31, 2022

 

 

19,841,822

 

 

$

1,984

 

 

$

318,213

 

 

$

16,540

 

 

$

(1,162

)

 

$

335,575

 

 

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

 

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

 

 

19,423,874

 

 

$

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

 

 

50,510

 

 

 

5

 

 

 

1,617

 

 

 

 

 

 

 

 

 

1,622

 

At March 31, 2021

 

 

19,474,384

 

 

$

1,947

 

 

$

297,629

 

 

$

53,563

 

 

$

1,679

 

 

$

354,818

 

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

6


 

ORTHOFIX MEDICAL INC.

Condensed Consolidated Statements of Cash Flows

 

 

Three Months Ended
March 31,

 

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

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(4,460

)

 

$

(5,816

)

Adjustments to reconcile net loss to net cash from operating activities

 

 

 

 

 

 

Depreciation and amortization

 

 

7,516

 

 

 

7,443

 

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

 

 

798

 

 

 

889

 

Provision for expected credit losses

 

 

600

 

 

 

(182

)

Deferred income taxes

 

 

(36

)

 

 

(971

)

Share-based compensation expense

 

 

4,332

 

 

 

3,721

 

Interest and (gain) loss on valuation of investment securities

 

 

(9

)

 

 

(96

)

Change in fair value of contingent consideration

 

 

(5,500

)

 

 

1,500

 

Other

 

 

528

 

 

 

24

 

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

 

 

 

 

 

 

Accounts receivable

 

 

5,392

 

 

 

2,748

 

Inventories

 

 

(6,211

)

 

 

16

 

Prepaid expenses and other current assets

 

 

(1,891

)

 

 

1,993

 

Accounts payable

 

 

1,387

 

 

 

(1,457

)

Other current liabilities

 

 

(6,993

)

 

 

(7,719

)

Contract liability (Note 9)

 

 

(3,395

)

 

 

 

Other long-term assets and liabilities

 

 

233

 

 

 

348

 

Net cash from operating activities

 

 

(7,709

)

 

 

2,441

 

Cash flows from investing activities

 

 

 

 

 

 

Capital expenditures for property, plant, and equipment

 

 

(5,329

)

 

 

(4,365

)

Capital expenditures for intangible assets

 

 

(338

)

 

 

(416

)

Net cash from investing activities

 

 

(5,667

)

 

 

(4,781

)

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from issuance of common shares

 

 

 

 

 

1,717

 

Payments related to withholdings for share-based compensation

 

 

(69

)

 

 

(95

)

Payments related to finance lease obligation

 

 

(2,141

)

 

 

(127

)

Other financing activities

 

 

(23

)

 

 

(385

)

Net cash from financing activities

 

 

(2,233

)

 

 

1,110

 

Effect of exchange rate changes on cash

 

 

(321

)

 

 

(534

)

Net change in cash, cash equivalents, and restricted cash

 

 

(15,930

)

 

 

(1,764

)

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

 

$

71,917

 

 

$

95,057

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

Cash and cash equivalents

 

$

71,917

 

 

$

94,569

 

Restricted cash

 

 

 

 

 

488

 

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

 

$

71,917

 

 

$

95,057

 

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 months ended March 31, 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 ASUs not listed 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 three months ended March 31, 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.

3. Inventories

Inventories were as follows:

(U.S. Dollars, in thousands)

 

March 31,
2022

 

 

December 31,
2021

 

Raw materials

 

$

11,263

 

 

$

9,589

 

Work-in-process

 

 

14,477

 

 

 

15,096

 

Finished products

 

 

24,553

 

 

 

15,149

 

Field/consignment

 

 

38,539

 

 

 

43,140

 

Inventories

 

$

88,832

 

 

$

82,974

 

 

8


 

 

4. Leases

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

(U.S. Dollars, in thousands)

 

Classification

 

March 31,
2022

 

December 31, 2021

 

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

 

 

 

 

 

 

 

Operating leases

 

Other long-term assets

 

$

7,093

 

$

3,155

 

Finance leases

 

Property, plant and equipment, net

 

 

18,120

 

 

18,600

 

Total ROU assets

 

 

 

$

25,213

 

$

21,755

 

 

 

 

 

 

 

 

 

Lease Liabilities

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

Operating leases

 

Other current liabilities

 

$

1,461

 

$

1,834

 

Finance leases

 

Current portion of finance lease liability

 

 

610

 

 

2,590

 

Long-term

 

 

 

 

 

 

 

Operating leases

 

Other long-term liabilities

 

 

5,742

 

 

1,443

 

Finance leases

 

Long-term portion of finance lease liability

 

 

19,730

 

 

19,890

 

Total lease liabilities

 

 

 

$

27,543

 

$

25,757

 

 

Supplemental cash flow information related to leases was as follows:

(U.S. Dollars, in thousands)

 

Three Months Ended
March 31, 2022

 

 

Three Months Ended
March 31, 2021

 

Cash paid for amounts included in the measurement of lease liabilities

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

1,068

 

 

$

1,147

 

Operating cash flows from finance leases

 

 

222

 

 

 

225

 

Financing cash flows from finance leases

 

 

2,141

 

 

 

127

 

ROU assets obtained in exchange for lease obligations

 

 

 

 

 

 

Operating leases

 

 

4,470

 

 

 

248

 

Finance leases

 

 

 

 

 

76

 

 

 

5. Long-term debt

As of March 31, 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 €5.5 million ($6.1 million) available lines of credit in Italy as of March 31, 2022.

 

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:

 

 

March 31,
2022

 

 

December 31,
2021

 

(U.S. Dollars, in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Neo Medical convertible loan agreements

 

$

 

 

$

 

 

$

5,780

 

 

$

5,780

 

 

$

7,148

 

Neo Medical preferred equity securities

 

 

 

 

 

6,084

 

 

 

 

 

 

6,084

 

 

 

5,413

 

Bone Biologics equity securities

 

 

243

 

 

 

 

 

 

 

 

 

243

 

 

 

309

 

Other investments

 

 

 

 

 

 

 

 

1,535

 

 

 

1,535

 

 

 

1,505

 

Total

 

$

243

 

 

$

6,084

 

 

$

7,315

 

 

$

13,642

 

 

$

14,375

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Spinal Kinetics contingent consideration

 

$

 

 

$

 

 

$

(11,700

)