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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 September 30, 2022

OR

 

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

 

For the transition period from to .

Commission File Number: 0-19961

 

img220792011_0.jpg 

ORTHOFIX MEDICAL INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

98-1340767

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

3451 Plano Parkway,

Lewisville, Texas

 

75056

(Address of principal executive offices)

 

(Zip Code)

(214) 937-2000

(Registrant’s telephone number, including area code)

 

Not applicable

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

 

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

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

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

 

Large Accelerated filer

Accelerated filer

 

 

 

 

Non-Accelerated filer

Smaller Reporting Company

 

 

 

 

 

 

Emerging Growth Company

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

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

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

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

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common stock, $0.10 par value per share

 

OFIX

 

Nasdaq Global Select Market

 

 


 

Table of Contents

 

 

 

 

 

 

Page

PART I

 

FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

4

 

 

 

 

 

 

 

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

 

4

 

 

 

 

 

 

 

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

 

5

 

 

 

 

 

 

 

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

 

6

 

 

 

 

 

 

 

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

 

7

 

 

 

 

 

 

 

Notes to the Unaudited Condensed Consolidated Financial Statements

 

8

 

 

 

 

 

Item 2.

 

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

 

18

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

27

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

27

 

 

 

 

 

PART II

 

OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

28

 

 

 

 

 

Item 1A.

 

Risk Factors

 

28

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

31

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

31

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

31

 

 

 

 

 

Item 5.

 

Other Information

 

31

 

 

 

 

 

Item 6.

 

Exhibits

 

32

 

 

 

 

 

SIGNATURES

 

33

 

2


 

Forward-Looking Statements

This Quarterly Report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (“the Exchange Act”), and Section 27A of the Securities Act of 1933, as amended, relating to our business and financial outlook, which are based on our current beliefs, assumptions, expectations, estimates, forecasts, and projections. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “intends,” “predicts,” “potential,” or “continue” or other comparable terminology. Forward-looking statements include, but are not limited to, statements about:

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

These forward-looking statements are not guarantees of future performance and involve risks, uncertainties, estimates, and assumptions that are difficult to predict. Any or all forward-looking statements that we make may turn out to be wrong (due to inaccurate assumptions that we make or otherwise), and our actual outcomes and results may differ materially from those expressed in these forward-looking statements. Potential risks and uncertainties that could cause actual results to differ materially include, but are not limited to, those set forth in Part I, Item 1A under the heading Risk Factors; Part II, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations; and elsewhere throughout the Annual Report on Form 10-K for the year ended December 31, 2021, and in any other documents incorporated by reference. You should not place undue reliance on any of these forward-looking statements. Further, any forward-looking statement speaks only as of the date hereof, unless it is specifically otherwise stated to be made as of a different date. We undertake no obligation to update, and expressly disclaim any duty to update, our forward-looking statements, whether as a result of circumstances or events that arise after the date hereof, new information, or otherwise.

Trademarks

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

3


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ORTHOFIX MEDICAL INC.

Condensed Consolidated Balance Sheets

 

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

 

September 30,
2022

 

 

December 31,
2021

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

51,660

 

 

$

87,847

 

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

 

 

75,633

 

 

 

78,560

 

Inventories

 

 

100,277

 

 

 

82,974

 

Prepaid expenses and other current assets

 

 

19,325

 

 

 

20,141

 

Total current assets

 

 

246,895

 

 

 

269,522

 

Property, plant, and equipment, net

 

 

57,820

 

 

 

59,252

 

Intangible assets, net

 

 

47,513

 

 

 

52,666

 

Goodwill

 

 

71,317

 

 

 

71,317

 

Deferred income taxes

 

 

1,544

 

 

 

1,771

 

Other long-term assets

 

 

24,571

 

 

 

22,095

 

Total assets

 

$

449,660

 

 

$

476,623

 

 

 

 

 

 

 

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

28,003

 

 

$

26,459

 

Current portion of finance lease liability

 

 

638

 

 

 

2,590

 

Other current liabilities

 

 

49,007

 

 

 

76,781

 

Total current liabilities

 

 

77,648

 

 

 

105,830

 

Long-term portion of finance lease liability

 

 

19,407

 

 

 

19,890

 

Other long-term liabilities

 

 

19,066

 

 

 

13,969

 

Total liabilities

 

 

116,121

 

 

 

139,689

 

Contingencies (Note 7)

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

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

 

 

2,001

 

 

 

1,983

 

Additional paid-in capital

 

 

328,387

 

 

 

313,951

 

Retained earnings

 

 

8,313

 

 

 

21,000

 

Accumulated other comprehensive loss

 

 

(5,162

)

 

 

 

Total shareholders’ equity

 

 

333,539

 

 

 

336,934

 

Total liabilities and shareholders’ equity

 

$

449,660

 

 

$

476,623

 

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

4


 

ORTHOFIX MEDICAL INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

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

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net sales

 

$

113,996

 

 

$

112,428

 

 

$

338,484

 

 

$

339,415

 

Cost of sales

 

 

30,573

 

 

 

28,307

 

 

 

90,491

 

 

 

81,660

 

Gross profit

 

 

83,423

 

 

 

84,121

 

 

 

247,993

 

 

 

257,755

 

Sales and marketing

 

 

55,461

 

 

 

56,097

 

 

 

169,486

 

 

 

164,220

 

General and administrative

 

 

19,322

 

 

 

16,312

 

 

 

54,496

 

 

 

51,091

 

Research and development

 

 

11,943

 

 

 

12,360

 

 

 

35,913

 

 

 

36,378

 

Acquisition-related amortization and remeasurement (Note 11)

 

 

2,484

 

 

 

(335

)

 

 

(9,678

)

 

 

5,028

 

Operating income (loss)

 

 

(5,787

)

 

 

(313

)

 

 

(2,224

)

 

 

1,038

 

Interest expense, net

 

 

(277

)

 

 

(433

)

 

 

(1,059

)

 

 

(1,400

)

Other expense, net

 

 

(3,308

)

 

 

(1,789

)

 

 

(7,436

)

 

 

(3,528

)

Loss before income taxes

 

 

(9,372

)

 

 

(2,535

)

 

 

(10,719

)

 

 

(3,890

)

Income tax benefit (expense)

 

 

(1,344

)

 

 

364

 

 

 

(1,968

)

 

 

(1,677

)

Net loss

 

$

(10,716

)

 

$

(2,171

)

 

$

(12,687

)

 

$

(5,567

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.53

)

 

$

(0.11

)

 

$

(0.63

)

 

$

(0.28

)

Diluted

 

 

(0.53

)

 

 

(0.11

)

 

 

(0.63

)

 

 

(0.28

)

Weighted average number of common shares:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

20,091

 

 

 

19,770

 

 

 

20,007

 

 

 

19,634

 

Diluted

 

 

20,091

 

 

 

19,770

 

 

 

20,007

 

 

 

19,634

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss, before tax

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on debt securities

 

 

(236

)

 

 

513

 

 

 

(749

)

 

 

(115

)

Currency translation adjustment

 

 

(2,105

)

 

 

(719

)

 

 

(4,413

)

 

 

(1,901

)

Other comprehensive loss, before tax

 

 

(2,341

)

 

 

(206

)

 

 

(5,162

)

 

 

(2,016

)

Income tax benefit (expense) related to other comprehensive loss

 

 

 

 

 

(128

)

 

 

 

 

 

28

 

Other comprehensive loss, net of tax

 

 

(2,341

)

 

 

(334

)

 

 

(5,162

)

 

 

(1,988

)

Comprehensive loss

 

$

(13,057

)

 

$

(2,505

)

 

$

(17,849

)

 

$

(7,555

)

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

5


 

ORTHOFIX MEDICAL INC.

Condensed Consolidated Statements of Changes in Shareholders’ Equity

 

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

 

Number of
Common
Shares
Outstanding

 

 

Common
Shares

 

 

Additional
Paid-in
Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Total
Shareholders’
Equity

 

At December 31, 2021

 

 

19,837

 

 

$

1,983

 

 

$

313,951

 

 

$

21,000

 

 

$

 

 

$

336,934

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,460

)

 

 

 

 

 

(4,460

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,162

)

 

 

(1,162

)

Share-based compensation expense

 

 

 

 

 

 

 

 

4,332

 

 

 

 

 

 

 

 

 

4,332

 

Common shares issued, net

 

 

5

 

 

 

1

 

 

 

(70

)

 

 

 

 

 

 

 

 

(69

)

At March 31, 2022

 

 

19,842

 

 

$

1,984

 

 

$

318,213

 

 

$

16,540

 

 

$

(1,162

)

 

$

335,575

 

Net income

 

 

 

 

 

 

 

 

 

 

 

2,489

 

 

 

 

 

 

2,489

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,659

)

 

 

(1,659

)

Share-based compensation expense

 

 

 

 

 

 

 

 

4,460

 

 

 

 

 

 

 

 

 

4,460

 

Common shares issued, net

 

 

158

 

 

 

16

 

 

 

1,065

 

 

 

 

 

 

 

 

 

1,081

 

At June 30, 2022

 

 

20,000

 

 

$

2,000

 

 

$

323,738

 

 

$

19,029

 

 

$

(2,821

)

 

$

341,946

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(10,716

)

 

 

 

 

 

(10,716

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,341

)

 

 

(2,341

)

Share-based compensation expense

 

 

 

 

 

 

 

 

4,729

 

 

 

 

 

 

 

 

 

4,729

 

Common shares issued, net

 

 

7

 

 

 

1

 

 

 

(80

)

 

 

 

 

 

 

 

 

(79

)

At September 30, 2022

 

 

20,007

 

 

$

2,001

 

 

$

328,387

 

 

$

8,313

 

 

$

(5,162

)

 

$

333,539

 

 

 

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

 

Number of
Common
Shares
Outstanding

 

 

Common
Shares

 

 

Additional
Paid-in
Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Total
Shareholders’
Equity

 

At December 31, 2020

 

 

19,424

 

 

$

1,942

 

 

$

292,291

 

 

$

59,379

 

 

$

3,252

 

 

$

356,864

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(5,816

)

 

 

 

 

 

(5,816

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,573

)

 

 

(1,573

)

Share-based compensation expense

 

 

 

 

 

 

 

 

3,721

 

 

 

 

 

 

 

 

 

3,721

 

Common shares issued, net

 

 

51

 

 

 

5

 

 

 

1,617

 

 

 

 

 

 

 

 

 

1,622

 

At March 31, 2021

 

 

19,475

 

 

$

1,947

 

 

$

297,629

 

 

$

53,563

 

 

$

1,679

 

 

$

354,818

 

Net income

 

 

 

 

 

 

 

 

 

 

 

2,420

 

 

 

 

 

 

2,420

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(81

)

 

 

(81

)

Share-based compensation expense

 

 

 

 

 

 

 

 

3,907

 

 

 

 

 

 

 

 

 

3,907

 

Common shares issued, net

 

 

194

 

 

 

20

 

 

 

1,200

 

 

 

 

 

 

 

 

 

1,220

 

At June 30, 2021

 

 

19,669

 

 

$

1,967

 

 

$

302,736