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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 11/08/23 Orthofix Medical Inc. 10-Q 9/30/23 90:13M Donnelley … Solutions/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 3.30M
2: EX-10.1 Material Contract HTML 64K
3: EX-10.2 Material Contract HTML 63K
4: EX-10.3 Material Contract HTML 109K
5: EX-10.4 Material Contract HTML 169K
6: EX-31.1 Certification -- §302 - SOA'02 HTML 31K
7: EX-31.2 Certification -- §302 - SOA'02 HTML 31K
8: EX-32.1 Certification -- §906 - SOA'02 HTML 29K
14: R1 Document and Entity Information HTML 78K
15: R2 Condensed Consolidated Balance Sheets HTML 121K
16: R3 Condensed Consolidated Balance Sheets HTML 38K
(Parenthetical)
17: R4 Condensed Consolidated Statements of Operations HTML 118K
and Comprehensive Loss
18: R5 Condensed Consolidated Statements of Changes in HTML 91K
Shareholders' Equity
19: R6 Condensed Consolidated Statements of Cash Flows HTML 127K
20: R7 Pay vs Performance Disclosure HTML 39K
21: R8 Insider Trading Arrangements HTML 34K
22: R9 Business and basis of presentation HTML 35K
23: R10 Recently adopted accounting standards, recently HTML 50K
issued accounting pronouncements
24: R11 Merger and Acquisitions HTML 298K
25: R12 Inventories HTML 45K
26: R13 Leases HTML 106K
27: R14 Long-term debt HTML 82K
28: R15 Fair value measurements and investments HTML 231K
29: R16 Commitments and Contingencies HTML 38K
30: R17 Accumulated other comprehensive loss HTML 61K
31: R18 Revenue recognition and accounts receivable HTML 173K
32: R19 Business segment information HTML 245K
33: R20 Acquisition-Related Amortization and Remeasurement HTML 64K
34: R21 Share-based compensation HTML 116K
35: R22 Income taxes HTML 35K
36: R23 Earnings per share ("Eps") HTML 70K
37: R24 Goodwill HTML 92K
38: R25 Subsequent Events HTML 32K
39: R26 Recently adopted accounting standards, recently HTML 41K
issued accounting pronouncements (Policies)
40: R27 Merger and Acquisitions (Tables) HTML 293K
41: R28 Inventories (Tables) HTML 46K
42: R29 Leases (Tables) HTML 107K
43: R30 Long-term debt (Tables) HTML 65K
44: R31 Fair value measurements and investments (Tables) HTML 233K
45: R32 Accumulated other comprehensive loss (Tables) HTML 60K
46: R33 Revenue recognition and accounts receivable HTML 172K
(Tables)
47: R34 Business segment information (Tables) HTML 241K
48: R35 Acquisition-Related Amortization and Remeasurement HTML 63K
(Tables)
49: R36 Share-based compensation (Tables) HTML 108K
50: R37 Earnings per share ("Eps") (Tables) HTML 66K
51: R38 Goodwill (Tables) HTML 91K
52: R39 Recently adopted accounting standards, recently HTML 54K
issued accounting pronouncements - Additional
Information (Detail)
53: R40 Merger and acquisitions -Schedule of Estimated HTML 39K
Fair Value of Consideration Associated with Merger
(Detail)
54: R41 Merger and acquisitions - Additional Information HTML 72K
(Detail)
55: R42 Merger and acquisitions - Summary of Fair Values HTML 108K
of Assets Acquired and Liabilities Assumed
(Detail)
56: R43 Merger and acquisitions - Summary of Pro Forma HTML 31K
Financial Information (Detail)
57: R44 Merger and acquisitions - Summary of Integration HTML 41K
Costs Incurred (Detail)
58: R45 Merger and Acquisitions - Summary of Restructuring HTML 47K
Costs (Detail)
59: R46 Inventories - Schedule of Inventories (Detail) HTML 36K
60: R47 Leases - Summary of Lease Portfolio (Detail) HTML 54K
61: R48 Leases - Summary of Supplemental Cash Flow HTML 37K
Information Related to Leases (Detail)
62: R49 Long-Term Debt - Additional Information (Detail) HTML 100K
63: R50 Long-Term Debt - Summary of Borrowing Activities HTML 51K
(Details)
64: R51 Fair Value Measurements and Investments - Schedule HTML 55K
of Financial Assets and Liabilities Measured at
Fair Value on Recurring Basis (Detail)
65: R52 Fair Value Measurements and Investments - HTML 43K
Additional Information (Detail)
66: R53 Fair Value Measurements and Investments - Schedule HTML 36K
of Reconciliation of Investments in Equity
Securities (Detail)
67: R54 Fair Value Measurements and Investments - Schedule HTML 43K
of Reconciliation For Contingent Consideration
Measured At Fair Value Using Significant
Unobservable Inputs (Level 3) (Detail)
68: R55 Fair Value Measurements and Investments - Schedule HTML 52K
of Valuation Methodology and Unobservable Inputs
for Level 3 Assets and Liabilities Measured at
Fair Value (Detail)
69: R56 Commitments and Contingencies - Additional HTML 35K
Information (Detail)
70: R57 Accumulated other comprehensive loss - Components HTML 46K
of Changes in Accumulated Other Comprehensive Loss
(Detail)
71: R58 Revenue Recognition and Accounts Receivable - HTML 44K
Schedule of Net Sales by Major Product Category by
Reporting Segment (Detail)
72: R59 Revenue Recognition and Accounts Receivable - HTML 35K
Schedule of Components of Net Sales (Detail)
73: R60 Revenue Recognition and Accounts Receivable - HTML 39K
Schedule of Allowance for Expected Credit Losses
(Detail)
74: R61 Business Segment Information - Additional HTML 28K
Information (Detail)
75: R62 Business Segment Information - Summary of EBIDTA HTML 65K
by Reporting Segment (Detail)
76: R63 Business Segment Information - Summary of Net HTML 46K
Sales by Geographic Destination for Each Reporting
Segment (Detail)
77: R64 Acquisition-Related Amortization and Remeasurement HTML 35K
- Components of Acquisition-Related Amortization
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78: R65 Share-based Compensation - Schedule of Components HTML 49K
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79: R66 Share-based Compensation - Additional Information HTML 44K
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80: R67 Income Taxes - Additional Information (Detail) HTML 28K
81: R68 Earnings Per Share ("EPS") - Schedule of HTML 33K
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82: R69 Earnings Per Share ("EPS") - Additional HTML 32K
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| 10-Q |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM i 10-Q
(Mark one)
i ☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended i September 30, i 2023 /
OR
i ☐ |
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: i 0-19961
i ORTHOFIX MEDICAL INC.
(Exact name of registrant as specified in its charter)
i Delaware |
|
i 98-1340767 |
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
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|
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i 3451 Plano Parkway, i Lewisville, i Texas |
|
i 75056 |
(Address of principal executive offices) |
|
(Zip Code) |
( i 214) i 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. ☒ i 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). ☒ i 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 |
☐ |
i Accelerated filer |
☒ |
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Non-Accelerated filer |
☐ |
Smaller Reporting Company |
i ☐ |
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Emerging Growth Company |
i ☐ |
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 i ☒ No
As of November 6, 2023, i 36,756,607 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 |
i Common stock, $0.10 par value per share |
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i OFIX |
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i Nasdaq Global Select Market |
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Page |
PART I |
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Item 1. |
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4 |
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Condensed Consolidated Balance Sheets as of September 30, 2023, and December 31, 2022 |
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4 |
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5 |
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6 |
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7 |
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Notes to the Unaudited Condensed Consolidated Financial Statements |
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8 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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22 |
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Item 3. |
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32 |
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Item 4. |
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32 |
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PART II |
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Item 1. |
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34 |
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Item 1A. |
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34 |
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Item 2. |
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34 |
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Item 3. |
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35 |
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Item 4. |
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35 |
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Item 5. |
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35 |
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Item 6. |
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35 |
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36 |
|||
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. All statements, other than statements of historical fact, contained in this report, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “intends,” “predicts,” “potential,” or “continue” or the negative version of those terms and other similar expressions. Forward-looking statements include, but are not limited to, statements about:
Forward-looking statements are not guarantees of future performance and involve risks, uncertainties, estimates, and assumptions. 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 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 of our Annual Report on Form 10-K for the year ended December 31, 2022 ("2022 10-K"); Part II, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations of the 2022 10-K; and elsewhere throughout the 2022 10-K, and in our reports filed with the U.S. Securities and Exchange Commission (the "SEC") subsequent to the date we filed the 2022 10-K with the SEC. You should not place undue reliance on any forward-looking statements. Further, any forward-looking statement in this report speaks only as of the date hereof, unless it is specifically otherwise stated to be made as of a different date. Except as required by law, 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) |
|
|
|
|
||||
|
|
(Unaudited) |
|
|
|
|
||
Assets |
|
|
|
|
|
|
||
Current assets |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
i 33,663 |
|
|
$ |
i 50,700 |
|
Accounts receivable, net of allowances of $ i 7,090 and $ i 6,419, respectively |
|
|
i 114,118 |
|
|
|
i 82,857 |
|
Inventories |
|
|
i 221,745 |
|
|
|
i 100,150 |
|
Prepaid expenses and other current assets |
|
|
i 24,170 |
|
|
|
i 22,283 |
|
Total current assets |
|
|
i 393,696 |
|
|
|
i 255,990 |
|
Property, plant, and equipment, net |
|
|
i 152,689 |
|
|
|
i 58,229 |
|
Intangible assets, net |
|
|
i 121,021 |
|
|
|
i 47,388 |
|
Goodwill |
|
|
i 194,767 |
|
|
|
i 71,317 |
|
Other long-term assets |
|
|
i 43,479 |
|
|
|
i 25,705 |
|
Total assets |
|
$ |
i 905,652 |
|
|
$ |
i 458,629 |
|
|
|
|
|
|
|
|
||
Liabilities and shareholders’ equity |
|
|
|
|
|
|
||
Current liabilities |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
i 53,261 |
|
|
$ |
i 27,598 |
|
Current portion of finance lease liability |
|
|
i 693 |
|
|
|
i 652 |
|
Other current liabilities |
|
|
i 98,576 |
|
|
|
i 55,374 |
|
Total current liabilities |
|
|
i 152,530 |
|
|
|
i 83,624 |
|
Long-term borrowings under credit facility |
|
|
i 70,000 |
|
|
|
— |
|
Long-term portion of finance lease liability |
|
|
i 18,715 |
|
|
|
i 19,239 |
|
Other long-term liabilities |
|
|
i 48,924 |
|
|
|
i 18,906 |
|
Total liabilities |
|
|
i 290,169 |
|
|
|
i 121,769 |
|
Contingencies (Note 8) |
|
|
|
|
|
|
||
Shareholders’ equity |
|
|
|
|
|
|
||
Common shares $ i i 0.10 / par
value; i i 100,000 / shares
authorized; |
|
|
i 3,675 |
|
|
|
i 2,016 |
|
Additional paid-in capital |
|
|
i 741,638 |
|
|
|
i 334,969 |
|
Retained earnings (accumulated deficit) |
|
|
( i 127,970 |
) |
|
|
i 1,251 |
|
Accumulated other comprehensive loss |
|
|
( i 1,860 |
) |
|
|
( i 1,376 |
) |
Total shareholders’ equity |
|
|
i 615,483 |
|
|
|
i 336,860 |
|
Total liabilities and shareholders’ equity |
|
$ |
i 905,652 |
|
|
$ |
i 458,629 |
|
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 |
|
|
Nine Months Ended |
|
||||||||||
(Unaudited, U.S. Dollars, in thousands, except per share data) |
|
2023 |
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2022 |
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2023 |
|
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2022 |
|
||||
Net sales |
|
$ |
i 184,006 |
|
|
$ |
i 113,996 |
|
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$ |
i 546,226 |
|
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$ |
i 338,484 |
|
Cost of sales |
|
|
i 64,243 |
|
|
|
i 30,573 |
|
|
|
i 196,583 |
|
|
|
i 90,491 |
|
Gross profit |
|
|
i 119,763 |
|
|
|
i 83,423 |
|
|
|
i 349,643 |
|
|
|
i 247,993 |
|
Sales and marketing |
|
|
i 94,947 |
|
|
|
i 55,461 |
|
|
|
i 287,987 |
|
|
|
i 169,486 |
|
General and administrative |
|
|
i 27,136 |
|
|
|
i 19,322 |
|
|
|
i 110,124 |
|
|
|
i 54,496 |
|
Research and development |
|
|
i 18,559 |
|
|
|
i 11,943 |
|
|
|
i 61,290 |
|
|
|
i 35,913 |
|
Acquisition-related amortization and remeasurement (Note 12) |
|
|
i 3,570 |
|
|
|
i 2,484 |
|
|
|
i 11,037 |
|
|
|
( i 9,678 |
) |
Operating loss |
|
|
( i 24,449 |
) |
|
|
( i 5,787 |
) |
|
|
( i 120,795 |
) |
|
|
( i 2,224 |
) |
Interest expense, net |
|
|
( i 1,576 |
) |
|
|
( i 277 |
) |
|
|
( i 4,131 |
) |
|
|
( i 1,059 |
) |
Other expense, net |
|
|
( i 2,360 |
) |
|
|
( i 3,308 |
) |
|
|
( i 1,704 |
) |
|
|
( i 7,436 |
) |
Loss before income taxes |
|
|
( i 28,385 |
) |
|
|
( i 9,372 |
) |
|
|
( i 126,630 |
) |
|
|
( i 10,719 |
) |
Income tax expense |
|
|
( i 472 |
) |
|
|
( i 1,344 |
) |
|
|
( i 2,591 |
) |
|
|
( i 1,968 |
) |
Net loss |
|
$ |
( i 28,857 |
) |
|
$ |
( i 10,716 |
) |
|
$ |
( i 129,221 |
) |
|
$ |
( i 12,687 |
) |
|
|
|
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|
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|
|
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|
||||
Net loss per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
( i 0.77 |
) |
|
$ |
( i 0.53 |
) |
|
$ |
( i 3.53 |
) |
|
$ |
( i 0.63 |
) |
Diluted |
|
|
( i 0.77 |
) |
|
|
( i 0.53 |
) |
|
|
( i 3.53 |
) |
|
|
( i 0.63 |
) |
Weighted average number of common shares: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
i 37,249 |
|
|
|
i 20,091 |
|
|
|
i 36,588 |
|
|
|
i 20,007 |
|
Diluted |
|
|
i 37,249 |
|
|
|
i 20,091 |
|
|
|
i 36,588 |
|
|
|
i 20,007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other comprehensive loss, before tax |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unrealized gain (loss) on debt securities |
|
|
( i 310 |
) |
|
|
( i 236 |
) |
|
|
i 8 |
|
|
|
( i 749 |
) |
Currency translation adjustment |
|
|
( i 1,442 |
) |
|
|
( i 2,105 |
) |
|
|
( i 492 |
) |
|
|
( i 4,413 |
) |
Other comprehensive loss, before tax |
|
|
( i 1,752 |
) |
|
|
( i 2,341 |
) |
|
|
( i 484 |
) |
|
|
( i 5,162 |
) |
Income tax benefit (expense) related to other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other comprehensive loss, net of tax |
|
|
( i 1,752 |
) |
|
|
( i 2,341 |
) |
|
|
( i 484 |
) |
|
|
( i 5,162 |
) |
Comprehensive loss |
|
$ |
( i 30,609 |
) |
|
$ |
( i 13,057 |
) |
|
$ |
( i 129,705 |
) |
|
$ |
( i 17,849 |
) |
The accompanying notes form an integral part of these condensed consolidated financial statements
5
ORTHOFIX MEDICAL INC.
(Unaudited, U.S. Dollars, in thousands) |
|
Number of |
|
|
Common |
|
|
Additional |
|
|
Retained |
|
|
Accumulated |
|
|
Total |
|
||||||
|
|
i 20,162 |
|
|
$ |
i 2,016 |
|
|
$ |
i 334,969 |
|
|
$ |
i 1,251 |
|
|
$ |
( i 1,376 |
) |
|
$ |
i 336,860 |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 60,938 |
) |
|
|
— |
|
|
|
( i 60,938 |
) |
Other comprehensive income, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 430 |
|
|
|
i 430 |
|
Share-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
i 13,020 |
|
|
|
— |
|
|
|
— |
|
|
|
i 13,020 |
|
Common shares issued in connection with SeaSpine merger |
|
|
i 16,047 |
|
|
|
i 1,605 |
|
|
|
i 375,140 |
|
|
|
— |
|
|
|
— |
|
|
|
i 376,745 |
|
Common shares issued, net |
|
|
i 254 |
|
|
|
i 26 |
|
|
|
( i 1,984 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 1,958 |
) |
|
|
i 36,463 |
|
|
$ |
i 3,647 |
|
|
$ |
i 721,145 |
|
|
$ |
( i 59,687 |
) |
|
$ |
( i 946 |
) |
|
$ |
i 664,159 |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 39,426 |
) |
|
|
— |
|
|
|
( i 39,426 |
) |
Other comprehensive income, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 838 |
|
|
|
i 838 |
|
Share-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
i 13,246 |
|
|
|
— |
|
|
|
— |
|
|
|
i 13,246 |
|
Common shares issued, net |
|
|
i 270 |
|
|
|
i 26 |
|
|
|
i 1,142 |
|
|
|
— |
|
|
|
— |
|
|
|
i 1,168 |
|
|
|
i 36,733 |
|
|
$ |
i 3,673 |
|
|
$ |
i 735,533 |
|
|
$ |
( i 99,113 |
) |
|
$ |
( i 108 |
) |
|
$ |
i 639,985 |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 28,857 |
) |
|
|
— |
|
|
|
( i 28,857 |
) |
Other comprehensive loss, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 1,752 |
) |
|
|
( i 1,752 |
) |
Share-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
i 6,274 |
|
|
|
— |
|
|
|
— |
|
|
|
i 6,274 |
|
Common shares issued, net |
|
|
i 17 |
|
|
|
i 2 |
|
|
|
( i 169 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 167 |
) |
|
|
i 36,750 |
|
|
$ |
i 3,675 |
|
|
$ |
i 741,638 |
|
|
$ |
( i 127,970 |
) |
|
$ |
( i 1,860 |
) |
|
$ |
i 615,483 |
|
|
(Unaudited, U.S. Dollars, in thousands) |
|
Number of |
|
|
Common |
|
|
Additional |
|
|
Retained |
|
|
Accumulated |
|
|
Total |
|
||||||
|
|
i 19,837 |
|
|
$ |
i 1,983 |
|
|
$ |
i 313,951 |
|
|
$ |
i 21,000 |
|
|
|
— |
|
|
$ |
i 336,934 |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 4,460 |
) |
|
|
— |
|
|
|
( i 4,460 |
) |
Other comprehensive loss, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 1,162 |
) |
|
|
( i 1,162 |
) |
Share-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
i 4,332 |
|
|
|
— |
|
|
|
— |
|
|
|
i 4,332 |
|
Common shares issued, net |
|
|
i 5 |
|
|
|
i 1 |
|
|
|
( i 70 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 69 |
) |
|
|
i 19,842 |
|
|
$ |
i 1,984 |
|
|
$ |
i 318,213 |
|
|
$ |
i 16,540 |
|
|
$ |
( i 1,162 |
) |
|
$ |
i 335,575 |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 2,489 |
|
|
|
— |
|
|
|
i 2,489 |
|
Other comprehensive loss, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 1,659 |
) |
|
|
( i 1,659 |
) |
Share-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
i 4,460 |
|
|
|
— |
|
|
|
— |
|
|
|
i 4,460 |
|
Common shares issued, net |
|
|
i 158 |
|
|
|
i 16 |
|
|
|
i 1,065 |
|
|
|
— |
|
|
|
— |
|
|
|
i 1,081 |
|
|
|
i 20,000 |
|
|
$ |
i 2,000 |
|
|
$ |
i 323,738 |
|
|
$ |
i 19,029 |
|
|
$ |
( i 2,821 |
) |
|
$ |
i 341,946 |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 10,716 |
) |
|
|
— |
|
|
|
( i 10,716 |
) |
Other comprehensive loss, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 2,341 |
) |
|
|
( i 2,341 |
) |
Share-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
i 4,729 |
|
|
|
— |
|
|
|
— |
|
|
|
i 4,729 |
|
Common shares issued, net |
|
|
i 7 |
|
|
|
i 1 |
|
|
|
( i 80 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 79 |
) |
|
|
i 20,007 |
|
|
$ |
i 2,001 |
|
|
$ |
i 328,387 |
|
|
$ |
i 8,313 |
|
|
$ |
( i 5,162 |
) |
|
$ |
i 333,539 |
|
|
The accompanying notes form an integral part of these condensed consolidated financial statements
6
ORTHOFIX MEDICAL INC.
Condensed Consolidated Statements of Cash Flows
|
|
Nine Months Ended |
|
|||||
(Unaudited, U.S. Dollars, in thousands) |
|
2023 |
|
|
2022 |
|
||
Cash flows from operating activities |
|
|
|
|
|
|
||
Net loss |
|
$ |
( i 129,221 |
) |
|
$ |
( i 12,687 |
) |
Adjustments to reconcile net loss to net cash from operating activities |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
i 39,094 |
|
|
|
i 21,598 |
|
Inventory reserve expenses |
|
|
i 24,013 |
|
|
|
i 9,856 |
|
Amortization of inventory fair value step up |
|
|
i 29,006 |
|
|
|
— |
|
Amortization of operating lease assets, debt costs, and other assets |
|
|
i 4,506 |
|
|
|
i 2,321 |
|
Provision for expected credit losses |
|
|
i 905 |
|
|
|
i 1,713 |
|
Deferred income taxes |
|
|
i 1,148 |
|
|
|
i 21 |
|
Share-based compensation expense |
|
|
i 32,540 |
|
|
|
i 13,521 |
|
Change in valuation of investment securities |
|
|
( i 82 |
) |
|
|
i 254 |
|
Change in fair value of contingent consideration |
|
|
( i 2,100 |
) |
|
|
( i 17,200 |
) |
Other |
|
|
i 673 |
|
|
|
i 1,124 |
|
Changes in operating assets and liabilities, net of effects of acquisitions |
|
|
|
|
|
|
||
Accounts receivable |
|
|
i 2,912 |
|
|
|
i 51 |
|
Inventories |
|
|
( i 48,164 |
) |
|
|
( i 29,875 |
) |
Prepaid expenses and other current assets |
|
|
i 925 |
|
|
|
i 16 |
|
Accounts payable |
|
|
i 4,244 |
|
|
|
i 3,955 |
|
Other current liabilities |
|
|
( i 20 |
) |
|
|
( i 4,571 |
) |
Contract liability |
|
|
— |
|
|
|
( i 4,791 |
) |
Other long-term assets and liabilities |
|
|
i 562 |
|
|
|
i 808 |
|
Net cash provided by (used in) operating activities |
|
|
( i 39,059 |
) |
|
|
( i 13,886 |
) |
Cash flows from investing activities |
|
|
|
|
|
|
||
Capital expenditures for property, plant, and equipment |
|
|
( i 45,695 |
) |
|
|
( i 16,159 |
) |
Capital expenditures for intangible assets |
|
|
( i 1,302 |
) |
|
|
( i 1,101 |
) |
Contingent consideration payments related to asset acquisitions |
|
|
— |
|
|
|
( i 1,500 |
) |
Cash acquired in the SeaSpine merger |
|
|
i 29,419 |
|
|
|
— |
|
Other investing activities |
|
|
( i 500 |
) |
|
|
i 126 |
|
Net cash provided by (used in) investing activities |
|
|
( i 18,078 |
) |
|
|
( i 18,634 |
) |
Cash flows from financing activities |
|
|
|
|
|
|
||
Proceeds from issuance of common shares |
|
|
i 2,377 |
|
|
|
i 2,400 |
|
Payments related to tax withholdings for share-based compensation |
|
|
( i 3,334 |
) |
|
|
( i 1,467 |
) |
Payments related to finance lease obligation |
|
|
( i 483 |
) |
|
|
( i 2,441 |
) |
Borrowings under credit facility |
|
|
i 70,000 |
|
|
|
— |
|
Payment of debt acquired from SeaSpine merger |
|
|
( i 26,899 |
) |
|
|
— |
|
Contingent consideration milestone payment |
|
|
( i 920 |
) |
|
|
— |
|
Other financing activities |
|
|
( i 699 |
) |
|
|
( i 68 |
) |
Net cash provided by (used in) financing activities |
|
|
i 40,042 |
|
|
|
( i 1,576 |
) |
Effect of exchange rate changes on cash |
|
|
i 58 |
|
|
|
( i 2,091 |
) |
Net change in cash and cash equivalents |
|
|
( i 17,037 |
) |
|
|
( i 36,187 |
) |
Cash and cash equivalents at the beginning of period |
|
|
i 50,700 |
|
|
|
i 87,847 |
|
Cash and cash equivalents at the end of period |
|
$ |
i 33,663 |
|
|
$ |
i 51,660 |
|
|
|
|
|
|
|
|
||
Noncash investing activities - Purchase of intangible assets |
|
$ |
— |
|
|
$ |
i 2,000 |
|
The accompanying notes form an integral part of these condensed consolidated financial statements
7
ORTHOFIX MEDICAL INC.
Notes to the Unaudited Condensed Consolidated Financial Statements
1. Business and basis of presentation
Description of the Business
Orthofix Medical Inc. (“Orthofix”) and its subsidiaries (the "Company"), following its merger with SeaSpine Holdings Corporation ("SeaSpine") that was completed in January 2023, 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. The Company's products are distributed in approximately 68 countries worldwide.
The Company is headquartered in Lewisville, Texas, and has primary offices in Carlsbad, California, with a focus on spinal product innovation and surgeon education, and in Verona, Italy, with an emphasis on product innovation, production, and medical education for orthopedics. The combined Company's global research and development, commercial, and manufacturing footprint also includes facilities and offices in Irvine, California, Toronto, Canada, Sunnyvale, California, Wayne, Pennsylvania, Olive Branch, Mississippi, Maidenhead, United Kingdom, Munich, Germany, Paris, France, and Sao Paulo, Brazil.
The merger with SeaSpine was completed on January 5, 2023, with SeaSpine continuing as a wholly-owned subsidiary of Orthofix following the transaction. For additional discussion of the merger with SeaSpine, see Note 3. The shares of common stock of Orthofix, as the corporate parent entity in the combined company structure, continue to trade on NASDAQ under the symbol "OFIX". The combined company will be renamed at a later date and until then will continue to be known as Orthofix Medical Inc.
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, 2022. Operating results for the three and nine months ended September 30, 2023, are not necessarily indicative of the results that may be expected for other interim periods or the year ending December 31, 2023.
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.
Changes in Presentation of Consolidated Financial Statements
Certain prior year balances have been reclassified in the condensed consolidated financial statements to conform to current period presentation.
2. Recently adopted accounting standards, recently issued accounting pronouncements
Adoption of Accounting Standards Update (“ASU”) 2021-08— Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
In October 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-08, which aims to address diversity in practice and inconsistency related to the accounting for acquired revenue contracts with customers in a business combination. The amendments require that an entity recognize and measure contract assets and contract
liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. The Company adopted this standard effective January 1, 2023, on a prospective basis. Adoption of this standard resulted in the recognition of $ i 2.2
million in contract liabilities associated with acquired revenue contracts as a result of the Company’s merger with SeaSpine, which closed on January 5, 2023.
8
Recently Issued Accounting Pronouncements
Topic |
|
Description of Guidance |
|
Effective Date |
|
Status of Company's Evaluation |
Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (ASU 2022-03) |
|
Clarifies the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and introduces new disclosure requirements for equity securities subject to contractual sale restrictions. Certain of the provisions are to be applied retrospectively with other provisions applied prospectively. |
|
|
The Company is currently evaluating the impact this ASU may have on its consolidated financial statements. |
|
Disclosure Improvements - Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative (ASU 2023-06) |
|
Adds interim and annual disclosure requirements to a variety of subtopics in the Accounting Standards Codification, including those focusing on accounting changes, earnings per share, debt and repurchase agreements. The guidance will be applied prospectively. The effective date will be the date when the SEC's removal of the related disclosure requirement becomes effective, with early adoption prohibited. |
|
Various |
|
The Company is currently evaluating the impact this ASU may have on its consolidated financial statements. |
Other recently issued ASUs, excluding those ASUs that have already been disclosed as adopted or described above, were assessed and determined not applicable, or are expected to have minimal impact on the Company's condensed consolidated financial statements.
/3. Merger and acquisitions
Merger with SeaSpine
On January 5, 2023, the Company and SeaSpine completed an all-stock merger of equals (the "Merger") to create a leading global spine and orthopedics company with highly complementary portfolios of biologics, innovative spinal hardware, bone growth therapies, specialized orthopedic solutions, and a leading surgical navigation system. As a result of the Merger, each share of SeaSpine common stock issued and outstanding immediately prior to the closing of the Merger was converted into the right to receive i 0.4163 shares of Orthofix common stock.
The Merger is being accounted for as an acquisition of SeaSpine by Orthofix under the acquisition method of accounting for business combinations in accordance with U.S. GAAP. Therefore, Orthofix is treated as the acquirer for accounting purposes. In identifying the acquirer, Orthofix and SeaSpine considered the structure of the transaction and other actions contemplated by the merger agreement (the “Merger Agreement”), relative outstanding share ownership, market values, the composition of the combined company's board of directors, and the relative size of Orthofix and SeaSpine. Under the acquisition method of accounting, the assets and liabilities of SeaSpine and its subsidiaries have been recorded at their respective fair values as of the acquisition date.
The total estimated fair value of consideration associated with the Merger as of the acquisition date was comprised of:
(Unaudited, U.S. Dollars, in thousands, except shares and price per share) |
|
|
|
|
Share Consideration: |
|
|
|
|
Orthofix common shares to be issued in exchange for SeaSpine common shares |
|
|
i 16,047,315 |
|
Orthofix closing price per share as of January 4, 2023 |
|
$ |
i 22.76 |
|
Estimated fair value of shares issued in exchange for SeaSpine common shares |
|
$ |
i 365,237 |
|
Estimated fair value of Orthofix stock options and RSUs issued in exchange for outstanding SeaSpine equity awards |
|
$ |
i 11,508 |
|
Total estimated fair value of consideration |
|
$ |
i 376,745 |
|
The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the acquisition date. Certain acquired assets and liabilities assumed were valued utilizing Level 3 inputs and assumptions. A final determination of the allocation of the purchase price to assets acquired and liabilities assumed has not been made and the following should be
9
considered preliminary. The final determination is subject to completion of the Company's valuation of the assets acquired and liabilities assumed, including contingent liabilities and deferred income taxes, which it expects to complete within one year of the acquisition date. Subsequent adjustments to the preliminary purchase price allocation could be material.
(Unaudited, U.S. Dollars, in thousands) |
|
Previously Reported |
|
|
Adjustments |
|
|
As Revised |
|
|
Assigned Useful Life |
|||
Assets acquired: |
|
|
|
|
|
|
|
|
|
|
|
|||
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|||
Cash and cash equivalents |
|
$ |
i 29,419 |
|
|
$ |
— |
|
|
$ |
i 29,419 |
|
|
|
Accounts receivable, net |
|
|
i 35,313 |
|
|
|
— |
|
|
|
i 35,313 |
|
|
|
Inventories |
|
|
i 132,636 |
|
|
|
— |
|
|
|
i 132,636 |
|
|
|
Prepaid expenses and other current assets |
|
|
i 4,590 |
|
|
|
— |
|
|
|
i 4,590 |
|
|
|
Total current assets |
|
|
i 201,958 |
|
|
|
— |
|
|
|
i 201,958 |
|
|
|
Property, plant, and equipment, net |
|
|
i 68,863 |
|
|
|
— |
|
|
|
i 68,863 |
|
|
|
Customer relationships |
|
|
i 33,100 |
|
|
|
— |
|
|
|
i 33,100 |
|
|
i 13 years |
Developed technology |
|
|
i 47,200 |
|
|
|
— |
|
|
|
i 47,200 |
|
|
i 6 - i 8 years |
In-process research and development ("IPR&D") |
|
|
i 5,750 |
|
|
|
— |
|
|
|
i 5,750 |
|
|
i Indefinite |
Other long-term assets |
|
|
i 20,501 |
|
|
|
— |
|
|
|
i 20,501 |
|
|
|
Total identifiable assets acquired |
|
$ |
i 377,372 |
|
|
$ |
— |
|
|
$ |
i 377,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Liabilities assumed: |
|
|
|
|
|
|
|
|
|
|
|
|||
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|||
Accounts payable |
|
$ |
i 21,602 |
|
|
$ |
— |
|
|
$ |
i 21,602 |
|
|
|
Other current liabilities |
|
|
i 40,304 |
|
|
|
i 3,040 |
|
|
|
i 43,344 |
|
|
|
Total current liabilities |
|
|
i 61,906 |
|
|
|
i 3,040 |
|
|
|
i 64,946 |
|
|
|
Long-term borrowings under SeaSpine credit facility |
|
|
i 26,298 |
|
|
|
— |
|
|
|
i 26,298 |
|
|
|
Other long-term liabilities |
|
|
i 32,833 |
|
|
|
— |
|
|
|
i 32,833 |
|
|
|
Total liabilities assumed |
|
|
i 121,037 |
|
|
|
i 3,040 |
|
|
|
i 124,077 |
|
|
|
Net identifiable assets acquired |
|
$ |
i 256,335 |
|
|
$ |
( i 3,040 |
) |
|
$ |
i 253,295 |
|
|
|
Total fair value of consideration transferred |
|
|
i 376,745 |
|
|
|
— |
|
|
|
i 376,745 |
|
|
|
Residual goodwill |
|
$ |
i 120,410 |
|
|
$ |
i 3,040 |
|
|
$ |
i 123,450 |
|
|
|
The purchase price exceeded the fair value of the net tangible and identifiable intangible assets acquired in the Merger. During the three months ended September 30, 2023, the Company identified a contingent liability that existed as of the merger date. As a result, the Company recorded a $ i 3.0 million adjustment to other current liabilities with a corresponding increase in goodwill. As of September 30, 2023, the Company recorded goodwill totaling $ i 123.5 million, which was assigned to the Global Spine reporting segment. Specifically, the goodwill includes the assembled workforce and synergies associated with the combined entity. The goodwill is not deductible for tax purposes.
The IPR&D intangible assets are considered an indefinite-lived asset until the completion or abandonment of the associated research and development efforts. Accordingly, during the development period after the acquisition, these assets are not amortized but, instead, are subject to impairment assessment. Upon completion of each IPR&D project, the Company will determine the useful life of the asset and begin amortization.
The Company recognized $ i 0.1 million and $ i 9.9 million in direct acquisition-related costs, which exclude integration-related activities, that were expensed during the three and nine months ended September 30, 2023, respectively. These costs are included in the condensed consolidated statements of operations and comprehensive income (loss), primarily within general and administrative expenses. The Company's results of operations included $ i 62.9 million and $ i 188.2 million of net sales from SeaSpine for the three and nine months ended September 30, 2023, respectively, and a net loss attributable to SeaSpine of $ i 19.2 million and $ i 72.1 million for the three and nine months ended September 30, 2023, respectively.
Pro Forma Financial Information
Due to the Merger closing on January 5, 2023, all SeaSpine financial results for fiscal year 2023, except for the first four days of January, are included in Orthofix's condensed consolidated statement of operations and comprehensive loss. The following unaudited pro forma financial information for the three and nine months ended September 30, 2023, and 2022, are based on the Company's historical condensed consolidated financial statements adjusted to reflect as if the Merger closed as of January 1, 2022.
10
The unaudited pro-forma information makes certain adjustments to depreciation and amortization expense to reflect the fair value recognized in the purchase price allocation and to remove one-time transaction-related costs. i The unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the Merger closed as of January 1, 2022.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Unaudited, U.S. Dollars, in millions) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Net sales |
|
$ |
i 184.0 |
|
|
$ |
i 181.1 |
|
|
$ |
i 546.2 |
|
|
$ |
i 512.6 |
|
Net loss |
|
$ |
( i 21.2 |
) |
|
$ |
( i 32.5 |
) |
|
$ |
( i 96.5 |
) |
|
$ |
( i 102.4 |
) |
Integration and Restructuring Activities
The Company has incurred significant integration and restructuring costs in connection with the Merger. i The following table summarizes integration costs incurred for the three and nine months ended September 30, 2023, and 2022.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Unaudited, U.S. Dollars, in millions) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Compensation-related integration costs |
|
$ |
i 2.6 |
|
|
$ |
— |
|
|
$ |
i 16.5 |
|
|
$ |
— |
|
International spine restructuring |
|
|
i 1.1 |
|
|
|
— |
|
|
|
i 1.1 |
|
|
|
— |
|
Fee paid to financial advisor to the Merger |
|
|
— |
|
|
|
— |
|
|
|
i 5.5 |
|
|
|
— |
|
Professional fees / consulting fees |
|
|
i 0.2 |
|
|
|
— |
|
|
|
i 5.2 |
|
|
|
— |
|
Product rationalization charges |
|
|
i 1.3 |
|
|
|
— |
|
|
|
i 6.1 |
|
|
|
— |
|
Other costs to complete |
|
|
i 0.1 |
|
|
|
— |
|
|
|
i 1.3 |
|
|
|
— |
|
Total |
|
$ |
i 5.3 |
|
|
$ |
— |
|
|
$ |
i 35.7 |
|
|
$ |
— |
|
In the first quarter of 2023, the Company approved and initiated certain restructuring activities to streamline costs and to better align talent with operational needs following the consummation of the Merger. This program was expanded in the third quarter of 2023 to include further restructuring activities related to the Company's international spine business. The Company expects to incur total pre-tax expense of approximately $ i 18.3 million associated with the restructuring activities, which will be recognized within operating expenses. i The table below provides a summary of restructuring costs incurred during the period and the resulting liability as of September 30, 2023, which is recognized within other current liabilities:
(Unaudited, U.S. Dollars, in millions) |
|
Balance as of |
|
|
Charges Incurred |
|
|
Payments Made |
|
|
Balance as of |
|
||||
Severance costs |
|
$ |
— |
|
|
$ |
i 12.2 |
|
|
$ |
( i 5.2 |
) |
|
$ |
i 7.0 |
|
Retention costs |
|
|
— |
|
|
|
i 4.0 |
|
|
|
( i 0.4 |
) |
|
|
i 3.6 |
|
Payroll taxes |
|
|
— |
|
|
|
i 0.5 |
|
|
|
( i 0.1 |
) |
|
|
i 0.4 |
|
Total |
|
$ |
— |
|
|
$ |
i 16.7 |
|
|
$ |
( i 5.7 |
) |
|
$ |
i 11.0 |
|
4. Inventories
Inventories were as follows:
(Unaudited, U.S. Dollars, in thousands) |
|
|
|
|
||||
Raw materials |
|
$ |
i 26,422 |
|
|
$ |
i 17,035 |
|
Work-in-process |
|
|
i 54,631 |
|
|
|
i 19,243 |
|
Finished products |
|
|
i 140,692 |
|
|
|
i 63,872 |
|
Inventories |
|
$ |
i 221,745 |
|
|
$ |
i 100,150 |
|
11
/
5. Leases
A summary of the Company’s lease portfolio as of September 30, 2023, and December 31, 2022, is presented in the table below:
(Unaudited, U.S. Dollars, in thousands) |
|
Classification |
|
|
|
|
||||
Right-of-use assets ("ROU assets") |
|
|
|
|
|
|
||||
Operating leases |
|
Other long-term assets |
|
$ |
i 19,765 |
|
|
$ |
i 6,788 |
|
Finance leases |
|
Property, plant and equipment, net |
|
|
i 16,599 |
|
|
|
i 17,360 |
|
Total ROU assets |
|
|
|
$ |
i 36,364 |
|
|
$ |
i 24,148 |
|
|
|
|
|
|
|
|
|
|
||
Lease Liabilities |
|
|
|
|
|
|
|
|
||
Current |
|
|
|
|
|
|
|
|
||
Operating leases |
|
Other current liabilities |
|
$ |
i 3,259 |
|
|
$ |
i 1,638 |
|
Finance leases |
|
Current portion of finance lease liability |
|
|
i 693 |
|
|
|
i 652 |
|
Long-term |
|
|
|
|
|
|
|
|
||
Operating leases |
|
Other long-term liabilities |
|
|
i 17,171 |
|
|
|
i 5,376 |
|
Finance leases |
|
Long-term portion of finance lease liability |
|
|
i 18,715 |
|
|
|
i 19,239 |
|
Total lease liabilities |
|
|
|
$ |
i 39,838 |
|
|
$ |
i 26,905 |
|
Supplemental cash flow information related to leases was as follows:
(Unaudited, U.S. Dollars, in thousands) |
|
Nine Months Ended |
|
|
Nine Months Ended |
|
||
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
|
||
Operating cash flows from operating leases |
|
$ |
i 5,538 |
|
|
$ |
i 3,001 |
|
Operating cash flows from finance leases |
|
|
i 643 |
|
|
|
i 665 |
|
Financing cash flows from finance leases |
|
|
i 483 |
|
|
|
i 2,441 |
|
ROU assets obtained in exchange for lease obligations |
|
|
|
|
|
|
||
Operating leases |
|
|
i 15,771 |
|
|
|
i 5,429 |
|
Finance leases |
|
|
— |
|
|
|
— |
|
6. Long-term debt
In connection with the closing of the Merger on January 5, 2023, the Company terminated SeaSpine's credit facility and all applicable commitments with Wells Fargo Bank, National Association and paid an aggregate amount of $ i 26.9 million reflecting all of the outstanding obligations in respect of principal, interest, and fees, including a $ i 0.6 million prepayment premium.
On January 3, 2023, the Company borrowed $ i 30.0 million for working capital purposes, including to fund certain Merger-related expenses, under its secured revolving credit facility under the Second Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., dated as of October 25, 2019 (as amended by the First Amendment thereto dated March 1, 2023, the "Prior Credit Agreement"), which credit facility had a maturity date of i October 25, 2024. Subsequently, the Company borrowed an additional $ i 40.0 million to fund working capital needs whereby, as of September 30, 2023, the Company had $ i 70.0 million in principal amount of borrowings outstanding under the secured revolving credit facility. i The table below provides a summary of borrowing activities during the nine months ended September 30, 2023:
(Unaudited, U.S. Dollars, in thousands) |
|
Balance as of |
|
|
Long-term Borrowings Assumed Under the SeaSpine Credit Facility |
|
|
Additional Borrowings |
|
|
Pre-payment Penalty Incurred to Interest Expense, Net |
|
|
Repayments Made |
|
|
Balance as of |
|
||||||
SeaSpine credit facility |
|
$ |
i — |
|
|
$ |
i 26,298 |
|
|
$ |
— |
|
|
$ |
i 601 |
|
|
$ |
( i 26,899 |
) |
|
$ |
i — |
|
Orthofix secured revolving credit facility |
|
|
i — |
|
|
|
— |
|
|
|
i 70,000 |
|
|
|
— |
|
|
|
— |
|
|
|
i 70,000 |
|
Long-term borrowings under credit facility |
|
$ |
i — |
|
|
$ |
i 26,298 |
|
|
$ |
i 70,000 |
|
|
$ |
i 601 |
|
|
$ |
( i 26,899 |
) |
|
$ |
i 70,000 |
|
As of September 30, 2023, the Company was in compliance with all required financial covenants under the Prior Credit Agreement. The effective interest rate on amounts borrowed was i 7.3%, with interest accrued of $ i 1.0 million as of September 30, 2023, within
12
other current liabilities. Subsequent to September 30, 2023, the Company borrowed an additional $ i 9.0 million under the Prior Credit Agreement to fund working capital needs.
On November 6, 2023, the Company, as borrower, and certain subsidiaries of the Company as guarantors, entered into a Financing Agreement (the “Financing Agreement”) with Blue Torch Finance LLC, as administrative agent and collateral agent (the “Agent”), and certain lenders party thereto. The Financing Agreement provides for a $ i 100 million senior secured term loan (the “Initial Term Loan”), a $ i 25 million senior secured delayed draw term loan facility (the “Delayed Draw Term Loan”), and a $ i 25 million senior secured revolving credit facility (the “Revolving Credit Facility,” and together with the Initial Term Loan and the Delayed Draw Term Loan, the “Credit Facilities”), each of which mature on i i i November 6, 2027 / / . In connection with entering into the Financing Agreement, the Company repaid in full amounts outstanding and terminated all commitments under the Prior Credit Agreement. The Initial Term Loan was fully funded on November 6, 2023. As of the date of this filing (November 8, 2023), the Company had i i no / t made any borrowings under the Delayed Draw Term Loan or the Revolving Credit Facility.
Borrowings under the Financing Agreement were and may be used for, among other things, the repayment in full of the Prior Credit Agreement, working capital, and other general corporate purposes of the Company. i Borrowings under the Credit Facilities bear interest at a floating rate, which will be, at the Company’s option, either the i three-month SOFR rate (subject to a floor of i 3.00% and a credit spread adjustment of i 0.26161%) (the “Adjusted Term SOFR Rate”) plus an applicable margin of i 7.25%, or a base rate plus an applicable margin of i 6.25%. / A revolving unused line fee of i 2.00% is payable monthly in arrears based on the average amount of the undrawn portion of each lender’s revolving credit commitments under the Revolving Credit Facility for the preceding month. A delayed draw unused fee equal to the Adjusted Term SOFR Rate plus a margin of i 1.00% is payable monthly in arrears based on the average amount of the undrawn portion of each lender’s delayed draw term loan commitments in respect of the Delayed Draw Term Loan for the preceding month.
Certain of the Company’s existing and future material subsidiaries (collectively, the “Guarantors”) are required to guarantee the repayment of the Company’s obligations under the Financing Agreement. The obligations of the Company and each of the Guarantors with respect to the Financing Agreement are secured by a pledge of substantially all assets of the Company and each of the Guarantors, including, without limitation, accounts receivables, deposit accounts, intellectual property, investment property, inventory, equipment, and equity interests in their respective subsidiaries.
The Financing Agreement contains customary affirmative and negative covenants, including limitations on the Company’s and its subsidiaries ability to incur additional debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, pay dividends and distributions, pay subordinated indebtedness, and enter into affiliate transactions. In addition, the Financing Agreement contains financial covenants requiring the Company to maintain a minimum level of liquidity at all times, a maximum consolidated leverage ratio (measured on a quarterly basis), and a minimum asset coverage ratio (measured on a monthly basis). The Financing Agreement also includes events of default customary for facilities of this type and upon the occurrence of such events of default, subject to customary cure rights, all outstanding loans under the Credit Facilities may be accelerated and/or the lenders’ commitments terminated.
The Company had i no borrowings on its available lines of credit in Italy, which provide up to an aggregate amount of € i 5.5 million ($ i 5.8 million) as of September 30, 2023.
/
7. 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:
|
|
|
|
|
||||||||||||||||
(Unaudited, U.S. Dollars, in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
Total |
|
|||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Neo Medical convertible loan agreements |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
i 7,670 |
|
|
$ |
i 7,670 |
|
|
$ |
i 7,140 |
|
Neo Medical preferred equity securities |
|
|
— |
|
|
|
i 6,084 |
|
|
|
— |
|
|
|
i 6,084 |
|
|
|
i 6,084 |
|
Bone Biologics equity securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other investments |
|
|
— |
|
|
|
— |
|
|
|
i 1,286 |
|
|
|
i 1,286 |
|
|
|
i 1,726 |
|
Total |
|
$ |
— |
|
|
$ |
i 6,084 |
|
|
$ |
i 8,956 |
|
|
$ |
i 15,040 |
|
|
$ |
i 14,950 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Lattus contingent consideration |
|
$ |
— |
|
|
$ |
— |
|
|
|
( i 9,100 |
) |
|
$ |
( i 9,100 |
) |
|
$ |
— |
|
Spinal Kinetics contingent consideration |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Deferred compensation plan |
|
|
— |
|
|
|
( i 1,413 |
) |
|
|
— |
|
|
|
( i 1,413 |
) |
|
|
( i 1,515 |
) |
Total |
|
$ |
— |
|
|
$ |
( i 1,413 |
) |
|
$ |
( i 9,100 |
) |
|
$ |
( i 10,513 |
) |
|
$ |
( i 1,515 |
) |
13
/
Neo Medical Convertible Loan Agreements and Equity Investment
In October 2020, the Company purchased preferred equity securities of Neo Medical SA, a privately held Swiss-based company developing a new generation of products for spinal surgery ("Neo Medical"), for consideration of $ i 5.0 million. The Company also entered into a Convertible Loan Agreement pursuant to which the Company loaned Neo Medical CHF i 4.6 million, or $ i 5.0 million at the date of issuance (the “Convertible Loan”). In October 2021, the Company entered into a second Convertible Loan Agreement (the “Second Convertible Loan” and together with the Convertible Loan, the “Neo Medical Convertible Loans”), pursuant to which the Company loaned Neo Medical an additional CHF i 0.6 million, or $ i 0.7 million as of the date of issuance.
The preferred equity securities are recorded in other long-term assets and are considered an investment that does not have a readily determinable fair value. As such, the Company measures this investment at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer.
The table below presents a reconciliation of the beginning and ending balances of the Company’s investment in Neo Medical preferred equity securities:
(Unaudited, U.S. Dollars, in thousands) |
|
2023 |
|
|
2022 |
|
||
Fair value of Neo Medical preferred equity securities at January 1 |
|
$ |
i 6,084 |
|
|
$ |
i 5,413 |
|
Conversion of loan into preferred equity securities |
|
|
— |
|
|
|
i 671 |
|
Fair value of Neo Medical preferred equity securities at September 30 |
|
$ |
i 6,084 |
|
|
$ |
i 6,084 |
|
Cumulative unrealized gain on Neo Medical preferred equity securities |
|
$ |
i 413 |
|
|
$ |
i 413 |
|
The Company elected to convert the Second Convertible Loan into shares of Neo Medical’s preferred equity securities in January 2022. The Convertible Loan is recorded in other long-term assets as an available for sale debt security as of September 30, 2023. The fair value of the Convertible Loan is based upon significant unobservable inputs, including the use of option-pricing models, Monte Carlo simulations for certain periods, and a probability-weighted discounted cash flow model, requiring the Company to develop its own assumptions. Therefore, the Company categorized this investment as a Level 3 financial asset.
Some of the more significant unobservable inputs used in the fair value measurement of the Convertible Loan include applicable discount rates, implied volatility, the likelihood and projected timing of repayment or conversion, and projected cash flows in support of the estimated enterprise value of Neo Medical. Holding other inputs constant, changes in these assumptions could result in a significant change in the fair value of the Convertible Loan. If the amortized cost of the Convertible Loan exceeds its estimated fair value, the security is deemed to be impaired, and must be evaluated for the recognition of a credit loss. As of September 30, 2023, the Company has i not recognized any credit loss related to the Convertible Loan.
The following table provides a reconciliation of the beginning and ending balances of the Convertible Loans, measured at fair value using significant unobservable inputs (Level 3):
(Unaudited, U.S. Dollars, in thousands) |
|
2023 |
|
|
2022 |
|
||
Fair value of Neo Medical Convertible Loans at January 1 |
|
$ |
i 7,140 |
|
|
$ |
i 7,148 |
|
Interest recognized in interest income, net |
|
|
i 367 |
|
|
|
i 326 |
|
Foreign currency remeasurement recognized in other expense, net |
|
|
i 54 |
|
|
|
( i 437 |
) |
Unrealized gain (loss) recognized in other comprehensive loss |
|
|
i 109 |
|
|
|
( i 766 |
) |
Conversion of Second Convertible Loan into preferred equity securities |
|
|
— |
|
|
|
( i 671 |
) |
Fair value of Neo Medical Convertible Loans at September 30 |
|
$ |
i 7,670 |
|
|
$ |
i 5,600 |
|
Amortized cost basis of Neo Medical Convertible Loans at September 30 |
|
$ |
i 6,328 |
|
|
$ |
i 5,425 |
|
The following table provides quantitative information related to certain key assumptions utilized within the valuation as of September 30, 2023:
(Unaudited, U.S. Dollars, in thousands) |
|
Fair Value as of |
|
|
Unobservable inputs |
|
Estimate |
|
||
Neo Medical Convertible Loan |
|
$ |
i 7,670 |
|
|
Cost of equity discount rate |
|
|
i 19.4 |
% |
|
|
|
|
|
Estimated equity volatility |
|
|
i 80.6 |
% |
|
Bone Biologics Equity Securities
14
Until August 2022, the Company held an investment in common stock of Bone Biologics Inc. (“Bone Biologics”, NASDAQ: BBLG), a developer of orthobiologic products. The Company disposed of its remaining holdings in Bone Biologics equity securities during the third quarter of 2022.
Other Investments
Other investments represent assets and investments recorded at fair value that are not deemed to be material for disclosure on an individual basis. The fair value of these assets is based upon significant unobservable inputs, such as probability-weighted discounted cash flow models, requiring the Company to develop its own assumptions. Therefore, the Company has categorized these assets as Level 3 financial assets. As of September 30, 2023, this balance was classified within other long-term assets.
Spinal Kinetics Contingent Consideration
The Company recognized a contingent consideration obligation in connection with the acquisition of Spinal Kinetics in 2018. The fair value of the remaining Spinal Kinetics contingent consideration, attributable to a revenue-based milestone, was concluded to be zero as of September 30, 2023, as the Company did not achieve the milestone prior to April 30, 2023, the end of the measurement period for achieving such milestone.
i The following table provides a reconciliation of the beginning and ending balances for the Spinal Kinetics contingent consideration measured at estimated fair value using significant unobservable inputs (Level 3):
(Unaudited, U.S. Dollars, in thousands) |
|
2023 |
|
|
2022 |
|
||
Spinal Kinetics contingent consideration estimated fair value at January 1 |
|
$ |
— |
|
|
$ |
i 17,200 |
|
Decrease in fair value recognized in acquisition-related amortization and remeasurement |
|
|
— |
|
|
|
( i 17,200 |
) |
Spinal Kinetics contingent consideration estimated fair value at September 30 |
|
$ |
— |
|
|
$ |
— |
|
Lattus Contingent Consideration
In connection with the Merger, the Company assumed a contingent consideration obligation under a purchase agreement between SeaSpine and Lattus Spine LLC ("Lattus") executed in December 2022. Under the terms of the agreement, the Company may be required to make installment payments at certain dates based on future net sales of certain products (the "Lateral Products").
The estimated fair value of the Lattus contingent consideration as of the closing of the Merger, January 5, 2023, was $ i 11.2 million. The estimated fair value of the Lattus contingent consideration is determined using a Monte Carlo simulation and a discounted cash flow model requiring significant inputs which are not observable in the market. The significant inputs include assumptions related to the timing and probability of certain product launch dates, estimated future sales of the products, revenue risk-adjusted discount rate, revenue volatility, and discount rates matched to the timing of payments. The following table provides a reconciliation of the beginning and ending balances for the Lattus contingent consideration measured at estimated fair value using significant unobservable inputs (Level 3):
(Unaudited, U.S. Dollars, in thousands) |
|
2023 |
|
|
2022 |
|
||
Lattus contingent consideration estimated fair value at January 5 |
|
$ |
i 11,200 |
|
|
$ |
— |
|
Decrease in fair value recognized in acquisition-related amortization and remeasurement |
|
|
( i 2,100 |
) |
|
|
— |
|
Lattus contingent consideration estimated fair value at September 30 |
|
$ |
i 9,100 |
|
|
$ |
— |
|
The following table provides quantitative information related to certain key assumptions utilized within the valuation as of September 30, 2023:
(Unaudited, U.S. Dollars, in thousands) |
|
Fair Value as of |
|
|
Unobservable inputs |
|
Estimate |
|
||
Lattus Contingent Consideration |
|
$ |
i 9,100 |
|
|
Counterparty discount rate |
|
|
i 9.5 |
% |
|
|
|
|
|
Revenue risk-adjusted discount rate |
|
|
i 7.0 |
% |
|
8. Commitments and Contingencies
Commitments
As a result of the Merger, the Company became party to agreements with certain distributor partners that provide the Company with an option to purchase, and an option for those partners to require the Company to purchase, the distribution business of those
15
partners at specified future dates. At such time, the Company or distributor may (in certain cases, subject to satisfying certain conditions) submit written notice to the other of its intention to exercise its rights and initiate or require the purchase. Upon receipt of the written notice, the Company and the distributor will work in good faith to consummate the purchase. Under these agreements, the purchase price would be paid in shares of the Company's common stock. Based on the closing price of the Company's common stock as of September 30, 2023, assuming the options under all the relevant agreements were exercised, the estimated total number of shares the Company would issue under these agreements was approximately i 1.7 million shares. The Company has received notification from one such distributor, who has notified the Company of its decision to exercise its buyout option. The Company is currently in negotiations with this distributor in regard to the consummation of the potential acquisition.
Contingencies
In addition to the matters described below, in the normal course of its business, the Company is involved in various lawsuits from time to time and may be subject to certain other contingencies. The Company believes any losses related to these matters are individually and collectively immaterial as to a possible loss and range of loss.
Italian Medical Device Payback (“IMDP”)
In 2015, the Italian Parliament introduced rules for entities that supply goods and services to the Italian National Healthcare System. A key provision of the law is a ‘payback’ measure, requiring medical device companies in Italy to make payments to the Italian government if medical device expenditures exceed regional maximum ceilings. Companies are required to make payments equal to a percentage of expenditures exceeding maximum regional caps.
In the third quarter of 2022, the Italian Ministry of Health provided guidelines to the Italian regions and provinces on seeking payback of expenditure overruns relating to the years ended December 31, 2015, through December 31, 2018. Since receiving the guidelines, several regions and provinces have requested payment from affected medical device companies, including the Company. The Company has taken legal action to dispute the legality of such measures.
The Company accounts for the estimated cost of the IMDP as sales and marketing expense and periodically reassesses the liability based upon current facts and circumstances. As a result, the Company recorded an expense of $ i 0.2 million and $ i 0.8 million for the three and nine months ended September 30, 2023, respectively, and an expense of $ i 0.3 million and $ i 0.9 million for the three and nine months ended September 30, 2022, respectively. As of September 30, 2023, the Company has accrued $ i 7.0 million related to the IMDP, which it has classified within other long-term liabilities; however, the actual liability could be higher or lower than the amount accrued once all legal proceedings are resolved and upon further clarification of the IMDP by the Italian authorities for more recent fiscal years.
/9. Accumulated other comprehensive loss
The components of and changes in accumulated other comprehensive loss were as follows:
(Unaudited, U.S. Dollars, in thousands) |
|
Currency |
|
|
Neo Medical Convertible Loans |
|
|
Other Investments |
|
|
Accumulated Other |
|
||||
Balance at December 31, 2022 |
|
$ |
( i 2,482 |
) |
|
$ |
i 1,005 |
|
|
$ |
i 101 |
|
|
$ |
( i 1,376 |
) |
Other comprehensive income (loss) |
|
|
( i 492 |
) |
|
|
i 109 |
|
|
|
( i 101 |
) |
|
|
( i 484 |
) |
Income taxes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance at September 30, 2023 |
|
$ |
( i 2,974 |
) |
|
$ |
i 1,114 |
|
|
$ |
— |
|
|
$ |
( i 1,860 |
) |
10. Revenue recognition and accounts receivable
Revenue Recognition
The Company has two reporting segments: Global Spine and Global Orthopedics. Within the Global Spine reporting segment, there are two product categories: (i) Bone Growth Therapies, and (ii) Spinal Implants, Biologics, and Enabling Technologies.
The table below presents net sales by major product category by reporting segment:
|
|
Three Months Ended September 30, |
|
|||||||||
(Unaudited, U.S. Dollars, in thousands) |
|
2023 |
|
|
2022 |
|
|
Change |
|
|||
Bone Growth Therapies |
|
$ |
i 53,359 |
|
|
$ |
i 46,531 |
|
|
|
i 14.7 |
% |
Spinal Implants, Biologics, and Enabling Technologies |
|
|
i 100,993 |
|
|
|
i 39,655 |
|
|
|
i 154.7 |
% |
Global Spine |
|
|
i 154,352 |
|
|
|
i 86,186 |
|
|
|
i 79.1 |
% |
Global Orthopedics |
|
|
i 29,654 |
|
|
|
i 27,810 |
|
|
|
i 6.6 |
% |
16
Net sales |
|
$ |
i 184,006 |
|
|
$ |
i 113,996 |
|
|
|
i 61.4 |
% |
|
|
Nine Months Ended September 30, |
|
|||||||||
(Unaudited, U.S. Dollars, in thousands) |
|
2023 |
|
|
2022 |
|
|
Change |
|
|||
Bone Growth Therapies |
|
$ |
i 153,735 |
|
|
$ |
i 136,244 |
|
|
|
i 12.8 |
% |
Spinal Implants, Biologics, and Enabling Technologies |
|
|
i 307,799 |
|
|
|
i 123,379 |
|
|
|
i 149.5 |
% |
Global Spine |
|
|
i 461,534 |
|
|
|
i 259,623 |
|
|
|
i 77.8 |
% |
Global Orthopedics |
|
|
i 84,692 |
|
|
|
i 78,861 |
|
|
|
i 7.4 |
% |
Net sales |
|
$ |
i 546,226 |
|
|
$ |
i 338,484 |
|
|
|
i 61.4 |
% |
Product Sales and Marketing Service Fees
The table below presents product sales and marketing service fees, which are both components of net sales:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Unaudited, U.S. Dollars, in thousands) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Product sales |
|
$ |
i 170,666 |
|
|
$ |
i 100,485 |
|
|
$ |
i 506,992 |
|
|
$ |
i 296,652 |
|
Marketing service fees |
|
|
i 13,340 |
|
|
|
i 13,511 |
|
|
|
i 39,234 |
|
|
|
i 41,832 |
|
Net sales |
|
$ |
i 184,006 |
|
|
$ |
i 113,996 |
|
|
$ |
i 546,226 |
|
|
$ |
i 338,484 |
|
Product sales primarily consist of the sale of bone growth therapies devices, spinal implants, certain biologics, enabling technologies, and orthopedics products. Marketing service fees are received from MTF Biologics based on total sales of biologics tissues sourced from MTF Biologics and relate solely to the Global Spine reporting segment. The Company partners with MTF Biologics to provide certain allograft solutions (HCT/Ps) for various spine, orthopedic and other bone repair needs, with this partnership allowing us to exclusively market certain biologic offerings.
Accounts receivable and related allowances
The following table provides a detail of changes in the Company’s allowance for expected credit losses for the three and nine months ended September 30, 2023 and 2022:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Unaudited, U.S. Dollars, in thousands) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Allowance for expected credit losses beginning balance |
|
$ |
i 7,015 |
|
|
$ |
i 5,589 |
|
|
$ |
i 6,419 |
|
|
$ |
i 4,944 |
|
Addition resulting from the Merger with SeaSpine |
|
|
— |
|
|
|
— |
|
|
|
i 137 |
|
|
|
— |
|
Current period provision for expected credit losses |
|
|
i 415 |
|
|
|
i 574 |
|
|
|
i 905 |
|
|
|
i 1,713 |
|
Write-offs charged against the allowance and other |
|
|
( i 214 |
) |
|
|
i 10 |
|
|
|
( i 334 |
) |
|
|
( i 236 |
) |
Effect of changes in foreign exchange rates |
|
|
( i 126 |
) |
|
|
( i 225 |
) |
|
|
( i 37 |
) |
|
|
( i 473 |
) |
Allowance for expected credit losses ending balance |
|
$ |
i 7,090 |
|
|
$ |
i 5,948 |
|
|
$ |
i 7,090 |
|
|
$ |
i 5,948 |
|
11. Business segment information
The Company has i two reporting segments: Global Spine and Global Orthopedics. The primary metric used in managing the Company is adjusted earnings before interest, tax, depreciation, and amortization (“adjusted EBITDA,” a non-GAAP financial measure). Adjusted EBITDA represents earnings before interest income (expense), income taxes, depreciation, and amortization and excludes the impact of share-based compensation, gains and losses related to changes in foreign exchange rates, charges related to the SeaSpine merger and other strategic investments, acquisition-related fair value adjustments, legal judgments and settlements, charges related to initial compliance with regulations set forth by the European Union Medical Device Regulation, and certain other activities. Corporate activities are comprised of operating expenses not directly identifiable within the two reporting segments, such as human resources, finance, legal, and information technology functions. i The table below presents adjusted EBITDA by reporting segment:
17
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Unaudited, U.S. Dollars, in thousands) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Adjusted EBITDA by reporting segment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Global Spine |
|
$ |
i 22,593 |
|
|
$ |
i 16,601 |
|
|
$ |
i 58,832 |
|
|
$ |
i 45,244 |
|
Global Orthopedics |
|
|
i 477 |
|
|
|
i 2,648 |
|
|
|
i 386 |
|
|
|
i 2,624 |
|
Corporate |
|
|
( i 9,549 |
) |
|
|
( i 4,994 |
) |
|
|
( i 32,574 |
) |
|
|
( i 15,081 |
) |
Consolidated adjusted EBITDA |
|
$ |
i 13,521 |
|
|
$ |
i 14,255 |
|
|
$ |
i 26,644 |
|
|
$ |
i 32,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Reconciling items: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
$ |
i 1,576 |
|
|
$ |
i 277 |
|
|
$ |
i 4,131 |
|
|
$ |
i 1,059 |
|
Depreciation and amortization |
|
|
i 13,097 |
|
|
|
i 7,570 |
|
|
|
i 39,094 |
|
|
|
i 21,598 |
|
Share-based compensation expense |
|
|
i 6,274 |
|
|
|
i 4,729 |
|
|
|
i 32,540 |
|
|
|
i 13,521 |
|
Foreign exchange impact |
|
|
i 1,909 |
|
|
|
i 3,253 |
|
|
|
i 1,057 |
|
|
|
i 7,486 |
|
SeaSpine merger-related costs |
|
|
i 5,416 |
|
|
|
— |
|
|
|
i 34,362 |
|
|
|
— |
|
Strategic investments |
|
|
i 913 |
|
|
|
i 3,390 |
|
|
|
i 1,883 |
|
|
|
i 6,184 |
|
Acquisition-related fair value adjustments |
|
|
i 7,122 |
|
|
|
i 419 |
|
|
|
i 26,907 |
|
|
|
( i 15,795 |
) |
Legal judgments/settlements |
|
|
i 3,851 |
|
|
|
i 125 |
|
|
|
i 5,611 |
|
|
|
i 466 |
|
Medical device regulation |
|
|
i 1,840 |
|
|
|
i 2,590 |
|
|
|
i 7,519 |
|
|
|
i 6,883 |
|
Business interruption - COVID-19 |
|
|
— |
|
|
|
i 1,215 |
|
|
|
— |
|
|
|
i 1,874 |
|
All other |
|
|
( i 92 |
) |
|
|
i 59 |
|
|
|
i 170 |
|
|
|
i 230 |
|
Loss before income taxes |
|
$ |
( i 28,385 |
) |
|
$ |
( i 9,372 |
) |
|
$ |
( i 126,630 |
) |
|
$ |
( i 10,719 |
) |
Geographical information
The table below presents net sales by geographic destination for each reporting segment and for the consolidated Company:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
(Unaudited, U.S. Dollars, in thousands) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Global Spine |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. |
|
$ |
i 145,764 |
|
|
$ |
i 81,414 |
|
|
$ |
i 432,581 |
|
|
$ |
i 244,379 |
|
International |
|
|
i 8,588 |
|
|
|
i 4,772 |
|
|
|
i 28,953 |
|
|
|
i 15,244 |
|
Total Global Spine |
|
|
i 154,352 |
|
|
|
i 86,186 |
|
|
|
i 461,534 |
|
|
|
i 259,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Global Orthopedics |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. |
|
|
i 7,482 |
|
|
|
i 6,588 |
|
|
|
i 21,341 |
|
|
|
i 18,818 |
|
International |
|
|
i 22,172 |
|
|
|
i 21,222 |
|
|
|
i 63,351 |
|
|
|
i 60,043 |
|
Total Global Orthopedics |
|
|
i 29,654 |
|
|
|
i 27,810 |
|
|
|
i 84,692 |
|
|
|
i 78,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. |
|
|
i 153,246 |
|
|
|
i 88,002 |
|
|
|
i 453,922 |
|
|
|
i 263,197 |
|
International |
|
|
i 30,760 |
|
|
|
i 25,994 |
|
|
|
i 92,304 |
|
|
|
i 75,287 |
|
Net sales |
|
$ |
i 184,006 |
|
|
$ |
i 113,996 |
|
|
$ |
i 546,226 |
|
|
$ |
i 338,484 |
|
12. Acquisition-related amortization and remeasurement
Acquisition-related amortization and remeasurement consists of (i) amortization related to intangible assets acquired through business combinations or asset acquisitions, (ii) remeasurement of any related contingent consideration arrangements, and (iii) recognized costs associated with acquired IPR&D assets, which are recognized immediately upon acquisition. i Components of acquisition-related amortization and remeasurement are as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
(Unaudited, U.S. Dollars, in thousands) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Amortization of acquired intangibles |
|
$ |
i 4,370 |
|
|
$ |
i 2,070 |
|
|
$ |
i 13,137 |
|
|
$ |
i 6,122 |
|
Changes in fair value of contingent consideration |
|
|
( i 800 |
) |
|
|
( i 986 |
) |
|
|
( i 2,100 |
) |
|
|
( i 17,200 |
) |
Acquired IPR&D |
|
|
— |
|
|
|
i 1,400 |
|
|
|
— |
|
|
|
i 1,400 |
|
Total |
|
$ |
i 3,570 |
|
|
$ |
i 2,484 |
|
|
$ |
i 11,037 |
|
|
$ |
( i 9,678 |
) |
18
13. Share-based compensation
Components of share-based compensation expense are as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
(Unaudited, U.S. Dollars, in thousands) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Cost of sales |
|
$ |
i 463 |
|
|
$ |
i 195 |
|
|
$ |
i 1,416 |
|
|
$ |
i 611 |
|
Sales and marketing |
|
|
i 2,092 |
|
|
|
i 948 |
|
|
|
i 6,892 |
|
|
|
i 2,929 |
|
General and administrative |
|
|
i 2,832 |
|
|
|
i 3,285 |
|
|
|
i 21,103 |
|
|
|
i 9,461 |
|
Research and development |
|
|
i 887 |
|
|
|
i 301 |
|
|
|
i 3,129 |
|
|
|
i 520 |
|
Total |
|
$ |
i 6,274 |
|
|
$ |
i 4,729 |
|
|
$ |
i 32,540 |
|
|
$ |
i 13,521 |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
(Unaudited, U.S. Dollars, in thousands) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Stock options |
|
$ |
i 1,429 |
|
|
$ |
i 294 |
|
|
$ |
i 6,582 |
|
|
$ |
i 858 |
|
Time-based restricted stock awards and units |
|
|
i 4,263 |
|
|
|
i 2,467 |
|
|
|
i 24,344 |
|
|
|
i 7,047 |
|
Market-based / performance-based restricted stock units |
|
|
i 54 |
|
|
|
i 1,626 |
|
|
|
i 167 |
|
|
|
i 4,567 |
|
Stock purchase plan |
|
|
i 528 |
|
|
|
i 342 |
|
|
|
i 1,447 |
|
|
|
i 1,049 |
|
Total |
|
$ |
i 6,274 |
|
|
$ |
i 4,729 |
|
|
$ |
i 32,540 |
|
|
$ |
i 13,521 |
|
Pursuant to the Merger Agreement, the equity awards of SeaSpine (including stock options and restricted stock units) outstanding as of immediately prior to the closing of the Merger were converted into equity awards denominated in shares of Orthofix common stock. The Company issued options to purchase i 1.9 million shares of Orthofix common stock and i 0.5 million shares of time-based vesting restricted stock in connection with the conversion of such awards. The estimated fair value of the portion of the SeaSpine equity awards for which the required service period had been completed at the time of the closing of the Merger was treated as purchase consideration. The remaining estimated fair value is recorded as compensation expense over the remainder of the service period associated with the awards.
During the three months ended September 30, 2023, and 2022, the Company issued i 16,411 and i 7,057 shares, respectively, of common stock related to stock purchase plan issuances, stock option exercises, and the vesting of restricted stock awards and units. During the nine months ended September 30, 2023, and 2022, the Company issued i 0.5 million and i 0.2 million shares, respectively, of common stock related to stock purchase plan issuances, stock option exercises, and the vesting of restricted stock awards and units.
On September 12, 2023, the Company announced the termination of the Company's former Chief Executive Officer, former Chief Financial Officer, and former Chief Legal Officer. This change in leadership resulted in a recognized benefit of $ i 1.1 million and $ i 0.1 million for the three and nine months ended September 30, 2023, related to the forfeiture of outstanding equity grants, net of any incremental share-based compensation expense related to interim leaders appointed to these roles.
/14. Income taxes
Generally, income tax provisions for interim periods are based on an estimated annual income tax rate, adjusted for discrete tax items, with any changes affecting the estimated annual effective tax rate recorded in the interim period in which the change occurs. Due to the impact of losses not benefited by the Company’s U.S. and Italian operations, the Company determined the estimated annual effective tax rate method would not provide a reliable estimate of the Company’s overall annual effective tax rate. As such, the Company has calculated the tax provision using the actual effective rate for the three and nine months ended September 30, 2023. Due to the impact of temporary differences on the U.S. current tax liability without any deferred tax benefit, the actual effective rate may vary in future quarters.
For the three months ended September 30, 2023, and 2022, the effective tax rate was ( i 1.7%) and ( i 14.3%), respectively. For the nine months ended September 30, 2023, and 2022, the effective tax rate was ( i 2.0%) and ( i 18.4%), respectively. The primary factors affecting the Company’s effective tax rate for the three and nine months ended September 30, 2023, were certain losses not benefitted and tax amortization on certain acquired intangibles.
/19
15. Earnings per share (“EPS”)
For the three and nine months ended September 30, 2023, no adjustments were made to net income for purposes of calculating basic and diluted EPS. i The following is a reconciliation of the weighted average shares used in diluted EPS computations.
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
(Unaudited, In thousands) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Weighted average common shares-basic |
|
|
i 37,249 |
|
|
|
i 20,091 |
|
|
|
i 36,588 |
|
|
|
i 20,007 |
|
Effect of dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unexercised stock options and stock purchase plan |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Unvested restricted stock units |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Weighted average common shares-diluted |
|
|
i 37,249 |
|
|
|
i 20,091 |
|
|
|
i 36,588 |
|
|
|
i 20,007 |
|
There were i 6.3 million and i 2.4 million weighted average outstanding stock options and restricted stock units not included in the diluted EPS computation for the three months ended September 30, 2023, and 2022, respectively, and i 6.8 million and i 2.2 million weighted average outstanding stock options and restricted stock units not included in the diluted EPS computation for the nine months ended September 30, 2023, and 2022, respectively, because inclusion of these awards was anti-dilutive.
/16. Goodwill
The Company tests goodwill at least annually for impairment. The Company tests more frequently if indicators are present or changes in circumstances suggest that impairment may exist. These indicators include, among others, declines in sales, earnings or cash flows, or the development of a material adverse change in the business climate. The Company assesses goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment.
In the third quarter of 2023, the Company announced the termination of the former President and Chief Executive Officer, former Chief Financial Officer, and former Chief Legal Officer, from their respective roles. Immediately following the announcement, the Company's market capitalization decreased by approximately i 30%, indicating that an impairment may exist. As a result, the Company performed an interim quantitative assessment of its goodwill as of September 30, 2023.
The Company estimated the fair value of each reporting unit using a weighted average of the fair value derived from both an income approach and a market approach (all Level 3 fair value measurements). Upon performing its assessment, the Company determined its Global Spine reporting unit's fair value exceed its carrying value of net assets as of September 30, 2023.
The following table presents the net carrying value of goodwill as of September 30, 2023, and any activity recognized during the year-to-date period, including accumulated goodwill impairment losses by reportable segment:
(Unaudited, U.S. Dollars, in thousands) |
|
Balance as of |
|
|
Goodwill Acquired in the Merger with SeaSpine |
|
|
Impairment Recognized within Acquisition-related Amortization and Remeasurement |
|
|
Balance as of |
|
||||
Global Spine - Gross |
|
$ |
i 71,317 |
|
|
$ |
i 123,450 |
|
|
$ |
— |
|
|
$ |
i 194,767 |
|
Global Spine - Accumulated Impairment Loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
— |
|
Global Spine - Net |
|
$ |
i 71,317 |
|
|
$ |
i 123,450 |
|
|
$ |
— |
|
|
$ |
i 194,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Global Orthopedics - Gross |
|
$ |
i 11,822 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
i 11,822 |
|
Global Orthopedics - Accumulated Impairment Loss |
|
|
( i 11,822 |
) |
|
|
— |
|
|
|
— |
|
|
$ |
( i 11,822 |
) |
Global Orthopedics - Net |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Goodwill, net of accumulated impairment losses |
|
$ |
i 71,317 |
|
|
$ |
i 123,450 |
|
|
$ |
— |
|
|
$ |
i 194,767 |
|
17. Subsequent Events
As further described above in Note 6, on November 6, 2023, the Company, as borrower, and certain subsidiaries of the Company as guarantors, entered into a Financing Agreement (the “Financing Agreement”) with Blue Torch Finance LLC, as administrative agent
20
and collateral agent (the “Agent”), and certain lenders party thereto. The Financing Agreement provides for a $ i 100 million senior secured term loan (the “Initial Term Loan”), a $ i 25 million senior secured delayed draw term loan facility (the “Delayed Draw Term Loan”), and a $ i 25 million senior secured revolving credit facility (the “Revolving Credit Facility,” and together with the Initial Term Loan and the Delayed Draw Term Loan, the “Credit Facilities”), each of which mature on i i i November 6, 2027 / / . In connection with entering into the Financing Agreement, the Company repaid in full amounts outstanding and terminated all commitments under the Prior Credit Agreement. The Initial Term Loan was fully funded on November 6, 2023. As of the date of this filing (November 8, 2023), the Company had i i no / t made any borrowings under the Delayed Draw Term Loan or the Revolving Credit Facility.
/21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of Orthofix Medical Inc.’s (sometimes referred to as “we,” “us” or “our”) financial condition and results of operations should be read in conjunction with the discussion under the heading “Forward-Looking Statements” and our condensed consolidated financial statements and related notes thereto appearing elsewhere in this Form 10-Q.
Executive Summary
Following our merger (the “Merger”) with SeaSpine Holdings Corporation ("SeaSpine"), which was completed in January 2023, 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. Headquartered in Lewisville, Texas, our spine and orthopedic products are distributed in approximately 68 countries via our sales representatives and distributors. For more information, please visit www.Orthofix.com. Information included on our website is not incorporated into, or otherwise creates a part of, this report.
Notable financial metrics in the third quarter of 2023 and recent achievements include the following:
Results of Operations
The following table provides certain items in our condensed consolidated statements of operations as a percent of net sales:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
(Unaudited) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Net sales |
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
Cost of sales |
|
|
34.9 |
|
|
|
26.8 |
|
|
|
36.0 |
|
|
|
26.7 |
|
Gross profit |
|
|
65.1 |
|
|
|
73.2 |
|
|
|
64.0 |
|
|
|
73.3 |
|
Sales and marketing |
|
|
51.7 |
|
|
|
48.7 |
|
|
|
52.7 |
|
|
|
50.1 |
|
General and administrative |
|
|
14.7 |
|
|
|
16.9 |
|
|
|
20.2 |
|
|
|
16.1 |
|
Research and development |
|
|
10.1 |
|
|
|
10.5 |
|
|
|
11.2 |
|
|
|
10.6 |
|
Acquisition-related amortization and remeasurement |
|
|
1.9 |
|
|
|
2.2 |
|
|
|
2.0 |
|
|
|
(2.8 |
) |
Operating loss |
|
|
(13.3 |
) |
|
|
(5.1 |
) |
|
|
(22.1 |
) |
|
|
(0.7 |
) |
Net loss |
|
|
(15.7 |
) |
|
|
(9.4 |
) |
|
|
(23.7 |
) |
|
|
(3.7 |
) |
Net Sales by Product Category and Reporting Segment
The following tables provide net sales by major product category by reporting segment:
|
|
Three Months Ended |
|
|
Percentage Change |
|
||||||||||
(Unaudited, U.S. Dollars, in thousands) |
|
2023 |
|
|
2022 |
|
|
Reported |
|
|
Constant Currency |
|
||||
Bone Growth Therapies |
|
$ |
53,359 |
|
|
$ |
46,531 |
|
|
|
14.7 |
% |
|
|
14.7 |
% |
Spinal Implants, Biologics, and Enabling Technologies |
|
|
100,993 |
|
|
|
39,655 |
|
|
|
154.7 |
% |
|
|
154.5 |
% |
Global Spine |
|
|
154,352 |
|
|
|
86,186 |
|
|
|
79.1 |
% |
|
|
79.0 |
% |
Global Orthopedics |
|
|
29,654 |
|
|
|
27,810 |
|
|
|
6.6 |
% |
|
|
0.7 |
% |
Net sales |
|
$ |
184,006 |
|
|
$ |
113,996 |
|
|
|
61.4 |
% |
|
|
59.9 |
% |
22
|
|
Nine Months Ended |
|
|
Percentage Change |
|
||||||||||
(Unaudited, U.S. Dollars, in thousands) |
|
2023 |
|
|
2022 |
|
|
Reported |
|
|
Constant Currency |
|
||||
Bone Growth Therapies |
|
$ |
153,735 |
|
|
$ |
136,244 |
|
|
|
12.8 |
% |
|
|
12.8 |
% |
Spinal Implants, Biologics, and Enabling Technologies |
|
|
307,799 |
|
|
|
123,379 |
|
|
|
149.5 |
% |
|
|
149.5 |
% |
Global Spine |
|
|
461,534 |
|
|
|
259,623 |
|
|
|
77.8 |
% |
|
|
77.8 |
% |
Global Orthopedics |
|
|
84,692 |
|
|
|
78,861 |
|
|
|
7.4 |
% |
|
|
6.1 |
% |
Net sales |
|
$ |
546,226 |
|
|
$ |
338,484 |
|
|
|
61.4 |
% |
|
|
61.1 |
% |
Global Spine
Global Spine offers the following product categories:
Three months ended September 30, 2023 compared to 2022
Net sales of $154.4 million, an increase of $68.2 million or 79.1%
Nine months ended September 30, 2023 compared to 2022
Net sales of $461.5 million, an increase of $201.9 million or 77.8%
23
Global Orthopedics
Global Orthopedics offers products and solutions that allow physicians to successfully treat a variety of orthopedic conditions specifically related to limb reconstruction and deformity correction unrelated to the spine. Global Orthopedics distributes its products globally through a network of distributors and sales representatives to sell orthopedic products to hospitals and healthcare providers.
Three months ended September 30, 2023 compared to 2022
Net sales of $29.7 million, an increase of $1.8 million or 6.6%
Nine months ended September 30, 2023 compared to 2022
Net sales of $84.7 million, an increase of $5.8 million or 7.4%
Gross Profit
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
(Unaudited, U.S. Dollars, in thousands) |
|
2023 |
|
|
2022 |
|
|
% Change |
|
|
2023 |
|
|
2022 |
|
|
% Change |
|
||||||
Net sales |
|
$ |
184,006 |
|
|
$ |
113,996 |
|
|
|
61.4 |
% |
|
$ |
546,226 |
|
|
$ |
338,484 |
|
|
|
61.4 |
% |
Cost of sales |
|
|
64,243 |
|
|
|
30,573 |
|
|
|
110.1 |
% |
|
|
196,583 |
|
|
|
90,491 |
|
|
|
117.2 |
% |
Gross profit |
|
$ |
119,763 |
|
|
$ |
83,423 |
|
|
|
43.6 |
% |
|
$ |
349,643 |
|
|
$ |
247,993 |
|
|
|
41.0 |
% |
Gross margin |
|
|
65.1 |
% |
|
|
73.2 |
% |
|
|
(8.1 |
%) |
|
|
64.0 |
% |
|
|
73.3 |
% |
|
|
-9.3 |
% |
Three months ended September 30, 2023 compared to 2022
Gross profit increased $36.3 million
Nine months ended September 30, 2023 compared to 2022
Gross profit increased $101.7 million
24
Sales and Marketing Expense
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
(U.S. Dollars, in thousands) |
|
2023 |
|
|
2022 |
|
|
% Change |
|
|
2023 |
|
|
2022 |
|
|
% Change |
|
||||||
Sales and marketing |
|
$ |
94,947 |
|
|
$ |
55,461 |
|
|
|
71.2 |
% |
|
$ |
287,987 |
|
|
$ |
169,486 |
|
|
|
69.9 |
% |
As a percentage of net sales |
|
|
51.5 |
% |
|
|
48.7 |
% |
|
|
2.8 |
% |
|
|
52.7 |
% |
|
|
50.1 |
% |
|
|
2.6 |
% |
Three months ended September 30, 2023 compared to 2022
Sales and marketing expense increased $39.5 million
Nine months ended September 30, 2023 compared to 2022
Sales and marketing expense increased $118.5 million
General and Administrative Expense
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
(U.S. Dollars, in thousands) |
|
2023 |
|
|
2022 |
|
|
% Change |
|
|
2023 |
|
|
2022 |
|
|
% Change |
|
||||||
General and administrative |
|
$ |
27,136 |
|
|
$ |
19,322 |
|
|
|
40.4 |
% |
|
$ |
110,124 |
|
|
$ |
54,496 |
|
|
|
102.1 |
% |
As a percentage of net sales |
|
|
14.7 |
% |
|
|
16.9 |
% |
|
|
(2.2 |
%) |
|
|
20.2 |
% |
|
|
16.1 |
% |
|
|
4.1 |
% |
Three months ended September 30, 2023 compared to 2022
General and administrative expense increased $7.8 million
Nine months ended September 30, 2023 compared to 2022
General and administrative expense increased $55.6 million
25
Research and Development Expense
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
(Unaudited, U.S. Dollars, in thousands) |
|
2023 |
|
|
2022 |
|
|
% Change |
|
|
2023 |
|
|
2022 |
|
|
% Change |
|
||||||
Research and development |
|
$ |
18,559 |
|
|
$ |
11,943 |
|
|
|
55.4 |
% |
|
$ |
61,290 |
|
|
$ |
35,913 |
|
|
|
70.7 |
% |
As a percentage of net sales |
|
|
10.1 |
% |
|
|
10.5 |
% |
|
|
(0.4 |
%) |
|
|
11.2 |
% |
|
|
10.6 |
% |
|
|
0.6 |
% |
Three months ended September 30, 2023 compared to 2022
Research and development expense increased $6.6 million
Nine months ended September 30, 2023 compared to 2022
Research and development expense increased $25.4 million
Acquisition-related Amortization and Remeasurement
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
(Unaudited, U.S. Dollars, in thousands) |
|
2023 |
|
|
2022 |
|
|
% Change |
|
|
2023 |
|
|
2022 |
|
|
% Change |
|
||||||
Acquisition-related amortization and remeasurement |
|
$ |
3,570 |
|
|
$ |
2,484 |
|
|
|
43.7 |
% |
|
$ |
11,037 |
|
|
$ |
(9,678 |
) |
|
|
(214.0 |
%) |
As a percentage of net sales |
|
|
1.9 |
% |
|
|
2.2 |
% |
|
|
(0.3 |
%) |
|
|
2.0 |
% |
|
|
(3.0 |
%) |
|
|
5.0 |
% |
Acquisition-related amortization and remeasurement consists of (i) amortization related to intangible assets acquired through business combinations or asset acquisitions, (ii) remeasurement of any related contingent consideration arrangements, and (iii) recognized costs associated with IPR&D assets, which are recognized immediately upon acquisition.
Three months ended September 30, 2023 compared to 2022
Acquisition-related amortization and remeasurement increased $1.1 million
26
Nine months ended September 30, 2023 compared to 2022
Acquisition-related amortization and remeasurement increased $20.7 million
Non-operating Income and Expense
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
(Unaudited, U.S. Dollars, in thousands) |
|
2023 |
|
|
2022 |
|
|
% Change |
|
|
2023 |
|
|
2022 |
|
|
% Change |
|
||||||
Interest expense, net |
|
$ |
(1,576 |
) |
|
$ |
(277 |
) |
|
|
469.0 |
% |
|
$ |
(4,131 |
) |
|
$ |
(1,059 |
) |
|
|
290.1 |
% |
Other income (expense), net |
|
|
(2,360 |
) |
|
|
(3,308 |
) |
|
|
(28.7 |
%) |
|
|
(1,704 |
) |
|
|
(7,436 |
) |
|
|
(77.1 |
%) |
Three months ended September 30, 2023 compared to 2022
Interest expense, net increased $1.3 million
Nine months ended September 30, 2023 compared to 2022
Interest expense, net increased $3.1 million
Three months ended September 30, 2023 compared to 2022
Other income (expense), net increased $0.9 million
Nine months ended September 30, 2023 compared to 2022
Other income (expense), net increased $5.7 million
27
Income Taxes
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||||||||||
(Unaudited, U.S. Dollars, in thousands) |
|
2023 |
|
|
2022 |
|
|
% Change |
|
|
2023 |
|
|
2022 |
|
|
% Change |
|
||||||
Income tax expense |
|
$ |
472 |
|
|
$ |
1,344 |
|
|
|
(64.9 |
%) |
|
$ |
2,591 |
|
|
$ |
1,968 |
|
|
|
31.7 |
% |
Effective tax rate |
|
|
(1.7 |
%) |
|
|
(14.3 |
%) |
|
|
12.6 |
% |
|
|
(2.0 |
%) |
|
|
(18.4 |
%) |
|
|
16.4 |
% |
Three months ended September 30, 2023 compared to 2022
Nine months ended September 30, 2023 compared to 2022
Segment Review
Our business is managed through two reporting segments: Global Spine and Global Orthopedics. The primary metric used in managing the business by segment is adjusted earnings before interest, tax, depreciation, and amortization (“adjusted EBITDA,” a non-GAAP financial measure) (which is described further in Note 11 to the Notes to the Unaudited Condensed Consolidated Financial Statements contained herein). The following table presents adjusted EBITDA by segment and reconciles consolidated adjusted EBITDA to loss before income taxes:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Unaudited, U.S. Dollars, in thousands) |
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Adjusted EBITDA by reporting segment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Global Spine |
|
$ |
22,593 |
|
|
$ |
16,601 |
|
|
$ |
58,832 |
|
|
$ |
45,244 |
|
Global Orthopedics |
|
|
477 |
|
|
|
2,648 |
|
|
|
386 |
|
|
|
2,624 |
|
Corporate |
|
|
(9,549 |
) |
|
|
(4,994 |
) |
|
|
(32,574 |
) |
|
|
(15,081 |
) |
Consolidated adjusted EBITDA |
|
$ |
13,521 |
|
|
$ |
14,255 |
|
|
$ |
26,644 |
|
|
$ |
32,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Reconciling items: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense, net |
|
$ |
1,576 |
|
|
$ |
277 |
|
|
$ |
4,131 |
|
|
$ |
1,059 |
|
Depreciation and amortization |
|
|
13,097 |
|
|
|
7,570 |
|
|
|
39,094 |
|
|
|
21,598 |
|
Share-based compensation expense |
|
|
6,274 |
|
|
|
4,729 |
|
|
|
32,540 |
|
|
|
13,521 |
|
Foreign exchange impact |
|
|
1,909 |
|
|
|
3,253 |
|
|
|
1,057 |
|
|
|
7,486 |
|
SeaSpine merger-related costs |
|
|
5,416 |
|
|
|
— |
|
|
|
34,362 |
|
|
|
— |
|
Strategic investments |
|
|
913 |
|
|
|
3,390 |
|
|
|
1,883 |
|
|
|
6,184 |
|
Acquisition-related fair value adjustments |
|
|
7,122 |
|
|
|
419 |
|
|
|
26,907 |
|
|
|
(15,795 |
) |
Legal judgments/settlements |
|
|
3,851 |
|
|
|
125 |
|
|
|
5,611 |
|
|
|
466 |
|
Medical device regulation |
|
|
1,840 |
|
|
|
2,590 |
|
|
|
7,519 |
|
|
|
6,883 |
|
Business interruption - COVID-19 |
|
|
— |
|
|
|
1,215 |
|
|
|
— |
|
|
|
1,874 |
|
All other |
|
|
(92 |
) |
|
|
59 |
|
|
|
170 |
|
|
|
230 |
|
Loss before income taxes |
|
$ |
(28,385 |
) |
|
$ |
(9,372 |
) |
|
$ |
(126,630 |
) |
|
$ |
(10,719 |
) |
28
Liquidity and Capital Resources
Cash and cash equivalents at September 30, 2023, totaled $33.7 million compared to $50.7 million at December 31, 2022. The following table presents the net change in cash and cash equivalents for the nine months ended September 30, 2023, and 2022, respectively:
|
|
Nine Months Ended September 30, |
|
|||||||||
(Unaudited, U.S. Dollars, in thousands) |
|
2023 |
|
|
2022 |
|
|
Change |
|
|||
Net cash provided by (used in) operating activities |
|
$ |
(39,059 |
) |
|
$ |
(13,886 |
) |
|
$ |
(25,173 |
) |
Net cash provided by (used in) investing activities |
|
|
(18,078 |
) |
|
|
(18,634 |
) |
|
|
556 |
|
Net cash provided by (used in) financing activities |
|
|
40,042 |
|
|
|
(1,576 |
) |
|
|
41,618 |
|
Effect of exchange rate changes on cash |
|
|
58 |
|
|
|
(2,091 |
) |
|
|
2,149 |
|
Net change in cash and cash equivalents |
|
$ |
(17,037 |
) |
|
$ |
(36,187 |
) |
|
$ |
19,150 |
|
The following table presents free cash flow, a non-GAAP financial measure, which is calculated by subtracting capital expenditures from net cash from operating activities:
|
|
Nine Months Ended September 30, |
|
|||||||||
(Unaudited, U.S. Dollars, in thousands) |
|
2023 |
|
|
2022 |
|
|
Change |
|
|||
Net cash provided by (used in) operating activities |
|
$ |
(39,059 |
) |
|
$ |
(13,886 |
) |
|
$ |
(25,173 |
) |
Capital expenditures |
|
|
(46,997 |
) |
|
|
(17,260 |
) |
|
|
(29,737 |
) |
Free cash flow |
|
$ |
(86,056 |
) |
|
$ |
(31,146 |
) |
|
$ |
(54,910 |
) |
Operating Activities
Cash flows from operating activities decreased $25.2 million
Two of our primary working capital accounts are accounts receivable and inventory. Days sales in receivables were 57 days at September 30, 2023, compared to 61 days at September 30, 2022. Inventory turns decreased to 1.0 times as of September 30, 2023 compared to 1.2 times as of September 30, 2022.
Investing Activities
Cash flows from investing activities increased $0.6 million
Financing Activities
Cash flows from financing activities increased $41.6 million
29
Credit Facilities
On January 3, 2023, we borrowed $30.0 million for working capital purposes, including to fund certain Merger-related expenses under our secured revolving credit facility under the Second Amended and Restated Credit Agreement with JPMorgan Chase Bank, N.A., dated as of October 25, 2019 (as amended by the First Amendment thereto dated March 1, 2023, the "Prior Credit Agreement"), which credit facility had a maturity date of October 25, 2024. Following the completion of the Merger, we terminated SeaSpine's credit facility and all applicable commitments with Wells Fargo Bank, National Association and repaid all outstanding obligations in respect to principal, interest, and fees on January 5, 2023.
Additional borrowings were made under the Prior Credit Agreement subsequent to the closing of the Merger and as of September 30, 2023, we had $70.0 million borrowings outstanding under the Prior Credit Agreement. We borrowed an additional $9.0 million on October 10, 2023.
On November 6, 2023, we, as borrower, and certain of our subsidiaries, as guarantors, entered into a Financing Agreement (the “Financing Agreement”) with Blue Torch Finance LLC, as administrative agent and collateral agent (the “Agent”), and certain lenders party thereto. The Financing Agreement provides for a $100 million senior secured term loan (the “Initial Term Loan”), a $25 million senior secured delayed draw term loan facility (the “Delayed Draw Term Loan”), and a $25 million senior secured revolving credit facility (the “Revolving Credit Facility,” and together with the Initial Term Loan and the Delayed Draw Term Loan, the “Credit Facilities”), each of which mature on November 6, 2027. In connection with entering into the Financing Agreement, we repaid in full amounts outstanding and terminated all commitments under the Prior Credit Agreement. The Initial Term Loan was fully funded on November 6, 2023. As of the date of this filing (November 8, 2023), we had not made any borrowings under the Delayed Draw Term Loan or the Revolving Credit Facility.
Borrowings under the Financing Agreement were and may be used for, among other things, the repayment in full of the Prior Credit Agreement, working capital, and other general corporate purposes. Borrowings under the Credit Facilities bear interest at a floating rate, which will be, at our option, either the three-month SOFR rate (subject to a floor of 3.00% and a credit spread adjustment of 0.26161%) (the “Adjusted Term SOFR Rate”) plus an applicable margin of 7.25%, or a base rate plus an applicable margin of 6.25%. A revolving unused line fee of 2.00% is payable monthly in arrears based on the average amount of the undrawn portion of each lender’s revolving credit commitments under the Revolving Credit Facility for the preceding month. A delayed draw unused fee equal to the Adjusted Term SOFR Rate plus a margin of 1.00% is payable monthly in arrears based on the average amount of the undrawn portion of each lender’s delayed draw term loan commitments in respect of the Delayed Draw Term Loan for the preceding month.
Certain of our existing and future material subsidiaries (collectively, the “Guarantors”) are required to guarantee the repayment of our obligations under the Financing Agreement. Our obligations and each of the Guarantors with respect to the Financing Agreement are secured by a pledge of substantially all of our assets and the assets of each of the Guarantors, including, without limitation, accounts receivables, deposit accounts, intellectual property, investment property, inventory, equipment, and equity interests in their respective subsidiaries.
The Financing Agreement contains customary affirmative and negative covenants, including limitations on our and our subsidiaries' ability to incur additional debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, pay dividends and distributions, pay subordinated indebtedness, and enter into affiliate transactions. In addition, the Financing Agreement contains financial covenants requiring us to maintain a minimum level of liquidity at all times, a maximum consolidated leverage ratio (measured on a quarterly basis), and a minimum asset coverage ratio (measured on a monthly basis). The Financing Agreement also includes events of default customary for facilities of this type and upon the occurrence of such events of default, subject to customary cure rights, all outstanding loans under the Credit Facilities may be accelerated and/or the lenders’ commitments terminated.
As of September 30, 2023, we had no borrowings outstanding under our available lines of credit in Italy, which provide up to an aggregate amount of €5.5 million ($5.8 million). We were in compliance with all required financial covenants of our credit facilities as of September 30, 2023.
30
Other
For information regarding contingencies, see Note 8 to the Notes to the Unaudited Condensed Consolidated Financial Statements contained herein.
IGEA S.p.A Exclusive License and Distribution Agreement
In April 2021, we entered into an Exclusive License and Distribution Agreement (the “License Agreement”) with IGEA S.p.A (“IGEA”), an Italian manufacturer and distributor of bone and cartilage stimulation systems. Per the terms of the License Agreement, we have the exclusive right to sell IGEA products in the U.S. and Canada. As consideration for the License Agreement, we agreed to pay up to $4.0 million, with certain payments contingent upon achieving an FDA milestone. As of September 30, 2023, we have a remaining liability under this agreement of $1.0 million which is accrued within other current liabilities.
CGBio Co., Ltd. Exclusive License and Distribution Agreement
On July 30, 2022, we entered into a long-term strategic License and Distribution Agreement (the “Agreement”) with CGBio Co., Ltd. (“CGBio”), a developer of innovative, synthetic bone grafts. The agreement grants us the exclusive right to conduct pre-clinical and clinical studies, commercialize, promote, market, and sell the Novosis recombinant human bone morphogenetic protein-2 (rhBMP-2) bone growth materials and other future tissue regenerative solutions in the U.S. and Canada. As consideration, we paid CGBio an upfront payment of $1.4 million with additional payments contingent upon the achievement of specified development milestones. This agreement was terminated in the third quarter of 2023. No additional milestones were achieved and/or paid per this agreement.
Lattus Spine LLC ("Lattus") Contingent Consideration
In connection with the Merger, we assumed a contingent consideration obligation under a purchase agreement between SeaSpine and Lattus executed in December 2022. Under the terms of the agreement, we may be required to make installment payments at certain dates based on future net sales of certain products (the "Lateral Products"). The estimated fair value of the contingent consideration arrangement as of September 30, 2023, was $9.1 million; however, the actual amount ultimately paid could be higher or lower than the estimated fair value of the contingent consideration. As of September 30, 2023, we classified the remaining contingent consideration liability within other long-term liabilities. For additional discussion of this matter, see Note 7 of the Notes to the Unaudited Condensed Consolidated Financial Statements.
Off-balance Sheet Arrangements
As of September 30, 2023, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, cash flows, liquidity, capital expenditures or capital resources that are material to investors.
Contractual Obligations
There have been no material changes in any of our material contractual obligations as disclosed in our Form 10-K for the year ended December 31, 2022.
Critical Accounting Estimates
Our discussion of operating results is based upon the condensed consolidated financial statements and accompanying notes. The preparation of these statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Our critical accounting estimates are described in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no significant changes to our critical accounting estimates during the quarter covered by this report.
Recently Issued Accounting Pronouncements
See Note 2 of the Notes to the Unaudited Condensed Consolidated Financial Statements for detailed information regarding the status of recently issued or adopted accounting pronouncements.
31
Non-GAAP Financial Measures
We believe that providing non-GAAP financial measures that exclude certain items provides investors with greater transparency to the information used by senior management in its financial and operational decision-making. We believe it is important to provide investors with the same non-GAAP financial measures used to supplement information regarding the performance and underlying trends of our business operations to facilitate comparisons to historical operating results and internally evaluate the effectiveness of our operating strategies. Disclosure of these non-GAAP financial measures also facilitates comparisons of our underlying operating performance with other companies in the industry that also supplement their GAAP results with non-GAAP financial measures.
The non-GAAP financial measures used in this filing may have limitations as analytical tools and should not be considered in isolation or as a replacement for GAAP financial measures. Some of the limitations associated with the use of these non-GAAP financial measures are that they exclude items that reflect an economic cost that can have a material effect on cash flows.
Constant Currency
Constant currency is calculated by using foreign currency rates from the comparable, prior-year period to present net sales at comparable rates. Constant currency can be presented for numerous GAAP measures, but is most commonly used by management to analyze net sales without the impact of changes in foreign currency rates.
Adjusted EBITDA
EBITDA is a non-GAAP financial measure defined as earnings before interest income (expense), income taxes, depreciation, and amortization. Adjusted EBITDA is the primary metric used by our Chief Operating Decision Maker in managing the business. Adjusted EBITDA represents earnings before interest income (expense), income taxes, depreciation, and amortization and excludes the impact of: share-based compensation, gains and losses related to changes in foreign exchange rates, SeaSpine Merger-related costs, strategic investments, acquisition-related fair value adjustments, legal judgments and settlements, charges related to initial compliance with regulations set forth by the European Union Medical Device Regulation, and certain other items.
Free Cash Flow
Free cash flow is calculated by subtracting capital expenditures from net cash from operating activities. Management uses free cash flow as an important indicator of how much cash is generated or used by our normal business operations, including capital expenditures. Management uses free cash flow as a measure of progress on its capital efficiency and cash flow initiatives.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to our market risks as disclosed in our Form 10-K for the year ended December 31, 2022.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) designed to provide reasonable assurance that the information required to be disclosed in reports filed or submitted under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. These include controls and procedures designed to ensure that this information is accumulated and communicated to management, including our Interim Chief Executive Officer and our Interim Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management, with the participation of the Interim Chief Executive Officer and the Interim Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2023. Based on this evaluation, our Interim Chief Executive Officer and our Interim Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of September 30, 2023.
On January 5, 2023, the Company completed a merger of equals with SeaSpine, whose financial statements reflect total assets and revenues constituting 52% and 35%, respectively, of the condensed consolidated financial statement amounts as of and for the nine months ended September 30, 2023. As permitted by the rules of the SEC, the Company will exclude SeaSpine from its annual assessment of the effectiveness on internal control over financial reporting for the year ending December 31, 2023, the year of acquisition. Management continues to monitor SeaSpine's internal controls over financial reporting.
32
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the quarterly period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
33
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For information regarding legal proceedings, see Note 8 to the Notes to the Unaudited Condensed Consolidated Financial Statements contained herein, which is incorporated by reference into this Part II, Item 1.
Item 1A. Risk Factors
There have been no material changes from the risk factors disclosed in "Part I, Item 1A. Risk Factors” in our Form 10-K for the year ended December 31, 2022, or in "Part II, Item 1A. "Risk Factors" in our Form 10-Qs filed for the three months ended March 31, 2023, and six months ended June 30, 2023, except as follows.
We maintain a $150 million secured revolving credit facility secured by a pledge of substantially all of our property.
On November 6, 2023, we, as borrower, and certain of our subsidiaries, as guarantors, entered into a Financing Agreement (the “Financing Agreement”) with Blue Torch Finance LLC, as administrative agent and collateral agent (the “Agent”), and certain lenders party thereto. The Financing Agreement provides for a $100 million senior secured term loan (the “Initial Term Loan”), a $25 million senior secured delayed draw term loan facility (the “Delayed Draw Term Loan”), and a $25 million senior secured revolving credit facility (the “Revolving Credit Facility,” and together with the Initial Term Loan and the Delayed Draw Term Loan, the “Credit Facilities”), each of which mature on November 6, 2027. In connection with entering into the Financing Agreement, we repaid in full amounts outstanding and terminated all commitments under our prior credit agreement (which had a maturity date of October 25, 2024). The Initial Term Loan was fully funded on November 6, 2023. As of the date of this filing (November 8, 2023), we had not made any borrowings under the Delayed Draw Term Loan or the Revolving Credit Facility.
Borrowings under the Financing Agreement were and may be used for, among other things, (i) the repayment in full of amount that we had outstanding under our prior credit agreement, (ii) working capital and (iii) other general corporate purposes. Borrowings under the Credit Facilities bear interest at a floating rate, which will be, at our option, either the three-month SOFR rate (subject to a floor of 3.00% and a credit spread adjustment of 0.26161%) (the “Adjusted Term SOFR Rate”) plus an applicable margin of 7.25%, or a base rate plus an applicable margin of 6.25%. A revolving unused line fee of 2.00% is payable monthly in arrears based on the average amount of the undrawn portion of each lender’s revolving credit commitments under the Revolving Credit Facility for the preceding month. A delayed draw unused fee equal to the Adjusted Term SOFR Rate plus a margin of 1.00% is payable monthly in arrears based on the average amount of the undrawn portion of each lender’s delayed draw term loan commitments in respect of the Delayed Draw Term Loan for the preceding month.
Certain of our existing and future material subsidiaries (collectively, the “Guarantors”) are required to guarantee the repayment of our obligations under the Financing Agreement. Our obligations and each of the Guarantors with respect to the Financing Agreement are secured by a pledge of substantially all of our assets and the assets of each of the Guarantors, including, without limitation, accounts receivables, deposit accounts, intellectual property, investment property, inventory, equipment, and equity interests in their respective subsidiaries.
The Financing Agreement contains customary affirmative and negative covenants, including limitations on our and our subsidiaries' ability to incur additional debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, pay dividends and distributions, pay subordinated indebtedness, and enter into affiliate transactions. In addition, the Financing Agreement contains financial covenants requiring us to maintain a minimum level of liquidity at all times, a maximum consolidated leverage ratio (measured on a quarterly basis), and a minimum asset coverage ratio (measured on a monthly basis). The Financing Agreement also includes events of default customary for facilities of this type and upon the occurrence of such events of default, subject to customary cure rights, all outstanding loans under the Credit Facilities may be accelerated and/or the lenders’ commitments terminated.
We believe that we will be in compliance with the covenants in future fiscal quarters. However, there can be no assurance that we will be in such compliance, and if we are not, the failure to do so could result in an event of default, which could have a material adverse effect on our financial position in the event that we continue to have significant amounts drawn under the facility at such time.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
We have not made any repurchases of our common stock during the third quarter of 2023.
34
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the last fiscal quarter, none of our i directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) i i adopted / , modified or i i terminated / any contract, instruction, or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act or any "non-Rule 10b5-1 trading arrangement."
Item 6. Exhibits
|
|
|
10.1* |
|
|
|
|
|
10.2* |
|
|
|
|
|
10.3* |
|
|
|
|
|
10.4* |
|
|
|
|
|
31.1* |
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. |
|
|
|
31.2* |
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. |
|
|
|
32.1# |
|
Section 1350 Certifications of each of the Chief Executive Officer and Chief Financial Officer. |
|
|
|
101.INS* |
|
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). |
|
|
|
101.SCH* |
|
Inline XBRL Taxonomy Extension Schema Document. |
|
|
|
101.CAL* |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
|
|
|
101.DEF* |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
|
|
|
101.LAB* |
|
Inline XBRL Taxonomy Extension Label Linkbase Document. |
|
|
|
101.PRE* |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
|
|
|
104* |
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
# Furnished herewith.
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
ORTHOFIX MEDICAL INC. |
||
|
|
||
Date: November 8, 2023 |
By: |
|
/s/ CATHERINE BURZIK |
|
Name: |
|
|
|
Title: |
|
Interim Chief Executive Officer, Director |
|
|
|
|
Date: November 8, 2023 |
By: |
|
|
|
Name: |
|
|
|
Title: |
|
Interim Chief Financial Officer and VP, Corporate Controller |
36
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 11/6/27 | ||||
| 10/25/24 | ||||
| 1/1/24 | ||||
| 12/31/23 | ||||
| Filed on: | 11/8/23 | 8-K | ||
| 11/6/23 | 8-K | |||
| 10/10/23 | ||||
| For Period end: | 9/30/23 | |||
| 9/12/23 | 3 | |||
| 6/30/23 | 10-Q | |||
| 4/30/23 | ||||
| 3/31/23 | 10-Q | |||
| 3/1/23 | ||||
| 1/5/23 | 3, 4, 4/A, 8-K, 8-K/A | |||
| 1/4/23 | 8-K, S-8 | |||
| 1/3/23 | 4, 8-K | |||
| 1/1/23 | ||||
| 12/31/22 | 10-K, 5, SD | |||
| 9/30/22 | 10-Q | |||
| 7/30/22 | ||||
| 6/30/22 | 10-Q | |||
| 3/31/22 | 10-Q | |||
| 1/1/22 | ||||
| 12/31/21 | 10-K, SD | |||
| 10/25/19 | 8-K | |||
| 12/31/18 | 10-K, SD | |||
| 12/31/15 | 10-K, SD | |||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 3/05/24 Orthofix Medical Inc. 10-K 12/31/23 120:20M Donnelley … Solutions/FA 1/12/24 Orthofix Medical Inc. S-8 1/12/24 8:693K Donnelley … Solutions/FA 1/08/24 Orthofix Medical Inc. S-8 1/08/24 8:692K Donnelley … Solutions/FA 11/08/23 Orthofix Medical Inc. S-8 11/08/23 4:237K Donnelley … Solutions/FA |