Orthofix Medical Inc. (Form: 8-K, Received: 05/09/2023 16:17:29)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 09, 2023

ORTHOFIX MEDICAL INC.

(Exact name of Registrant as Specified in Its Charter)


Delaware	0-19961	98-1340767
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

3451 Plano Parkway
Lewisville, Texas		75056
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: (214) 937-2000

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.10 par value per share	OFIX	Nasdaq Global Select Market

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

Emerging growth company ☐

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

Item 2.02. Results of Operations and Financial Condition.

On May 9, 2023, Orthofix Medical Inc. (the “Company”) issued a press release announcing, among other things, its financial results for the first quarter ended March 31, 2023. A copy of the press release is furnished herewith as Exhibit 99.1 and attached hereto.

The information furnished in this Item 2.02, including the exhibit furnished herewith as Exhibit 99.1, will not be treated as “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section. This information will not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or into another filing under the Exchange Act, unless that filing expressly incorporates by reference this Item 2.02 of this report.

Discussion of Non-GAAP Financial Measures

In addition to using standard measures of performance and liquidity that are recognized in accordance with accounting principles generally accepted in the United States of America ("GAAP"), the Company uses additional financial measures excluding certain GAAP items ("non-GAAP measures"), such as:

Constant Currency

Constant currency is a non-GAAP measure, which the Company calculates by using foreign currency rates from the comparable, prior-year period, to present net sales at comparable rates. Constant currency can be presented for numerous GAAP measures, but is most commonly used by management to analyze net sales without the impact of changes in foreign currency rates.

Free Cash Flow

Free cash flow is a non-GAAP financial measure, which is calculated by subtracting capital expenditures from cash flow from operating activities. Free cash flow is an important indicator of how much cash is generated or used by the Company's business operations, including capital expenditures. Management uses free cash flow to measure progress on its capital efficiency and cash flow initiatives.

Adjusted Gross Profit and Adjusted Gross Margin

Adjusted gross profit represents GAAP gross profit with adjustments to exclude the impact of the certain items recorded to cost of goods sold. Such potential adjustments are listed within the section below under the header "Adjusted EBITDA, Adjusted Net Income (Loss) and Adjusted EPS." Adjusted gross margin represents adjusted gross profit as a percentage of GAAP net sales.

EBITDA

EBITDA is a non-GAAP financial measure, which the Company calculates by adding interest expense (income), net; income tax expense (benefit); and depreciation and amortization to net income (loss). EBITDA provides management with additional insight to the Company's results of operations. Adjusted EBITDA, which is the primary metric used by the Company's Chief Operating Decision Maker in managing the business, consists of EBITDA with adjustments to exclude certain items listed within the section below under the header "Adjusted EBITDA, Adjusted Net Income (Loss) and Adjusted EPS."

Adjusted EBITDA, Adjusted Net Income (Loss) and Adjusted EPS

These non-GAAP financial measures provide management with additional insight to the Company's results of operations and reflect the exclusion of the following items:

•

Share-based compensation expense – Costs related to awards granted under the Company's share-based compensation plans, which include stock options, restricted stock, performance-based or market-based restricted stock, and under the Company's stock purchase plan; see the share-based compensation footnote in the Company's Form 10-Q for the quarter ended March 31, 2023 for an allocation of these costs by consolidated statement of operations line item. Management excludes this item when evaluating the Company's operating performance as it represents a non-cash expense.

•

Foreign exchange impact – Gains and losses related to foreign currency transactions, which are recorded as other income (expense), net. Management excludes this item when evaluating the Company's operating results as it is primarily a non-cash expense or benefit and is non-operating in nature.

•

SeaSpine merger-related costs – Costs related to the Company's merger with SeaSpine Holdings Corporation ("SeaSpine"), which was consummated in January 2023, including costs relating to integration efforts, severance and retention costs, product rationalization charges, contract termination penalties, and professional fees related to the merger. Management excludes this item when evaluating the Company's operating results as these costs associated with this event are of a temporary nature, are not related to the Company's core operating performance, and are not expected to recur at a similar frequency and magnitude in the future.

•

Strategic investments – Costs related to the Company's strategic investments, such as due diligence and integration costs (unrelated to the merger with SeaSpine), which are primarily recorded as general and administrative expenses. These costs are not factored into the evaluation of the Company's performance by management because they are of a temporary

nature, not related to the Company's core operating performance, and because the frequency and amount of such costs vary significantly based on the timing and magnitude of the Company's strategic investments.

•

Acquisition-related fair value adjustments – Comprised of (i) gains and losses related to remeasurement of contingent consideration to fair value, which are recorded as operating expenses, (ii) recognized costs related to acquired in-process research and development ("IPR&D") assets, which were expensed immediately, and (iii) amortization of acquired inventory fair market value adjustments. Management excludes this item when evaluating the Company's operating results as the remeasurement of contingent consideration is primarily non-cash in nature, the frequency and amount of IPR&D charges can vary significantly based on the timing and magnitude of the Company's acquisition transactions, and inventory fair market value adjustments are of a temporary and non-cash nature.

•

Amortization of acquired intangibles – Amortization of intangible assets acquired in business combinations or asset acquisitions, including items such as developed technologies, customer relationships, trade names, manufacturing agreements, and other intangible assets, and any impairment of acquired goodwill, which are recorded in cost of sales or operating expenses. Management excludes this item when evaluating the Company's operating performance as it represents a non-cash expense.

•

Legal judgments/settlements – Adverse or favorable legal judgments or negotiated legal settlements and certain related legal expenses, which are recorded as general and administrative expenses. Management excludes this item when evaluating the Company's operating results as these costs and/or benefits can vary significantly based on the timing, frequency, and magnitude of litigation matters.

•

Medical device regulation – Incremental costs incurred (i) to establish initial compliance with the regulations set forth by the European Union Medical Device Regulation (“MDR”) and the U.S. Food and Drug Administration related to the Company's currently-approved medical devices, which are recorded primarily as research and development expenses, and (ii) related to rationalization of certain product lines that the Company does not expect to continue to market subsequent to the effective date of these regulations, which are recorded primarily as costs of sales. Management excludes this item when evaluating the Company's operating results as these costs are temporary in nature and associated with events that are not expected to recur at a similar frequency and magnitude in the future.

•

Business interruption – COVID-19 – Gains and losses related to the realized effects the COVID-19 pandemic has had on the Company's business operations, which consist primarily of (i) certain legislative relief received as a result of the COVID-19 pandemic, (ii) costs associated with the redesign of certain products in response to supply chain disruption, and (iii) incremental costs incurred to enhance the safety and sanitation of the Company's facilities. Management excludes this item when evaluating the Company's operating results as these are costs associated with events that are not expected to recur at a similar frequency and magnitude in the future.

•

All other - Comprised of individually insignificant adjustments to the Company's operating results that either represent non-cash gains or losses or are not considered to be related to the Company's core operating performance.

•

Long-term income tax rate adjustment (only for purposes of calculating Adjusted Net Income (Loss) and Adjusted EPS) – Reflects management’s expectation of a long-term normalized effective tax rate of 28% for 2022 and 28% for 2023 results and outlook, which is based on current tax law and current expected adjusted income; actual reported tax expense will ultimately be based on GAAP earnings and may differ from the expected long-term normalized effective tax rate due to a variety of factors, including the resolutions of issues arising from tax audits with various tax authorities, the ability to realize deferred tax assets, and the tax impact of certain reconciling items that are excluded in determining Adjusted Net Income (Loss) and Adjusted EPS.

Usefulness and Limitations of Non-GAAP Financial Measures

Management uses non-GAAP measures to evaluate performance period-over-period, analyze the underlying trends in the Company's business, assess the Company's performance relative to its competitors, and establish operational goals and forecasts used in allocating resources. Management uses these non-GAAP measures as the basis for evaluating the ability of the Company's underlying operations to generate cash, prior to required investments in working capital, and to further its understanding of the performance of the Company's business units.

Material Limitations Associated with the Use of Non-GAAP Financial Measures

The non-GAAP financial measures described above may have limitations as analytical tools, and should not be considered in isolation or as a replacement for GAAP financial measures. Some of the limitations associated with the use of these non-GAAP financial measures are that they exclude items that reflect an economic cost and can have a material effect on cash flows. Similarly, certain non-cash expenses, such as share-based compensation, do not directly impact cash flows, but are part of total compensation costs accounted for under GAAP.

Compensation for Limitations Associated with Use of Non-GAAP Financial Measures

The Company compensates for the limitations of its non-GAAP financial measures by relying upon GAAP results to gain a complete picture of the Company's performance. GAAP results provide management with the ability to understand the Company's performance based on a defined set of criteria. The Company provides reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures and encourages investors to review these reconciliations.

Usefulness of Non-GAAP Financial Measures to Investors

The Company believes that providing non-GAAP financial measures that exclude certain items provides investors with greater transparency to the information used by management in its financial and operational decision-making. Management believes it is important to provide investors with the same non-GAAP financial measures it uses to supplement information regarding the performance and underlying trends of the Company's business operations in order to facilitate comparisons to the Company's historical operating results and internally evaluate the effectiveness of the Company's operating strategies. The Company believes that these non-GAAP financial measures also facilitates comparisons of the Company's underlying operating performance with other companies in the industry that also supplement their GAAP results with non-GAAP financial measures.

Item 7.01 Regulation FD Disclosure.

The press release furnished in Exhibit 99.1 also provides an update on the Company’s business outlook, that is intended to be within the safe harbor provided by the Private Securities Litigation Reform Act of 1995 (the “Act”) as comprising forward looking statements within the meaning of the Act.

The information furnished in this Item 7.01, including the exhibit furnished herewith as Exhibit 99.1, will not be treated as “filed” for the purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section. This information will not be deemed incorporated by reference into any filing under the Securities Act, or into another filing under the Exchange Act, unless that filing expressly incorporates by reference this Item 7.01 of this report.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits


99.1	Press release, dated May 9, 2023
104	Cover Page Interactive Data File (embedded within the Inline XBRL document).

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


Orthofix Medical Inc.
By:		/s/ Patrick Keran
		Patrick Keran Chief Legal Officer

Date: May 9, 2023

Exhibit 99.1

Orthofix Reports First Quarter 2023 Results

•

Net sales of $175.2 million, an increase of 65% on a reported basis and 12% on a pro forma constant currency basis over prior year

•

Bone Growth Therapies growth of 14%, with growth coming from both spine and fracture commercial channels

•

U.S. spinal implant sales up 18% over prior year on a pro forma basis, driven by new distribution and product innovation

•

Continued double-digit growth in Global Orthopedics over prior year on a constant currency basis

•

Announced the full commercial launch of the Lattus™ Lateral Access System and the Fathom™ Pedicle-Based Retractor System, which addresses an estimated $1.8 billion market related to minimally invasive spine procedures

LEWISVILLE, Texas — May 9, 2023 — Orthofix Medical Inc. (NASDAQ:OFIX) today reported its financial results for the quarter ended March 31, 2023. Net sales were $175.2 million, earnings per share (“EPS”) was $(1.71), and adjusted EPS was $(0.10).

“Orthofix delivered an exceptionally strong quarter with 12% year-over-year growth on a proforma basis and by minimizing any disruption associated with the business combination in January,” said Keith Valentine, President and Chief Executive Officer of Orthofix. “We are encouraged by the meaningful pro forma growth we’ve seen across all channels in the combined company and remain enthusiastic about the opportunities afforded by our complementary portfolios. Our team was successful in leveraging cross-selling strategies throughout the quarter and we believe these initiatives will promote meaningful market share gains in the future.”

Financial Results Overview

The following table provides net sales by major product category by reporting segment as reported:


	Three Months Ended March 31,
(Unaudited, U.S. Dollars, in thousands)	2023		2022		Change			Constant Currency Change
Bone Growth Therapies	$	47.7	$	41.9		13.7	%		13.7	%
Spinal Implants and Enabling Technologies		60.9		26.6		128.7	%		129.1	%
Biologics		40.6		14.1		188.3	%		188.3	%
Global Spine		149.2		82.7		80.5	%		80.6	%
Global Orthopedics		26.0		23.8		9.4	%		13.6	%
Net sales	$	175.2	$	106.4		64.6	%		65.7	%

Further, the following table provides net sales by major product category by reporting segment on a pro forma basis:


	Three Months Ended March 31,
(Unaudited, U.S. Dollars, in thousands)	2023		2022 Pro Forma		Change			Constant Currency Change
Bone Growth Therapies	$	47.7	$	41.9		13.7	%		13.7	%
Spinal Implants and Enabling Technologies		60.9		54.0		12.6	%		12.8	%
Biologics		40.6		37.9		7.1	%		7.1	%
Global Spine		149.2		133.9		11.4	%		11.5	%
Global Orthopedics		26.0		23.8		9.4	%		13.6	%
Net sales	$	175.2	$	157.7		11.1	%		11.8	%

Gross profit increased $32.2 million to $110.3 million. Gross margin decreased to 63.0% compared to 73.4% in the prior year period. Adjusted gross profit increased $45.6 million to $123.9 million. Adjusted gross margin decreased to 70.7% compared to 73.6% in the prior year period.

Net loss was $(60.9) million, or $(1.71) per share, compared to net loss of $(4.5) million, or $(0.22) per share in the prior year period. Adjusted net loss was $(3.6) million, or $(0.10) per share, compared to adjusted net income of $1.0 million, or $0.05 per share, in the prior year period.

Adjusted EBITDA was $3.2 million, or 1.8% of net sales, compared to $7.1 million, or 6.7% of net sales, in the prior year period.

Liquidity

As of March 31, 2023, cash totaled $50.0 million, compared to $50.7 million as of December 31, 2022. As of March 31, 2023, the Company had $45.0 million in borrowings outstanding under its five year $300 million secured revolving credit facility. For the first three months of 2023, cash flow from operations decreased $26.3 million to $(34.0) million, while free cash flow decreased $32.5 million to $(45.9) million.

Business Outlook

As of the date hereof, the Company expects the following net sales results for the year ended December 31, 2023. These expectations are based on the current foreign currency exchange rates and do not include any additional exchange rate changes that may occur this year.


	Current 2023 Outlook						Previous 2023 Outlook
(Unaudited, U.S. Dollars, in millions, except per share data)	Low			High			Low		High
Full year net sales	$	750	1	$	756	1	$	743	$	753
Full year adjusted EBITDA	$	40		$	45		N/A		N/A

1 Represents a year-over-year increase of 62.8% to 64.1% on a reported basis and an increase of 7.0% to 7.9% on a pro forma basis

The Company is unable to provide expectations of GAAP operating income (loss), the closest comparable GAAP measures to Adjusted EBITDA (which is a non-GAAP measure), on a forward-looking basis because the Company is unable to predict without unreasonable efforts the ultimate outcome of matters (including acquisition-related expenses, accounting fair value adjustments, and other such items) that will determine the quantitative amount of the items excluded in calculating Adjusted EBITDA, which items are further described in the reconciliation tables and related descriptions below. These items are uncertain, depend on various factors, and could be material to the Company’s results computed in accordance with GAAP.

Conference Call

Orthofix will host a conference call today at 4:30 PM Eastern time to discuss the Company's financial results for the first quarter of 2023. Interested parties may access the conference call by dialing (888) 330-2508 in the U.S. and Canada, and (240) 789-2735 in all other locations, and referencing the access code 9556380. A replay of the call will be available for three weeks by dialing (800) 770-2030 in the U.S. and Canada, and (647) 362-9199 in all other locations, and entering the access code 9556380. A webcast of the conference call may be accessed at ir.Orthofix.com.

About Orthofix

The newly merged Orthofix-SeaSpine organization is a leading global spine and orthopedics company with a comprehensive portfolio of biologics, innovative spinal hardware, bone growth therapies, specialized orthopedic solutions and a leading surgical navigation system. Its products are distributed in approximately 68 countries worldwide. The Company intends to announce a new name for the Orthofix-SeaSpine organization in the future, but in the interim will continue to operate under the Orthofix name.

The Company is headquartered in Lewisville, Texas, and has primary offices in Carlsbad, CA, with a focus on spinal product innovation and surgeon education, and Verona, Italy, with an emphasis on product innovation, production, and medical education for Orthopedics. The Orthofix-SeaSpine organization’s global R&D, commercial and manufacturing footprint also includes facilities and offices in Irvine, CA, Toronto, Canada, Sunnyvale, CA, Wayne, PA, Olive Branch, MS, Maidenhead, UK, Munich, Germany, Paris, France, and Sao Paolo, Brazil. For more information, please visit www.orthofix.com.

Forward-Looking Statements

This communication contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, relating to our business and financial outlook, which are based on our current beliefs, assumptions, expectations, estimates, forecasts and projections. In some cases, you can identify

forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “intends,” “predicts,” “potential,” or “continue” or other comparable terminology. Forward-looking statements in this communication include the Company's belief regarding future market share gains and the Company's expectations regarding net sales and adjusted EBITDA for the year ended December 31, 2023. Forward-looking statements are not guarantees of our future performance, are based on our current expectations and assumptions regarding our business, the economy and other future conditions, and are subject to risks, uncertainties and changes in circumstances that are difficult to predict, including the risks described in Part I, Item 1A under the heading Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”), and in Part II, Item 1A under the heading Risk Factors in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023. Factors that could cause future results to differ from those expressed by forward-looking statements include, but are not limited to, (i) risks relating to the effects of the COVID-19 pandemic on our business, (ii) our ability to maintain operations to support our customers and patients in the near-term and to capitalize on future growth opportunities, (iii) risks associated with acceptance of surgical products and procedures by surgeons and hospitals, (iv) development and acceptance of new products or product enhancements, (v) clinical and statistical verification of the benefits achieved via the use of our products, (vi) our ability to adequately manage inventory, (vii) our ability to recruit and retain management and key personnel, (viii) global economic instability and potential supply chain disruption caused by Russia’s invasion of Ukraine and resulting sanctions, and (ix) the other risks and uncertainties more fully described in our periodic filings with the Securities and Exchange Commission (the “SEC”). To the extent that the COVID-19 pandemic continues to adversely affect our business and financial results, it may also have the effect of heightening many of the other risks described in Part I, Item 1A under the heading Risk Factors in the 2022 Form 10-K, such as our ability to generate sufficient cash flows to run our business and our ability to protect our information technology networks and infrastructure from unauthorized access, misuse, malware, phishing and other events that could have a security impact as a result of our remote working environment or otherwise. As a result of these various risks, our actual outcomes and results may differ materially from those expressed in these forward-looking statements.

This list of risks, uncertainties, and other factors is not complete. We discuss some of these matters more fully, as well as certain risk factors that could affect our business, financial condition, results of operations, and prospects, in reports we file from time-to-time with the SEC, which are available to read at www.sec.gov. Any or all forward-looking statements that we make may turn out to be wrong (due to inaccurate assumptions that we make or otherwise), and our actual outcomes and results may differ materially from those expressed in these forward-looking statements. You should not place undue reliance on any of these forward-looking statements. Further, any forward-looking statement speaks only as of the date hereof, unless it is specifically otherwise stated to be made as of a different date. We undertake no obligation to update, and expressly disclaim any duty to update, our forward-looking statements, whether as a result of circumstances or events that arise after the date hereof, new information, or otherwise.


Company Contact
Orthofix Medical Inc.
Alexa Huerta
P: 214-937-3190
E: alexahuerta@orthofix.com

ORTHOFIX MEDICAL INC.

Condensed Consolidated Statements of Operations


	Three Months Ended
	March 31,
(U.S. Dollars, in thousands, except share and per share data)	2023			2022
	(Unaudited)
Net sales	$	175,204		$	106,418
Cost of sales		64,875			28,318
Gross profit		110,329			78,100
Sales and marketing		93,791			54,137
General and administrative		48,811			19,328
Research and development		23,307			11,212
Acquisition-related amortization and remeasurement		4,134			(3,499	)
Operating loss		(59,714	)		(3,078	)
Interest expense, net		(1,289	)		(375	)
Other income (expense), net		676			(936	)
Loss before income taxes		(60,327	)		(4,389	)
Income tax expense		(611	)		(71	)
Net loss	$	(60,938	)	$	(4,460	)

Net loss per common share:
Basic	$	(1.71	)	$	(0.22	)
Diluted		(1.71	)		(0.22	)
Weighted average number of common shares (in millions):
Basic		35.7			19.9
Diluted		35.7			19.9

ORTHOFIX MEDICAL INC.

Condensed Consolidated Balance Sheets


(U.S. Dollars, in thousands, except par value data)	March 31, 2023			December 31, 2022
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	49,968		$	50,700
Accounts receivable, net of allowances of $6,691 and $6,419, respectively		113,313			82,857
Inventories		221,933			100,150
Prepaid expenses and other current assets		24,827			22,283
Total current assets		410,041			255,990
Property, plant, and equipment, net		136,818			58,229
Intangible assets, net		122,129			47,388
Goodwill		202,711			71,317
Other long-term assets		45,437			25,705
Total assets	$	917,136		$	458,629
Liabilities and shareholders’ equity
Current liabilities
Accounts payable	$	45,875		$	27,598
Current portion of finance lease liability		664			652
Other current liabilities		91,029			55,374
Total current liabilities		137,568			83,624
Long-term borrowings under credit facility		45,000			-
Long-term portion of finance lease liability		19,068			19,239
Other long-term liabilities		51,341			18,906
Total liabilities		252,977			121,769
Contingencies
Shareholders’ equity
Common shares $0.10 par value; 50,000 shares authorized; 36,463 and 20,162 issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		3,647			2,016
Additional paid-in capital		721,145			334,969
Retained earnings (accumulated deficit)		(59,687	)		1,251
Accumulated other comprehensive loss		(946	)		(1,376	)
Total shareholders’ equity		664,159			336,860
Total liabilities and shareholders’ equity	$	917,136		$	458,629

ORTHOFIX MEDICAL INC.
Non-GAAP Financial Measures

The following tables present reconciliations of gross profit, loss before income taxes, net loss, EPS, and net cash from operating activities, in each case calculated in accordance with U.S. generally accepted accounting principles (“GAAP”), to, as applicable, non-GAAP financial measures, referred to as "Adjusted gross profit," "Adjusted gross margin," "Adjusted EBITDA," "Adjusted net income (loss)," "Adjusted EPS," and "Free cash flow" that exclude (or in the case of free cash flow, include) items specified in the tables. The GAAP measures shown in the tables below represent the most comparable GAAP measure to the applicable non-GAAP measure(s) shown in the table. For further information regarding the nature of these exclusions, why the Company believes that these non-GAAP financial measures provide useful information to investors, the specific manner in which management uses these measures, and some of the limitations associated with the use of these measures, please refer to the Company's Current Report on Form 8-K regarding this press release filed today with the SEC available on the SEC's website at www.sec.gov and on the “Investors” page of the Company’s website at www.orthofix.com.

Adjusted Gross Profit and Adjusted Gross Margin


	Three Months Ended March 31,
(Unaudited, U.S. Dollars, in thousands)	2023			2022
Gross profit	$	110,329		$	78,100
Share-based compensation expense		471			211
SeaSpine merger-related costs		703			—
Strategic investments		181			25
Acquisition-related fair value adjustments		11,636			—
Medical device regulation		629			6
Adjusted gross profit	$	123,949		$	78,342
Adjusted gross margin		70.7	%		73.6	%

Adjusted EBITDA


	Three Months Ended March 31,
(Unaudited, U.S. Dollars, in thousands)	2023			2022
Loss before income taxes	$	(60,327	)	$	(4,389	)
Interest expense, net		1,289			375
Depreciation and amortization		12,670			7,516
Share-based compensation expense		13,020			4,332
Foreign exchange impact		(583	)		1,242
SeaSpine merger-related costs		20,740			—
Strategic investments		661			970
Acquisition-related fair value adjustments		11,636			(5,500	)
Legal judgments/settlements		469			193
Medical device regulation		3,629			1,952
Business interruption - COVID-19		—			343
All other		—			75
Adjusted EBITDA	$	3,204		$	7,109

Adjusted Net Income (Loss)


	Three Months Ended March 31,
(Unaudited, U.S. Dollars, in thousands)	2023			2022
Net loss	$	(60,938	)	$	(4,460	)
Share-based compensation expense		13,020			4,333
Foreign exchange impact		(583	)		1,242
SeaSpine merger-related costs		22,304			—
Strategic investments		698			965
Acquisition-related fair value adjustments		11,636			(5,500	)
Amortization of acquired intangibles		4,134			2,231
Legal judgments/settlements		469			193
Medical device regulation		3,634			1,951
Business interruption - COVID-19		—			345
All other		—			75
Long-term income tax rate adjustment		2,014			(333	)
Adjusted net income (loss)	$	(3,612	)	$	1,042

Adjusted EPS


	Three Months Ended March 31,
(Unaudited, per diluted share)	2023			2022
EPS	$	(1.71	)	$	(0.22	)
Share-based compensation expense		0.36			0.22
Foreign exchange impact		(0.02	)		0.06
SeaSpine merger-related costs		0.62			—
Strategic investments		0.02			0.05
Acquisition-related fair value adjustments		0.33			(0.28	)
Amortization of acquired intangibles		0.12			0.11
Legal judgments/settlements		0.01			0.01
Medical device regulation		0.10			0.10
Business interruption - COVID-19		—			0.02
All other		—			—
Long-term income tax rate adjustment		0.07			(0.02	)
Adjusted EPS	$	(0.10	)	$	0.05

Weighted average number of diluted common shares (treasury stock method, in millions)		35.7			19.9

Cash Flow and Free Cash Flow


	Three Months Ended March 31,
(Unaudited, U.S. Dollars, in thousands)	2023			2022
Net cash from operating activities	$	(34,020	)	$	(7,709	)
Net cash from investing activities		17,084			(5,667	)
Net cash from financing activities		15,983			(2,233	)
Effect of exchange rate changes on cash		221			(321	)
Net change in cash and cash equivalents	$	(732	)	$	(15,930	)


	Three Months Ended March 31,
(Unaudited, U.S. Dollars, in thousands)	2023			2022
Net cash from operating activities	$	(34,020	)	$	(7,709	)
Capital expenditures		(11,835	)		(5,667	)
Free cash flow	$	(45,855	)	$	(13,376	)

Source

Orthofix Medical Inc.