ex99_1.htm

HUNTERSVILLE, N.C., Nov 6, 2007– Orthofix International N.V., (NASDAQ:OFIX) (the Company) announced today that total revenue for the third quarter ended September 30, 2007 was $121.1 million, an increase of 45% over the third quarter of 2006. This total revenue included $29.6 million from Blackstone Medical, Inc. (Blackstone), which was acquired in September of 2006, and represented revenue growth of 41% compared with the third quarter of last year. Excluding Blackstone’s revenue, Orthofix’s third quarter sales rose 10% over the prior year. The impact of foreign currency on sales for the third quarter of 2007 was a positive $1.5 million.

Reported third quarter earnings totaled $8.0 million, or $0.48 per diluted share. Excluding certain specified items the Company’s adjusted net income was $7.9 million, or $0.48 per share. As summarized on the table below, these specified items included approximately $447,000 ($277,000 net of tax, or $0.02 per share) of costs recorded in the third quarter associated with a license obtained as part of a legal settlement with Medtronic, Inc., and $504,000 ($353,000 net of tax, or $0.02 per share) in tax expense associated with stock options previously granted to employees in the United Kingdom. These items were offset by the benefit of the reversal of an accrual of $865,000 ($558,000 net of tax, or $0.03 per share) previously recorded in connection with the negotiation of a distributor agreement, and an R&D tax credit of $230,000 ($230,000 net of tax, or $0.01 per share).

“Each of Orthofix’s three core businesses had strong year-over-year revenue growth. Our spine implant and biologic business and our sports medicine unit both continued to grow in excess of their respective overall market rates. Additionally, we experienced improved performance in our spine stimulation operations, where third quarter revenue growth also exceeded the overall market rate,” said CEO Alan Milinazzo.

The table below presents a reconciliation between net income/(loss) calculated in accordance with generally accepted accounting principles (GAAP) and two non-GAAP financial measures, referred to as “adjusted net income” and “adjusted net income, excluding specified non-cash items”, that exclude from net income/(loss) the items specified in the table. Management believes it is important to provide investors with the same non-GAAP metrics which it uses to supplement information regarding the performance and underlying trends of Orthofix’s business operations, facilitate comparisons to its historical operating results and internally evaluate the effectiveness of the Company’s operating strategies. A more detailed explanation of the items in the table below that are excluded from GAAP net income/(loss), as well as why management believes the non-GAAP measures are useful to them, is included in the Regulation G Supplemental Information schedule attached to this press release.

Third Quarter

Q307

Q306

($000's)

EPS

($000's)

EPS

Reported GAAP net income/(loss)

8,028

0.48

(35,417

)

(2.19

)

Specified Items:

Amortization of Medtronic settlement

277

0.02

---

Payroll tax expense on previous UK stock grants

353

0.02

---

R&D tax credit

(230

)

(0.01

)

---

Reversal of accrual related to distributor negotiations

(558

)

(0.03

)

---

Blackstone purchase accounting entries

---

40,000

2.47

Accelerated accrual of monthly Danek marketing fees

---

2,944

0.18

Taxes related to European restructuring

---

330

0.02

Interest expense on Blackstone debt

---

501

0.03

Adjusted net income

7,870

0.48

8,358

0.52

Specified non-cash items:

Non-cash BREG amortization

861

0.05

900

0.06

Non-cash Blackstone amortization

2,400

0.14

193

0.01

Equity compensation expense (FAS 123R)

2,049

0.12

1,199

0.07

Adj. net income, excluding specified non-cash items

13,180

0.79

10,650

0.66

Total third quarter sales in the Company’s spine sector grew 109% year-over-year, to $61.3 million. Implant and biologic revenues from Blackstone were $29.6 million, which was an increase of 41% compared with their third quarter sales in 2006. This growth was due primarily to higher sales of implant products, including ICON™ minimally-invasive pedicle screw systems, Unity® Anterior Lumbar Plating Systems, and Pillar™ and Construx Mini™ vertebral body replacement devices. Additionally, revenue from Blackstone’s biologic portfolio increased primarily due to higher sales of Trinity® bone growth matrix, and AlloQuent® allograft products. Revenue from Orthofix’s market-leading spine stimulation devices rose 9% year-over-year on a reported basis. However, the third quarter of last year included approximately $650,000 of revenue associated with sales to the government’s Tricare program for the previous six months. Excluding this catch-up revenue, third quarter spine stimulation sales rose 11% year-over-year. The growth included the continued strength of the Company’s Cervical-Stim®, which is the only FDA-approved bone growth stimulator for the cervical spine.

Revenue from Orthofix’s orthopedic business grew 12%, to $26.3 million, compared with the prior year. The increase was driven by the continued growth of the Company’s internal fixation devices, including the VeroNail® and Volar Plate System™, and deformity correction devices, including the eight-Plate Guided Growth System®. Additionally sales of the Physio-Stim® bone growth stimulator for non-union fractures grew 28%, as the Company continued to increase its share of the long bone stimulation market.

Orthofix’s sports medicine business also continued to grow in excess of the overall market as revenue rose 14% year-over-year, to $22.1 million. This was primarily due to U.S. sales increases of 18% from its functional knee braces, including its innovative lines of FUSION® braces, and 15% from its cold therapy products, including PolarCare® and its new line of Kodiak® pain management devices.

The gross margin percentage in the third quarter of 2007 was 74.6%, which was 20 basis points lower than the third quarter of 2006. The third quarter gross margin in 2007 included the positive impact of the reversal of an $865,000 accrual previously recorded in connection with the negotiation of a distributor arrangement, offset by approximately $859,000 of non-cash amortization expense related to the step-up in inventory that was part of the purchase accounting associated with the Blackstone acquisition. The step-up in inventory was fully amortized at the end of the third quarter. Additionally, the gross margin continued to be impacted negatively by the relative values of different currencies. The weaker U.S. dollar resulted in higher production costs, primarily for the Company’s orthopedic devices manufactured in Europe and ultimately sold in U.S. dollars.

Sales and marketing (S&M) expenses as a percent of revenue decreased by 470 basis points year-over-year, to 38.8%. S&M expenses in the third quarter last year included the impact of the acceleration of approximately $4.7 million of monthly fees associated with the termination of the Danek marketing agreement. Excluding these fees the S&M ratio in the third quarter last year was 37.9%. The year-over-year increase in the S&M ratio, excluding the impact of the termination of the Danek agreement, is primarily attributable to the acquisition of Blackstone, which carries a higher S&M ratio than the legacy Orthofix businesses. General and administrative (G&A) expenses decreased by 10 basis points, to 14.0% of sales. The decrease in the G&A ratio reflects the leverage obtained from spreading these costs over a larger revenue base after the Blackstone acquisition.

Research and development (R&D) expenses as a percent of revenues were 4.9% in the third quarter of 2007. This is an increase of 150 basis points year-over-year, excluding the impact of $40 million in purchase accounting adjustments made to in-process R&D in the prior year that were associated with the Blackstone acquisition. The year-over-year increase is related to the inclusion of Blackstone, which carries a higher R&D ratio than Orthofix.

Orthofix reported third quarter net interest expense of $5.7 million, compared with interest expense of approximately $482,000 in 2006. The year-over-year increase was mainly a result of debt incurred in connection with the Blackstone acquisition. Additionally, the third quarter of 2007 included other income of $529,000, compared with an expense of $508,000 in the prior year. The income reported during the third quarter this year is related to foreign exchange gains resulting from the weakening of the US Dollar against other currencies, whereas the expense in the prior year was the result of a strengthening of the US Dollar against other currencies.

Orthofix will host a conference call today at 11:00 AM Eastern Time to discuss the Company’s financial results for the third quarter of 2007. Interested parties may access the conference call by dialing (866) 626-7622 in the U.S., and (706) 758-3283 outside the U.S., and providing the conference ID 21302946. A replay of the call will be available for one week by dialing (800) 642-1687 in the U.S., and (706) 645-9291 outside the U.S., and entering the conference ID 21302946.

Orthofix International, N.V., a global diversified orthopedic products company, offers a broad line of minimally invasive surgical, and non-surgical, products for the spine, orthopedic, and sports medicine market sectors that address the lifelong bone-and-joint health needs of patients of all ages–helping them achieve a more active and mobile lifestyle. Orthofix’s products are widely distributed around the world to orthopedic surgeons and patients via Orthofix’s sales representatives and its subsidiaries, including BREG, Inc. and Blackstone Medical, Inc., and via partnerships with other leading orthopedic product companies including Kendall Healthcare. In addition, Orthofix is collaborating in R&D partnerships with leading medical institutions such as the Orthopedic Research and Education Foundation, Rutgers University, the Cleveland Clinic Foundation, and National Osteoporosis Institute. For more information about Orthofix, please visit www.orthofix.com.

This communication contains certain forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements, which may include, but are not limited to, statements concerning the projections, financial condition, results of operations and businesses of Orthofix and its subsidiaries and are based on management’s current expectations and estimates and involve risks and uncertainties that could cause actual results or outcomes to differ materially from those contemplated by the forward-looking statements.

Factors that could cause or contribute to such differences may include, but are not limited to, risks relating to the expected sales of its products, including recently launched products and those sold by recently acquired subsidiaries, unanticipated expenditures, changing relationship with customers, suppliers and strategic partners, risks relating to the protection of intellectual property, changes to the reimbursement policies of third parties, changes to and interpretation of governmental regulation of medical devices, the impact of competitive products, changes to the competitive environment, the acceptance of new products in the market, conditions of the orthopedic industry and the economy, corporate development and market development activities, unexpected costs or operating unit performance related to recent acquisitions and other factors described in our annual report on Form 10-K and other periodic reports filed by the Company with the Securities and Exchange Commission.

	For the three months						For the nine months
	ended September 30,						ended September 30,
	2007			2006			2007			2006

Net sales	$	121,120		$	83,368		$	361,488		$	249,219
Cost of sales		30,742			21,007			94,546			63,665
Gross profit		90,378			62,361			266,942			185,554

Operating expenses (income)
Sales and marketing		47,055			36,277			138,949			98,985
General and administrative		16,908			11,747			49,619			36,337
Research and development		5,953			42,865			18,313			48,550
Amortization of intangible assets		4,671			1,929			13,710			5,408
KCI settlement, net of litigation costs		0			0			0			(1,093	)
		74,587			92,818			220,591			188,187
Operating income (loss)		15,791			(30,457	)		46,351			(2,633	)

Interest income (expense), net		(5,666	)		(482	)		(17,200	)		164
Other income/(expense), net		529			(508	)		287			(753	)
Income (loss) before minority interests and income tax		10,654			(31,447	)		29,438			(3,222	)

Minority interests		(10	)		0			(53	)		0
Income (loss) before income tax		10,644			(31,447	)		29,385			(3,222	)

Income tax expense		(2,616	)		(3,970	)		(7,902	)		(11,221	)
Net income (loss)	$	8,028		$	(35,417	)	$	21,483		$	(14,443	)

Net income (loss) per common share - basic	$	0.48		$	(2.19	)	$	1.30		$	(0.90	)

Net income (loss) per common share - diluted	$	0.48		$	(2.19	)	$	1.27		$	(0.90	)

Weighted average number of common shares outstanding - basic		16,639,019			16,193,086			16,546,385			16,084,388

Weighted average number of common shares outstanding - diluted		16,889,303			16,193,086			16,925,084			16,084,388

	As of		As of
	September 30,		December 31,
	2007		2006
	(Unaudited)

Assets
Current assets:
Cash and cash equivalents	$	23,562	$	25,881
Restricted cash		11,570		7,300
Trade accounts receivable, net		118,793		104,662
Inventory, net		89,810		70,395
Deferred income taxes		9,020		6,971
Prepaid expenses and other current assets		25,109		18,759
Total current assets		277,864		233,968

Securities and other investments		4,082		4,082
Property, plant and equipment, net		31,532		25,311
Goodwill and Intangible assets, net		574,852		574,229
Deferred taxes and other long-term assets		31,120		24,695
Total assets	$	919,450	$	862,285

Liabilities and shareholders' equity
Current liabilities:
Bank borrowings	$	8,381	$	78
Current portion of long-term debt		3,300		3,334
Trade accounts payable		22,341		23,544
Other current liabilities		49,258		34,084
Total current liabilities		83,280		61,040

Long-term debt		305,584		312,055
Deferred income taxes		93,558		95,019
Other long-term liabilities		6,017		1,536
Total liabilities		488,439		469,650

Shareholders' equity
Common shares		1,668		1,645
Additional paid-in capital		144,243		128,297
		145,911		129,942

Retained earnings		268,716		248,433
Accumulated other comprehensive income		16,384		14,260
Total shareholders' equity		431,011		392,635

Total liabilities and shareholders' equity	$	919,450	$	862,285

	For the nine months ended September 30,
	2007			2006


Cash flows from operating activities:
Net income (loss)	$	21,483		$	(14,443	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		21,334			10,937
Amortization of debt costs		523			316
Acquired in process research and development		-			40,000
Provision for doubtful accounts		3,532			4,330
Deferred taxes		(3,919	)		(8,808	)
Stock-based compensation		8,006			5,416
Step up of fair value in inventory		2,718			-
Other		(1,328	)		1,261
Change in operating assets and liabilities:
Restricted cash		(4,270	)		(5,762	)
Accounts receivable		(14,829	)		(7,397	)
Inventories		(19,086	)		(7,621	)
Prepaid expenses and other current assets		(5,976	)		(4,994	)
Accounts payable		(7,549	)		7,551
Current liabilities		14,382			(29,745	)
Net cash provided by (used in ) operating activities		15,021			(8,959	)

Cash flows from investing activities:
Investments in affiliates and subsidiaries		(3,380	)		(336,808	)
Capital expenditures		(23,752	)		(6,769	)
Net cash used in investing activities		(27,132	)		(343,577	)

Cash flows from financing activities:
Net proceeds from issuance of common stock		6,799			10,742
Tax benefit on non-qualified stock options		1,164			2,048
(Repayment of) proceeds from long-term debt		(6,505	)		314,961
Payment of debt issuance costs		-			(5,708	)
Proceeds from bank borrowings		7,870			3,042
Net cash provided by financing activities		9,328			325,085

Effect of exchange rate changes on cash		464			779

Net decrease in cash and cash equivalents		(2,319	)		(26,672	)
Cash and cash equivalents at the beginning of the year		25,881			63,786
Cash and cash equivalents at the end of the period	$	23,562		$	37,114

	Three Months Ended September 30,							Nine Months Ended September 30,
	2007		2006		% Increase			2007		2006		% Increase

Orthopedic Products
Spine	$	61.3	$	29.3		109	%	$	178.9	$	86.8		106	%
Orthopedics		26.3		23.5		12	%		81.9		71.1		15	%
Sports Medicine		22.1		19.4		14	%		64.6		57.9		12	%

		109.7		72.2		52	%		325.4		215.8		51	%

Vascular		4.7		5.1		-8	%		15.2		15.4		-1	%
Other		6.7		6.1		10	%		20.9		18.0		16	%

Total	$	121.1	$	83.4		45	%	$	361.5	$	249.2		45	%

	Three Months Ended September 30,							Nine Months Ended September 30,
	2007		2006		% Increase			2007		2006		% Increase

Domestic	$	42.0	$	38.0		11	%	$	122.7	$	113.2		8	%

Blackstone		29.4		-		n/m			85.9		-		n/m

Breg		21.2		18.7		13	%		61.5		55.9		10	%

International		28.5		26.7		7	%		91.4		80.1		14	%

Total	$	121.1	$	83.4		45	%	$	361.5	$	249.2		45	%

Section 1 includes a table that reconciles the Company’s 2007 estimates for net income per share calculated in accordance with generally accepted accounting principles (GAAP) and a non-GAAP financial measure, referred to as “adjusted net income, excluding additional specified non-cash items”, that is also expressed as a per share amount and excludes from net income the items specified in the table.

Section 2 contains explanations of each of the specified items and additional non-cash specified items listed in the Reconciliation of Non-GAAP Performance Measures for the 3rd quarters of 2007 and 2006 that is included in the body of this release, and the Reconciliation of a Non-GAAP Guidance Measure included below in Section 1 of this supplemental schedule.

	EPS
	FY 2007		Q407
Estimated GAAP net income	$	1.87-$1.92	$	0.60-$0.65

Specified non-cash items

Equity compensation expense (FAS 123R)	$	0.46	$	0.14
Amortization related to BREG purchase accounting	$	0.20	$	0.05
Amortization related to Blackstone purchase accounting	$	0.53	$	0.11

Adjusted net income, excluding specified non-cash items	$	3.06-$3.11	$	0.90-$0.95

Amortization of Medtronic Settlement- amortization of costs incurred in connection with obtaining a license agreement as part of a legal settlement with Medtronic. The amortization expense recorded in the third quarter covers the period from the date of closing the Blackstone acquisition on September 22, 2006, to the end of the third quarter on September 30, 2007.

Management uses the two non-GAAP measures, referred to as “adjusted net income” and “ adjusted net income, excluding additional specified non-cash items”, to evaluate performance period over period, to analyze the underlying trends in the Company's business, to assess its performance relative to its competitors, and to establish operational goals and forecasts that are used in allocating resources. In addition, following the Company's acquisition of Blackstone Medical, and the related increase in Orthofix’s debt, management has increased its focus on cash generation and debt reduction. Management uses these non-GAAP measures as the basis for assessing the ability of the underlying operations to generate cash for use in paying down debt. In addition, management uses these non-GAAP measures to further its understanding of the performance of the Company's business segments. The items excluded from Orthofix’s non-GAAP measures are also excluded from the profit or loss reported by the Company’s business segments for the purpose of analyzing their performance.

Non-GAAP adjusted net income and the per share amounts based on this measure, as well as non-GAAP adjusted net income, excluding additional specified non-cash items, and the per share amounts based on this measure, may have limitations as analytical tools, and these non-GAAP measures 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 to the Company and can have a material effect on cash flows. For example, the amortization of purchased intangible assets does not directly affect Orthofix’s cash flows, however, it does represent the reduction in value of those assets over time, and the expense associated with this reduction in value is not included in the Company’s non-GAAP measures. Similarly, stock compensation expense does not directly impact cash flows, but is part of total compensation costs accounted for under GAAP.

Orthofix compensates for the limitations of its non-GAAP financial measures by relying upon its GAAP results to gain a complete picture of the Company's performance. The GAAP results provide the ability to understand the Company’s performance based on a defined set of criteria. The non-GAAP numbers reflect the underlying operating results of the Company’s businesses, excluding non-operating or unusual items, which management believes are important measures of the Company's overall performance.

Orthofix believes that providing non-GAAP measures that exclude certain items provides investors with greater transparency to the information used by the Company’s senior management in its financial and operational decision-making. Management believes that providing this information enables investors to better understand the performance of the Company's ongoing operations and to understand the methodology used by management to evaluate and measure such performance. Disclosure of these non-GAAP financial measures also facilitates comparisons of Orthofix’s underlying operating performance with other companies in its industry that also supplement their GAAP results with non-GAAP financial measures.

Contact:	Dan Yarbrough, Vice President of Investor Relations
	danyarbrough@orthofix.com
	(704) 948-2617