ofix-ex991

LEWISVILLE, Texas — October 29, 2018 — Orthofix Medical Inc. (previously Orthofix International N.V.) (NASDAQ:OFIX) today reported its financial results for the third quarter ended September 30, 2018. Net sales were $111.7 million, net loss per share from continuing operations was $0.07 and adjusted earnings per share from continuing operations was $0.43.

“In addition to solid financial performance on both the top line and adjusted EBITDA in the third quarter, we made significant operational progress in the alignment of our Bone Growth Therapy, Spinal Implants and Biologics segments into Orthofix Spine,” said Brad Mason, Orthofix President and Chief Executive Officer. “We believe that our market-leading technologies in osteogenesis stimulation and stem cell allografts, together with the M6 cervical disc, once it is approved by the U.S. Food and Drug Administration, will uniquely position us in the spine market overall and particularly in the cervical spine segment. We also believe this combination of spine products in conjunction with our historical strength in Orthofix Extremities provides the platforms for us to drive accelerating growth as we move into 2019 and for the foreseeable future.”

	Three Months Ended September 30,
(Unaudited, U.S. Dollars, in thousands)	2018		2017		Change				Constant Currency Change
Bone Growth Therapies¹	$	48,059	$	44,427		8.2	%			8.2	%
Spinal Implants²		22,102		20,155		9.7	%	⁴		10.0	%	⁴
Biologics		14,636		15,218		(3.8	%)	⁵		(3.8	%)	⁵
Orthofix Extremities³		26,911		25,447		5.8	%			7.5	%
Net sales	$	111,708	$	105,247		6.1	%	⁶		6.6	%	⁶

⁴Excluding Spinal Kinetics, net sales decreased 4.5% on a reported basis and 4.3% on a constant currency basis

⁵Excluding the contractual reduction in fee for marketing services, the growth year over year was 3.7% on a reported and constant currency basis

⁶Excluding Spinal Kinetics and the contractual reduction in fee for marketing services, the increase was 4.5% on a reported basis and 5.0% on a constant currency basis

Gross margin increased 100 basis points compared to the prior year period primarily driven by costs savings from our 2017 U.S. restructuring initiative and continued improvement related to inventory management initiatives. Non-GAAP net margin, an internal metric that the Company defines as gross profit less sales and marketing expenses, was $37.8 million compared to $34.0 million in the prior year period. As a percentage of net sales, non-GAAP net margin increased to 33.8% as compared to 32.3% in the prior year period, primarily due to the improvement in gross margin and improvements in commission rates.

GAAP net loss from continuing operations was ($1.2) million, or ($0.07) per share, compared to net income of $3.3 million, or $0.18 per share in the prior year period. This decrease was primarily driven by changes in the fair value of contingent consideration associated with the acquisition of Spinal Kinetics and an unrealized loss on investment securities recognized during the third quarter of 2018. Adjusted net income from continuing operations was $8.2 million, or $0.43 per share, compared to adjusted net income of $7.7 million, or $0.42 per share in the prior year period. Excluding the impact of the Spinal Kinetics operating loss in the period, adjusted net income was $9.5 million, or $0.50 per share, a 19.0% increase over prior year.

EBITDA was $3.6 million, compared to $14.5 million in the prior year period. Adjusted EBITDA was $21.4 million, or 19.2% of net sales, for the third quarter, compared to $21.1 million, or 20.1% of net sales, in the prior year period.

As of September 30, 2018, cash, cash equivalents, and restricted cash totaled $56.2 million compared to $81.2 million as of December 31, 2017. As of September 30, 2018, the Company had no outstanding indebtedness and borrowing capacity of $125 million under its existing credit facility. Cash flow from operations was $28.8 million, an increase of $19.7 million, and free cash flow was $18.1 million, an increase of $22.3 million when compared to the same prior year period.

For the year ending December 31, 2018, the Company expects the following results, assuming exchange rates are the same as those currently prevailing.

	Previous 2018 Outlook				Current 2018 Outlook
(Unaudited, U.S. Dollars, in millions, except per share data)	Low		High		Low			High
Net sales	$	450.0	$	456.0	$	451.0	¹	$	455.0	¹
Net income from continuing operations	$	18.3	$	19.7	$	11.4		$	12.7
Adjusted EBITDA	$	85.0	$	87.0	$	85.5		$	87.0
EPS from continuing operations	$	0.97	$	1.04	$	0.60		$	0.67
Adjusted EPS from continuing operations	$	1.66	$	1.72	$	1.70		$	1.75

Orthofix will host a conference call today at 4:30 PM Eastern time to discuss the Company's financial results for the third quarter of 2018. Interested parties may access the conference call by dialing (844) 809-1992 in the U.S. and (612) 979-9886 outside the U.S., and referencing the conference ID 6295495. A replay of the call will be available for two weeks by dialing (855) 859-2056 in the U.S. and (404) 537-3406 outside the U.S., and entering the conference ID 6295495. A webcast of the conference call may be accessed by going to the Company's website at www.orthofix.com, by clicking on the Investors link and then the Events and Presentations page.

Orthofix Medical Inc. is a global medical device company focused on musculoskeletal products and therapies. The Company’s mission is to improve patients' lives by providing superior reconstruction and regenerative musculoskeletal solutions to physicians worldwide. Headquartered in Lewisville, Texas, Orthofix’s spine and orthopedic extremities products are distributed in over seventy countries via the Company's sales representatives and distributors. For more information, please visit www.orthofix.com.

This communication contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (“the Exchange Act”), and Section 27A of the Securities Act of 1933, as amended, relating to our business and financial outlook, which are based on our current beliefs, assumptions, expectations, estimates, forecasts and projections. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “intends,” “predicts,” “potential,” or “continue” or other comparable terminology. These forward-looking statements are not guarantees of our future performance and involve risks, uncertainties, estimates and assumptions that are difficult to predict. Therefore, 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 further update any such statement, or the risk factors described in Part I, Item 1A under the heading Risk Factors in our Form 10-K for the year ended December 31, 2017 and other SEC filings, to reflect new information, the occurrence of future events or circumstances or otherwise.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Unaudited, U.S. Dollars, in thousands, except share and per share data)	2018			2017			2018			2017
Net sales	$	111,708		$	105,247		$	331,964		$	316,927
Cost of sales		24,020			23,717			71,002			69,475
Gross profit		87,688			81,530			260,962			247,452
Sales and marketing		49,898			47,493			151,695			146,496
General and administrative		22,705			18,068			64,457			56,759
Research and development		9,598			6,935			24,426			21,246
Changes in fair value of contingent consideration		1,580			—			2,689			—
Operating income		3,907			9,034			17,695			22,951
Interest income (expense), net		(181	)		(15	)		(615	)		106
Other income (expense), net		(5,054	)		479			(5,785	)		(3,284	)
Income (loss) before income taxes		(1,328	)		9,498			11,295			19,773
Income tax benefit (expense)		115			(6,150	)		(6,346	)		(13,998	)
Net income (loss) from continuing operations		(1,213	)		3,348			4,949			5,775
Discontinued operations
Income (loss) from discontinued operations		—			65			(3	)		(1,762	)
Income tax benefit (expense)		2			43			(6	)		642
Net income (loss) from discontinued operations		2			108			(9	)		(1,120	)
Net income (loss)	$	(1,211	)	$	3,456		$	4,940		$	4,655
Net income (loss) per common share—basic
Net income (loss) from continuing operations	$	(0.07	)	$	0.18		$	0.26		$	0.32
Net income (loss) from discontinued operations		—			0.01			—			(0.06	)
Net income (loss) per common share—basic	$	(0.07	)	$	0.19		$	0.26		$	0.26
Net income (loss) per common share—diluted
Net income (loss) from continuing operations	$	(0.07	)	$	0.18		$	0.26		$	0.31
Net income (loss) from discontinued operations		–			0.01			–			(0.06	)
Net income (loss) per common share—diluted	$	(0.07	)	$	0.19		$	0.26		$	0.25
Weighted average number of common shares:
Basic		18,562,204			18,180,845			18,460,848			18,071,093
Diluted		18,562,204			18,572,791			18,864,169			18,394,542

(U.S. Dollars, in thousands except share data)	September 30, 2018		December 31, 2017
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	53,783	$	81,157
Restricted cash		2,459		—
Accounts receivable, net of allowances of $8,039 and $8,405, respectively		74,356		63,437
Inventories		79,895		81,330
Prepaid expenses and other current assets		34,517		25,877
Total current assets		245,010		251,801
Property, plant and equipment, net		43,575		45,139
Intangible assets, net		51,637		10,461
Goodwill		70,747		53,565
Deferred income taxes		36,030		23,315
Other long-term assets		3,166		21,073
Total assets	$	450,165	$	405,354
Liabilities and shareholders’ equity
Current liabilities
Accounts payable	$	15,426	$	18,111
Other current liabilities		61,387		61,295
Total current liabilities		76,813		79,406
Other long-term liabilities		50,002		29,340
Total liabilities		126,815		108,746
Shareholders’ equity
Common shares $0.10 par value; 50,000,000 shares authorized; 18,536,716 and 18,278,833 issued and outstanding as of September 30, 2018 and December 31, 2017, respectively		1,854		1,828
Additional paid-in capital		238,422		220,591
Retained earnings		78,207		70,402
Accumulated other comprehensive income		4,867		3,787
Total shareholders’ equity		323,350		296,608
Total liabilities and shareholders’ equity	$	450,165	$	405,354

The following tables present reconciliations of net income (loss) from continuing operations, earnings per share (“EPS”) from continuing operations, gross profit, 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 "EBITDA," "Adjusted EBITDA," “Adjusted EBITDA, excluding Spinal Kinetics,” "Adjusted net income from continuing operations," “Adjusted net income, excluding Spinal Kinetics,” "Adjusted EPS from continuing operations," “Adjusted EPS from continuing operations, excluding Spinal Kinetics,” "Non-GAAP net margin" and "Free cash flow" that exclude items specified in the tables. A more detailed explanation of the items excluded from these non-GAAP financial measures, as well as why management believes the non-GAAP financial measures are useful to them, is included following the reconciliations.

	Three Months Ended September 30,						Nine Months Ended September 30,
(Unaudited, U.S. Dollars, in thousands)	2018			2017			2018			2017
Net income (loss) from continuing operations	$	(1,213	)	$	3,348		$	4,949		$	5,775
Interest expense (income), net		181			15			615			(106	)
Income tax expense (benefit)		(115	)		6,150			6,346			13,998
Depreciation and amortization		4,415			4,974			13,123			15,421
Amortization of Spinal Kinetics intangible assets		323			—			538			—
EBITDA	$	3,591		$	14,487		$	25,571		$	35,088
Share-based compensation		5,261			3,632			14,392			9,124
Foreign exchange loss / (gain)		618			(794	)		2,797			(2,425	)
Strategic investments		2,808			293			7,966			4,034
Domestication to Delaware		996			—			3,704			—
Spinal Kinetics acquisition-related adjustments:
Non-cash inventory fair market value adjustments		541			—			905			—
Contingent consideration fair value adjustments		1,580			—			2,689			—
Unrealized loss on investment securities		4,449			—			3,050			5,585
SEC / FCPA matters and related costs		372			1,150			893			1,851
Legal judgments/settlements		—			179			—			1,798
Restructuring		1,233			2,160			1,233			2,242
Adjusted EBITDA	$	21,449		$	21,107		$	63,200		$	57,297
Loss related to Spinal Kinetics		(1,492	)		—			(2,144	)		—
Adjusted EBITDA, excluding Spinal Kinetics	$	22,941		$	21,107		$	65,344		$	57,297
Adjusted EBITDA as a % of net sales		19.2	%		20.1	%		19.0	%		18.1	%
Adjusted EBITDA as a % of net sales, excluding Spinal Kinetics		21.1	%		20.1	%		20.0	%		18.1	%

Adjusted Net Income from Continuing Operations and Adjusted Net Income from Continuing Operations, Excluding Spinal Kinetics

	Three Months Ended September 30,						Nine Months Ended September 30,
(Unaudited, U.S. Dollars, in thousands)	2018			2017			2018			2017
Net income (loss) from continuing operations	$	(1,213	)	$	3,348		$	4,949		$	5,775
Foreign exchange loss / (gain)		618			(794	)		2,797			(2,425	)
Strategic investments		2,808			293			7,966			4,034
Domestication to Delaware		996			—			3,704			—
Spinal Kinetics acquisition-related adjustments:
Non-cash inventory fair market value adjustments		541			—			905			—
Amortization of intangible assets		323			—			538			—
Contingent consideration fair value adjustments		1,580			—			2,689			—
Unrealized loss on investment securities		4,449			—			3,050			5,585
SEC / FCPA matters and related costs		372			1,150			893			1,851
Legal judgments/settlements		—			179			—			1,798
Restructuring		1,233			2,160			1,233			2,242
Long-term income tax rate adjustment		(3,477	)		1,405			(5,234	)		1,512
Adjusted net income from continuing operations	$	8,230		$	7,741		$	23,490		$	20,372
Loss related to Spinal Kinetics		(1,237	)		—			(1,845	)		—
Adjusted net income from continuing operations, excluding Spinal Kinetics	$	9,467		$	7,741		$	25,335		$	20,372

Adjusted EPS from Continuing Operations and Adjusted EPS from Continuing Operations, Excluding Spinal Kinetics

	Three Months Ended September 30,						Nine Months Ended September 30,
(Unaudited, per diluted share)	2018			2017			2018			2017
EPS from continuing operations	$	(0.07	)	$	0.18		$	0.26		$	0.31
Foreign exchange loss / (gain)		0.03			(0.04	)		0.15			(0.13	)
Strategic investments		0.15			0.02			0.42			0.22
Domestication to Delaware		0.05			—			0.20			—
Spinal Kinetics acquisition-related adjustments:
Non-cash inventory fair market value adjustments		0.03			—			0.05			—
Amortization of intangible assets		0.02			—			0.03			—
Contingent consideration fair value adjustments		0.08			—			0.14			—
Unrealized loss on investment securities		0.23			—			0.16			0.30
SEC / FCPA matters and related costs		0.02			0.06			0.05			0.10
Legal judgments/settlements		—			0.01			—			0.10
Restructuring		0.06			0.12			0.06			0.12
Long-term income tax rate adjustment		(0.17	)		0.07			(0.28	)		0.09
Adjusted EPS from continuing operations	$	0.43		$	0.42		$	1.24		$	1.11
Loss related to Spinal Kinetics		(0.07	)		—			(0.09	)		—
Adjusted EPS from continuing operations, excluding Spinal Kinetics	$	0.50		$	0.42		$	1.33		$	1.11

Weighted average number of diluted common shares (treasury stock method)		18,975,386			18,572,791			18,985,060			18,394,542

	Three Months Ended September 30,						Nine Months Ended September 30,
(Unaudited, U.S. Dollars, in thousands)	2018			2017			2018			2017
Gross profit	$	87,688		$	81,530		$	260,962		$	247,452
Sales and marketing		(49,898	)		(47,493	)		(151,695	)		(146,496	)
Non-GAAP net margin	$	37,790		$	34,037		$	109,267		$	100,956

Bone Growth Therapies	$	21,151		$	18,285		$	61,395		$	54,887
Spinal Implants		1,812			2,122			5,960			6,825
Biologics		6,654			6,010			18,981			18,651
Orthofix Extremities		8,295			7,723			23,455			20,901
Corporate		(122	)		(103	)		(524	)		(308	)
Non-GAAP net margin	$	37,790		$	34,037		$	109,267		$	100,956

¹ Represents the mid-point of our net sales guidance for the fourth quarter and full year for 2018

	Previous Full Year 2018 Outlook						Current Full Year 2018 Outlook
(Unaudited, U.S. Dollars, in millions)	Low			High			Low		High
Net income from continuing operations	$	18.3		$	19.7		$	11.4	$	12.7
Interest expense, net		0.5			0.5			0.6		0.6
Income tax expense		10.8			11.4			8.7		9.5
Depreciation and amortization		19.9			19.9			19.4		19.3
EBITDA	$	49.5		$	51.5		$	40.1	$	42.1
Share-based compensation		19.2			19.2			19.1		19.1
Foreign exchange loss / (gain)		2.2			2.2			2.8		2.8
Strategic investments		7.2			7.2			8.5		8.2
Domestication to Delaware		4.4			4.4			4.2		4.0
Spinal Kinetics acquisition-related adjustments:
Non-cash inventory fair market value adjustments		1.4			1.4			1.4		1.4
Contingent consideration fair value adjustments		1.1			1.1			3.6		3.6
Unrealized loss on investment securities		(1.4	)		(1.4	)		3.1		3.1
SEC / FCPA matters and related costs		1.4			1.4			1.3		1.3
Restructuring		—			—			1.4		1.4
Adjusted EBITDA	$	85.0		$	87.0		$	85.5	$	87.0

	Previous Full Year 2018 Outlook						Current Full Year 2018 Outlook
(Unaudited, per diluted share)	Low			High			Low			High
EPS from continuing operations	$	0.97		$	1.04		$	0.60		$	0.67
Foreign exchange loss / (gain)		0.12			0.12			0.15			0.15
Strategic investments		0.38			0.38			0.45			0.43
Domestication to Delaware		0.23			0.23			0.22			0.21
Spinal Kinetics acquisition-related adjustments:
Non-cash inventory fair market value adjustments		0.07			0.07			0.07			0.07
Amortization of intangible assets		0.05			0.05			0.05			0.05
Contingent consideration fair value adjustments		0.06			0.06			0.19			0.19
Unrealized loss on investment securities		(0.07	)		(0.07	)		0.16			0.16
SEC / FCPA matters and related costs		0.07			0.07			0.07			0.07
Restructuring		—			—			0.07			0.07
Long-term income tax rate adjustment		(0.22	)		(0.23	)		(0.33	)		(0.32	)
Adjusted EPS from continuing operations	$	1.66		$	1.72		$	1.70		$	1.75

Weighted average number of diluted common shares		18,900,000			18,900,000			18,900,000			18,900,000

Constant currency is a non-GAAP measure, which 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.

Pro-forma net sales is a non-GAAP measure in fiscal 2017, which reflects what net sales in fiscal 2017 would have been, had the Company adopted ASU 2014-09, Revenue from Contracts with Customers, as amended, as of January 1, 2017, or elected to adopt the standard using the full retrospective transition method.

In March of 2018, there was a contractual reduction in the marketing service fee the Company receives from MTF Biologics. The year over year change excluding the contractual reduction is calculated by using the same marketing service fee rates prior to the contractual change.

EBITDA is a non-GAAP financial measure, which is calculated by adding interest income (expense), net; income tax expense (benefit); and depreciation and amortization to net income from continuing operations. EBITDA provides management with additional insight to its results of operations.

Adjusted EBITDA, Adjusted Net Income from Continuing Operations, Adjusted EPS from Continuing Operations and these measures adjusted for the exclusion of Spinal Kinetics

These non-GAAP financial measures provide management with additional insight to its results of operations and are calculated using the following adjustments:

Non-GAAP net margin is an internal non-GAAP metric, which we define as gross profit less sales and marketing expense. Non-GAAP net margin is the primary metric used by our Chief Operating Decision Maker in managing our business.

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 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. All periods presented reflect the adoption of ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, resulting in an increase in net cash from operating activities of $2.5 million for the nine months ended September 30, 2018 and a decrease in net cash from operating activities of $14.4 million for the nine months ended September 30, 2017.

Management uses non-GAAP measures to evaluate performance period-over-period, to analyze the underlying trends in our business, to assess performance relative to competitors and to establish operational goals and forecasts that are used in allocating resources. Management uses these non-GAAP measures as the basis for assessing the ability of the underlying operations to generate cash. In addition, management uses these non-GAAP measures to further its understanding of the performance of our business units.

The non-GAAP measures used in this press release 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.

We compensate for the limitations of our non-GAAP financial measures by relying upon GAAP results to gain a complete picture of our performance. The GAAP results provide the ability to understand our performance based on a defined set of criteria. The non-GAAP measures reflect the underlying operating results of our businesses, which we believe is an important measure of our overall performance. We provide a detailed reconciliation of the non-GAAP financial measures to our most directly comparable GAAP measures, and encourage investors to review this reconciliation.

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. Management believes it is important to provide investors with the same non-GAAP metrics it uses to supplement information regarding the performance and underlying trends of our business operations in order to facilitate comparisons to its 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.


Company Contact
Orthofix Medical Inc.
Mark Quick
P: 214-937-2924
E: markquick@orthofix.com

	Nine Months Ended September 30,
(Unaudited, U.S. Dollars, in thousands)	2018			2017
Net cash from operating activities	$	28,829		$	9,125
Capital expenditures		(10,724	)		(13,290	)
Free cash flow	$	18,105		$	(4,165	)

(Unaudited, U.S. Dollars, in millions)	2018 (Actual /Outlook)			2017 (Pro-forma)		Change			Constant Currency Change
1st quarter net sales	$	109		$	104		4.9	%		2.4	%
2nd quarter net sales		112			108		2.8	%		1.8	%
3rd quarter net sales		112			106		5.5	%		6.0	%
4th quarter net sales - midpoint		121	¹		111		8.6	%		9.6	%
Full year net sales	$	453	¹	$	429		5.5	%		5.8	%