EX-99.1 2 ofix-ex991_6.htm EX-99.1 ofix-ex991_6.htm

Exhibit 99.1

Orthofix Reports First Quarter 2019 Results

 

 

•

Net sales of $109.1 million, an increase of 0.4% compared to prior year and 1.9% on a constant currency basis

 

•

Biologics products net sales increased 16.6% excluding the contractual reduction in marketing services fee

 

•

Net income of $0.9 million; compared to net income of $5.2 million in the prior year

 

•

Adjusted EBITDA of $15.7 million; a decrease of $4.1 million, or 20.5%, compared to prior year

 

•

Company reiterates full year 2019 guidance

 

•

First U.S. patients implanted with the M6-C™ artificial cervical disc following FDA approval

 

•

Initiated limited launch of fiberFUSE™, a differentiated demineralized bone matrix

LEWISVILLE, Texas — May 6, 2019 — Orthofix Medical Inc. (NASDAQ:OFIX) today reported its financial results for the first quarter ended March 31, 2019.  Net sales were $109.1 million, earnings per share (“EPS”) was $0.05 and adjusted EPS was $0.27.  

“For the first quarter, our top and bottom line results were slightly better than anticipated and we remain confident about our expected sales acceleration throughout the remainder of the year and into 2020, as we previously guided,” said Brad Mason, Orthofix President and Chief Executive Officer. “Regarding the M6-C artificial cervical disc, the U.S. Food and Drug Administration approval of the M6-C disc was certainly the most important highlight of the first quarter for the company. We recently released the compelling results of the full two-year data from the M6-C IDE clinical study and announced the first commercial U.S. patient implants, which marks the beginning of a measured launch of the M6-C disc in the U.S., including the ramp-up of training and certification of surgeons. Encouragingly, we continue to receive a very high level of interest and enthusiasm from physicians and distributors alike.” Mason continued, “Lastly, in addition to our strong first quarter sales of our Biologics products, we initiated a limited market release of fiberFUSE DBM, a differentiated demineralized bone matrix with handling characteristics similar to our market-leading Trinity ELITE™ stem cell allograft.”

 

Financial Results Overview

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

 

 

 

Three Months Ended March 31,

 

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

 

2019

 

 

2018

 

 

Change

 

 

Constant

Currency

Change

 

Bone Growth Therapies

 

$

47,283

 

 

$

46,163

 

 

 

2.4

%

 

 

2.4

%

Spinal Implants1

 

 

22,903

 

 

 

20,707

 

 

 

10.6

%

 

 

11.6

%

Biologics2

 

 

15,732

 

 

 

14,335

 

 

 

9.7

%

 

 

9.7

%

Global Spine3

 

 

85,918

 

 

 

81,205

 

 

 

5.8

%

 

 

6.1

%

Global Extremities

 

 

23,194

 

 

 

27,504

 

 

 

(15.7

%)

 

 

(10.4

%)

Net sales4

 

$

109,112

 

 

$

108,709

 

 

 

0.4

%

 

 

1.9

%

 

1 Excluding Spinal Kinetics, net sales decreased 4.6% on a reported basis and 4.2% on a constant currency basis

2 Excluding the contractual reduction in fee for marketing services, the growth year over year was 16.6% on a reported and constant currency basis

3 Excluding Spinal Kinetics and the contractual reduction in fee for marketing services, the increase was 3.1% on a reported and 3.2% on a constant currency basis

4 Excluding Spinal Kinetics and the contractual reduction in fee for marketing services, net sales decreased 1.6% on a reported and 0.2% on a constant currency basis

 

Gross profit increased $0.8 million to $85.4 million. Gross margin increased to 78.3% compared to 77.8% in the prior year period, primarily due to favorable product mix, offset slightly by the dilutive impact from Spinal Kinetics.

Net income was $0.9 million, or $0.05 per share, compared to net income of $5.2 million, or $0.27 per share in the prior year period. Adjusted net income from continuing operations was $5.2 million, or $0.27 per share, compared to adjusted net income of $7.4 million, or $0.39 per share in the prior year period.

EBITDA was $0.9 million, compared to $15.2 million in the prior year period. Adjusted EBITDA was $15.7 million, or 14.4% of net sales, compared to $19.7 million, or 18.1% of net sales, in the prior year period.

 

 

Liquidity

As of March 31, 2019, cash, cash equivalents, and restricted cash totaled $49.2 million compared to $72.2 million as of December 31, 2018. As of March 31, 2019, the Company had no outstanding indebtedness and borrowing capacity of $125 million under its existing credit facility. Cash flow from operations increased $2.5 million to ($1.0) million, while free cash flow increased $1.0 million to ($6.0) million.

 

Changes to Reportable Business Segments

The Company has changed its reportable business segments beginning with the first quarter of 2019, to align with changes in how the Company manages its business, reviews operating performance and allocates resources.  The Company now reports results under two reportable segments: Global Spine and Global Extremities. Historical financial results for previously reported quarterly and annual periods have been recast to reflect the two new business segments and will be available in the Company’s Form 8-K after market close today.

 

In addition to changing its reportable business segments, the Company changed its profitability measure for its reporting segments to EBITDA, which is a non-GAAP measure.

 

2019 Outlook

For the year ending December 31, 2019, the Company expects the following results, assuming exchange rates are the same as those currently prevailing.

 

  

 

2019 Outlook

 

 

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

 

Low

 

 

High

 

 

Net sales

 

$

472.0

 

1

$

477.0

 

1

Net income

 

$

14.6

 

2

$

15.5

 

2

Adjusted EBITDA

 

$

86.0

 

3

$

89.0

 

3

EPS

 

$

0.75

 

4

$

0.80

 

4

Adjusted EPS

 

$

1.75

 

5

$

1.82

 

5

 

1 Represents a year-over-year increase of 4.2% to 5.3% on a reported basis

2 Represents a year-over-year increase of 5.7% to 12.2%

3 Represents a year-over-year decrease of 1.8% to a year-over-year increase of 1.6%

4 Represents a year-over-year increase of 4.2% to 11.1%

5 Represents a year-over-year decrease of 2.2% to year-over-year increase of 1.7%

 

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 2019. 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 3049899. 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 3049899. 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.

 

About Orthofix

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 70 countries via the Company's sales representatives and distributors. For more information, please visit www.orthofix.com.

 

2

 

Forward-Looking Statements

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, 2018, to reflect new information, the occurrence of future events or circumstances or otherwise.

 

Trademarks

Solely for convenience, our trademarks and trade names in this press release 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.

 

Company Contact

 

 

Orthofix Medical Inc.

 

 

Mark Quick

 

 

P: 214-937-2924

 

 

E: markquick@orthofix.com

 

 

 

3

 

ORTHOFIX MEDICAL INC.

Condensed Consolidated Statements of Operations

 

 

 

Three Months Ended

 

 

 

March 31,

 

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

 

2019

 

 

2018

 

 

 

(unaudited)

 

Net sales

 

$

109,112

 

 

$

108,709

 

Cost of sales

 

 

23,708

 

 

 

24,147

 

Gross profit

 

 

85,404

 

 

 

84,562

 

Sales and marketing

 

 

53,694

 

 

 

50,268

 

General and administrative

 

 

20,472

 

 

 

19,424

 

Research and development

 

 

9,229

 

 

 

6,937

 

Acquisition-related amortization and remeasurement

 

 

6,457

 

 

 

63

 

Operating  income (loss)

 

 

(4,448

)

 

 

7,870

 

Interest expense, net

 

 

(257

)

 

 

(183

)

Other income (expense), net

 

 

(404

)

 

 

2,912

 

Income (loss) before income taxes

 

 

(5,109

)

 

 

10,599

 

Income tax benefit (expense)

 

 

6,006

 

 

 

(5,373

)

Net income

 

$

897

 

 

$

5,226

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

 

Basic

 

$

0.05

 

 

$

0.28

 

Diluted

 

 

0.05

 

 

 

0.27

 

Weighted average number of common shares:

 

 

 

 

 

 

 

 

Basic

 

 

18,750,184

 

 

 

18,404,856

 

Diluted

 

 

19,191,146

 

 

 

18,874,591

 

4

 

ORTHOFIX MEDICAL INC.

Condensed Consolidated Balance Sheets

 

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

 

March 31,

2019

 

 

December 31,

2018

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

46,668

 

 

$

69,623

 

Restricted cash

 

 

2,540

 

 

 

2,566

 

Trade accounts receivable, net of allowances of $7,448 and $7,463, respectively

 

 

79,615

 

 

 

77,747

 

Inventories

 

 

79,128

 

 

 

76,847

 

Prepaid expenses and other current assets

 

 

16,387

 

 

 

17,856

 

Total current assets

 

 

224,338

 

 

 

244,639

 

Property, plant and equipment, net

 

 

63,727

 

 

 

42,835

 

Patents and other intangible assets, net

 

 

56,764

 

 

 

51,897

 

Goodwill

 

 

71,177

 

 

 

72,401

 

Deferred income taxes

 

 

36,575

 

 

 

33,228

 

Other long-term assets

 

 

26,735

 

 

 

21,641

 

Total assets

 

$

479,316

 

 

$

466,641

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Trade accounts payable

 

$

19,643

 

 

$

17,989

 

Current portion of finance lease liability

 

 

359

 

 

 

—

 

Other current liabilities

 

 

43,652

 

 

 

67,919

 

Total current liabilities

 

 

63,654

 

 

 

85,908

 

Long-term portion of finance lease liability

 

 

20,879

 

 

 

—

 

Other long-term liabilities

 

 

51,101

 

 

 

45,336

 

Total liabilities

 

 

135,634

 

 

 

131,244

 

Contingencies

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

 

 

Common shares $0.10 par value; 50,000,000 shares authorized; 18,790,769 and

   18,579,688 issued and outstanding as of March 31, 2019 and December 31, 2018, respectively

 

 

1,879

 

 

 

1,858

 

Additional paid-in capital

 

 

252,862

 

 

 

243,165

 

Retained earnings

 

 

87,108

 

 

 

87,078

 

Accumulated other comprehensive income

 

 

1,833

 

 

 

3,296

 

Total shareholders’ equity

 

 

343,682

 

 

 

335,397

 

Total liabilities and shareholders’ equity

 

$

479,316

 

 

$

466,641

 

 

 

5

 

ORTHOFIX MEDICAL INC.
Non-GAAP Financial Measures

The following tables present reconciliations of operating income (loss), net income, 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 "EBITDA," "Adjusted EBITDA," "Adjusted net income," "Adjusted EPS," 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.  

 

EBITDA and Adjusted EBITDA

 

 

 

Three Months Ended March 31, 2019

 

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

 

Global Spine

 

 

Global Extremities

 

 

Corporate

 

 

Total Orthofix

 

Operating income (loss)

 

$

7,730

 

 

$

(995

)

 

$

(11,183

)

 

$

(4,448

)

Other income (expense), net

 

 

(399

)

 

 

(478

)

 

 

473

 

 

 

(404

)

Depreciation and amortization

 

 

2,187

 

 

 

1,300

 

 

 

1,183

 

 

 

4,670

 

Amortization of acquired intangibles

 

 

1,057

 

 

 

—

 

 

 

—

 

 

 

1,057

 

EBITDA

 

$

10,575

 

 

$

(173

)

 

$

(9,527

)

 

$

875

 

Share-based compensation

 

 

1,580

 

 

 

526

 

 

 

1,453

 

 

 

3,559

 

Foreign exchange impact

 

 

393

 

 

 

458

 

 

 

22

 

 

 

873

 

Strategic investments

 

 

658

 

 

 

—

 

 

 

1,264

 

 

 

1,922

 

Domestication to Delaware

 

 

—

 

 

 

—

 

 

 

147

 

 

 

147

 

Acquisition-related fair value adjustments

 

 

5,932

 

 

 

—

 

 

 

—

 

 

 

5,932

 

Gain on investment securities

 

 

—

 

 

 

—

 

 

 

(491

)

 

 

(491

)

Legal judgments/settlements

 

 

55

 

 

 

45

 

 

 

25

 

 

 

125

 

Succession charges

 

 

—

 

 

 

—

 

 

 

2,732

 

 

 

2,732

 

Adjusted EBITDA

 

$

19,193

 

 

$

856

 

 

$

(4,375

)

 

$

15,674

 

 

 

 

Three Months Ended March 31, 2018

 

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

 

Global Spine

 

 

Global Extremities

 

 

Corporate

 

 

Total Orthofix

 

Operating income (loss)

 

$

16,767

 

 

$

1,843

 

 

$

(10,740

)

 

$

7,870

 

Other income (expense), net

 

 

(20

)

 

 

189

 

 

 

2,743

 

 

 

2,912

 

Depreciation and amortization

 

 

2,015

 

 

 

1,296

 

 

 

995

 

 

 

4,306

 

Amortization of acquired intangibles

 

 

63

 

 

 

—

 

 

 

—

 

 

 

63

 

EBITDA

 

$

18,825

 

 

$

3,328

 

 

$

(7,002

)

 

$

15,151

 

Share-based compensation

 

 

1,400

 

 

 

507

 

 

 

2,009

 

 

 

3,916

 

Foreign exchange impact

 

 

(23

)

 

 

(141

)

 

 

(912

)

 

 

(1,076

)

Strategic investments

 

 

—

 

 

 

—

 

 

 

2,419

 

 

 

2,419

 

Domestication to Delaware

 

 

—

 

 

 

—

 

 

 

798

 

 

 

798

 

Gain on investment securities

 

 

—

 

 

 

—

 

 

 

(1,629

)

 

 

(1,629

)

Legal judgments/settlements

 

 

(33

)

 

 

207

 

 

 

(27

)

 

 

147

 

Adjusted EBITDA

 

$

20,169

 

 

$

3,901

 

 

$

(4,344

)

 

$

19,726

 

6

 

 

Adjusted Net Income

 

 

 

Three Months Ended

March 31,

 

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

 

2019

 

 

2018

 

Net income

 

$

897

 

 

$

5,226

 

Foreign exchange impact

 

 

873

 

 

 

(1,076

)

Strategic investments

 

 

1,922

 

 

 

2,419

 

Domestication to Delaware

 

 

147

 

 

 

798

 

Acquisition-related fair value adjustments

 

 

5,932

 

 

 

—

 

Amortization of acquired intangibles

 

 

1,057

 

 

 

63

 

Interest and gain on investment securities

 

 

(593

)

 

 

(1,629

)

Legal judgments/settlements

 

 

125

 

 

 

147

 

Succession charges

 

 

2,732

 

 

 

—

 

Long-term income tax rate adjustment

 

 

(7,919

)

 

 

1,410

 

Adjusted net income

 

$

5,173

 

 

$

7,358

 

 

 

Adjusted EPS

 

 

 

Three Months Ended

March 31,

 

(Unaudited, per diluted share)

 

2019

 

 

2018

 

EPS

 

$

0.05

 

 

$

0.27

 

Foreign exchange impact

 

 

0.05

 

 

 

(0.06

)

Strategic investments

 

 

0.10

 

 

 

0.13

 

Domestication to Delaware

 

 

0.01

 

 

 

0.04

 

Acquisition-related fair value adjustments

 

 

0.31

 

 

 

—

 

Amortization of acquired intangibles

 

 

0.05

 

 

 

—

 

Interest and gain on investment securities

 

 

(0.03

)

 

 

(0.09

)

Legal judgments/settlements

 

 

0.01

 

 

 

0.01

 

Succession charges

 

 

0.14

 

 

 

—

 

Long-term income tax rate adjustment

 

 

(0.42

)

 

 

0.09

 

Adjusted EPS

 

$

0.27

 

 

$

0.39

 

 

 

 

 

 

 

 

 

 

Weighted average number of diluted common shares (treasury stock method)

 

 

19,291,988

 

 

 

18,997,257

 

 

Free Cash Flow

 

 

Three Months Ended

March 31,

 

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

 

2019

 

 

2018

 

Net cash from operating activities

 

$

(1,039

)

 

$

(3,560

)

Capital expenditures

 

 

(4,916

)

 

 

(3,438

)

Free cash flow

 

$

(5,955

)

 

$

(6,998

)

 

7

 

2019 Outlook

 

 

2019 Outlook

 

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

 

Low

 

 

High

 

Net income

 

$

14.6

 

 

$

15.5

 

Interest expense, net

 

 

0.8

 

 

 

0.9

 

Income tax expense

 

 

5.9

 

 

 

6.4

 

Depreciation and amortization

 

 

24.2

 

 

 

24.2

 

EBITDA

 

$

45.5

 

 

$

47.0

 

Share-based compensation

 

 

19.1

 

 

 

20.1

 

Foreign exchange impact

 

 

0.9

 

 

 

0.9

 

Strategic investments

 

 

4.8

 

 

 

4.9

 

Acquisition-related fair value adjustments

 

 

8.5

 

 

 

8.7

 

Gain on investment securities

 

 

(0.5

)

 

 

(0.5

)

Legal judgments/settlements

 

 

1.3

 

 

 

1.3

 

Succession charges

 

 

6.4

 

 

 

6.6

 

Adjusted EBITDA

 

$

86.0

 

 

$

89.0

 

 

 

 

2019 Outlook

 

(Unaudited, per diluted share)

 

Low

 

 

High

 

EPS

 

$

0.75

 

 

$

0.80

 

Foreign exchange impact

 

 

0.05

 

 

 

0.05

 

Strategic investments

 

 

0.25

 

 

 

0.25

 

Acquisition-related fair value adjustments

 

 

0.44

 

 

 

0.45

 

Amortization of intangible assets

 

 

0.25

 

 

 

0.25

 

Interest and gain on investment securities

 

 

(0.03

)

 

 

(0.03

)

Legal judgments/settlements

 

 

0.07

 

 

 

0.07

 

Succession charges

 

 

0.33

 

 

 

0.34

 

Long-term income tax rate adjustment

 

 

(0.36

)

 

 

(0.36

)

Adjusted EPS

 

$

1.75

 

 

$

1.82

 

 

 

 

 

 

 

 

 

 

Weighted average number of diluted common shares (treasury stock method)

 

 

19,375,000

 

 

 

19,375,000

 

 


8

 

Constant Currency

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.

 

EBITDA

EBITDA is a non-GAAP financial measure, which is calculated by adding interest expense, net; income tax expense; and depreciation and amortization to net income. EBITDA provides management with additional insight to its results of operations. EBITDA is the primary metric used by our Chief Operating Decision Maker in managing our business.

 

Adjusted EBITDA, Adjusted Net Income and Adjusted EPS

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

 

•

Share-based compensation – costs related to our share-based compensation plans, which include stock options, restricted stock awards, performance-based restricted stock awards, market-based restricted stock awards and our stock purchase plan; see the share-based compensation footnote in our Form 10-Q for the quarter ended March 31, 2019 for a detail of these costs by consolidated statement of income line item; however, certain share-based compensation costs have been included within succession charges for 2019

 

•

Foreign exchange impact – gains and losses related to foreign currency transactions, which are recorded as other expense, net; guidance presented does not include the impact of any future foreign exchange fluctuations

 

•

Strategic investments – costs related to our strategic investments, such as due diligence and integration costs, which are primarily recorded as general and administrative expenses

 

•

Domestication to Delaware – costs associated with evaluation and completion of changing the Company’s jurisdiction of organization from Curaçao to the State of Delaware during 2018, which are recorded as general and administrative expenses

 

•

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 and ii) an adjustment made to inventory acquired to account for the reasonable profit allowance for the selling effort on finished goods inventory, which is recorded as cost of sales

 

•

Amortization of acquired intangibles – amortization of intangible assets acquired in business combinations or asset acquisitions, including items such as developed technologies, in process research and development, trade names, and other intangible assets, which are recorded as operating expenses

 

•

Interest and gain on investment securities – net gains recognized (realized or unrealized) within other expense, net or interest income recognized relating to our investments in eNeura Inc. and Bone Biologics, Inc.

 

•

Legal judgments/settlements – adverse or favorable legal judgments or negotiated legal settlements, including legal and other professional fees associated with the SEC Investigation, Securities Class Action Complaints and Brazil subsidiary compliance review, which are recorded as general and administrative expenses

 

•

Succession charges – costs related to the transition of the Company’s President and CEO, including any cessation and onboarding amounts, accelerated share-based compensation expense, consulting services and other related expenses

 

•

Long-term income tax rate adjustment – reflects management’s expectation of a long-term normalized effective tax rate of 35% for the first and second quarters of 2018, 29% for the third and fourth quarters of 2018, and 27% for our 2019 results and outlook, which is based on current tax law and current expected 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

 

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 our normal business

9

 

operations, including capital expenditures. Management uses free cash flow as a measure of progress on its capital efficiency and cash flow initiatives.

 

Usefulness and Limitations of Non-GAAP Financial Measures

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.

 

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

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 equity 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

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.

 

Usefulness of Non-GAAP Financial Measures to Investors

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.

 

Source

Orthofix Medical Inc.

10