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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark one)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2021  

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                     .

Commission File Number: 0-19961

 

ORTHOFIX MEDICAL INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

98-1340767

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

3451 Plano Parkway,

Lewisville, Texas

 

75056

(Address of principal executive offices)

 

(Zip Code)

(214) 937-2000

(Registrant’s telephone number, including area code)

 

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes      No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes      No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated filer

Accelerated filer

 

 

 

 

Non-Accelerated filer

Smaller Reporting Company

 

 

 

 

 

 

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.    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes      No

As of November 1, 2021, 19,745,269 shares of common stock were issued and outstanding.

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

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common stock, $0.10 par value per share

 

OFIX

 

Nasdaq Global Select Market

 

 

 


 

 

Table of Contents

 

 

 

 

 

 

Page

PART I

 

FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

4

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2021 and 2020

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2021 and 2020

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020

 

7

 

 

 

 

 

 

 

Notes to the Unaudited Condensed Consolidated Financial Statements

 

8

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

18

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

27

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

27

 

 

 

 

 

PART II

 

OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

29

 

 

 

 

 

Item 1A.

 

Risk Factors

 

29

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

29

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

29

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

29

 

 

 

 

 

Item 5.

 

Other Information

 

29

 

 

 

 

 

Item 6.

 

Exhibits

 

29

 

 

 

 

 

SIGNATURES

 

31

2


 

 

Forward-Looking Statements

This Quarterly Report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (“the Exchange Act”), and Section 27A of the Securities Act of 1933, as amended, relating to our business and financial outlook, which are based on our current beliefs, assumptions, expectations, estimates, forecasts and projections. 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 include, but are not limited to, statements about:

 

our intentions, beliefs, and expectations regarding our operations, sales, expenses, and future financial performance;

 

our operating results;

 

our plans for future products and enhancements of existing products;

 

anticipated growth and trends in our business;

 

the timing of and our ability to maintain and obtain regulatory clearances or approvals;

 

our belief that our cash and cash equivalents, investments, and access to our revolving line of credit will be sufficient to satisfy our anticipated cash requirements;

 

our expectations regarding our revenues, customers, and distributors;

 

our expectations regarding our costs, suppliers, and manufacturing abilities;

 

our beliefs and expectations regarding our market penetration and expansion efforts;

 

our expectations regarding the benefits and integration of acquired businesses and/or products and our ability to make future acquisitions and successfully integrate any such future-acquired businesses;

 

our anticipated trends and challenges in the markets in which we operate; and

 

our expectations and beliefs regarding and the impact of investigations, claims, and litigation.

These forward-looking statements are not guarantees of future performance and involve risks, uncertainties, estimates, and assumptions that are difficult to predict. 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. Potential risks and uncertainties that could cause actual results to differ materially include, but are not limited to, those set forth in Part I, Item 1A under the heading Risk Factors; Part II, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations; and elsewhere throughout the Annual Report on Form 10-K for the year ended December 31, 2020, and in any other documents incorporated by reference. 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.

Trademarks

Solely for convenience, our trademarks and trade names in this report are referred to without the ® and ™ symbols, but such references should not be construed as any indicator that we will not assert, to the fullest extent under applicable law, our rights thereto.

 

3


 

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ORTHOFIX MEDICAL INC.

Condensed Consolidated Balance Sheets

 

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

 

September 30,

2021

 

 

December 31,

2020

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

82,710

 

 

$

96,291

 

Restricted cash

 

 

505

 

 

 

530

 

Accounts receivable, net of allowances of $4,928 and $4,848, respectively

 

 

68,971

 

 

 

72,423

 

Inventories

 

 

84,678

 

 

 

84,635

 

Prepaid expenses and other current assets

 

 

23,348

 

 

 

16,500

 

Total current assets

 

 

260,212

 

 

 

270,379

 

Property, plant, and equipment, net

 

 

58,784

 

 

 

63,613

 

Intangible assets, net

 

 

54,794

 

 

 

60,517

 

Goodwill

 

 

83,357

 

 

 

84,018

 

Deferred income taxes

 

 

22,745

 

 

 

25,042

 

Other long-term assets

 

 

20,503

 

 

 

22,292

 

Total assets

 

$

500,395

 

 

$

525,861

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

19,437

 

 

$

23,118

 

Current portion of finance lease liability

 

 

2,570

 

 

 

510

 

Other current liabilities

 

 

57,997

 

 

 

80,271

 

Total current liabilities

 

 

80,004

 

 

 

103,899

 

Long-term portion of finance lease liability

 

 

20,044

 

 

 

22,338

 

Other long-term liabilities

 

 

35,514

 

 

 

42,760

 

Total liabilities

 

 

135,562

 

 

 

168,997

 

Contingencies (Note 8)

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

 

 

Common shares $0.10 par value; 50,000,000 shares authorized;

    19,741,410 and 19,423,874 issued and outstanding as of September 30,

    2021 and December 31, 2020, respectively

 

 

1,974

 

 

 

1,942

 

Additional paid-in capital

 

 

307,783

 

 

 

292,291

 

Retained earnings

 

 

53,812

 

 

 

59,379

 

Accumulated other comprehensive income

 

 

1,264

 

 

 

3,252

 

Total shareholders’ equity

 

 

364,833

 

 

 

356,864

 

Total liabilities and shareholders’ equity

 

$

500,395

 

 

$

525,861

 

The accompanying notes form an integral part of these condensed consolidated financial statements

4


 

ORTHOFIX MEDICAL INC.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

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

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net sales

 

$

112,428

 

 

$

110,985

 

 

$

339,415

 

 

$

288,943

 

Cost of sales

 

 

28,307

 

 

 

26,243

 

 

 

81,660

 

 

 

72,818

 

Gross profit

 

 

84,121

 

 

 

84,742

 

 

 

257,755

 

 

 

216,125

 

Sales and marketing

 

 

56,097

 

 

 

52,926

 

 

 

164,220

 

 

 

150,718

 

General and administrative

 

 

16,312

 

 

 

16,541

 

 

 

51,091

 

 

 

49,453

 

Research and development

 

 

12,360

 

 

 

9,962

 

 

 

36,378

 

 

 

28,691

 

Acquisition-related amortization and remeasurement (Note 12)

 

 

(335

)

 

 

1,138

 

 

 

5,028

 

 

 

(2,766

)

Operating income (loss)

 

 

(313

)

 

 

4,175

 

 

 

1,038

 

 

 

(9,971

)

Interest expense, net

 

 

(433

)

 

 

(731

)

 

 

(1,400

)

 

 

(2,055

)

Other income (expense), net

 

 

(1,789

)

 

 

1,817

 

 

 

(3,528

)

 

 

6,088

 

Income (loss) before income taxes

 

 

(2,535

)

 

 

5,261

 

 

 

(3,890

)

 

 

(5,938

)

Income tax benefit (expense)

 

 

364

 

 

 

(607

)

 

 

(1,677

)

 

 

17,833

 

Net income (loss)

 

$

(2,171

)

 

$

4,654

 

 

$

(5,567

)

 

$

11,895

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.11

)

 

$

0.24

 

 

$

(0.28

)

 

$

0.62

 

Diluted

 

 

(0.11

)

 

 

0.24

 

 

 

(0.28

)

 

 

0.61

 

Weighted average number of common shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

19,769,823

 

 

 

19,335,718

 

 

 

19,633,782

 

 

 

19,217,057

 

Diluted

 

 

19,769,823

 

 

 

19,398,567

 

 

 

19,633,782

 

 

 

19,319,302

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), before tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on debt securities

 

 

513

 

 

 

 

 

 

(115

)

 

 

 

Currency translation adjustment

 

 

(719

)

 

 

2,275

 

 

 

(1,901

)

 

 

2,048

 

Other comprehensive income (loss), before tax

 

 

(206

)

 

 

2,275

 

 

 

(2,016

)

 

 

2,048

 

Income tax benefit (expense) related to other comprehensive income (loss)

 

 

(128

)

 

 

 

 

 

28

 

 

 

 

Other comprehensive income (loss), net of tax

 

 

(334

)

 

 

2,275

 

 

 

(1,988

)

 

 

2,048

 

Comprehensive income (loss)

 

$

(2,505

)

 

$

6,929

 

 

$

(7,555

)

 

$

13,943

 

The accompanying notes form an integral part of these condensed consolidated financial statements

5


 

ORTHOFIX MEDICAL INC.

Condensed Consolidated Statements of Changes in Shareholders’ Equity

 

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

 

Number of

Common

Shares

Outstanding

 

 

Common

Shares

 

 

Additional

Paid-in

Capital

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Total

Shareholders’

Equity

 

At December 31, 2020

 

 

19,423,874

 

 

$

1,942

 

 

$

292,291

 

 

$

59,379

 

 

$

3,252

 

 

$

356,864

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(5,816

)

 

 

 

 

 

(5,816

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,573

)

 

 

(1,573

)

Share-based compensation expense

 

 

 

 

 

 

 

 

3,721

 

 

 

 

 

 

 

 

 

3,721

 

Common shares issued, net

 

 

50,510

 

 

 

5

 

 

 

1,617

 

 

 

 

 

 

 

 

 

1,622

 

At March 31, 2021

 

 

19,474,384

 

 

$

1,947

 

 

$

297,629

 

 

$

53,563

 

 

$

1,679

 

 

$

354,818

 

Net income

 

 

 

 

 

 

 

 

 

 

 

2,420

 

 

 

 

 

 

2,420

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(81

)

 

 

(81

)

Share-based compensation expense

 

 

 

 

 

 

 

 

3,907

 

 

 

 

 

 

 

 

 

3,907

 

Common shares issued, net

 

 

194,745

 

 

 

20

 

 

 

1,200

 

 

 

 

 

 

 

 

 

1,220

 

At June 30, 2021

 

 

19,669,129

 

 

$

1,967

 

 

$

302,736

 

 

$

55,983

 

 

$

1,598

 

 

$

362,284

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(2,171

)

 

 

 

 

 

(2,171

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(334

)

 

 

(334

)

Share-based compensation expense

 

 

 

 

 

 

 

 

3,842

 

 

 

 

 

 

 

 

 

3,842

 

Common shares issued, net

 

 

72,281

 

 

 

7

 

 

 

1,205

 

 

 

 

 

 

 

 

 

1,212

 

At September 30, 2021

 

 

19,741,410

 

 

$

1,974

 

 

$

307,783

 

 

$

53,812

 

 

$

1,264

 

 

$

364,833

 

 

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

 

Number of

Common

Shares

Outstanding

 

 

Common

Shares

 

 

Additional

Paid-in

Capital

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Total

Shareholders’

Equity

 

At December 31, 2019

 

 

19,022,619

 

 

$

1,902

 

 

$

271,019

 

 

$

57,749

 

 

$

(3,039

)

 

$

327,631

 

Cumulative effect adjustment from adoption of ASU 2016-13

 

 

 

 

 

 

 

 

 

 

 

(887

)

 

 

 

 

 

(887

)

Net income

 

 

 

 

 

 

 

 

 

 

 

25,665

 

 

 

 

 

 

25,665

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,711

)

 

 

(1,711

)

Share-based compensation expense

 

 

 

 

 

 

 

 

3,859

 

 

 

 

 

 

 

 

 

3,859

 

Common shares issued, net

 

 

33,559

 

 

 

4

 

 

 

808

 

 

 

 

 

 

 

 

 

812

 

At March 31, 2020

 

 

19,056,178

 

 

$

1,906

 

 

$

275,686

 

 

$

82,527

 

 

$

(4,750

)

 

$

355,369

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(18,424

)

 

 

 

 

 

(18,424

)

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,484

 

 

 

1,484

 

Share-based compensation expense

 

 

 

 

 

 

 

 

4,699

 

 

 

 

 

 

 

 

 

4,699

 

Common shares issued, net

 

 

152,885

 

 

 

15

 

 

 

1,902

 

 

 

 

 

 

 

 

 

1,917

 

At June 30, 2020

 

 

19,209,063

 

 

$

1,921

 

 

$

282,287

 

 

$

64,103

 

 

$

(3,266

)

 

$

345,045

 

Net income

 

 

 

 

 

 

 

 

 

 

 

4,654

 

 

 

 

 

 

4,654

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,275

 

 

 

2,275

 

Share-based compensation expense

 

 

 

 

 

 

 

 

3,841

 

 

 

 

 

 

 

 

 

3,841

 

Common shares issued, net

 

 

58,357

 

 

 

6

 

 

 

(925

)

 

 

 

 

 

 

 

 

(919

)

At September 30, 2020

 

 

19,267,420

 

 

$

1,927

 

 

$

285,203

 

 

$

68,757

 

 

$

(991

)

 

$

354,896

 

The accompanying notes form an integral part of these condensed consolidated financial statements

6


 

ORTHOFIX MEDICAL INC.

Condensed Consolidated Statements of Cash Flows

 

 

Nine Months Ended

September 30,

 

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

 

2021

 

 

2020

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(5,567

)

 

$

11,895

 

Adjustments to reconcile net income (loss) to net cash from operating activities

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

22,153

 

 

 

22,299

 

Amortization of operating lease assets, debt costs, and other assets

 

 

2,645

 

 

 

2,811

 

Provision for expected credit losses

 

 

376

 

 

 

945

 

Deferred income taxes

 

 

2,228

 

 

 

(2,471

)

Share-based compensation expense

 

 

11,470

 

 

 

12,399

 

Interest and (gain) loss on valuation of investment securities

 

 

(305

)

 

 

219

 

Change in fair value of contingent consideration

 

 

(2,375

)

 

 

(7,600

)

Other

 

 

743

 

 

 

(1,798

)

Changes in operating assets and liabilities, net of effects of acquisitions

 

 

 

 

 

 

 

 

Accounts receivable

 

 

2,729

 

 

 

11,551

 

Inventories

 

 

(866

)

 

 

246

 

Prepaid expenses and other current assets

 

 

(6,987

)