Q3 2023 Orthofix Medical Inc Earnings Call
Speaker 1: Hello, good afternoon and welcome to the ortho fix third quarter earnings conference call at this time. All participants are in a listen only mode. We'll be facilitating a question and answer session at the end of today's call. As a reminder, this call is being recorded for replay.
Hello, Good afternoon, and welcome to the Ortho fixed third quarter earnings conference call. At this time all participants are in a listen only mode, we'll be facilitating a question and answer session. At the end of today's call. As a reminder, this call is being recorded for replay purposes I would now like to turn the call over to Luisa Smith from the Gilmartin group.
Speaker 1: I would now like to turn the call over to Louisa Smith from the Gilmartin Group for a few introductory comments.
A few introductory comments.
Speaker 2: Good afternoon, everyone. Welcome to the 3rd quarter of the call. Joining me on the call today are board of directors chair and interim chief executive officer Kathy Berzic and chief financial officer Jeff Gillespie.
And good afternoon, everyone and welcome to the third quarter 2023 earnings call.
Joining me on the call today, our board of Directors Chair and interim Chief Executive Officer.
Let me briefly.
<unk> Chief Financial Officer, Jeff Gillespie.
Speaker 2: During this call, we will make forward-looking statements that involve risks and uncertainty.
On this call we will make forward looking statements.
Risks and uncertainties.
Speaker 2: All statements other than those of historical facts are forward looking statements, including any earnings guidance we provide and any statements about our plans, beliefs, strategies, expectations, goals or objectives.
Statements other than as.
The historical facts are forward looking statements and create any earnings guidance, we provide and any statements about our plans beliefs strategies expectations goals or objectives.
Speaker 2: Investors are cautioned not to place undue reliance on such forward-looking statements, as there is no assurance that the matter contained in such statements will occur. The forward-looking statements we will make on today's call are based on our beliefs and expectations as of today, November 8, 2020.
Investors are cautioned not to place undue reliance on such forward looking statements because there is no assurance that the matter contained in such statements will occur.
The forward looking statements, we will make in today's call are based on our beliefs and expectations as of today November eight 2020.
Speaker 2: We do not undertake any obligation to revise or update such forward looking statements. Some factors that could cause actual results to materially differ from the forward looking statements made by us on the call include risk factors disclosed under the heading risk factors. And our Form 10-K for the year ended December 31st, 2022 and form 10 queue filed this afternoon, November 8th, 2023. As well as additional filing we make an.
We do not undertake any obligation to revise or update such forward looking statements.
Actors that could cause actual results to materially differ from forward looking statements made by us on the call.
The risk factors described under the heading risk factors in our Form 10-K for the year ended December 31, 2022, and Form 10-Q filed this afternoon November eight 2023 as well as additional SEC filings, we make in it.
Sure.
Speaker 2: In addition, on today's call, we refer to various non-GAAP financial measures.
On today's call, we refer to various non-GAAP financial measures, we believe that quarter to properly understand our short term and long term financial trends investors.
Speaker 2: We believe that in order to properly understand our short term and long term financial trends, investors may wish to review these matters as a supplement to the financial measures determined in accordance with US GAAP. Please refer to today's news release announcing our third quarter, 2023 results for reconciliation of these non-GAAP financial measures to our US GAAP financial results. At this point, I will turn to.
Investors may wish to review these.
The financial measures determined in accordance with U S. GAAP. Please refer to today's news release announcing our third quarter 2023 results. A reconciliation of these non-GAAP financial measures to our U S. GAAP financial results at this point I will turn the call over to Kathy.
Speaker 3: Thank you, Louisa, and thank you everyone for joining us this afternoon. On today's call, I will review highlights of the third quarter results, followed by a more detailed look at the performance of our business units, and then finish with some operational comments.
Thank you Lisa and thank you everyone for joining us. This afternoon on today's call I will review highlights of the third quarter results followed by a more detailed and performance of our business units and then finish with some operational comments, Jeff Gillespie will review, our financial results and we have.
Speaker 3: Jeff Gillespie will review our financial results and we will conclude with a question and answer.
I'll conclude with a question and answer session.
Speaker 3: Let me begin by saying that we're very pleased that our business has operated smoothly since the management transition announcement in September . I am extraordinarily proud of the commitment of our employees and grateful for the support of our distributors and surgeons.
Let me begin by saying that we're very pleased that our business is operated smoothly since the management transition announcement in September.
I am extraordinarily proud of the commitment of our employees and grateful for the support our distributors and surgeons are.
Speaker 3: Our company is continuing to build on the momentum we have fostered since the business combinations was finalized in January . And simply put, we have not taken our foot off the gas throughout the period of transition.
Our company is continuing to build on the momentum we have fostered since the business combination and finalized in January and simply put we have not taken our foot off the gas throughout the period of transition.
Speaker 3: Our leadership team is highly capable, and I have the utmost confidence in our ability to capture market share, deliver value, and execute on a long-term vision of the company.
Our leadership team is highly capable and I have the utmost confidence in our ability to capture market share deliver value and execute on our long term vision of the company.
Speaker 3: The search for a permanent CEO is underway, led by the well-regarded executive search for hydric and struggles, and we anticipate announcing our permanent CEO by the end of the year. Let me reiterate that the fundamentals of our business, the merger thesis, and the long-term growth strategy remain intact.
The search for a permanent CEO is underway led by the well regarded executive search firm Heidrick <unk> struggles and we anticipate announcing a permanent CEO by the end of the year let.
Let me reiterate that the fundamentals of our business and merger pieces and the long term growth strategy remains intact.
Speaker 3: Turning now to highlights of the third quarter results. Orthopaedics performed well. We saw unprecedented growth in BGT and double digit growth in US orthopedics. Revenue for the third quarter 2023 was $184 million representing a growth of 61% on a reported basis and 1.2% on a proforma basis.
Turning now to highlights of the third quarter results or.
Or the fixed performed well we saw unprecedented growth in BGP and double digit growth in U S. Orthopedics revenue for the third quarter 2023 was $184 million, representing a growth of 61% on a reported basis and one 2% on a pro forma.
Speaker 3: Normalizing for a one-time stock order that occurred in the third quarter of 2022, revenue on a pro forma basis grew 8.4 percent.
<unk>.
Normalizing for a one time stocking order that occurred in the third quarter of 2022 revenue on a pro forma basis grew eight 4%.
Speaker 3: We are proud of our strong adjusted EBITDA performance for the quarter, delivering 13.5 million dollars and representing 36% improvement sequentially over the 2nd quarter.
We are proud of our strong adjusted EBITDA performance for the quarter, delivering $13 $5 million and representing 36% improvement sequentially over the second quarter.
Speaker 3: We executed on key commercial initiatives and strategic decisions made in prior periods, including cross selling opportunities and meaningful expansion of our commercial reach with added distributors.
We executed on key commercial initiatives and strategic decisions made in prior periods.
<unk> cross selling opportunity and meaningful expansion of our commercial reach with added distributors.
Speaker 3: Beginning with bone growth therapies or BGT, revenue for the third quarter 2023 was a record-breaking $53.4 million, an increase of 15% year over year, marking the third consecutive period of double-digit BGT growth. We are increasingly pleased with the performance of our BGT business and are encouraged by the effective cross-selling of our sales teams, particularly the legacy C-Fine sales channel.
Beginning with bone growth therapy, or BTT revenue for the third quarter 2023 was a record breaking $53 $4 million, an increase of 15% year over year, marking the third consecutive period of double digit BTT growth.
Increasingly pleased with the performance of our <unk> business and are encouraged by the effective cross selling of our sales teams, particularly the legacy spine sales channel.
Speaker 3: The quarter's impressive growth in BGT came from success on all product lines across the spine and fracture channels. And most significantly, a cell step where we are taking market care from our competitors. In 2022, orthophics management made the decision to invest more meaningfully in the fracture channel, which included adding sales representatives and building out area managers to establish a more focused sales organization. We are now...
The quarter's impressive growth and BTT take some success on all product lines across the bank and fractured channel and most significantly felt that where we are taking market share from our competitors in 2022 or is it takes management made the decision to invest more meaningfully in the <unk>.
<unk> channel, which included adding sales representatives and building our area managers to establish a more focused sales organization.
We are now reaping the benefits of that decision. Additionally, we continue to see great traction and adult stem as demonstrated by further accelerating our sequential growth rate for this product to over 25% relative to the prior quarter, an increase from the 23% sequential growth we reported in the second quarter.
Speaker 3: Additionally, we continue to see great traction from a cell stem as demonstrated by further accelerating our sequential growth rate for this product to over 25% relative to the prior quarter and increase from the 23% sequential growth we reported in the second quarter.
Speaker 3: Moving on to spinal implants, biologics, and enabling technology.
Moving on to spinal implants, and biologics and enabling technologies. We were pleased with the strong performance in the U S. During the third quarter. The U S reported six 6% year over year growth on a pro forma basis, approximately two times above estimated market rate. The performance was driven in large part by them.
Speaker 3: We were pleased with the strong performance in the US during the third quarter.
Speaker 3: The US reported 6.6% year-over-year growth on a pro-forma basis approximately two times above estimated market rates.
Speaker 3: The performance was driven in large parts by more exclusive distributor partnerships.
Our exclusive distributor partnerships cross contract access and an increased focus on adding legacy spine products to legacy orthopedics distributor offering and vice versa.
Speaker 3: cross contract access and an increased focus on adding legacy C-spine products to legacy orthopedics distributor offerings and vice versa.
Speaker 3: Our emphasis on larger, more exclusive partners resulted in year over year growth in the high teams from our top 20 distributors. We are pleased we have been able to maintain existing and build new relationships with our key distributor partners.
Our emphasis on larger and more exclusive partners resulted in year over year growth in the high teens from our top 20 distributors.
We are pleased we have been able to maintain existing and build new relationships with our key distributor partners.
Speaker 3: Global revenue for this segment in the third quarter of 2023 totaled $101 million, representing a decrease of 6% on a pro forma basis compared to the third quarter of 2022. It's important, however, to note that the prior year period included a large stocking order of $12 million associated with seed buying plant exits from Europe due to the high cost of MDR compliance.
Global revenue for this segment in the third quarter of 2023 totaled $101 million, representing a decrease of 6% unencumbered forma basis compared to the third quarter of 2022. It is important however to note that the prior year period included a large stocking order of 12 million.
Associated with these bonds planned exit from Europe due to the high cost of MTR compliance normalizing for the effect of this stocking order our global revenue growth was five 8% year over year.
Speaker 3: Normalizing for the effect of this stocking order, our global revenue growth was 5.8% year over year.
Speaker 3: From a spinal implants perspective, year to date, we have had seven new product launches and line extend.
Our spinal implants perspective year to date, we have had seven new product launches and line extensions all of which have been very well received in the market and we remain committed to innovation across our portfolio. We are particularly proud of new products in surgical our fastest growing franchise led by waveforms fee.
Speaker 3: All of which have been very well received in the market, and we remain committed to innovation across our portfolio. We are particularly proud of new products and cervical, our fastest growing franchise, led by way of foreign sea, our unique cervical, intrabadi, and North Star, our posterior cervical system.
Our unique cervical interbody and Northstar or post carrier cervical system.
Speaker 3: Within our Thorough Columbire franchise, we continue to see great momentum with our recently launched lattice lateral retractor, which is driving greater than 50% growth across our lateral platform.
Within our thought Columbia, our franchise, we continue to see great momentum with our recently launched lattice lateral retractor, which is driving greater than 50% growth across collateral platform surgeons indicate our improved lateral portfolio as optimized each procedural element access to fusion in order.
Speaker 3: Surgeons indicate our approved lateral portfolio has optimized each procedural element from access to fusion in order to more effectively treat varying spinal conditions.
To more effectively treat bang spinal conditions, we have successfully worked within our supply chain to build additional inventory of spinal implant set for significant growth and you should temper new channel partners. Many of these tests are coming online this quarter, allowing us to treat even more patients with our new <unk>.
Speaker 3: We have successfully worked within our supply chain to build additional inventory of spinal implant sets for a significant growth initiative with new channel partners. Many of these steps are coming online this quarter, allowing us to treat even more patients with our new and existing commercial reach.
Distinct commercial reach.
Speaker 3: With respect to our M6 motion preservation franchise, we are pleased to share that a detailed manuscript of the five-year results of our FDA investigational device exemption, IDE, clinical trial of M6C artificial cervical disc has been accepted for publication in the Spine Journal.
With respect to our M. Six motion preservation franchise, we are pleased to share that a detailed manuscript of the five year results of our FDA investigational device exemption I D E clinical trial of <unk> C. Artificial cervical disc has been accepted for publication and the spine Journal.
Speaker 3: We have previously shared the very positive result of this IDE study in abstract and other presentations. But this marks the first publication. Results of this trial showed that at the five year endpoint, the M6C disk demonstrated one of the lowest subsequent surgical interventions SSI rates at 3.1% when compared to other FDA approved our social service model kit.
We have previously shared the very positive results of the IV study and abstract another presentation, but this marks the first publication results of this trial showed that at the five year endpoint B M 60 disk demonstrated one of the lowest subsequent surgical intervention S. S. I.
At three 1% when compared to other FDA approved artificial cervical disc.
Speaker 3: We expect to achieve another major milestone in the M6 franchise. The M6 artificial disc was commercialized outside the United States in 2006 and has an established robust clinical history.
We expect to achieve another major milestone in the <unk> franchise, the <unk> artificial disc with commercialized outside the United States in 2006 and has an established robust clinical history, we expect to complete our 100006 deaths implantation during the fourth quarter.
Speaker 3: We expect to complete our 100,000 M6-DISC implantation during the fourth quarter. Congratulations to this franchise.
<unk> congratulations to this franchise.
Speaker 3: Within biologics in mid-October, we announced side-pened take clearance and the full commercial launch of Osteocode and Advanced Bioactive Synthetic College and Graph. This product indicated for use in posterior lateral fusions, fills a gap in our bone substitute portfolio.
Within biologics in mid October we announced five 10-K clearance and the full commercial launch of Osteo called and advanced Bioactive synthetic college and graph. This product indicated for used in post cereal lateral fusion fills a gap in our bone substitute portfolio.
Speaker 3: Ortho-fix has historically been a leader in the DBM and cellular aligraft markets, and osteocopolephal strength in the biologic portfolio, which synthetics to offer the entire spectrum of options in a surgeon preference driven mark.
Or its effects has historically been a leader in the DBM and cellular allograft market and Osteocope will strengthen the biologics portfolio with synthetics to offer the entire spectrum of options and a surgeon preference driven market.
Speaker 3: Turning now to the Enabling Technologies franchise, we placed 10 7D units in the third quarter, with three of those via an earn-out arrangement.
Turning now to the enabling technologies franchise, we placed 10 70 units in the third quarter with three of those via an earn out arrangement. This brings the total number of 70 units placed you earn outs to 11 with an annual revenue commitment of $6 $6 million, we are very.
Speaker 3: This brings the total number of 70 units placed via earnouts to 11 with an annual revenue commitment of $6.6 million.
Speaker 3: We are very pleased with the increasing market adoption of our 70 systems and the role our guided navigation technology plays in leveraging growth across all product lines.
We're pleased with the increasing market adoption of our <unk> system and the role our guided navigation technology plays and leveraging growth across all product lines.
Speaker 3: We believe that 7D, with its unique flash capability that reduced exposure to radiation, is well positioned to capitalize on the high growth expected in the enabling technology market in both the hospital and ASC environments.
We believe that 70 with its unique glass capability that reduced exposure to radiation is well positioned to capitalize on the high growth extracted and the enabling technology market in both the hospital and <unk>.
The environment.
Speaker 3: In the global orthopedic segment, revenue totaled $29.7 million, which represents approximately 7% year-over-year growth on a reported basis and approximately 1% on a constant currency 95. procedure.
And the global Orthopedics segment revenue totaled $29 $7 million, which represents approximately 7% year over year growth on a reported basis and approximately 1% on a constant currency basis.
Speaker 3: We are exceptionally pleased with our 14% growth in the US. The double digit growth momentum is driven by investments in US sales and marketing, best in class surgeon education programs, and continued product innovation and launches like two-lock EDO and fit-bomb.
We are exceptionally pleased with our 14% growth in the U S. The double digit growth momentum is driven by investments in U S sales and marketing best in class surgeon education programs and continued product innovation and launches like to lock Edr and football.
Speaker 3: Internationally, we saw a 3% contraction on a constant currency basis, primarily driven by a difficult year over year comp, as there were significant international stocking orders in the third quarter of 2022.
Internationally, we saw 3% contraction on a constant currency basis, primarily driven by difficult year over year comp.
Our significant international stocking orders in the third quarter of 2022.
Speaker 3: Our commitment to innovation is central to our market share expansion. And we've worked, cited to recently announce the launch of our single use sterile pack Galaxy Ankle kit developed specifically for the US market. We continue to expand our already brought offerings, a single use sterile pack kits across all or defeated product lines. More broadly.
Our commitment to innovation is central to our market share expansion and we were excited to recently announce the launch of our single use sterile pack galaxy ankle kit developed specifically for the U S market, we continued to expand our already broad offerings of single use sterile pack kits.
Across all of our mosquito product lines.
More broadly beyond our individual businesses, we are fully committed towards the fixes mission and we believe the growth and value opportunities ahead of us are significant.
Speaker 3: We are fully committed to orthophics's mission. And we believe the growth and value opportunity to head of our state.
Speaker 3: The integration of orthosystin C-SPI is progressing as originally contemplated without meaningful disruption, and we will continue to drive profitable growth to the company as evidenced by EBITDA margin improvements as Jeff will explain.
Integration of <unk> is progressing as originally contemplated without meaningful disruption and we will continue to drive profitable growth company as evidenced by EBITDA margin improvement as Jeff will explain.
Speaker 3: We are seeing the benefits of cross-selling initiatives, a strengthening of our commercial channels, and the capturing of market share.
We are seeing the benefits of cross selling initiatives are strengthening of our commercial channels and the capturing of market share.
Speaker 3: We are updating our 2023 revenue range to be between $739,744 million, representing 5.4%, the 6.2% pro-former growth over the prior year. This revised guidance is primarily due to changes in the competitive environment resulting in your term market disruptions.
We are updating our 2023 revenue range to be between $739 million and $744 million, representing five 4% to six 2% pro forma growth over the prior year. This revised guidance is primarily due to changes in the competitive environment.
Resulting in near term market disruption.
Speaker 3: While we are not going to be diagnosed for 2024, I am confident in orthophysics's ability to leverage our momentum going forward. We are focused that maintain strong relationships with our distributor and surgeon partners. We have a robust pipeline of new distributors. We believe we have sufficient inventory to meet the expectations of existing and new distributors and surgeons. And we are executing well on commercializing our newly launched product.
While we are not going to give guidance for 2024 I am confident in orthopedics is the ability to leverage our momentum going forward. We are focused on maintaining strong relationships with our distributor and surgeon partners. We have a robust pipeline of new distributors. We believe we have sufficient inventory to meet the expectations.
Existing and new distributors and surgeons and we are executing well on commercializing our newly launched products and.
Speaker 3: and we have a strong pipeline of new products under development that will launch in 2024. Going forward, we are laser focused on driving profitable growth. We will continue to improve EBITDA and expect to be cashful positive in late 2024. I'm very excited for what's the Commodore.
And we have a strong pipeline of new products under development that will launch in 2024.
Going forward, we are laser focused on driving profitable growth, we will continuously improve EBITDA and expect to be cash flow constitute in late 2024, I'm very excited for what's to come in orthopedics.
Speaker 3: With that, I'll turn the call over to Jeff for further detail on our third quarter financial results. Jeff...
That I will turn the call over to Jeff for further detail on our third quarter financial results Jeff.
Speaker 4: Thanks Kathy, good afternoon everyone. Kathy noted earlier, total revenue for the third quarter of 2023 was $184 million, representing growth of 61% on a reported basis and 1% on a pro forma constant currency basis over the prior year period. Normalizing for one time stocking order that occurred in the third quarter of 2022, revenue on a pro forma basis grew 8.4% in the third quarter of 2023 over the prior year period.
Thanks, Kathy and good afternoon, everyone as Kathy noted earlier total revenue for the third quarter of 2023 was $184 million representing growth of 61% on a reported basis and 1% on a pro forma constant currency basis over the prior year period normalizing for one time stocking orders that occurred in the third quarter.
2022 revenue on a pro forma basis grew eight 4% in the third quarter of 2023 over the prior year period.
Speaker 4: Revenue growth was led by BGT, which grew 15% year over year to $53.4 million. The third quarter marks three consecutive periods of double digit growth for the BGT franchise, led by the recently launched Excel STEM product, which experienced over 25% sequential growth from Q2 2020.
Revenue growth was led by <unk>, which grew 15% year over year to $53 4 million the third quarter marks three consecutive periods of double digit growth for the BTG franchise.
By the recently launched <unk> product, which experienced over 25% sequential growth from Q2 2023.
Speaker 4: Global orthopedics reported total revenue of 29.7 million for the third quarter, an increase of 7% over the prior period. In the US, orthopedics revenue continued to show a strong growth with a 14% increase over the prior period, and a 4% sequentially increase over the second quarter of 2023.
Orthopedics reported total revenue of $29 7 million for the third quarter, an increase of 7% from the prior year period in the U S. Orthopedics revenue continued to show strong growth with a 14% increase over the prior year period, and a 4% sequential increase over the second quarter of 2023.
Speaker 4: Gap gross margins for the 3rd quarter of 2023 was 65% compared to 73% for the 3rd quarter of 2022. Adjust the gross margin was 71% for the 3rd quarter of 2023 compared to 74% for the prior year period for legacy or.
GAAP gross margins from the third quarter of 2023 was 65% compared to 73% for the third quarter of 2022, adjusted gross margin was 71% for the third quarter of 2023 compared to 74% for the prior year period for legacy worth of things.
Speaker 4: In the third quarter of 2023, merger related charges continued to temporarily depress gap growth margin, primarily driven by the fall.
Third quarter of 2023 merger related charges continued to temporarily depressed GAAP gross margin primarily driven by the following.
Speaker 4: $7.9 million in amortization of non-cash purchase accounting adjustments related to acquired C-SPINed inventory. These non-cash charges are standard in business combination as companies must step up the basis in acquiring inventory to ensure that future margins are recognized only on value added activities subsequent to the murder.
$7 9 million and amortization of noncash purchase accounting adjustments related to acquired <unk> inventory.
Non cash charges are standard in business combination as companies will step up the basis and acquired inventory to ensure that future margins are recognized only on value added activities subsequent to the merger date.
Speaker 4: $1.4 million of excess and obsolete inventory charges recorded in connection with product rationalization decisions made as a result of the merger and the diluted impact of the acquired legacy baseline business on legacy orthofixes overall gross margin.
$4 million of excess and obsolete inventory charges recorded in connection with product rationalization decisions made as a result of the merger.
The dilutive impact of the acquired legacy spine business legacy Ortho fixes overall gross margin.
Speaker 4: On a pro form of basis, including financial results, C-SPINED for the third quarter of 2022, revised to conform to the orthophics presentation, we estimate that adjusted gross margin increased by 350 basis points to 71% year over year.
On a pro forma basis, including financial results for <unk> for the third quarter of 2020 to revise to conform to the ortho fixed presentation. We estimate that adjusted gross margin increased by 350 basis points to 71% year over year.
Speaker 4: The pro forma gross margin improvement is primarily driven by product mix and a large low margin stocking in order to increase the 2022 that did not reoccur in the current quarter. We expect the adjusted gross margins to increase over time and so we recognize efficiencies from spinal implant set utilization of product rationalization as well as other efficiencies that we expected generate as a result of the merger.
Pro forma gross margin improvement was primarily driven by product mix and large low margin stocking order in Q3 2022 that did not reoccur in the current quarter. We expect adjusted gross margins to increase over time as we recognize efficiencies from spinal implant set utilization on product rationalization as well.
Other efficiencies that we expect to generate as a result of the merger.
Speaker 4: Gap sales and marketing expenses in the third quarter of 2023 were 52% of net sales, up from 49% in the third quarter of 2022. Adjusted sales and marketing expenses were 49% of net sales for the third quarter, up from 48% in the prior year period. The increase in gap sales and marketing expenses primarily driven by integration related severance, retention costs, and the rise in net sales.
GAAP sales and marketing expenses in the third quarter of 2023, 52% of net sales up from 49% in the third quarter of 2022.
Adjusted sales and marketing expenses were 49% of net sales for the third quarter up from 48% in the prior year period. The increase in GAAP sales and marketing expense was primarily driven by integration related severance and retention costs stock based compensation associated with the merger and higher commissions as a result.
Speaker 4: stock-based compensation associated with the merger and higher commissions as a result of the achievement of certain sales object.
The achievement of certain sales objectives, GAAP G&A expenses for the third quarter of 2023 were 15% of net sales down from 17% in the prior year period.
Speaker 4: That GNA expenses for the third quarter of 2023 were 15% of net sales, down from 17% in the prior year period.
Speaker 4: Adjusted DNA expenses were 10% of men's sales for the third quarter compared to 11% from the prior period. The decrease in gap DNA expenses as a percent of revenue was primarily driven by increased leverage on our fixed cost associated with the merger and the capture of merger related synergists.
Adjusted G&A expenses were 10% of net sales for the third quarter compared to 11% from the prior year period.
The decrease in GAAP G&A expenses as a percent of revenue was primarily driven by increased leverage on our fixed cost associated with the merger and the capture of merger related synergies we.
Speaker 4: When disfaith incurring additional severance and retention expenses for the remainder of 2023, the police cost are anticipated to continue to decrease as affected employees reach their respective end dates.
We anticipate incurring additional severance and retention expenses for the remainder of 2023, but these costs are anticipated to continue to decrease as affected employees reached their respective ethics gap.
Speaker 4: GAP are the expenses for the third core of 2023 where 10% of net sales down from 11% in the prior year period. Adjusted R&D expenses were 8% of net sales for the third core consistent with the prior year period. The decrease in GAP R&D expenses was primarily driven by lower span related to EUMDR readiness and compliance and realization of merger related synergies which were slightly upset by our stock exchange compensation.
GAAP R&D expenses for the third quarter of 2023 or 10% of net sales down from 11% in the prior year period. Adjusted R&D expenses were 8% of net sales for the third quarter consistent with the prior year period. The decrease in GAAP R&D expenses was primarily driven by lower spend related to EU MTR.
And compliance and realization of merger related synergies, which were slightly offset by higher stock based compensation expense.
Speaker 4: As we continue to focus on developing and bringing new innovative and differentially products to market, we expect our total research and development investment to be between nine and 10% of net sales for the remainder of 2023.
As we continue to focus on developing and bringing new innovative and differentiated products to market. We expect our total research and development investment to be between 9% to 2% of net sales for the remainder of 2023 adjusted.
Speaker 4: Adjusted EBITDA for the third quarter of 23 was 13.5 million dollars compared to 14.3 million dollars for the third quarter of 2022.
Adjusted EBITDA for the third quarter of 23 was $13 5 million compared to $14 3 million for the third quarter 2022 on.
Speaker 4: On a pro-forma basis, including the financial results of C-SPIN for the third quarter of 2022, we estimate that adjusted EBITDA increased by $2 million, representing the 17.1% growth over the prior period.
On a pro forma basis, including the financial results of <unk> for the third quarter of 2022, we estimate that adjusted EBITDA increased by $2 million, representing 17, 1% growth over the prior year period.
Speaker 4: Finally, we expect adjusted EBITDA to continue to increase in the fourth quarter of 2023 as plan operating expense synergies continue to materialize.
Finally, we expect adjusted EBITDA to continue to increase in the fourth quarter of 2023 as planned operating expense synergies continued to materialize.
Speaker 4: Adjust the gross margin and adjust the EBITDA or non-gaft financial measures that provide valuable information on our operating results, making it easier to compare core operating performance between periods and against other companies in our industry.
Adjusted gross margin adjusted EBITDA non-GAAP financial measures that provide valuable information on our operating results, making it easier to compare core operating performance between periods and against other companies in our industry. A reconciliation of GAAP to adjusted gross margin and adjusted EBITDA is presented in the financial tables of the news release, we issued this.
Speaker 4: A reconciliation of gap to adjusted gross margin and adjusted EBITDA is presented in the financial tables of the news release we issued this afternoon. A reconciliation of pro forma adjusted gross margin and pro forma adjusted EBITDA is included in the back of our updated investor presentation that was included in the current report on form 8K that we filed.
Afternoon, a reconciliation of pro forma adjusted gross margin and pro forma adjusted EBITDA is included in the back of our updated Investor presentation that was included in the current report on form 8-K that we filed today cash and cash equivalents on September 32023 totaled $34 million and as of September 30.
Speaker 4: Cash and Cash Equivalence on September 30th, 2023 total $34 million. And as of September 30th, we had $70 million about standing borrowings under 175 million dollar credit facility. During fourth quarter of 2023, the company entered into a four-year finance and arrangement with Blue Torch Cap.
We have $70 million of outstanding borrowings under our $175 million credit facility. During the fourth quarter of 2023, the company entered into a four year financing arrangement with blue towards capital. The financing arrangement provides for $100 million senior secured term loan which was fully funded on the effective date to $25 million.
Speaker 4: The finance and arrangement provides for $100 million senior secured term loan, which was fully funded on the effective date. A $25 million senior secured delayed draw term loan, and a $25 million senior secured revolving credit facility. In connection with entering into the finance and agreement, the company repaid, infill, amounted outstanding, and terminated, all commitments under the company's prior $175 million senior secured revolving credit facility.
Your secured delayed draw term loan and a $25 million senior secured revolving credit facility in connection with entering into the financing agreement the company repaid in full amounts outstanding and terminated all commitments under the Companys prior $175 million senior secured revolving credit facility.
Speaker 4: Our free cash flow, which includes operating cash flows and capital expenditures, was an outflow of $21.9 million for the third quarter of 2023, which is a sequential increase from $18.3 million reported in the second quarter of 2023. The increase is primarily attributed to continued investments in inventory and capital instruments as we continue to take advantage of channel displacements driven by market disruption.
Our free cash flow, which includes operating cash flows and capital expenditures was an outflow of $21 9 million for.
For the third quarter of 2023, which is a sequential increase from $18 3 million ripped.
We reported in the second quarter 2023, the increase is primarily attributed to continued investments in inventory and capital instruments. As we continued to take advantage of channel displacements driven by market disruption free cash flow for the first second and third quarters of 2023 included an estimated $15 5 million $5 8 million.
Speaker 4: Precash flow for the first, second, and third quarters of 2023 included an estimated 15.5 million, 5.8 million.
Speaker 4: $4.4 million respectively of stand on merger-related items.
And $4 $4 million, respectively of spend on merger related items.
Speaker 4: Turning to updates for the full year of 2023. As Kathy mentioned, we are revising our full year revenue guidance. We now anticipate revenue from the full year of 2023 to be in the range of 739 million 744 million, representing a 5.4% to a 6.2% year-over-year growth on a pro forma basis. And we are maintaining 3.5% of overall revenue.
Turning to update guidance for the full year of 2023 as Kathy mentioned, we are revising our full year revenue guidance. We now anticipate revenue for the full year 2023 to be in the range of $739 million $744 million, representing a five 4% to six 2% year over year growth on a pro forma basis.
For adjusted gross margin, we are maintaining our previously issued estimates to range between 71% to 72% of the full year of 2023.
Speaker 4: to range between 71 and 72% the full year of 2023. We remain focused on overall profitability and positive free cash flow going forward and are reaffirming our full year adjusted EBITDA guidance to range between 42 to 46 million dollars.
We remain focused on overall profitability and positive free cash flow going forward and are reaffirming our full year adjusted EBITDA guidance to range between $42 million to $46 million.
Speaker 4: We continue to expect that free cash flow will be approximately $100 million outflow for the full year of 23. As we continue to gain operating leverage and realize continue to operate the expense synergies we expect to be cash flow positive and late.
We continue to expect that free cash flow will be approximately $100 million outflow for the full year of 'twenty three as we continue to gain operating leverage and realize continued operating expense synergies, we expect to be cash flow positive in late 2024. Finally in our second quarter earnings call. We raised our estimates of annualized Cogs and Opex.
Speaker 4: Finally, in our second quarter earnings call, we raised our estimates of annualized cobs and obfx expense synergies from $40 million to $50 million by 2025.
<unk> expense synergies from 40 million to $50 million on 2025.
Speaker 4: We are maintaining that guidance and are pleased to be tracking ahead of our estimates and will have realized over $30 million of those synergies on the annualized run rate as we exit 2023.
We are maintaining that guidance and we're pleased to be tracking ahead of our estimates and we will have realized over $30 million of those synergies on an annualized run rate as we exit 2023 the.
Speaker 4: The cost to achieve the higher synergy targets expected to be approximately $45 million with more than $30 million of those dollars being spent in 2023.
The cost to achieve the higher synergy target is expected to be approximately $45 million with more than $30 billion of those dollars being spent in 2023.
Speaker 4: At this point, I would like to turn the call over to Kathy to provide closing comments.
At this point I would like to turn the call over to Kathy to provide closing comments.
Speaker 3: I'll close by reiterating that our entire team remain highly encouraged by the stability of our business.
I'll close by reiterating that our entire team remains highly encouraged by the stability of our business.
Speaker 3: the prospect of creating a deliberate long-term value and the incredible momentum we are carrying into 2024. I again want to thank all of our employees for their dedication to the company and their commitment to our mission to collaborate, innovate, and improve the line of participation. At this point, operator, please open the line for questions. Thank you.
The effect of creating and delivering long term value and the incredible momentum we are carrying into 2024 I again want to thank all of our employees for their dedication to the company and their commitment to our mission to collaborate innovate and improve the lives of patients at this point operator. Please open the line for questions.
Thanks.
Thank you so much at this time, if you would like to ask a question Press Star then the number one on your telephone keypad again that is star one.
Speaker 1: So much at this time if you would like to ask a question, press star, then the number one on your telephone keypad. Again, that is star one.
Speaker 5: Our first question comes from the line of Matthew Blackman from Stythal. Matthew, please go ahead. Good afternoon, everybody. Can you hear?
Our first question comes from the line of Matthew Blackman from Stifel. Mathew. Please go ahead.
Hi, Good afternoon, everybody can you hear me okay.
Yeah, we can hear you.
Matt.
Speaker 5: That's great, thanks, Kathy. Got a few questions, maybe just to start. So then you could walk us through the appliance for two guides. A little bit more detail on what you're seeing. That's driving that.
Oh, great. Thanks Cathy.
A few questions maybe just to start I was hoping you could walk us through the implied <unk> guide.
A little bit more detail on what you're seeing that's driving that.
Speaker 5: sales dislocation you're seeing or trying to be prudent with uncertainty or some combination of both men the follow-up to that. I think if I do the math on the EBITDA contribution margins for the lower revenues I would have expected a bigger hit to EBITDA. First of all, is that right? So is that a function of additional cost cutting or are we seeing perhaps the lift from cost energies mitigating a higher drop to and then a couple of follow-ups?
Dislocation youre seeing or are you trying to be prudent with with uncertainty or some combination of both and then the follow up to that.
I think if I do the math on the EBITDA contribution margins to the lower revenues I would've expected a bigger hit to EBITDA.
All of that is that right and if so is that a function of additional cost cutting or are we seeing perhaps the lift from cost synergies mitigating a higher drop through and then a couple of follow ups if I may.
Speaker 3: So let me start that and then I'll turn it over to a Jeff talk about the Eva's art question. Thanks. Thanks for the question. And you know, your commentary about being fruit.
So let me let me start that and then I'll turn it over to Jeff to talk about the EBIT question. Thanks.
For the question.
Terry about being proteins.
Speaker 3: You know, it's really the right answer here. As we look at the overall market at this point, you know, others have talked about this too. The competitive environment is complicated right now. I mean, there's a lot of market, market turned on.
It's really the right answer here as we look at the overall market at this point.
I've talked about this to the competitive environment is complicated right now I mean, there's a lot of market.
Sure Kelly.
Speaker 3: that we all are facing. You know, that said, you know, I think we should be very proud. I'm proud of the whole organization here that we have not lost any distributors. We have not lost any or the fixed employees of the competition at all during the course of these past several months. So look, the company is very...
That way, we all are facing that's said.
I think we should be very proud I'm proud of the whole organization here that we have not lost any distributors, we have not lost any or to fixed employees.
Competition at all during the course of <unk>.
These past several months.
The company is very stable.
Speaker 6: What we see happening in the marketplace however is a slow down and decision.
What we see happening in the market space, However, as a slowdown in decision, making just a result of the market turbulence our pipeline our distributor pipeline is very strong.
Speaker 6: you know, just as a result of the market turbulence. Our pipeline, our distributor pipeline is very strong. We have a very good funnel that we review regularly of our opportunities. We have gained a number of distributors already as a result of...
Have a very good funnel that we review regularly of opportunities. We have gained a number of distributors already.
Result of the activity in the market in the last few months. So as I said the adjustment is really just being told me going forward you know I would say that just to give you a little color here the quarter started out very well in the month of October So we'll see how the rest of the other asset quarter turns out.
Speaker 3: the activity in the market in the last few months. So as I said, the adjustment is really just being prudent going forward. You know, I would say that just to give you a little color here, the quarter started out very well in the month of October . So we'll see how the rest of the quarter turns out.
Speaker 7: And I'll turn it to Jeff for, yeah, your observation on EBITDA is spot on. And we're pretty proud of our ability to execute on the EBITDA line. Yeah, I think I think that's right. You know, as we continue to optimize our company footprint, as we go through the integration, that has been top of mind, obviously. And we're starting to see those those dollars flow through to the bottom line. And that's really the the story here is as we continue to gain synergies and.
And I'll turn it suggest for your observation on EBITDA is spot on and we're pretty proud of our ability to execute on the EBITDA line, Yes, I think I think that's right as we continue to optimize our company footprint as we go through the integration that has been top of mind, obviously and where I'm starting to see those those.
Dollars flow through to the bottom line and that's really the the <unk>.
Story here is as we continue to gain synergies.
Speaker 7: Optimization and our business where we're going to continue to see more dollars fall to the bottom line
Sure.
Optimization in our in our business, we're going to continue to see more dollars fall to the bottom line.
Speaker 5: Okay, that was both of the answers really good. Thank you. And you gave us I think a very encouraging update on the stability of the salesforce. I think that was your word as well.
Okay that was really good.
<unk>.
And Kevin you gave us I think a very encouraging update on the stability of the sales force I think that was your word as well.
Speaker 5: The question really is, how much risk is there from here? I guess in particular with some of the larger distributors you've onboarded over the last couple of years. Where your conversations are with the selling footprint, are we through the worst of it potentially? Obviously we're still at risk here, but just your thoughts on how far along you're on the process.
Question really is how much risk is there from here.
I guess in particular with some of the larger distributors you've on boarded over the last couple of years, where your conversations are with the.
Our selling footprint are we through the worst of it potentially obviously, we are still at risk here, but just your thoughts on how far along youre on the processes.
Speaker 5: sort of locking in the selling for a particular entity that you can and how much more risk is there from here over the next couple of...
I sort of locking in.
The selling so quickly that you can.
And how much how much more risk is there from here over the next couple of quarters.
Speaker 6: You know, so I'd say, you know, I meet regularly now with the sales leaders, trying to understand the funnel, trying to understand, you know, any distributed relationships that are up for renewal. You know, I think it's fair to say it's, you know, it's an all hands-on process at this point. I think, you know, we have very strong leadership at the top of the sales organization that are dealing with distributors, both new distributors and past distributors. And as I said, right now we're confident in moving forward with the pipeline that we have and the distributors that we have. We obviously have built.
So I'd say you know I meet regularly now with the sales leaders I'm trying to understand the funnel trying to understand you know any distributor relationships that are up for renewal you know I think it's fair to say, it's you know it's been all hands on process. At this point I think you know we have very strong leadership at the top of the <unk>.
<unk> organization that are dealing with distributors, both new distributors and past distributors.
And as I said right now we're confident.
Moving forward with the pipeline that we have and the distributors that we have obviously have built.
Speaker 6: additional inventory. We've talked about that in past calls. Our spinal steps, you know, are in the process that rolling out now so we can definitely get inventory into the hands of
Inventory, we've talked about that in past calls our spinal steps are in the process of rolling out now so we can definitely get inventory into the hands of our new distributors as well as updated.
Speaker 6: You know, our new distributors as well as updated inventory and sets to our existing distributors as we renew them going forward. So I guess the short answer is
Victoria and sets to our existing distributors ethylene unit as we renew them going forward. So I guess the short answer is I see things as being very stable at this point in time.
Speaker 6: I see things being very stable at this point in time. And as I mentioned, what we see right now is just the short term. We think relatively near term, slow down and decision-making.
And as I mentioned, what we see right now it's just a short term, we think relatively near term slowdown in decision making.
Speaker 5: Okay. And, Gabby, just to follow up to that last point, this is my last question, I swear, and you, I think, mentioned it to some extent, but obviously, you've got more instrument sets available, obviously, going to your new distributors, but what's your expectation or hope, your ability to use some of those sets to potentially onboard new distributors? Is that a possibility here, even in the midst of this uncertainty?
Okay.
The follow up to that last one this is my last question I swear.
And you I think mentioned it to some extent, but obviously you've got more instrument sets available.
Obviously going to your new distributors, but what's your expectation or hope the ability to use some of those sets potentially onboard new distributors is that a possibility here even in the midst.
All of this uncertainty.
Speaker 6: Yes, we're already onboarding numerous new distributors. I hear about this weekly in our meeting. So yeah, we are onboarding many new distributors. We're providing our steps to the distributors so that entire process is rolling forward as planned. Okay, thanks.
Yes, we're already Onboarding numerous new distributors.
About this weekly in our meeting so yeah. We are onboarding. Many new distributors were picked we're providing our steps to the distributors so that entire process. It's rolling forward as planned.
Okay. Thank you so much.
Welcome Mark.
Speaker 1: Actually that looks like our last question. We had somebody on the line that they dropped off. Okay, I would now like to turn the call back over to Kathy Persick for closing comments.
Right actually that looks like our last question, we have somebody on the line, but they dropped up.
I would now like to turn the call back over to Kathy for closing comments.
Speaker 6: All right, well, thank you very much. We're really pleased that all of you could join us on this afternoon for the conference call and have a good rest of the day. Thank you very much. I want to take care. Thank you. Thanks, Mr. Dave.
Alright, well. Thank you very much and we're really pleased that all of you could join US. This afternoon for the conference call and have a good rest of the day. Thank you very much take care.
In today's call have a pleasant day.
Speaker 8: Please wait, the conference will begin shortly.
Please wait the conference will begin shortly.
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