Q3 2025 Orthofix Medical Inc Earnings Call

Speaker #1: Hello and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Orthofix third quarter 2025 earnings conference call.

Speaker #1: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad.

Speaker #1: To withdraw your question, press star one again. We kindly ask that you please limit your questions to one and one related follow-up. I'd now like to turn the conference over to Julie Dewey.

Speaker #1: Please go ahead.

Speaker #2: Thank you, Operator, and good morning, everyone. Welcome to Orthofix's third quarter 2025 earnings call. We appreciate you joining us. I'm Julie Dewey, Orthofix's Chief IR and Communications Officer.

Speaker #2: Joining me on the call today are President and Chief Executive Officer Massimo Calafiore and Chief Financial Officer Julie Andrews. Before we get started, please note that our earnings release and the supplemental presentation accompanying this call are available on the events and presentations page of the investor section of our corporate website at orthofix.com.

Speaker #2: Also, this call is being broadcast live over the internet to all interested parties, and an archived copy of this webcast will be available in the investor section of our corporate website shortly after the conclusion of this call.

Speaker #2: During this call, we'll be making forward-looking statements that involve risks and uncertainties. All statements, other than those of historical facts, are forward-looking statements. We do not undertake any obligation to revise or update such forward-looking statements.

Speaker #2: Factors that could cause actual results to differ materially are discussed in our most recent filings with the SEC and may be included in our future filings with the SEC.

Speaker #2: In addition, on today's call, we will refer to various non-GAAP financial measures. Please refer to today's news release announcing our third quarter 2025 results for information regarding our non-GAAP results, including our reconciliations of these non-GAAP financial measures to our US GAAP results.

Speaker #2: Additionally, and unless otherwise stated, all net sales percentage changes discussed will be on a pro forma constant currency year-over-year basis excluding the impact from the discontinuation of the M6 artificial disc product lines and all results of operations that we will refer to will be on a non-GAAP as adjusted basis.

Speaker #2: We have posted a pro forma P&L excluding M6 on our website to assist you with updating your models. We will update it on a quarterly basis for the remainder of 2025.

Speaker #2: Moving to today's agenda, Massimo will open with comments on our performance and business updates. Julie Andrews will then review the specifics of our third quarter results and our 2025 financial guidance before we open it up for questions.

Speaker #2: With that, I'll now turn the call over to Massimo.

Speaker #3: Thank you, Julie. Good morning, everyone, and thank you for joining us today. Orthofix, delivered another strong quarter reinforcing our track record of consistent execution and financial discipline.

Speaker #3: We achieved solid year-over-year and sequential revenue growth led by strong performance in our USA spine and orthopedics businesses. This marks our seventh consecutive quarter of adjusted EBITDA margin expansion and sustained positive free cash flow generation.

Speaker #3: Clear evidence of our disciplined approach to operational efficiency and cost management. In our US spine fixation segment, net sales increased 8%. With procedural volume up 10%.

Speaker #3: Both ahead of Q2 and the prior year. These above market growth was fueled by the continued adoption of our 7D flash navigation system and strong momentum across our spine portfolios.

Speaker #3: Lateral grew 24%, while posterior cervical and anterior lumbar both grew 17%. And MIS lumbar grew 18%. We are seeing encouraging momentum from recent distributor transitions which are expanding our commercial reach.

Speaker #3: Our top 30 US distributor partners grew net sales 25% year-over-year in Q3. And 33% on a trailing 12 months basis. A clear validation of our go-to-market strategy and its ability to unlock accelerated growth.

Speaker #3: As we continue to optimize our channel we are confident this trajectory will drive further market share gains and long-term value creation. 7D unit placements in the US are up year to date compared to prior year and our Voyager are now programmed continues to outperform.

Speaker #3: We customers surpassing their purchase commitments by over 50% on average. The 7D technology remains a key differentiator enhancing surgical precision and workflow efficiency. And is central to our ability to win share in a competitive market.

Speaker #3: Now, let's turn to one of the most exciting developments in our spine portfolio, the limited market release of our new Virada spinal fixation system.

Speaker #3: Every aspect of Virada, from our proprietary pedicle screw design to intuitive instrumentation that integrates seamlessly with 7D flash navigation, is engineered to optimize surgical workflow, boost surgeon confidence, and accelerate procedural adoption.

Speaker #3: All key differentiators that we fully intend to capitalize on to capture market share. To put this into perspective, the US pedicle screw market valued approximately $2 billion in 2025 is projected to grow at a steady 4% to 5% CAGR through 2030, fueled by an aging population and increasing spinal disorders.

Speaker #3: Like our successful North Star posterior cervical system, we believe Virada will set a new standard in pedicle screw fixation. Driven by its integration with 7D, we expect Virada will become a meaningful growth driver following its fully launched in the second half of next year.

Speaker #3: And beyond Virada, we are advancing our data-driven deformity strategy with access to pre-operative planning and patient-specific roads beginning in Q1 of next year. Further strengthening our competitive edge.

Speaker #3: Our orthopedics business also had a standout quarter, with U.S. orthopedics growing 19%, marking the fifth consecutive quarter of double-digit growth. This performance was driven by the successful global launch of TrueLoc Elevate and supported by new product introductions, including the FitBoard bone transport and the FitBoard trochanteric lengthening nails.

Speaker #3: We are proud to be the only company in the US offering a complete suite of internal and external limbal reconstruction solutions and our dedicated focus on these 2.6 billion dollar market is yielding strong results.

Speaker #3: Our bone growth therapies BGT teams continue to excel delivering a bone market growth of 6%. By leveraging cross-selling opportunities and multiple access points to reinforce our market leadership position.

Speaker #3: Looking ahead, we remain focused on three strategic priorities: sharpening commercial execution to drive deeper market penetration and adoption of our 7D flash navigation system.

Speaker #3: Improving gross margin through targeted operational initiatives and maintaining disciplined capital allocation with a continued focus on adjusted EBITDA expansion and free cash flow generation.

Speaker #3: As we look towards 2026, I believe we are well positioned for our next phase of profitable growth. With a streamlined differentiated product portfolio optimized spine commercial channel and unique enabling technologies, we are ready to deliver transformative innovation that benefits both surgeons and patients.

Speaker #3: With a healthy commercial pipeline, well-defined and transformative innovation roadmap, and strong execution, we believe we have a clear path to sustained growth that outperforms the market.

Speaker #3: Driving margin expansion, free cash flow generation, and positive shareholders' returns. Thank you for your time and continued support. With that, I'll now turn the call over to Julie Andrews, to review our third quarter financial results and our 2025 guidance.

Speaker #2: Thank you, Massimo, and good morning, everyone. Before we dive into the numbers, a quick reminder: all net sales growth rates I'll reference today are on a pro forma constant currency basis excluding the impact of net sales related to the discontinuation of the M6 artificial cervical and lumbar discs.

Speaker #2: These are non-GAAP financial measures as outlined earlier in the call. I encourage you to review the reconciliations in our press release and the supplemental materials posted on our website which include pro forma results through Q3 to support your modeling.

Speaker #2: In Q3, we remained focused on distributor transitions in spine and biologics and surgeon-driven innovation. Through disciplined resource allocation, we're prioritizing high return opportunities that support share capture in US spine and orthopedics margin improvement and free cash flow generation, positioning us for sustainable, profitable growth.

Speaker #2: Total global net sales reached $203.4 million a 6% increase over the prior year driven by strong performance in our US spine and orthopedic segments.

Speaker #2: Our spine fixation business saw meaningful step up from Q2, continuing to outperform the market. Orthopedics saw strong results Elevate launch. I will now take you through the net sales results by product segment.

Speaker #2: Global spinal implants biologics and enabling technologies delivered $108.6 million in pro forma net sales up 6% year over year. Growth was supported by targeted distributor transitions and key geographies which is positively impacting both our US spine and biologics businesses.

Speaker #2: US spine fixation saw increased procedure volume of 10% partially offset by a price decrease at a major account as previously disclosed. Propelled by expansion into new markets and deeper penetration with an established regions, international spine fixation net sales grew by 86% year over year.

Speaker #2: Bone growth therapies achieved 61.2 million in net sales reflecting 6% growth outperforming the market. We expect BGT growth to remain above market rates of 2 to 3% driven by new surgeon additions and competitive conversions especially in the fracture channel.

Speaker #2: Global orthopedics grew 6% to 33.6 million in the third quarter led by 19% growth in the US as a result of the market release of TrueLoc Elevate and the FitBoard bone transport nail.

Speaker #2: International orthopedics grew 1% consistent with expectations given variability in stocking distributor and tender order timing that can occur from quarter to quarter. Moving down the P&L, pro forma non-GAAP adjusted growth margin reached 72.1% up 80 basis points from Q3 2024 driven by the discontinuation of M6 and productivity improvements partially offset by unfavorable geography mix due to increased net sales and international spinal implants biologics and enabling technologies.

Speaker #2: Pro forma non-GAAP adjusted EBITDA was 24.6 million or 12.1% of net sales with year-over-year margin expansion of $230 basis points led by the discontinuation of M6.

Speaker #2: As Massimo noted, this marks our seventh consecutive quarter of EBITDA margin expansion underscoring the scalability of our model and operational discipline. We generated positive free cash flow of $2.5 million ending the quarter with 65.9 million in total cash including restricted cash supporting continued innovation and financial flexibility.

Speaker #2: Moving on to 2025 full year guidance. We are narrowing our full year pro forma net sales guidance range to $810 million to $814 million with a midpoint of $812 million unchanged from prior guidance of $808 million to $816 million.

Speaker #2: This guidance range excludes revenue from the discontinued M6 product lines and implies fourth quarter pro forma net sales will be approximately $219 million. These projections are based on current foreign currency exchange rates and do not account for any further changes to exchange rates for the remainder of the year.

Speaker #2: We are raising the bottom end of our full year 2025 pro forma non-GAAP adjusted EBITDA guidance range to $84 million with an updated range of $84 million to $86 million and a midpoint of $85 million representing $200 basis points of adjusted EBITDA margin expansion at the midpoint versus 2024.

in the clear path for innovation-led growth or to fix is well positioned to deliver long-term value for our shareholders and advanced

our strategic priorities.

Operator, let's now open the line for questions.

We will now begin the question and answer session. If you would like to ask a question simply press star, then the number 1 on your telephone keypad. We kindly ask that, you limit your questions to 1 and 1 related to follow-up. Our first question will come from the line of Tom Stephan with steeple. Please go ahead.

Great. Hey guys, thanks for taking the questions. Um I want to start, I guess 2 questions 1, kind of near-term, Revenue 1 long-term um kicking things off with with near-term. Um just on 2025 Revenue, guidance be

3Q on proforma by about 3 million, but the midpoint of guidance was was unchanged.

And I think 4q Revenue implies uh a slight diesel to about 4% growth from 6% in 3 Q. So, Julie, or masimo. Maybe if you can talk about some of the moving Parts with the implied 4q, 25 Revenue figure and maybe what held back sort of a flush through of the of the 3Q Topline beat.

Yeah. Hi, uh, Tom. Thanks for the question. You know, we, you know, we set our guidance, you know, is what, where we feel, it's appropriate for the year. Um, you know, I think we had a very strong Q4 last year and so we you know, up against a little bit of comparability and so we feel like we've set it appropriately um within the range of what we expect for the fourth quarter.

1 a bit more long-term I guess. So, as as we think about the 2027 Financial Targets on on Revenue, um Julie maybe just stick with you. Can you just help us a bit with sort of the path to the 6 and a half to 7 and a half percent kegger? Do we think about both?

2026 and 2027 within that band to get there or is growth maybe more weighted to

either 26 or 27. Um, and then maybe if you can talk about kind of key puts and takes for 2026 on the top line, that'd be great. Thanks for taking the questions.

Sure, thanks. Tom, you know, we're not providing 2026 guidance today. Um, but in speaking about our, you know, our long range plan, you know, I think it will be a little bit more, it will be a little bit more weighted towards 2027. Um, primary drivers of that. We will have a full launch of Vata in 2027. So we're launching that, you know, we talked about launching that mid-year next year. So that will be a full launch. In addition, you know, we've talked a lot about

Out the true lock Elevate launch which we are now in full launch of, but that is a market development, um, you know, type of launch. And so we will see continued acceleration of that and deeper acceleration of that, you know, into 2027.

Yeah, Tom. Let me add some other, some more caller. And then you see the momentum that we're getting with, uh, uh, the addition of our, uh, new distributors.

That's great. Thanks so much, congrats on the progress.

Thanks Tom.

Our next question will come from the line of Mike pesky. With barington research, please go ahead.

Hey, good morning. Um so I I guess I I don't wanted to try to drill down on the uh strength in US spine. Can you sort of uh, talk about, you know what you think are the the most key drivers in in in that in that strong result? I mean, is it 70? Pull through is, is it the distributor transition? Uh, you know, C. Can you just talk about what's driving sort of above average market growth in US spine things?

Uh, thank you Mike. Look, I I think that this uh, there are 3 key uh, 3 key points for US 1, we're seeing encouraging momentum from this recent distributor transition,

if you think about, if you drill down or the top 30 of our us distributor Partners grew net sales 25% year-over-year in Q3 and 33% on a trailing 12-month basis.

and this is a clear validation, that, that tough decision that we took, uh, starting, uh, our tenure, I start to paying off and all, and all of this, you know, like it's been bringing more Capital efficient commercial, uh, partners that can help us to drive the profitable growth that we, uh,

That you want to achieve at the same point. Um, we want to be, uh, company that lead with Innovation, the commercial. The, our pipeline from the product standpoint is very exciting. There is a lot of support what we are doing. So, with virada, uh, a very successful Alpha line so far. And of course the our Pinnacle of strategy 7D which keep driving positive. Momentum our same placement are up, year-over-year, our Voyager. And our program is being uh still being a very a great success.

And just remember that on average.

Our customers are testing. Fifty percent of fifty percent of our customers are passing their commitment on usage of our implants, so it's a great foundation to build up our spine business.

Okay, great. And then just a quick 1 for Julie. Uh I I would certainly expect I guess Q4 free cash flow uh to be strong relative to, you know, each of the first 3 quarters. I'm just curious, though, you had a very strong free cash flow quarter. Last Q4. Last year is Q4, would, would, is there any chance that you could exceed that that, that figure, uh, this Q4 or, or should we model more concern?

Conservatively. Thanks.

Yeah, I mean I think you know what? We've guided is that? We'll be free. Cash flow positive for the second half.

Of of 2025, we haven't specifically, you know, given a number for the porters or a specifically said what that that number is um, what I would say is, you know, I think I wouldn't expect it to probably be at the same level as last year. Um, I think, you know, we're forward placing some inventory to get a good start to next year. Uh, so I expect a little bit more in capital usage and inventory um from a working capital standpoint. But uh, it would expect, you know, the again that will be free cash flow positive for the second half of the

Great, thanks. That's that's helpful. Thank you.

Your question, press.

From the line of Jeff Cohen with ladenburg Felman, please go ahead.

Contributor, uh, increases in transition. Particularly domestically have, you transitioned from existing ones to current ones or have the current ones expanded.

I I think this is a combination so we start to consolidate our, our distribution to distributor partner in some areas.

So, instead of having multiple multiple agents distributor in, uh, serving same account, we start to consolidate to the 1 that we believe can scale in the future.

And of course, we look at geography, by geography in areas where we want to win, and then we can add or add a new Distributors to to, you know, to start to attack.

The country where we saw that, we didn't have a good presence. So I could say that is a combination of the 2.

Extension and consolidation.

Got it and then you should follow up. Can you talk about this um, tbg with Sri Lanka Elevate? As far as, uh, the 1 study that was published on uh, increased

Critical vascularization. Would you expect there to be more studies and Publications that are uh currently being uh done or in the future? Thank you.

Yeah, we believe in clinical validation of our product, so, uh, is in the pipeline for us to participate, uh, but at the same time, we see a lot of interest in the surgeon Community around the procedure, so I will not be surprised. If other centers are going to start to study the specific surgical technique. So, very excited about the opportunities. Uh, there is a specific focus of our organization on validate, what we do with Elevate and, uh, we are ready to build a great story around that.

Perfect. Thanks for taking our questions.

and that will conclude our question and

Thank you everyone for joining us today. We sincerely. Appreciate your time and interest and orthofix. If you have any questions as usual, please reach out. We look forward to continuing the conversation next quarter. This concludes today's call

this concludes our call, thanks for joining. You may now disconnect