Orthofix Medical Inc

Previous wording

The merger with SeaSpine was completed on January 5, 2023, with SeaSpine continuing as a wholly-owned subsidiary of Orthofix following the transaction. For additional discussion of the merger with SeaSpine, see Note 4 of the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report. The shares of common stock of Orthofix, as the corporate parent entity in the combined company structure, continue to trade on NASDAQ under the symbol "OFIX".

Current wording

In January 2023 we completed a “merger of equals” transaction with SeaSpine whereby SeaSpine became a wholly owned subsidiary of the Company via an all-stock merger (the "Merger"). For additional discussion of the merger with SeaSpine, see Note 4 of the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report. The shares of common stock of Orthofix, as the corporate parent entity in the combined company structure, continue to trade on NASDAQ under the symbol "OFIX".

Previous wording

Net sales were $746.6 million, an increase of 62.1% on a reported basis and 61.6% on a constant currency basis

Current wording

Net sales were $799.5 million, an increase of 7.1% on both a reported and constant currency basis

Previous wording

U.S. Spinal Implants, Biologics, and Enabling Technologies growth of 7.6% on a pro forma basis over 2022

Current wording

U.S. Spinal Implants, Biologics, and Enabling Technologies growth of 7.0% compared to prior year

Previous wording

U.S. growth of 11.1% largely due to investments made in recent product launches, commercial execution within our sales channel, and from our best in class surgeon education programs

Current wording

U.S. growth of $4.7 million, or 16.4%, largely due to investments made in recent product launches, commercial execution within our sales channel, and from growth within our OSCAR PRO product line

Previous wording

Increase of $2.2 million due to movement in foreign current exchange rates, which had a favorable impact on net sales in 2023

Current wording

Decrease of $0.2 million due to movement in foreign current exchange rates, which had an unfavorable impact on net sales in 2024

Previous wording

Partially offset by $36.0 million in amortization of the inventory fair value step up at acquisition, which is being recognized over the expected sales cycles of the acquired inventory

Current wording

Increase of $23.9 million driven by a reduction of amortization of the inventory fair value step-up recognized in the Merger, which is being amortized over the expected sales cycles of the acquired inventory

Previous wording

Partially offset by a decrease of $1.5 million in costs to comply with the European Union Medical Device Regulations

Current wording

Decrease of $7.0 million in costs to comply with the European Union Medical Device Regulations

Previous wording

Partially offset by a benefit of $2.7 million recognized in 2023 associated with the remeasurement of a contingent consideration obligation with Lattus Spine LLC assumed in the Merger

Current wording

Increase of $9.6 million associated with the remeasurement of a contingent consideration obligation with Lattus Spine LLC assumed in the Merger

Previous wording

Non-operating income and expense largely consists of interest income and expense, transaction gains and losses from changes in foreign currency exchange rates, changes in fair value related to our equity holdings in certain privately-held companies, and credit losses recognized on certain convertible debt investments. Foreign exchange gains and losses are primarily a result of several of our foreign subsidiaries holding trade and intercompany payables or receivables in currencies (most notably the U.S. Dollar) other than their functional currency.

Current wording

Non-operating expense largely consists of net interest income and expense, transaction gains and losses from changes in foreign currency exchange rates, changes in fair value related to our equity holdings in certain privately-held companies, and credit losses recognized on certain convertible debt investments. Foreign exchange gains and losses are primarily a result of several of our foreign subsidiaries holding trade and intercompany payables or receivables in currencies (most notably the U.S. Dollar) other than their functional currency.

Previous wording

Interest expense, net, increased $7.3 million

Current wording

Interest expense, net, increased $21.0 million

Previous wording

On November 6, 2023, we entered into a Financing Agreement (the "Financing Agreement") with Blue Torch Finance LLC and certain lenders party thereto, which provides for a $100.0 million senior secured term loan (the "Initial Term Loan"), a $25.0 million senior secured delayed draw term loan facility (the "Delayed Draw Term Loan") which, subject to certain conditions specified in the Financing Agreement, may be drawn on or prior to March 30, 2024, and a $25.0 million senior secured revolving credit facility (the "Revolving Credit Facility", and together with the Initial Term Loan and the Delayed Draw Term Loan, the "Credit Facilities"), each of which mature on November 6, 2027. In connection with entering into the Financing Agreement, we repaid in full amounts outstanding and terminated all commitments under the prior $175.0 million senior secured revolving credit facility evidenced by that certain Second Amended and Restated Credit Agreement (the "Prior Credit Agreement"), dated as of October 25, 2019.

Current wording

Unfavorable change of $6.9 million attributable to the extinguishment of the Financing Agreement with Blue Torch Finance LLC

Previous wording

Favorable change of $4.9 million associated with changes in foreign currency exchange rates, as we recorded a non-cash remeasurement gain of $1.6 million in 2023 compared to a loss of $3.3 million in 2022

Current wording

Unfavorable change of $6.0 million associated with changes in foreign currency exchange rates, as we recorded a non-cash remeasurement loss of ($4.4 million) in 2024 compared to a gain of $1.6 million in 2023

Previous wording

Cash, cash equivalents, and restricted cash at December 31, 2023, was $37.8 million compared to $50.7 million at December 31, 2022.

Current wording

Cash, cash equivalents, and restricted cash at December 31, 2024, was $85.7 million compared to $37.8 million at December 31, 2023.

Previous wording

The following table presents free cash flow, a non-GAAP financial measure, which is calculated by subtracting capital expenditures from net cash from operating activities.

Current wording

The following table presents free cash flow, a non-GAAP financial measure, which is calculated by subtracting capital expenditures from net cash provided by or used in operating activities.

Previous wording

Unfavorable change in net loss of $24.4 million, excluding the impact of non-cash adjustments to net loss

Current wording

Favorable change in net loss of $25.4 million

Previous wording

Unfavorable change of $9.8 million relating to changes in working capital accounts, primarily attributable to changes in inventory levels, partially offset by recoupment activities associated with the CMS Accelerated and Advance Payment Program in prior year and favorable changes in accounts payable and other current liabilities

Current wording

Favorable change of $34.7 million relating to changes in working capital accounts, primarily attributable to changes in inventories, prepaid expenses and other current assets, accounts payable, and other current liabilities

Previous wording

Two of our primary working capital accounts are accounts receivable and inventory. Day’s sales in receivables were 59 days at December 31, 2023, compared to 62 days at December 31, 2022 (calculated using fourth quarter net sales and ending accounts receivable). Inventory turns were consistent at 1.2 times as of December 31, 2023, and December 31, 2022, respectively.

Current wording

Two of our primary working capital accounts are accounts receivable and inventory. Day’s sales in receivables were 57 days at December 31, 2024, compared to 59 days at December 31, 2023 (calculated using fourth quarter net sales and ending accounts receivable). Inventory turns improved to 1.3 times at December 31, 2024, compared to 1.2 times at December 31, 2023, respectively (calculated using trailing twelve month cost of goods sold and ending net inventories).

Previous wording

Cash flows from investing activities decreased $8.6 million

Current wording

Cash flows from investing activities increased $5.6 million

Previous wording

Partially offset by an increase of $29.4 million attributable to cash acquired as a result of the Merger

Current wording

Partially offset by a decrease of $29.4 million attributable to cash acquired as a result of the Merger in 2023

Previous wording

Cash flows from financing activities increased $65.4 million

Current wording

Cash flows from financing activities decreased $14.6 million

Previous wording

As of December 31, 2023, we have $100.0 million outstanding borrowings under the Financing Agreement related to the Initial Term Loan. As of December 31, 2023, we have not made any borrowings under the Delayed Draw Term Loan or the Revolving Credit Facility. However, on January 10, 2024, we borrowed $15.0 million under the $25.0 million secured revolving credit facility for working capital purposes. In addition, we intend to utilize the Delayed Draw Term Loan following the completion of the audit of financial statements for the year ended December 31, 2023. For additional information regarding the credit facility, see Note 11 of the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report.

Current wording

As of December 31, 2024, we had $160.0 million outstanding borrowings under the Credit Agreement related to the Initial Term Loan. As of December 31, 2024, we had not made any borrowings under the Delayed Draw Term Loans. For additional information regarding the credit facility, see Note 11 of the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report.

Previous wording

We have no outstanding borrowings on our Italian line of credit of €5.5 million ($6.1 million) as of December 31, 2023. This unsecured line of credit provides us the option to borrow amounts in Italy at rates which are determined at the time of borrowing.

Current wording

We had no outstanding borrowings on our Italian line of credit of €5.5 million ($5.7 million) as of December 31, 2024. This unsecured line of credit provides us the option to borrow amounts in Italy at rates which are determined at the time of borrowing.

Previous wording

In connection with the Merger, we assumed a contingent consideration obligation under a purchase agreement between SeaSpine and Lattus executed in December 2022. Under the terms of the agreement, we may be required to make installment payments at certain dates based on future net sales of certain products (the "Lateral Products"). The estimated fair value of the contingent consideration arrangement as of December 31, 2023, was $8.5 million; however, the actual amount ultimately paid could be higher or lower than the estimated fair value of the contingent consideration. As of December 31, 2023, we classified the remaining contingent consideration liability within other long-term liabilities. For additional discussion of this matter, see Note 12 of the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report.

Current wording

In connection with the Merger, we assumed a contingent consideration obligation under a purchase agreement between SeaSpine and Lattus executed in December 2022. Under the terms of the agreement, we may be required to make installment payments at certain dates based on future net sales of certain products (the "Lateral Products"). The estimated fair value of the contingent consideration arrangement as of December 31, 2024, was $15.4 million; however, the actual amount ultimately paid could be higher or lower than the estimated fair value of the contingent consideration. As of December 31, 2024, we classified $7.1 million of the contingent consideration liability within other current liabilities and the remaining $8.3 million within other long-term liabilities. For additional discussion of this matter, see Note 12 of the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report.

Previous wording

In May 2022, we achieved FDA approval pertaining to the acquired technology, triggering a contingent consideration milestone obligation of $3.5 million. Of this amount, $1.5 million was paid in 2022, $1.0 million was paid in May 2023, and $1.0 million was accrued within other current liabilities as of December 31, 2023.

Current wording

In May 2022, we received FDA approval for the acquired technology, which triggered a contingent consideration milestone obligation of $3.5 million. Of this amount, $1.5 million was paid in 2022, $1.0 million was paid in 2023, and the remaining $1.0 million was paid in 2024.

Previous wording

Unremitted foreign earnings were $33.6 million as of December 31, 2023. The Company’s investment in foreign subsidiaries continues to be indefinite in nature; however, the Company may periodically repatriate a portion of these earnings to the extent that it does not incur significant additional tax liability.

Current wording

Unremitted foreign earnings were $15.7 million as of December 31, 2024. The Company’s investment in foreign subsidiaries continues to be indefinite in nature; however, the Company may periodically repatriate a portion of these earnings to the extent that it does not incur significant additional tax liability.

Previous wording

We believe the estimates described below are the most critical in preparing our consolidated financial statements. We have reviewed these critical accounting estimates with the Audit Committee of the Board of Directors.

Current wording

We believe the estimates described below are the most critical in preparing our consolidated financial statements. We have reviewed these critical accounting estimates with the Audit and Finance Committee of the Board of Directors.

Previous wording

Biologics revenue is largely attributable to the U.S. and is mostly processed from within our Irvine facility. In addition, we have a long-standing collaborative arrangement with MTF that provides exclusive global marketing rights to MTF's Trinity and FiberFuse product families. We receive marketing fees from MTF based on sales of products covered under the collaborative arrangement. MTF is considered the principal in these arrangements; therefore, we recognize these marketing service fees on a net basis upon shipment of the product to the customer and receipt of a confirming purchase order.

Current wording

Biologics revenue is largely attributable to the U.S. and is mostly processed from within our Irvine facility. In addition, we have a long-standing collaborative arrangement with MTF Biologics ("MTF") that provides exclusive global marketing rights to MTF's Trinity and FiberFuse product families. We receive marketing fees from MTF based on sales of products covered under the collaborative arrangement. MTF is considered the principal in these arrangements; therefore, we recognize these marketing service fees on a net basis upon shipment of the product to the customer and receipt of a confirming purchase order.

Previous wording

The process for estimating the ultimate collection of accounts receivable involves significant assumptions and judgments. The determination of the contractual life of accounts receivable, the aging of outstanding receivables, as well as the historical collections, write-offs, and payor reimbursement experience over the estimated contractual lives of such receivables, are integral parts of the estimation process related to reserves for expected credit losses and the establishment of contractual allowances. Accounts receivable are analyzed on a quarterly basis to assess the adequacy of both reserves for expected credit losses and contractual allowances. Revisions in allowances for expected credit loss estimates are recorded as an adjustment to bad debt expense within sales and marketing expenses. Revisions to contractual allowances are recorded as an adjustment to net sales. These estimates are periodically tested against actual collection experience. In addition, we analyze our receivables by geography and by customer type, where appropriate, in developing estimates for expected credit losses.

Current wording

The process for estimating the ultimate collection of accounts receivable involves significant assumptions and judgments. The determination of the contractual life of accounts receivable, the aging of outstanding receivables, as well as the historical collections, write-offs, and payor reimbursement experience over the estimated contractual lives of such receivables, are integral parts of the estimation process related to reserves for expected credit losses and the establishment of contractual allowances. Accounts receivable are analyzed on a quarterly basis to assess the adequacy of both reserves for expected credit losses and contractual allowances. Revisions in allowances for expected credit loss estimates are recorded as an adjustment to bad debt expense within sales, general, and administrative expenses. Revisions to contractual allowances are recorded as an adjustment to net sales. These estimates are periodically tested against actual collection experience. In addition, we analyze our receivables by geography and by customer type, where appropriate, in developing estimates for expected credit losses.

Previous wording

We believe our allowance for credit losses is sufficient to cover customer credit risks; however, a 10% change in our allowance for credit losses as of December 31, 2023, would result in an increase or decrease to sales and marketing expense of $0.7 million. Additionally, we believe our estimate to establish contractual allowances is sufficient to cover customer credit risks; however, a 10% change in our reserve for contractual allowances as of December 31, 2023, would result in an increase or decrease to net sales of $0.4 million. Our allowance for credit losses and estimation of contractual allowances are “critical accounting estimates” because changes in the assumptions used to develop the estimates could materially affect key financial measures, including net sales, gross margin, operating income, adjusted EBITDA, net income, and accounts receivable.

Current wording

We believe our allowance for credit losses is sufficient to cover customer credit risks; however, a 10% change in our allowance for credit losses as of December 31, 2024, would result in an increase or decrease to sales, general, and administrative expense of $0.7 million. Additionally, we believe our estimate to establish contractual allowances is sufficient to cover customer credit risks; however, a 10% change in our reserve for contractual allowances as of December 31, 2024, would result in an increase or decrease to net sales of $0.4 million. Our allowance for credit losses and estimation of contractual allowances are "critical accounting estimates" because changes in the assumptions used to develop the estimates could materially affect key financial measures, including net sales, gross margin, operating income, adjusted EBITDA, net income, and accounts receivable.

Previous wording

In the fourth quarter of 2021, we performed a quantitative assessment for our annual goodwill impairment analysis. Upon estimating the fair value of each of reporting unit, we determined the Global Orthopedics reporting unit’s fair value was less than its carrying value of net assets. This resulted in recording a full impairment of the Global Orthopedics goodwill of $11.8 million, which was reflected within Acquisition-related amortization and remeasurement for the year ended December 31, 2021. The assessment concluded there were no indicators of impairment for the Global Spine goodwill.

Current wording

In the fourth quarter of 2024, we performed a quantitative assessment for our annual goodwill impairment analysis, which did not result in an impairment charge. Upon performing our assessment, we determined the Global Spine reporting unit's fair value exceeded its carrying value and concluded there were no indicators of impairment.

Previous wording

The contingent consideration obligation consists of future installment payments at certain dates based on future net sales of Lateral Products. The estimated fair value of the contingent consideration arrangement as of December 31, 2023, was $8.5 million; however, the actual amount ultimately paid could be higher or lower than the estimated fair value of the contingent consideration.

Current wording

The contingent consideration obligation consists of future installment payments at certain dates based on future net sales of Lateral Products. The estimated fair value of the contingent consideration arrangement as of December 31, 2024, was $15.4 million; however, the actual amount ultimately paid could be higher or lower than the estimated fair value of the contingent consideration.

Previous wording

We estimate the fair value of our convertible loan agreements with Neo Medical using option-pricing models and a probability-weighted discounted cash flow model. The fair value measurement is based on significant inputs that are unobservable in the market, with significant unobservable inputs including applicable discount rates, implied volatility, the likelihood and projected timing of repayment or conversion, and projected cash flows in support of the estimated enterprise value of Neo Medical. Significant changes in these assumptions could result in a significantly higher or lower fair value. Holding other inputs constant, an increase of the present value factor by 5% would have resulted in a decrease in the fair value of the convertible loan of $0.5 million, whereas a decrease of the present value factor by 5% would have resulted in an increase in the fair value of the convertible loan by $0.2 million.

Current wording

We estimate the fair value of our convertible loan agreements with Neo Medical using option-pricing models and a probability-weighted discounted cash flow model. The fair value measurement is based on significant inputs that are unobservable in the market, with significant unobservable inputs including applicable discount rates, implied volatility, the likelihood and projected timing of repayment or conversion, and projected cash flows in support of the estimated enterprise value of Neo Medical. Significant changes in these assumptions could result in a significantly higher or lower fair value. In April 2024, we converted the convertible loan into shares of Neo Medical preferred equity securities, which were recorded in other long-term assets and considered an investment that does not have a readily determinable fair value. The preferred equity securities were recorded at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. In November 2024, we sold our shares of Neo Medical preferred equity for $7.4 million.

Previous wording

As part of the Merger, we acquired SeaSpine's inventory, including raw materials, work-in-process ("WIP"), and finished goods. Raw materials had not been subjected to any manufacturing processes that would add additional value, therefore we determined book value is representative of fair value. We assessed the fair value of the WIP and finished goods inventory using the comparative sales method. The estimated step-up in fair value on acquired inventory recognized in connection with the Merger was $48.2 million. As of December 31, 2023, the unamortized step-up in fair value on acquired inventory remaining was $12.2 million.

Current wording

As part of the Merger, we acquired SeaSpine's inventory, including raw materials, work-in-process ("WIP"), and finished goods. Raw materials had not been subjected to any manufacturing processes that would add additional value, therefore we determined book value is representative of fair value. We assessed the fair value of the WIP and finished goods inventory using the comparative sales method. The estimated step-up in fair value on acquired inventory recognized in connection with the Merger was $48.2 million. As of December 31, 2024, the step-up in fair value on acquired inventory was fully amortized.

Previous wording

From time to time, we are parties to or targets of lawsuits, investigations, and proceedings, including product liability, personal injury, patent and intellectual property, health and safety, and employment and healthcare regulatory matters, which are handled and defended in the ordinary course of business. These lawsuits, investigations, or proceedings could involve a substantial number of claims and could also have an adverse impact on our reputation and customer base. Although we maintain various liability insurance programs for liabilities that could result from such lawsuits, investigations, or proceedings, we are self-insured for a significant portion of such liabilities.

Current wording

From time to time, we are parties to or targets of lawsuits, investigations, and proceedings, including product liability, personal injury, patent and intellectual property, health and safety, employment, and healthcare regulatory matters, which are handled and defended in the ordinary course of business. These lawsuits, investigations, or proceedings could involve a substantial number of claims and could also have an adverse impact on our reputation and customer base. Although we maintain various liability insurance programs for liabilities that could result from such lawsuits, investigations, or proceedings, we are self-insured for a significant portion of such liabilities.

Previous wording

We and each of our subsidiaries are taxed at the rates applicable within each of their respective jurisdictions. Our income tax expense, effective tax rate, deferred tax assets, and deferred tax liabilities will vary according to the jurisdiction in which profits arise. Further, certain of our subsidiaries sell products directly to our other subsidiaries or provide administrative, marketing, and support services to our other subsidiaries. These intercompany sales and support services involve subsidiaries operating in jurisdictions with differing tax rates. The tax authorities in such jurisdictions may challenge our treatment under residency criteria, transfer pricing provisions, or other aspects of their respective tax laws, which could affect our composite tax rate and provisions.

Current wording

We and each of our subsidiaries are taxed at the rates applicable within each of our respective jurisdictions. Our income tax expense, effective tax rate, deferred tax assets, and deferred tax liabilities will vary according to the jurisdiction in which profits arise. Further, certain of our subsidiaries sell products directly to our other subsidiaries or provide administrative, marketing, and support services to our other subsidiaries. These intercompany sales and support services involve subsidiaries operating in jurisdictions with differing tax rates. The tax authorities in such jurisdictions may challenge our treatment under residency criteria, transfer pricing provisions, or other aspects of their respective tax laws, which could affect our composite tax rate and provisions.

Previous wording

Adjusted EBITDA represents earnings before interest income (expense), income taxes, depreciation, and amortization and excludes the impact of share-based compensation, gains and losses related to changes in foreign exchange rates, charges related to the SeaSpine merger and other strategic investments, acquisition-related fair value adjustments, interest and gains and losses on investments, litigation and investigation costs, charges related to initial compliance with regulations set forth by the European Union Medical Device Regulation, charges related to business interruption resulting from the COVID-19 pandemic, and succession charges. Adjusted EBITDA is the primary metric used by our Chief Operating Decision Maker in managing the business.

Current wording

Adjusted EBITDA represents earnings before interest income (expense), income taxes, depreciation, and amortization, and excludes the impact of share-based compensation, gains and losses related to changes in foreign exchange rates, charges related to the SeaSpine merger and other strategic investments, acquisition-related fair value adjustments, gains and/or losses on investments, litigation and investigation charges, charges related to initial compliance with regulations set forth by the European Union Medical Device Regulation, and succession charges. Adjusted EBITDA is the primary metric used by our Chief Operating Decision Maker in managing the business.

Previous wording

Free cash flow is a non-GAAP financial measure, which is calculated by subtracting capital expenditures from net cash from operating activities. Free cash flow is an important indicator of how much cash is generated or used by our normal business operations, including capital expenditures. Management uses free cash flow as a measure of progress on its capital efficiency and cash flow initiatives.

Current wording

Free cash flow is a non-GAAP financial measure, which is calculated by subtracting capital expenditures from net cash provided by or used in operating activities. Free cash flow is an important indicator of how much cash is generated or used by our normal business operations, including capital expenditures. Management uses free cash flow as a measure of progress on its capital efficiency and cash flow initiatives.