LEWISVILLE, Texas–(BUSINESS WIRE)–Aug. 6, 2020– Orthofix Medical Inc. (NASDAQ:OFIX) today reported its financial results for the second quarter ended June 30, 2020. Net sales were $73.1 million, earnings per share (“EPS”) was ($0.96) and adjusted EPS was ($0.59).
“Despite the significant impact of COVID-19 in the second quarter, we continued to execute successfully against our strategic initiatives,” said Orthofix President and Chief Executive Officer Jon Serbousek. “In particular, with the regulatory clearances of the Firebird™ SI Fusion System and the JuniOrtho™ Plating System, we believe we are making progress in creating a high-velocity new product innovation program.”
Mr. Serbousek continued, “After reaching a low point in April, revenues rebounded sequentially in both May and June in large part due to the business continuity initiatives we put into place as well our emphasis on accelerating our commercial efforts. For example, even in spite of the lower elective procedure volumes during the quarter, Motion Preservation U.S. sales continued to outperform our expectations, with rapid adoption of the M6-C™ artificial cervical disc. Looking to the balance of the year, we are optimistic about the continued recovery in our business and markets and intend to continue to invest in our strategic initiatives aimed at driving growth in the business while maintaining the strength of our balance sheet to best position Orthofix for long-term success. However, we believe it is still difficult to accurately predict the ongoing disruption that will be caused by the pandemic.”
Financial Results Overview
The following table provides net sales by major product category by reporting segment:
Gross profit decreased $40.1 million to $50.0 million, primarily attributable to the decline in net sales as a result of COVID-19. Gross margin decreased to 68.3% compared to 77.7% in the prior year period.
Net loss was ($18.4) million, or ($0.96) per share, compared to net loss of ($0.5) million, or ($0.03) per share in the prior year period. Adjusted net loss was ($11.3) million, or ($0.59) per share, compared to adjusted net income of $5.5 million, or $0.28 per share in the prior year period.
EBITDA was ($9.0) million, compared to $6.4 million in the prior year period. Adjusted EBITDA was ($5.6) million, or (7.6%) of net sales, compared to $17.3 million, or 14.9% of net sales, in the prior year period.
Liquidity
As of June 30, 2020, cash, cash equivalents, and restricted cash totaled $173.4 million compared to $70.4 million as of December 31, 2019. As of June 30, 2020, the Company had $100.0 million in borrowings under the five year $300 million secured revolving credit facility. Cash flow from operations increased $21.8 million to $30.1 million, while free cash flow increased $22.8 million to $20.8 million.
In July 2020, the Company repaid $50.0 million related to its borrowings under the secured revolving credit facility. Subsequent to this payment, the Company had $50.0 million in borrowings under the secured revolving credit facility.
COVID-19 Impact
The global Coronavirus Disease 2019 (“COVID-19”) pandemic is significantly affecting the Company’s patients, communities, employees and business operations. The pandemic has led to the temporary closure of businesses, restrictions on travel and the implementation of physical distancing measures around the world. However, the Company remains focused on protecting the health and wellbeing of its employees, partners, patients, and the communities in which it operates while assuring the continuity of its business operations.
At this time, the future trajectory of the COVID-19 pandemic remains very uncertain, both in the U.S. and in other markets. Given these various uncertainties, it is unclear the extent to which lingering slowdowns in elective procedures will affect the Company’s business during the second half of 2020 and beyond. The expected effects of COVID-19 on the Company’s business will depend on various factors including (i) the comfort level of patients in returning to clinics and hospitals, (ii) the extent to which localized elective surgery shutdowns occur, (iii) the unemployment rate’s effect on potential patients lacking medical insurance coverage, and (iv) general hospital capacity constraints occurring because of the need to treat high volumes of COVID-19 patients. As such, the Company is not providing quantitative guidance for the third quarter of 2020 or for the full year at this time.
Conference Call
Orthofix will host a conference call today at 8:30 AM Eastern time to discuss the Company’s financial results for the second quarter 2020. Interested parties may access the conference call by dialing (844) 809-1992 in the U.S. and (612) 979-9886 outside the U.S., and referencing the conference ID 7289908. A replay of the call will be available for two weeks by dialing (855) 859-2056 in the U.S. and (404) 537-3406 outside the U.S., and entering the conference ID 7289908. A webcast of the conference call may be accessed by going to the Company’s website at www.orthofix.com, by clicking on the Investors link and then the Events and Presentations page.
About Orthofix
Orthofix Medical Inc. is a global medical device company focused on musculoskeletal products and therapies. The Company’s mission is to improve patients’ lives by providing superior reconstruction and regenerative musculoskeletal solutions to physicians worldwide. Headquartered in Lewisville, Texas, Orthofix’s spine and orthopedic extremities products are distributed in over 70 countries via the Company’s sales representatives and distributors. For more information, please visit www.orthofix.com.
Forward-Looking Statements
This communication contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (“the Exchange Act”), and Section 27A of the Securities Act of 1933, as amended, relating to our business and financial outlook, which are based on our current beliefs, assumptions, expectations, estimates, forecasts and projections. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “intends,” “predicts,” “potential,” or “continue” or other comparable terminology. These forward-looking statements are not guarantees of our future performance and involve risks, uncertainties, estimates and assumptions that are difficult to predict, including the risks described in Part II Item 1A under the heading Risk Factors of our quarterly report on Form 10-Q for the quarter ended June 30, 2020; Part I, Item 1A under the heading Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”); Part II, Item 1A under the heading Risk Factors of our Quarterly report on Form 10-Q for the quarterly periodly ended March 31, 2020; and other Securities and Exchange Commission (“SEC”) filings. In addition to the risks described there, factors that could cause or contribute to such differences may include, but are not limited to, risks relating to the effects of the COVID-19 pandemic on our business, including (i) surgeries that use our products being delayed or cancelled as a result of hospitals and surgery centers being closed or limited to life-threatening and/or essential procedures, (ii) portions of our global workforce being unable to work fully and/or effectively due to illness, quarantines, government actions (including “shelter in place” orders or advisories), facility closures or other reasons related to the pandemic, (iii) disruptions to our supply chain, (iv) volatility in global capital markets limiting our access to financing for potential acquisitions or working capital, (v) customers and payors being unable to satisfy contractual obligations to us, including the ability to make timely payment for purchases, (vi) general economic weakness in markets in which we operate affecting customer spending, and (vii) other unpredictable aspects of the pandemic. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in Part I, Item 1A under the heading Risk Factors in our 2019 Form 10-K, such as our need to generate sufficient cash flows to service indebtedness and our ability to protect our information technology networks and infrastructure from unauthorized access, misuse, malware, phishing and other events that could have a security impact as a result of our remote working environment or otherwise. As a result of these various risks, our actual outcomes and results may differ materially from those expressed in these forward-looking statements.
This list of risks, uncertainties and other factors is not complete. We discuss some of these matters more fully, as well as certain risk factors that could affect our business, financial condition, results of operations, and prospects, in reports we file from time-to-time with the SEC, which our available to read at www.sec.gov. Any or all forward-looking statements that we make may turn out to be wrong (due to inaccurate assumptions that we make or otherwise), and our actual outcomes and results may differ materially from those expressed in these forward-looking statements. You should not place undue reliance on any of these forward-looking statements. Further, any forward-looking statement speaks only as of the date hereof, unless it is specifically otherwise stated to be made as of a different date. We undertake no obligation to update, and expressly disclaim any duty to update, our forward-looking statements, whether as a result of circumstances or events that arise after the date hereof, new information, or otherwise.