OFIX

The following discussion and analysis of Orthofix Medical Inc.'s (sometimes referred to as the "Company," "we," "us" or "our") financial condition and results of operations should be read in conjunction with the discussion under the heading "Forward-Looking Statements" and our condensed consolidated financial statements and related notes thereto appearing elsewhere in this Form 10-Q. Executive Summary We are a global medical technology company dedicated to advancing healing and restoring mobility for patients with complex musculoskeletal conditions. Headquartered in Lewisville, Texas, we offer a differentiated portfolio of spinal implants, therapeutic solutions, limb reconstruction systems, biologics and enabling technologies, including the 7D FLASH Navigation System. Our technology-enabled solutions are designed to support surgeons across the continuum of care and improve outcomes for patients. Learn more at Orthofix.com and follow us on LinkedIn. Information included on our website is not incorporated into, nor does it otherwise create a part of, this report. Notable financial metrics in the second quarter of 2026 and recent achievements include the following: •Second quarter 2026 reported net sales of $210.9 million, representing an increase of 4% on a reported basis and 5% on a pro forma constant currency basis compared to second quarter 2025. •Generated double-digit constant currency growth in Global Spine Fixation and Global Limb Reconstruction, reflecting strong international performance and continued demand across key growth platforms. •Therapeutic Solutions (formerly Bone Growth Therapies) delivered 3% year-over-year net sales growth despite a temporary Medicare reimbursement headwind affecting bone growth stimulators during part of the second quarter. For additional discussion of this matter, see Note 16 of the Notes to the Unaudited Condensed Consolidated Financial Statements. •Biologics stabilized and began to regain momentum, supported by focused commercial execution. •Second quarter 2026 reported net loss of $(15.8) million and non-GAAP adjusted EBITDA of $20.1 million. Results of Operations The following table provides certain items in our condensed consolidated statements of operations as a percent of net sales: Three Months Ended June 30, Six Months Ended June 30, (Unaudited) 2026 (%) 2025 (%) 2026 (%) 2025 (%) Net sales 100.0 100.0 100.0 100.0 Cost of sales 29.0 31.3 29.0 34.2 Gross profit 71.0 68.7 71.0 65.8 Sales, general, and administrative 65.5 67.3 66.9 67.9 Research and development 7.6 7.8 7.7 9.0 Acquisition-related amortization, impairment, and remeasurement 1.8 1.5 1.9 5.3 Operating loss (3.9 ) (7.9 ) (5.5 ) (16.4 ) Net loss (7.5 ) (6.9 ) (9.0 ) (16.9 ) 23 Net Sales by Product Category and Reporting Segment Our operations are managed through two reporting segments: Global Spine and Global Limb Reconstruction. The following tables provide net sales by product category and reporting segment: Three Months Ended June 30, (Unaudited, U.S. Dollars, in millions) 2026 2025 Change Constant Currency Change Therapeutic Solutions $ 64.2 $ 62.6 2.5 % 2.5 % Spinal Implants, Biologics and Enabling Technologies* 109.0 104.8 4.0 % 4.0 % Global Spine* 173.2 167.4 3.5 % 3.5 % Global Limb Reconstruction 37.7 33.3 13.2 % 11.0 % Pro forma net sales* 210.9 200.7 5.1 % 4.7 % Impact from discontinuation of M6 product lines 0.0 2.4 (97.4 %) (97.5 %) Reported net sales $ 210.9 $ 203.1 3.8 % 3.5 % Six Months Ended June 30, (Unaudited, U.S. Dollars, in millions) 2026 2025 Change Constant Currency Change Therapeutic Solutions $ 121.9 $ 117.6 3.7 % 3.7 % Spinal Implants, Biologics and Enabling Technologies* 214.9 209.1 2.7 % 2.7 % Global Spine* 336.8 326.7 3.1 % 3.0 % Global Limb Reconstruction 70.5 63.1 11.8 % 7.2 % Pro forma net sales* 407.3 389.8 4.5 % 3.7 % Impact from discontinuation of M6 product lines 0.3 6.9 (95.3 %) (95.6 %) Reported net sales $ 407.6 $ 396.7 2.7 % 2.0 % * Results above for each of Spinal Implants, Biologics, and Enabling Technologies; Global Spine; and pro forma net sales exclude the impact from discontinuation of its M6-C artificial cervical disc and M6-L artificial lumbar disc product lines (together, the "M6 artificial discs" or "M6 product lines"). Since pro forma net sales represent a non-GAAP measure, see the reconciliation above of the Company's pro forma net sales to its reported figures under U.S. GAAP. The Company's reported figures under U.S. GAAP represent each of the pro forma line items discussed above plus the impact from discontinuation of the M6 product lines. Global Spine Global Spine offers the following product categories: •Therapeutic Solutions manufactures, distributes, sells, and provides support services for market-leading devices used adjunctively in high-risk spinal fusion procedures and treats both nonunion and acute fractures in the orthopedic space. Therapeutic Solutions uses distributors and a direct sales channel to sell its devices and provide associated support services to hospitals, healthcare providers, and patients in the U.S. •Spinal Implants, Biologics, and Enabling Technologies is comprised of a broad portfolio of spine fixation implant products used in surgical procedures of the spine, one of the most comprehensive biologics portfolios in both the demineralized bone matrix and cellular allograft market segments and image-guided surgical solutions to facilitate degenerative, minimally invasive, and complex surgical procedures. Spinal Implants, Biologics, and Enabling Technologies products are sold through a network of distributors and sales representatives to hospitals and healthcare providers on a global basis for Spinal Implants and Enabling Technologies, and primarily within the U.S. for Biologics. Three months ended June 30, 2026 compared to 2025 Net sales of $173.2 million, an increase of $3.4 million or 2.0% on a reported basis •Therapeutic Solutions net sales increased $1.6 million, or 2.5%, largely driven by an increase in gross order volumes from our continued investment in our direct sales channels for both the spine and fracture markets, with this growth partially offset by unfavorable changes in average sales price as a result of billing requirement modifications and Medicare fee 24 schedule changes instituted by the Centers for Medicare & Medicaid Services (“CMS”) for dates of service on or after May 18, 2026 (these changes were then withdrawn by CMS on July 1, 2026) •Spinal Implants, Biologics, and Enabling Technologies net sales, excluding sales from the M6 product lines, increased $4.2 million, or 4.0%, primarily due to continued sales growth from our highest-volume distribution partners within Spine Fixation. Growth in these areas was partially offset by a decline in Enabling Technologies. This decrease in Enabling Technologies is primarily due to our deliberate strategy to prioritize the Voyager Earnout program, which incentivizes purchase commitments of our Spine Fixation and Biologics products over the term of each agreement, over the pursuit of capital sales •Net sales from the M6 product lines decreased $2.4 million, or 97.4%, as a result of the discontinuation of the M6 product lines in 2025 to focus resources and investments on more profitable growth opportunities Six months ended June 30, 2026 compared to 2025 Net sales of $337.1 million, an increase of $3.4 million or 1.0% on a reported basis •Therapeutic Solutions net sales increased $4.3 million, or 3.7%, largely driven by increases in gross order volumes from our continued investment in our direct sales channels for both the spine and fracture markets, with this growth partially offset by unfavorable changes in average sales price as a result of billing requirement modifications and Medicare fee schedule changes instituted by CMS in May 2026 (these changes were then withdrawn by CMS on July 1, 2026) •Spinal Implants, Biologics, and Enabling Technologies net sales, excluding sales from the M6 product lines, increased $5.7 million, or 2.7%, primarily due to continued sales growth from our highest-volume distribution partners within Spine Fixation, with this growth partially offset by a decline in Biologics and Enabling Technologies. This decrease in Enabling Technologies is primarily due to our deliberate strategy to prioritize the Voyager Earnout program over the pursuit of capital sales •Net sales from the M6 product lines decreased $6.6 million, or 95.3%, as a result of the discontinuation of the artificial disc product lines in 2025 to focus resources and investments in more profitable growth opportunities Global Limb Reconstruction Global Limb Reconstruction offers products and solutions for the underserved limb reconstruction market that encompasses four pillars: deformity correction, limb lengthening, complex fracture management, and limb preservation. Global Limb Reconstruction sells its products through a global network of distributors and sales representatives to hospitals, healthcare organizations, and healthcare providers. Three months ended June 30, 2026 compared to 2025 Net sales of $37.7 million, an increase of $4.4 million or 13.2% on a reported basis and 11.0% on a constant currency basis •U.S. net sales growth of $0.2 million, or 1.6%, largely due to growth from new products launched in the past three years, partially offset by the timing of large capital sales orders •International sales increase of $3.5 million, or 15.0% on a constant currency basis, primarily driven by sales of new products launched in the past three years •Net sales increase of $0.7 million due to movement in foreign currency exchange rates, which had a favorable impact during the quarter Six months ended June 30, 2026 compared to 2025 Net sales of $70.5 million, an increase of $7.4 million or 11.8% on a reported basis and 7.2% on a constant currency basis •U.S. net sales were relatively flat compared to the prior year •International sales increase of $4.5 million, or 10.1% on a constant currency basis, primarily driven by sales of new products launched in the past three years and partially offset by the timing of large tender orders and capital sales in the prior year •Net sales increase of $2.9 million due to movement in foreign currency exchange rates, which had a favorable impact during the quarter 25 Gross Profit Three Months Ended June 30, Six Months Ended June 30, (Unaudited, U.S. Dollars, in thousands) 2026 2025 % Change 2026 2025 % Change Net sales $ 210,933 $ 203,121 3.8 % $ 407,641 $ 396,767 2.7 % Cost of sales 61,226 63,588 (3.7 %) 118,388 135,615 (12.7 %) Gross profit $ 149,707 $ 139,533 7.3 % $ 289,253 $ 261,152 10.8 % Gross margin 71.0 % 68.7 % 2.3 % 71.0 % 65.8 % 5.1 % Three months ended June 30, 2026 compared to 2025 Gross profit increased $10.2 million •Increase in gross profit of $7.5 million resulting from the discontinuation of the M6 product lines and from inventory charges for certain product lines that were rationalized in our integration activities following the Merger •The remaining increase in gross profit is primarily attributable to higher sales volumes as compared to the prior year Six months ended June 30, 2026 compared to 2025 Gross profit increased $28.1 million •Increase in gross profit of $23.4 million resulting from the discontinuation of the M6 product lines and from inventory charges for certain product lines that were rationalized in our integration activities following the Merger •The remaining increase in gross profit is primarily attributable to higher sales volumes as compared to the prior year Sales, General, and Administrative Expense Three Months Ended June 30, Six Months Ended June 30, (Unaudited, U.S. Dollars, in thousands) 2026 2025 % Change 2026 2025 % Change Sales, general, and administrative $ 138,030 $ 136,493 1.1 % $ 272,941 $ 269,474 1.3 % As a percentage of net sales 65.4 % 67.2 % (1.8 %) 67.0 % 67.9 % (0.9 %) Three months ended June 30, 2026 compared to 2025 Sales, general, and administrative expense increased $1.5 million •Increase compared to the prior year period, primarily due to higher compensation, benefits, and commissions associated with increased sales and continued investment in commercial and support functions •The increase also reflects a charge related to the write-off of a customer receivable recognized during the current quarter, partially offset by lower costs incurred in the prior year period related to product line discontinuation and integration activities Six months ended June 30, 2026 compared to 2025 Sales, general, and administrative expense increased $3.5 million •Increase compared to the prior year period, primarily due to higher compensation, benefits, and commissions associated with increased sales and continued investment in commercial and support functions •The increase also reflects a charge related to the write-off of a customer receivable recognized during the current quarter, partially offset by lower costs incurred in the prior year period related to product line discontinuation and integration activities Research and Development Expense Three Months Ended June 30, Six Months Ended June 30, (Unaudited, U.S. Dollars, in thousands) 2026 2025 % Change 2026 2025 % Change Research and development $ 15,944 $ 15,934 0.1 % $ 31,264 $ 35,700 (12.4 %) As a percentage of net sales 7.6 % 7.8 % (0.2 %) 7.7 % 9.0 % (1.3 %) 26 Three months ended June 30, 2026 compared to 2025 Research and development expense was relatively consistent with the prior year period, as increased personnel-related costs were substantially offset by lower nonrecurring charges recognized in the prior year Six months ended June 30, 2026 compared to 2025 Research and development expense decreased $4.4 million •Decrease of $5.2 million related to impairments and costs associated with the discontinuation of the M6 product lines and other organizational restructuring activities that occurred in 2025 •Partially offset by an increase of $0.6 million in compensation and benefits expenses Acquisition-related Amortization, Impairment, and Remeasurement Three Months Ended June 30, Six Months Ended June 30, (Unaudited, U.S. Dollars, in thousands) 2026 2025 % Change 2026 2025 % Change Acquisition-related amortization, impairment, and remeasurement $ 3,867 $ 3,109 24.4 % $ 7,618 $ 20,854 (63.5 %) As a percentage of net sales 1.8 % 1.5 % 0.3 % 1.9 % 5.2 % (3.3 %) Acquisition-related amortization, impairment, and remeasurement consists of (i) amortization and impairment related to intangible assets acquired through business combinations or asset acquisitions and (ii) remeasurement of related contingent consideration arrangements, which are recognized immediately upon acquisition. Three months ended June 30, 2026 compared to 2025 Acquisition-related amortization, impairment, and remeasurement increased $0.8 million •Increase of $1.6 million associated with the remeasurement of a contingent consideration obligation with Lattus Spine LLC ("Lattus") assumed in the merger with SeaSpine Holdings Corporation (the "Merger") •Partially offset by a decrease of $0.9 million in amortization expense primarily resulting from impairments of certain acquired intangible assets recorded in the prior year Six months ended June 30, 2026 compared to 2025 Acquisition-related amortization, impairment, and remeasurement decreased $13.2 million •Decrease of $16.2 million in amortization expense primarily associated with the impairment of certain acquired intangible assets from the discontinuation of the M6 product lines •Partially offset by an increase of $3.0 million associated with the remeasurement of a contingent consideration obligation with Lattus assumed in the Merger Non-operating Income and Expense Three Months Ended June 30, Six Months Ended June 30, (Unaudited, U.S. Dollars, in thousands) 2026 2025 % Change 2026 2025 % Change Interest expense, net $ (6,085 ) $ (3,950 ) 54.1 % $ (11,749 ) $ (8,456 ) 38.9 % Other income (expense), net (778 ) 5,730 (113.6 %) (1,512 ) 6,976 (121.7 %) 27 Three months ended June 30, 2026 compared to 2025 Interest expense, net increased $2.1 million •Unfavorable change of $1.2 million attributable to an increase in interest expense following the funding of the $65.0 million Term B Loan in January 2026 •Unfavorable change of $0.8 million associated with interest earned on certain Employee Retention Credit refunds received during the second quarter of 2025 Other income (expense), net decreased $6.5 million •Unfavorable change of $3.5 million associated with foreign currency exchange rates, as we recorded a non-cash remeasurement loss of $0.7 million in second quarter of 2026 compared to a gain of $2.7 million in the second quarter of 2025 •Unfavorable change of $2.9 million associated with the receipt of Employee Retention Credit refunds received during the second quarter of 2025 Six months ended June 30, 2026 compared to 2025 Interest expense, net increased $3.3 million •Unfavorable change of $2.2 million attributable to an increase in interest expense following the funding of the $65.0 million Term B Loan in January 2026 •Unfavorable change of $0.6 million associated with interest income earned on certain Employee Retention Credit refunds received during 2025 and 2026 •Unfavorable change of $0.5 million in interest expense associated with finance lease obligations and the amortization of debt issuance costs Other income (expense), net decreased $8.5 million •Unfavorable change of $5.5 million associated with foreign currency exchange rates, as we recorded a non-cash remeasurement loss of $1.7 million in 2026 compared to a gain of $3.8 million in 2025 •Unfavorable change of $2.9 million associated with the receipt of Employee Retention Credit refunds received during 2025 28 Income Taxes Three Months Ended June 30, Six Months Ended June 30, (Unaudited, U.S. Dollars, in thousands) 2026 2025 % Change 2026 2025 % Change Income tax expense (benefit) $ 801 $ (142 ) (664.1 %) $ 875 $ 819 6.8 % Effective tax rate (5.3 %) 1.0 % (6.3 %) (2.4 %) (1.2 %) (1.2 %) Three months ended June 30, 2026 compared to 2025 •The increase in income tax expense (benefit) compared to the prior year period was primarily due to increased tax on foreign operations and tax expense related to certain long-lived intangible assets •The primary factor affecting our tax expense for the second quarter of 2026 was tax amortization on certain acquired intangibles and financial statement losses for which no benefit is recognized Six months ended June 30, 2026 compared to 2025 •The increase in income tax expense (benefit) compared to the prior year period was primarily due to increased tax on foreign operations and tax expense related to certain long-lived intangible assets •The primary factor affecting our tax expense for the second quarter of 2026 was tax amortization on certain acquired intangibles and financial statement losses for which no benefit is recognized Liquidity and Capital Resources Cash, cash equivalents, and restricted cash at June 30, 2026, totaled $104.4 million compared to $85.1 million at December 31, 2025. The following table presents the net change in cash, cash equivalents, and restricted cash for the six months ended June 30, 2026, and 2025, respectively: Six Months Ended June 30, (Unaudited, U.S. Dollars, in thousands) 2026 2025 Change Net cash used in operating activities $ (23,834 ) $ (6,752 ) $ (17,082 ) Net cash used in investing activities (23,162 ) (13,833 ) (9,329 ) Net cash provided by financing activities 66,421 1,989 64,432 Effect of exchange rate changes on cash (135 ) 1,547 (1,682 ) Net change in cash and cash equivalents $ 19,290 $ (17,049 ) $ 36,339 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: Six Months Ended June 30, (Unaudited, U.S. Dollars, in thousands) 2026 2025 Change Net cash used in operating activities $ (23,834 ) $ (6,752 ) $ (17,082 ) Capital expenditures (23,308 ) (13,845 ) (9,463 ) Free cash flow $ (47,142 ) $ (20,597 ) $ (26,545 ) Operating Activities Cash flows from operating activities decreased $17.1 million •Improvement in net loss of $30.5 million •Decrease of $35.1 million associated with non-cash gains and losses, such as depreciation, amortization, and impairments, and inventory reserve expenses •Decrease of $12.5 million relating to changes in working capital accounts, primarily attributable to changes in accounts receivable, inventories, and accounts payable 29 Two of our primary working capital accounts are accounts receivable and inventory. Days sales in receivables were 59 days as of June 30, 2026, compared to 58 days as of June 30, 2025 (calculated using second quarter net sales and ending accounts receivable). Inventory turns decreased to 1.3 times as of June 30, 2026 compared to 1.5 times as of June 30, 2025 (calculated using trailing twelve-month cost of goods sold and ending net inventories). Investing Activities Cash flows used in investing activities increased $9.3 million •Increase in spend of $9.5 million in capital expenditures and partially offset by an increase of $0.1 million in other investing activities Financing Activities Cash flows from financing activities increased $64.4 million •Increase of $64.0 million associated with net borrowing activities related to our credit facilities in the first quarter of 2026 compared to the prior year period •Favorable change of $0.5 million in debt issuance costs associated with our credit facilities in 2026 compared to the prior year period Credit Facilities On November 7, 2024, we entered into a $275.0 million secured credit agreement (the "Credit Agreement") with Oxford Finance LLC, as administrative agent and as collateral agent ("Oxford") and certain lenders party thereto, including Oxford, K2 HealthVentures LLC, and HSBC Ventures USA Inc. Certain of our foreign subsidiaries joined the Credit Agreement as either a borrower or guarantor shortly after the signing date. The Credit Agreement provides for a $160.0 million senior secured term loan (the "Initial Term Loan") and a $65.0 million senior secured delayed draw term loan facility (the "Term B Loan") which Term B Loan was fully funded on January 15, 2026. In addition, at Oxford's discretion, an additional $50.0 million of draw capacity is available through January 1, 2029 (the "Term C Loan" and, together with the Term B Loan, the "Delayed Draw Term Loans" and collectively with the Initial Term Loan, the "Credit Facilities"). The Initial Term Loan and Delayed Draw Term Loans, to the extent ultimately drawn, will each mature in November 2029, following an interest-only payment period ending December 2028, and monthly amortization of principal and accrued interest between January 2029 and November 2029. The Initial Term Loan and Delayed Draw Term Loans, to the extent ultimately drawn, are subject to, among other conditions, our continued compliance with a pro-forma total debt-to-EBITDA leverage ratio of less than 4.0x. EBITDA is a non-GAAP financial measure which represents earnings before interest income (expense), income taxes, depreciation, amortization, and other negotiated addbacks and adjustments. The Credit Agreement contains financial covenants requiring us to maintain a minimum level of liquidity at all times and to maintain a maximum total debt-to-EBITDA leverage ratio (measured on a quarterly basis) during the term of the facility. As of June 30, 2026, we were in compliance with all required financial covenants. As of June 30, 2026, we had $225.0 million of outstanding borrowings under the Credit Agreement related to the Initial Term Loan and the Term B Loan. We have not made any borrowings under the Term C Loan as of June 30, 2026. As of June 30, 2026, we had no borrowings on our available lines of credit in Italy, which provide up to an aggregate amount of €5.5 million ($6.3 million). Other For information regarding contingencies, see Note 7 of the Notes to the Unaudited Condensed Consolidated Financial Statements contained herein. Lattus Contingent Consideration Under the terms of a contingent consideration obligation in a purchase agreement assumed in the Merger, we may be required to make installment payments to Lattus (the "Lattus Contingent Consideration") at certain dates based on future net sales of certain 30 products (the "Lateral Products"). The estimated fair value of the Lattus Contingent Consideration as of June 30, 2026, was $9.5 million. The actual amount ultimately paid could be higher or lower than the estimated fair value of the Lattus Contingent Consideration. As of June 30, 2026, we classified the remaining Lattus Contingent Consideration liability of $9.5 million within other current liabilities. On July 1, 2026, we made an installment payment related to the Lattus Contingent Consideration of $5.1 million. For additional discussion of this matter, see Note 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements. Off-balance Sheet Arrangements As of June 30, 2026, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, cash flows, liquidity, capital expenditures or capital resources that are material to investors. Contractual Obligations There have been no material changes in any of our material contractual obligations as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025 ("2025 10-K"). Critical Accounting Estimates Our discussion of operating results is based upon the condensed consolidated financial statements and accompanying notes. The preparation of these statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Our critical accounting estimates are described in Item 7 of our 2025 10-K. There have been no significant changes to our critical accounting estimates during the quarter covered by this report. Recently Issued Accounting Pronouncements See Note 2 of the Notes to the Unaudited Condensed Consolidated Financial Statements for detailed information regarding the status of recently issued or adopted accounting pronouncements. Non-GAAP Financial Measures We believe that providing non-GAAP financial measures that exclude certain items provides investors with greater transparency to the information used by senior management in its financial and operational decision-making. We believe it is important to provide investors with the same non-GAAP financial measures used to supplement information regarding the performance and underlying trends of our business operations to facilitate comparisons to historical operating results and internally evaluate the effectiveness of our operating strategies. Disclosure of these non-GAAP financial measures also facilitates comparisons of our underlying operating performance with other companies in the industry that also supplement their U.S. GAAP results with non-GAAP financial measures. The non-GAAP financial measures used in this filing may have limitations as analytical tools and should not be considered in isolation or as a replacement for U.S. GAAP financial measures. Some limitations associated with the use of these non-GAAP financial measures are that they exclude items that reflect an economic cost that can have a material effect on cash flows. Constant Currency Constant currency is calculated by using foreign currency rates from the comparable, prior year period to present net sales at comparable rates. Constant currency can be presented for numerous U.S. GAAP measures but is most commonly used by management to analyze net sales without the impact of changes in foreign currency rates. Free Cash Flow Free cash flow is calculated by subtracting capital expenditures from net cash from operating activities. Management uses free cash flow as 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.