Orthofix Reports Third Quarter 2020 Results • Net sales of $111.0 million, an increase of 52% sequentially and within 2% of our 2019 performance • US Spinal Implants third quarter net sales increased 19% ov

Orthofix Reports Third Quarter 2020 Results

LEWISVILLE, Texas -November 5, 2020- Orthofix Medical Inc. (NASDAQ:OFIX) today reported its financial results for the third quarter ended September 30, 2020. Net sales were $111.0 million, earnings per share ("EPS") was $0.24 and adjusted EPS was $0.31.

"We are very pleased with our performance during the third quarter, which reflects continued strong execution and leadership as we navigate through the uncertainty of COVID, highlighted by 52% sequential global net sales growth over the second quarter of 2020," said Orthofix President and Chief Executive Officer Jon Serbousek. "While we are encouraged by our performance across the organization, we are particularly excited about the performance of our U.S. spinal implants business, which grew 19% over the third quarter of 2019, driven by the continued success of M6."

Mr. Serbousek continued, "In addition to strong financial performance during the quarter, we continued to execute successfully against our strategic initiatives. Included in that execution was the investment and co-development partnership with Neo Medical, which we believe will accelerate our efforts to bring single-use procedural solutions to market. Additionally, the strong adoption of the FITBONE limb lengthening system during its limited market release is further strengthening our position in pediatric extremity deformity care. These strategic business development achievements combined with our initiative to institute a high-velocity cadence of product launches should position us for accelerating growth in the years to come. We have made substantial progress in refreshing our organizational structure and with this solid foundation in place, we are well positioned to execute."

Financial Results Overview

The following table provides net sales by major product category by reporting segment:

Gross profit decreased $3.9 million to $84.7 million. Gross margin decreased to 76.4% compared to 78.1% in the prior year period.

Net income was $4.7 million, or $0.24 per share, compared to net loss of $(40.5) million, or $(2.14) per share in the prior year period. Adjusted net income was $6.0 million, or $0.31 per share, compared to adjusted net income of $7.9 million, or $0.41 per share in the prior year period.

EBITDA was $15.0 million, compared to $(20.8) million in the prior year period. Adjusted EBITDA was $19.7 million, or 17.8% of net sales, compared to $20.3 million, or 17.9% of net sales, in the prior year period.

As of September 30, 2020, cash, cash equivalents, and restricted cash totaled $80.3 million compared to $70.4 million as of December 31, 2019. As of September 30, 2020, the Company had no borrowings under its five year $300 million secured revolving credit facility. Cash flow from operations increased $31.9 million to $52.0 million, while free cash flow increased $34.1 million to $39.3 million for the nine months ended September 30, 2020.

The global Coronavirus Disease 2019 ("COVID-19") pandemic has significantly affected the Company's patients, communities, employees and business operations. The pandemic has led to the cancellation or deferral of elective surgeries and procedures; restrictions on travel; the implementation of physical distancing measures; and the temporary or permanent closure of businesses. 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 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 remainder of 2020 and beyond. The expected effects of COVID-19 on the Company's business will depend on various factors including (i) the magnitude and length of increased case waves during the fall and winter, (ii) the comfort level of patients in returning to clinics and hospitals, (iii) the extent to which localized elective surgery shutdowns occur, (iv) the unemployment rate's effect on potential patients lacking medical insurance coverage, and (v) general hospital capacity constraints occurring because of the need to treat COVID-19 patients.. As such, the Company is not providing quantitative guidance for the fourth quarter of 2020 at this time.

Orthofix will host a conference call today at 8:30 AM Eastern time to discuss the Company's financial results for the third quarter 2020. Interested parties may access the conference call by dialing (833) 670-0709 in the U.S. and (343) 761-2533 outside the U.S., and referencing the conference ID 9769675. A replay of the call will be available for three weeks by dialing (800) 585-8367 in the U.S. and (416) 621-4642 outside the U.S., and entering the conference ID 9769675. A webcast of the conference call may be accessed at ir.Orthofix.com/events-and-presentations.

Orthofix Medical Inc. is a global medical device company focused on musculoskeletal products and therapies. The Company's mission is to deliver innovative, quality-driven solutions while partnering with health care professionals on improving patients' lives. 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, 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 September 30, 2020, and 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"). 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) customers and payors being unable to satisfy contractual obligations to us, including the ability to make timely payment for purchases, (v) general economic weakness in markets in which we operate affecting customer spending, and (vii) other unpredictable aspects of the pandemic. To the extent that the COVID-19 pandemic continues to adversely affect 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 ability to generate sufficient cash flows to run our business 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 Securities and Exchange Commission, which are 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.

ORTHOFIX MEDICAL INC.

Condensed Consolidated Statements of Operations

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Condensed Consolidated Balance Sheets

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Non-GAAP Financial Measures

The following tables present reconciliations of operating income (loss), net income (loss), EPS, and net cash from operating activities, in each case calculated in accordance with U.S. generally accepted accounting principles ("GAAP"), to, as applicable, non-GAAP financial measures, referred to as "EBITDA," "Adjusted EBITDA," "Adjusted net income (loss)," "Adjusted EPS," and "Free cash flow" that exclude items specified in the tables. A more detailed explanation of the items excluded from these non-GAAP financial measures, as well as why management believes the non-GAAP financial measures are useful to them, is included following the reconciliations.

EBITDA and Adjusted EBITDA

Adjusted Net Income (Loss)

Constant currency is a non-GAAP measure, which 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 GAAP measures, but is most commonly used by management to analyze net sales without the impact of changes in foreign currency rates.

EBITDA is a non-GAAP financial measure, which is calculated by adding interest income (expense), net; income tax expense (benefit); and depreciation and amortization to net income. EBITDA provides management with additional insight to its results of operations. EBITDA is the primary metric used by our Chief Operating Decision Maker in managing our business.

Adjusted EBITDA, Adjusted Net Income (Loss) and Adjusted EPS

These non-GAAP financial measures provide management with additional insight to its results of operations and are calculated using the following adjustments:

Also included in this line are adjustments totaling $0.04 and $0.05 per share in the presentation of Adjusted EPS to account for the difference in the weighted average number of shares outstanding for GAAP and Non-GAAP reporting purposes due to our reported net loss position under GAAP and net income position under Non-GAAP for the three and nine months ended September 30, 2019, respectively, as these charges were the primary driver of our net loss position

Free cash flow is a non-GAAP financial measure, which is calculated by subtracting capital expenditures from cash flow 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.

Usefulness and Limitations of Non-GAAP Financial Measures

Management uses non-GAAP measures to evaluate performance period-over-period, to analyze the underlying trends in our business, to assess performance relative to competitors and to establish operational goals and forecasts that are used in allocating resources. Management uses these non-GAAP measures as the basis for assessing the ability of the underlying operations to generate cash. In addition, management uses these non-GAAP measures to further its understanding of the performance of our business units.

Material Limitations Associated with the Use of Non-GAAP Financial Measures

The non-GAAP measures used in this press release may have limitations as analytical tools, and should not be considered in isolation or as a replacement for GAAP financial measures. Some of the limitations associated with the use of these non-GAAP financial measures are that they exclude items that reflect an economic cost and can have a material effect on cash flows. Similarly, certain non-cash expenses, such as equity compensation, do not directly impact cash flows, but are part of total compensation costs accounted for under GAAP.

Compensation for Limitations Associated with Use of Non-GAAP Financial Measures

We compensate for the limitations of our non-GAAP financial measures by relying upon GAAP results to gain a complete picture of our performance. The GAAP results provide the ability to understand our performance based on a defined set of criteria. The non-GAAP measures reflect the underlying operating results of our businesses, which we believe is an important measure of our overall performance. We provide a detailed reconciliation of the non-GAAP financial measures to our most directly comparable GAAP measures, and encourage investors to review this reconciliation.

Usefulness of Non-GAAP Financial Measures to Investors

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. Management believes it is important to provide investors with the same non-GAAP metrics it uses to supplement information regarding the performance and underlying trends of our business operations in order to facilitate comparisons to its 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 GAAP results with non-GAAP financial measures.

Orthofix Medical Inc.