OFIX earnings call transcript, November 9, 2026

Are included in our press release and supplemental materials. Here's today's agenda. Massimo will begin with business performance and operational highlights. Julie Andrews will then review our financial results and guidance.

After that, we'll open the call for questions. With that, I'll turn the call over to Massimo to discuss our third quarter performance. Massimo?

And good morning, everyone. I appreciate you joining us today. While third quarter results were below our expectation, we saw continuous strength in limb reconstruction and therapeutic solution. and further stabilization in U.S. biologic. In U.S. pine market softness and unplanned supplier delays created inventory and instrument set constraints. We have a clear recovery plan and are accelerating actions to improve execution and position the business for stronger performance. We are concentrating resources behind our strongest partners and highest value technology, simplifying the portfolio and aligning costs with a more focused business. These actions are intended to establish a stronger foundation. for growth, profitability and cash generation over time. To recap this action in more detail, first we are concentrating resources behind our strongest commercial partners. We are accelerating exits from non-strategic, lower-performing relationships and redeploying instrument sets to faster growing core distributors. These distributors now generate... ...around 80% of U.S. spinal implant revenue, with a similar concentration among core products. We have already seen these strategies work in markets where we consolidate... ...the distribution around stronger partners. Our core partners, consigned assets, turned around 20% faster than the loaner heavy model used by many distributors were exiting.

This allows existing assets to support more procedures and revenue with less incremental investment. Second, we are simplifying our product portfolio and concentrating... ...investment behind our highest value technologies. We are focusing inventory, capital and commercial support on differentiated platforms with the greatest growth potential, including Virada. We continue to expect the full market launch of our Virada spinal implant system for open procedure later in the fourth quarter. Third, we are aligning cost... ...and organizational resources with a more focused business. As we simplify the network and portfolio, we expect to reduce support costs and redirect resources towards the opportunities with... ...the strongest growth and return potential. Fourth, we are focusing our innovation pipeline on technologies with the greatest potential to drive adoption and long-term growth. That include Virada and further integration of our enabling technologies such as the 7D navigation system for which we received two 510k clearances. Covering additional software enhancement. The combination of this action and the supplier delays are creating near-term net sales pressure as we exit. We expect this transition to unfold over the coming quarters, with the anticipated four-quarter impact reflected in our updated guidance. Sequencing relationship exits and asset redeployment, with the goal of maintaining surgical support and product availability, while positioning our strongest partners for growth.

We expect progress. in stages. First, we anticipate improved inventory and instrument set availability and utilization among core distributors. Next, we expect stronger growth from core products. Over time, we expect those improvements to support better channel productivity, profitability and cash conversion. While SPINE is a significant improvement, we expect the improvement to support better channel productivity, profitability and cash conversion. SPINE remains our most immediate focus. We continue to make progress in several other parts of the portfolio. US Biologics net sales were roughly flat sequentially, despite SPINE. the typical seasonal softness, providing another sign of stabilization. October offered another encouraging data point, as the business returned to positive year-over-year performance. Our priority is to build on this momentum through stronger account execution, higher utilization, and continued focus on priority products, including osteocorps. In global rim reconstruction, growth in the quarter was driven by strong international demand and continued adoption of Fitbon and Trulock Elevate. These two platforms were the same. are driving the majority of the franchise's growth and address large, unpenetrated markets where we believe our differentiated technology can support sustainability. Sustain growth. In the U.S. we remain focused on increasing distributor productivity and expanding market development activities to convert clinical interest.

into broader adoption and net sales growth. As those capabilities mature, we expect improved U.S. growth and greater predictability.

to invest in innovation across limb reconstruction. In September, we submitted a 510k pre-market notification for an automated version of the TrueLock Elevate system. designed to improve the patient experience and support a key growth driver. We are also pursuing potential additional indications including diabetic foot ulcer. A large and underserved market where we believe our core technologies may have broader clinical application. These investments are intended to expand our addressable market. Strengthen our clinical differentiation and support long-term value creation. Turning to therapeutic solutions, the business delivers 4% volume growth. which was above market growth, while maintaining attractive margins and strong cash generation, reinforcing its role as a stable contributor to the portfolio. Our priority is to improve prescription conversion and use digital capabilities, including Axel Stim 2.0 and Stim on Tract, with the goal of strengthening physician and patient care. and engagement while maintaining investment discipline. Taken together, our immediate priority is improving U.S. spine execution while sustaining momentum across the stronger areas of our portfolio. Across the business, we remain focused on disciplined execution, thoughtful capital allocation and measurable progress. With that, I'll turn the call over to Julie Andrews to review our third quarter financial results and outlook.

and so on. and cash generation. Global limb reconstruction delivered net sales of $36.4 million in the third quarter, an increase of 9% on a constant currency basis. Growth was driven by strong... ...international demand and continued adoption of Fitbone and Trulock Elevate. U.S. growth was essentially flat in the quarter, but we believe the underlying trajectory and portfolio mix are improving. Fitbone and Trulock Elevate... Each grew in excess of 20%, providing encouraging evidence that the transition toward high-growth limb reconstruction opportunities is gaining traction. The remaining pressure was concentrated in a limited number of product lines and distributor relationships. Rather than across the franchise. Moving down the P&L, non-GAAP adjusted gross margin was 70.7%, reflecting an unfavorable geographic mix during the quarter. Adjusted EBITDA was 26 million or 12.5% of pro forma net sales compared with 24.6 million or 12.1% in the prior year period. The improvement primarily reflected continued cost. Discipline and resource alignment partially offset by lower spine revenue. Unfavorable geographic mix and reduced operating leverage. We ended the quarter with 86.9 million in cash. Cash equivalents and restricted cash. The change in cash primarily reflected working capital timing, investment instrument sets ahead of the commercial launch of RADA, and inventory to support our European MDR strategy.

Let me now turn to our updated full year outlook. Again, all measures are provided on a non-GAAP, pro forma basis, reflect current foreign currency exchange rates, and exclude the discontinued M6 product lines. Our outlook does not contemplate any additional exchange rate changes during the remainder of the year. We now expect full year 2026 pro forma net sales in the range of 825 million. to 830 million. The revised guidance reflects third quarter performance, continued softness in the spine market, and the anticipated impact of accelerated actions to improve US spine commercial execution. Inventory and instrument set availability and productivity. It also reflects the timing of international limb reconstruction orders and foreign exchange headwinds. We now expect full year 2026 non. Gap adjusted EBITDA of 86 million to 88 million. The impact of lower revenue and unfavorable mix is expected to be partially offset by continued cost discipline, lower incentive compensation and resource allocation actions. Looking to the fourth quarter, we expect sequential growth from two primary drivers, normal seasonality and inventory purchases under the European distributor arrangement. As previously disclosed, most of the approximately $15 million 2026 net sales benefit from the European distributor arrangement should be recognized in the fourth quarter. As a reminder, the European distributor arrangement creates a temporary free cash timing headwind in 2026.

Because inventory related cash outflows occur this year, while cash receipts are expected in 2027. This timing does not change our view of the business's underlying earnings power, cash generating potential, or long-term. Economics. Consistent with our standard practice, we expect to provide formal 2027 guidance on our fourth quarter call. As previously disclosed, our European MDR strategy for spine is expected to. Create an approximately $22 million net sales headwind in 2027 while MDR requirements are completed. This is a temporary regulatory driven impact that reflects the timing of revenue recognition, not a change. in underlying demand. As we move through this transition, our focus remains on disciplined execution. Now let me turn it back to Massimo for closing remarks. Massimo.

Our priorities are clear. Improve US spine execution, stabilize biologics, build on the strengths of limber construction therapeutic solution, and maintain financial discipline. The actions are underway, and our focus is translating them into measurable operating and financial progress. We look forward to updating you as we execute against these priorities. Before we take your question, I want to thank our employees and commercial partners for their continued commitment to supporting surgeons and patients around the world. With that, let's hope...

Your first question comes from the line of Matt Blackman with TD Cohen. Your line is open.

Please go ahead.

Stephen with Stiefel. Your line is open. Please go ahead.

Your next question comes from the line.

of Caitlin Roberts with Canaccord. Your line is open. Please go ahead.