Exhibit 99.2
Orthofix Recast of Historical Financial Results for Changes to Reportable Business Segments
During the first quarter of 2019, the Company changed its reporting segments from four reporting segments: Bone Growth Therapies, Spinal Implants, Biologics, and Orthofix Extremities to two reporting segments: Global Spine and Global Extremities. These two reporting segments represent the operating segments for which our Chief Executive Officer, who is also Chief Operating Decision Maker (the “CODM”), reviews financial information and makes resource allocation decisions among businesses. In addition, the Company changed the primary metric used by the CODM in managing the Company to EBITDA from non-GAAP net margin, an internal metric that the Company defined as gross profit less sales and marketing expense. Accordingly, our reporting segment information has been recast based on our two new reporting segments:
Orthofix Medical, Inc.
Recast of Historical Financial Results for Changes to Reportable Segments
| | Three Months Ended | | | Year Ended | |
(Unaudited, U.S. Dollars, in thousands) | | March 31, 2018 | | | June 30, 2018 | | | September 30, 2018 | | | December 31, 2018 | | | December 31, 2018 | |
EBITDA | | | | | | | | | | | | | | | | | | | | |
Global Spine | | $ | 18,825 | | | $ | 19,030 | | | $ | 15,637 | | | $ | 23,053 | | | $ | 76,545 | |
Global Extremities | | | 3,328 | | | | 488 | | | | 3,357 | | | | 2,280 | | | | 9,453 | |
Corporate | | | (7,002 | ) | | | (12,692 | ) | | | (15,403 | ) | | | (8,529 | ) | | | (43,626 | ) |
Total EBITDA | | $ | 15,151 | | | $ | 6,826 | | | $ | 3,591 | | | $ | 16,804 | | | $ | 42,372 | |
Depreciation and amortization | | | (4,369 | ) | | | (4,554 | ) | | | (4,738 | ) | | | (4,998 | ) | | | (18,659 | ) |
Interest income (expense), net | | | (183 | ) | | | (251 | ) | | | (181 | ) | | | (213 | ) | | | (828 | ) |
Income before income taxes | | $ | 10,599 | | | $ | 2,021 | | | $ | (1,328 | ) | | $ | 11,593 | | | $ | 22,885 | |
| | Three Months Ended | | | Year Ended | |
(Unaudited, U.S. Dollars, in thousands) | | March 31, 2017 | | | June 30, 2017 | | | September 30, 2017 | | | December 31, 2017 | | | December 31, 2017 | |
EBITDA | | | | | | | | | | | | | | | | | | | | |
Global Spine | | $ | 18,247 | | | $ | 21,604 | | | $ | 19,208 | | | $ | 24,975 | | | $ | 84,034 | |
Global Extremities | | | 1,656 | | | | (538 | ) | | | 2,235 | | | | 3,790 | | | | 7,143 | |
Corporate | | | (13,257 | ) | | | (7,111 | ) | | | (6,956 | ) | | | (6,922 | ) | | | (34,246 | ) |
Total EBITDA | | $ | 6,646 | | | $ | 13,955 | | | $ | 14,487 | | | $ | 21,843 | | | $ | 56,931 | |
Depreciation and amortization | | | (5,075 | ) | | | (5,372 | ) | | | (4,974 | ) | | | (4,703 | ) | | | (20,124 | ) |
Interest income (expense), net | | | 45 | | | | 76 | | | | (15 | ) | | | (522 | ) | | | (416 | ) |
Income before income taxes | | $ | 1,616 | | | $ | 8,659 | | | $ | 9,498 | | | $ | 16,618 | | | $ | 36,391 | |
Non-GAAP 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.
A new non-GAAP measure for 2019 is Adjusted EBITDA by reportable segment, which has not been presented in previous press releases. As such, the Company is providing additional information to show Adjusted EBITDA by reportable segment for 2018:
Orthofix Medical, Inc.
Adjusted EBITDA by Reportable Segments
| | Three Months Ended March 31, 2018 | |
(Unaudited, U.S. Dollars, in thousands) | | Global Spine | | | Global Extremities | | | Corporate | | | Total Orthofix | |
Operating income (loss) | | $ | 16,767 | | | $ | 1,843 | | | $ | (10,740 | ) | | $ | 7,870 | |
Other income (expense), net | | | (20 | ) | | | 189 | | | | 2,743 | | | | 2,912 | |
Depreciation and amortization | | | 2,015 | | | | 1,296 | | | | 995 | | | | 4,306 | |
Amortization of acquired intangibles | | | 63 | | | | — | | | | — | | | | 63 | |
EBITDA | | $ | 18,825 | | | $ | 3,328 | | | $ | (7,002 | ) | | $ | 15,151 | |
Share-based compensation | | | 1,400 | | | | 507 | | | | 2,009 | | | | 3,916 | |
Foreign exchange impact | | | (23 | ) | | | (141 | ) | | | (912 | ) | | | (1,076 | ) |
Strategic investments | | | — | | | | — | | | | 2,419 | | | | 2,419 | |
Domestication to Delaware | | | — | | | | — | | | | 798 | | | | 798 | |
Acquisition-related fair value adjustments | | | — | | | | — | | | | — | | | | — | |
Interest and (gain) loss on investment securities | | | — | | | | — | | | | (1,629 | ) | | | (1,629 | ) |
Legal judgments/settlements | | | (33 | ) | | | 207 | | | | (27 | ) | | | 147 | |
Restructuring | | | — | | | | — | | | | — | | | | — | |
Adjusted EBITDA | | $ | 20,169 | | | $ | 3,901 | | | $ | (4,344 | ) | | $ | 19,726 | |
| | Three Months Ended June 30, 2018 | |
(Unaudited, U.S. Dollars, in thousands) | | Global Spine | | | Global Extremities | | | Corporate | | | Total Orthofix | |
Operating income (loss) | | $ | 17,240 | | | $ | 878 | | | $ | (12,203 | ) | | $ | 5,915 | |
Other income (expense), net | | | (544 | ) | | | (1,675 | ) | | | (1,424 | ) | | | (3,643 | ) |
Depreciation and amortization | | | 2,024 | | | | 1,285 | | | | 935 | | | | 4,244 | |
Amortization of acquired intangibles | | | 310 | | | | — | | | | — | | | | 310 | |
EBITDA | | $ | 19,030 | | | $ | 488 | | | $ | (12,692 | ) | | $ | 6,826 | |
Share-based compensation | | | 1,836 | | | | 613 | | | | 2,766 | | | | 5,215 | |
Foreign exchange impact | | | 456 | | | | 1,626 | | | | 1,173 | | | | 3,255 | |
Strategic investments | | | 812 | | | | — | | | | 1,927 | | | | 2,739 | |
Domestication to Delaware | | | — | | | | — | | | | 1,910 | | | | 1,910 | |
Acquisition-related fair value adjustments | | | 1,473 | | | | — | | | | — | | | | 1,473 | |
Interest and (gain) loss on investment securities | | | — | | | | — | | | | 230 | | | | 230 | |
Legal judgments/settlements | | | 212 | | | | 87 | | | | 75 | | | | 374 | |
Restructuring | | | — | | | | — | | | | — | | | | — | |
Adjusted EBITDA | | $ | 23,819 | | | $ | 2,814 | | | $ | (4,611 | ) | | $ | 22,022 | |
| | Three Months Ended September 30, 2018 | |
(Unaudited, U.S. Dollars, in thousands) | | Global Spine | | | Global Extremities | | | Corporate | | | Total Orthofix | |
Operating income (loss) | | $ | 13,344 | | | $ | 2,361 | | | $ | (11,798 | ) | | $ | 3,907 | |
Other income (expense), net | | | (196 | ) | | | (301 | ) | | | (4,557 | ) | | | (5,054 | ) |
Depreciation and amortization | | | 2,060 | | | | 1,297 | | | | 952 | | | | 4,309 | |
Amortization of acquired intangibles | | | 429 | | | | — | | | | — | | | | 429 | |
EBITDA | | $ | 15,637 | | | $ | 3,357 | | | $ | (15,403 | ) | | $ | 3,591 | |
Share-based compensation | | | 1,391 | | | | 633 | | | | 3,237 | | | | 5,261 | |
Foreign exchange impact | | | 272 | | | | 277 | | | | 69 | | | | 618 | |
Strategic investments | | | 803 | | | | — | | | | 2,005 | | | | 2,808 | |
Domestication to Delaware | | | — | | | | — | | | | 996 | | | | 996 | |
Acquisition-related fair value adjustments | | | 2,121 | | | | — | | | | — | | | | 2,121 | |
Interest and (gain) loss on investment securities | | | — | | | | — | | | | 4,449 | | | | 4,449 | |
Legal judgments/settlements | | | 241 | | | | 39 | | | | 92 | | | | 372 | |
Restructuring | | | 1,233 | | | | — | | | | — | | | | 1,233 | |
Adjusted EBITDA | | $ | 21,698 | | | $ | 4,306 | | | $ | (4,555 | ) | | $ | 21,449 | |
| | Three Months Ended December 31, 2018 | |
(Unaudited, U.S. Dollars, in thousands) | | Global Spine | | | Global Extremities | | | Corporate | | | Total Orthofix | |
Operating income (loss) | | $ | 20,605 | | | $ | 924 | | | $ | (9,127 | ) | | $ | 12,402 | |
Other income (expense), net | | | (164 | ) | | | (107 | ) | | | (325 | ) | | | (596 | ) |
Depreciation and amortization | | | 2,159 | | | | 1,463 | | | | 923 | | | | 4,545 | |
Amortization of acquired intangibles | | | 453 | | | | — | | | | — | | | | 453 | |
EBITDA | | $ | 23,053 | | | $ | 2,280 | | | $ | (8,529 | ) | | $ | 16,804 | |
Share-based compensation | | | 1,632 | | | | 498 | | | | 2,408 | | | | 4,538 | |
Foreign exchange impact | | | 130 | | | | 70 | | | | 332 | | | | 532 | |
Strategic investments | | | 348 | | | | — | | | | 282 | | | | 630 | |
Domestication to Delaware | | | — | | | | — | | | | 511 | | | | 511 | |
Acquisition-related fair value adjustments | | | 914 | | | | — | | | | — | | | | 914 | |
Interest and (gain) loss on investment securities | | | — | | | | — | | | | — | | | | — | |
Legal judgments/settlements | | | 266 | | | | 172 | | | | (171 | ) | | | 267 | |
Restructuring | | | 214 | | | | — | | | | — | | | | 214 | |
Adjusted EBITDA | | $ | 26,557 | | | $ | 3,020 | | | $ | (5,167 | ) | | $ | 24,410 | |
| | Year Ended December 31, 2018 | |
(Unaudited, U.S. Dollars, in thousands) | | Global Spine | | | Global Extremities | | | Corporate | | | Total Orthofix | |
Operating income (loss) | | $ | 67,956 | | | $ | 6,006 | | | $ | (43,868 | ) | | $ | 30,094 | |
Other income (expense), net | | | (924 | ) | | | (1,894 | ) | | | (3,563 | ) | | | (6,381 | ) |
Depreciation and amortization | | | 8,258 | | | | 5,341 | | | | 3,805 | | | | 17,404 | |
Amortization of acquired intangibles | | | 1,255 | | | | — | | | | — | | | | 1,255 | |
EBITDA | | $ | 76,545 | | | $ | 9,453 | | | $ | (43,626 | ) | | $ | 42,372 | |
Share-based compensation | | | 6,259 | | | | 2,251 | | | | 10,420 | | | | 18,930 | |
Foreign exchange impact | | | 835 | | | | 1,832 | | | | 662 | | | | 3,329 | |
Strategic investments | | | 1,963 | | | | — | | | | 6,633 | | | | 8,596 | |
Domestication to Delaware | | | — | | | | — | | | | 4,215 | | | | 4,215 | |
Acquisition-related fair value adjustments | | | 4,508 | | | | — | | | | — | | | | 4,508 | |
Interest and (gain) loss on investment securities | | | — | | | | — | | | | 3,050 | | | | 3,050 | |
Legal judgments/settlements | | | 686 | | | | 505 | | | | (31 | ) | | | 1,160 | |
Restructuring | | | 1,447 | | | | — | | | | — | | | | 1,447 | |
Adjusted EBITDA | | $ | 92,243 | | | $ | 14,041 | | | $ | (18,677 | ) | | $ | 87,607 | |
Prior Year Reclassification
The Company reclassified less than $10 thousand of previously reported net income (loss) from discontinued operations during the first, second, and third quarters of 2018 to continuing operations within its Form 10-K for the year ended December 31, 2018; therefore, amounts may differ from previously reported quarterly results for interim periods.
Non-GAAP Information
EBITDA
EBITDA is a non-GAAP financial measure, which is calculated by adding interest expense, net; income tax expense; 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
These non-GAAP financial measures provide management with additional insight to its results of operations and are calculated using the following adjustments:
| • | Share-based compensation – costs related to our share-based compensation plans, which include stock options, restricted stock awards, performance-based restricted stock awards, market-based restricted stock awards and our stock purchase plan; see the share-based compensation footnote in our quarterly reports on Form 10-Q for each quarter of 2018 and our annual report on Form 10-K for the year ended December 31, 2018 for a detail of these costs by consolidated statement of income line item |
| • | Foreign exchange impact – gains and losses related to foreign currency transactions, which are recorded as other expense, net |
| • | Strategic investments – costs related to our strategic investments, such as due diligence and integration costs, which are primarily recorded as general and administrative expenses |
| • | Domestication to Delaware – costs associated with evaluation and completion of changing the Company’s jurisdiction of organization from Curaçao to the State of Delaware during 2018, which are recorded as general and administrative expenses |
| • | Acquisition-related fair value adjustments – comprised of i) gains and losses related to remeasurement of contingent consideration to fair value, which are recorded as operating expenses and ii) an adjustment made to inventory acquired to account for the reasonable profit allowance for the selling effort on finished goods inventory, which is recorded as cost of sales |
| • | Amortization of acquired intangibles – amortization of intangible assets acquired in business combinations or asset acquisitions, including items such as developed technologies, in process research and development, trade names, and other intangible assets, which are recorded as operating expenses |
| • | Interest and (gain) loss on investment securities – net gains and losses recognized (realized or unrealized) within other income (expense), net or interest income recognized relating to our investments in eNeura Inc. and Bone Biologics, Inc. |
| • | Legal judgments/settlements – adverse or favorable legal judgments or negotiated legal settlements, including legal and other professional fees associated with the SEC Investigation, Securities Class Action Complaints and Brazil subsidiary compliance review, which are recorded as general and administrative expenses |
| • | Restructuring – costs associated with the elimination of two reporting segment president positions in 2018, which are recorded as operating expenses |
| • | Long-term income tax rate adjustment – reflects management’s expectation of a long-term normalized effective tax rate of 35% for the first and second quarters of 2018 and 29% for the third and fourth quarters of 2018, which is based on current tax law and current expected income; actual reported tax expense will ultimately be based on GAAP earnings and may differ from the expected long-term normalized effective tax rate due to a variety of factors, including the resolutions of issues arising from tax audits with various tax authorities, the ability to realize deferred tax assets, and the tax impact of certain reconciling items that are excluded in determining Adjusted Net Income |
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.
