OFIX - Earnings call transcript Q2 2019

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Operator

Good afternoon, ladies and gentleman, and welcome to the Orthofix Second Quarter 2019 Earnings Results Conference Call. [Operator Instructions].

As a reminder, this conference call is being recorded.

I would now like to turn the call over to your host, Mr. Mark Quick, Senior Director of Business Development and Investor Relations. ahead. go please Sir,

Mark Quick

And XXXX everyone. Earnings Operator. Orthofix to Second Quarter Call. good you, Welcome afternoon, the Thank

Joining me Officer, on and Chief start Executive the our then call today Brad with to and are pass Mason; it Chief Brad. harbor Financial safe Doug over I'll Officer, Rice. statement President and

about including forward-looking plans, and goals reliance cautioned During than such is our fact expectations, historical will not to those making matters forward-looking involve any guidance and there provide occur. statements statements, we are strategies, earnings this statements call, we'll uncertainties. risks any objectives. of Investors are that statements the beliefs, or as in that be place on All other no such contained forward-looking undue assurance statements statements,

we or are not The statements. such and X, make our beliefs today, call revise as do XXXX. We on to on update today's expectations obligation based of August forward-looking any forward-looking undertake statements

to statements future. as factors be the under Some actual factors well from the ended call XX-K the filings December heading as by make and risks we year on made the XXXX, XX, include disclosed for risk SEC that the the different materially Form us our additional could in cause results forward-looking

If at documents, you need Texas. please copies of office in Orthofix these Lewisville, contact my

may with that investors on determined in today's trends, measures to order in properly a U.S. believe to non-GAAP various long-term supplement GAAP. understand matters We financial as addition, In short-term financial measures. call, we to review will accordance financial to our and these refer wish

U.S. financial for reconciliations announcing our measures results. release, quarter of to to results financial today's XXXX refer press Please these non-GAAP GAAP our second

turn over to this point, the call At I'll Brad.

Bradley Mason

everyone. afternoon, good and Mark, Thanks,

President than role that then, now at of experience Jon already on Spine. seen the President the to Serbousek Jon a Biomet and our immediately device Jon vacant of CEO pleased year. more take Worldwide As will announce to short Between medical Biomet of and time XX years' of this you agreed to President November of release joining become be positions X executive ago, and effective Orthopedics. Orthofix with I'm very several Group Orthofix, President industries, U.S. including may Worldwide Inc., press has have the Global of in President leadership biotech on Biologics, of Orthopedics served in A seasoned and in

Prior business. of General Spine, various joining of and several Medtronic positions including President Worldwide their held Biomet, he management Biologics within Manager Inc., Division Worldwide Vice Biologics and for to Spine President

record Orthopedics, Product company, the spent years of and in a DePuy Johnson President Marketing exceptional Spinal and lead Additionally, of increasing Jon's served Johnson President Development where and perfectly of Jon to & with and as including aligned CEO. XX he roles make with composition choice proven are business Operations. as and our numerous him President expertise Vice an company the responsibility, Vice track

ensure business, Spine should Orthofix leadership that basis. the takes With on in I'm before which serve to give President our broader opportunities This on the to focus he in agreed CEO of stakeholders. Spine that will him a the and for role, help all has Jon leadership Global of change recent the an pleased our as time interim business, of needs on benefit transition seamless

the onto Moving results. quarter

in questions. then will XXXX which our financial Doug results quarter will more As I before second depth. follow by up our with for discuss the you the XXXX performance, summary usual, start taking sales of remainder I'll a outlook giving of after

other line results plan exceeded our our second the our were we quarter. generally with reported of second which $XXX.X currency. expectations the than increase year-over-year a million, quarter, X.X% net in constant consecutive sales representing of Biologics or for in in For X.X% portfolio, These

the U.S., quarterly guidance. will half full sales expect in cadence the the the and we discuss confident results the a of moment, in these we With that which the our in that feel year, sequential year in disc I rollout acceleration reflected of back cervical about MX-C is

Growth lines in Bone the our in generated the in X% Implants Spinal includes in which Beginning which X.X% Biologics currency. sales reported over million product prior Therapy, $XX.X and second a constant represents Spine, in year sales or Orthofix increase to quarter, the period, with the Bone versus full to for Growth year. year. and net X% X% expect increased range met the we This business line, sales product continue our the grow Therapy's quarter in prior expectations X.X% to for second this

products, reported motion X.X% both decrease Fixation compared preservation of abnormally ASP These motion by from decreased Spine products, prior driven in X.X% sales products. due net to XX.X% in In increase and or were a X.X% currency Fixation year. the Spine we high to our reported Spinal includes primarily a by offset a pressure, which results preservation Implants, constant

coming in product and improve to in line continue new Spine pace we the third sales spine high-potential mentioned preservation, new, our I that as sales to major these upgrading new up implants products. distributors to to as unique gain of call, the U.S. speed portfolio As attracted on with selective, -- fourth our Fixation sales nicely, are are motion the force last and expect Biologics and our These our partners in markets, are partners traction. of quarters legacy sales fixation we strategic,

we also on ASP pressure higher period quarters. normal the saw than in to expect upcoming that We usual to more a levels the return

note double to a of disc well. we trained can and My are important to is MX training lag cases, date. going there To confidence continuing have very exceed million and hospital we date, over XX over disk $X launch have on us sales that is to achieve of year. in our XX year they $XXX,XXX -- to full XXX MX-C over the the gives and cervical surgeons year-end, By program or majority This performing to have our cervical high due to ramp be trained digits approvals. progress for up, to U.S. implanted revenue that these between provide the of start that to U.S. Spinal surgeons our when surgeons although, date. we will timing ahead surgeon case grow in more come little trained. plan will expect and our visibility when QX. to will a It's is a full $X low Implants in we expect Overall, single target, million

new of three Our to U.S. outstanding had return XX.X% contribution year. added quarter, of This by another sales to the Biologics be each results a the regions. performance a to product lines last prior the sales increase year from reporting and in in continues compared distribution driven solid

we on believe half position business. first growth we sales to of achieved allograft last hospitals for now XX are year the we months. sales now high Based over on that full to our Also, million data, $XXX we expect one in recent that the number pleased digits to be this have the in based cellular in SmartTRAK expectations our with performance, single report market, the

Lastly, of Orthofix our or in over quarter in constant X.X% X.X% Extremities second $XX.X business, currency an sales net increase the the in were million, year. reported prior

believe business currency for to to the million growth. a quarter On its plan trailing currency. Given our the Biologics, the the expectations we single are for for expectations were for outperformed of On low year. against in the constant the months grew the sales variability performance or digits the consecutive quarter. basis, reported be way Orthofix quarter to this line is to $X year-over-year In which growth best of at this Extremities currency look given business our basis, full in XX most headwinds assess X.X% $X.X this areas summary, generally constant business, with flat current with year, in our for second in exception million second

and confidence of very our year. for in of launch is MX-C us the the the the the U.S. gives disc Additionally, in remainder cervical expectations going well

Doug financial through will you the Doug? quarter. now the in take metrics key

Douglas Rice

some start additional results afternoon, and other good net some into financial then and details sales I'll and Brad, earnings everyone. our our Thanks, of providing discuss measures. by

Brad in basis a and up the sales basis on X% reported to second million, As quarter were total noted, $XXX.X a the X.X% XXXX. on of quarter compared when constant-currency net

than million XX.X% headwind XX.X% we the an margin majority in during of quarter, the weaker some Gross the experienced the from quarter Spinal performance. extremities outperformance $X.X modestly expected second The saw Biologics was and currency where Implants our new from to by higher of Gross than period. related in buildup the sales prior-year partners impacted support normal the noncash in geographies. charges growth margin to sales compared was Spinal to key Implant inventory

However, and to between for continue expect net the year sales. we gross full be XXXX, XX% to margins of XX%

XXXX, sales net of the expenses in of XX.X% quarter over increase second second marketing quarter in were of an the XXXX. -- XX.X% and Sales of

support As investments and and with this U.S. primarily commercial education the year, was due QX our expense training for increase launch. to the the MX-C of programs to

the back XXXX be and increased our also continuing continued in project expected we year, our in sales the now the to XX% expenses. performance has for of Biologics in expense into outperformance Biologics revenues full We year. commission of With half approximately marketing

G&A of GAAP net increased prior the expenses offset in compensation partially period. year This last sales primarily down in which to the XX.X% was quarter related succession executive were decrease the XXXX, second realignment lower year charges. by of expenses from Spine XX.X% were to of due Global

that sales, for preservation of these increased prior-year well research were clinical the line marketing In and G&A the Bone the Union. cost continued our as expenses comply sales quarter Therapies expect during the specific increased to from motion second expectations, as net our investments We European R&D with device X% in decreases recent in XXXX. offset in period to and due in with will X.X% regulations medical Growth up

decrease XX.X% of R&D marketing in XX.X% driven the continue at XXXX, to related in spending Adjusted half of R&D of sales or for revenue the the revenue, to as the to million decreased well investment that expect This of modestly the gross commercial down mentioned. XXXX. X% decrease, And be year to expenses that the of reflected in by EBITDA revenues. $XX.X will $XX MX-C as second year. or the approximately are primarily was in margin increase quarter I from full we and second costs million launch,

million, for flow significantly QX. be in expected to We EBITDA over second the to million $XX of year, the of adjusted higher half with margins XX% year in implying the $XX through

million Now income million or we about expense income of XXX% or the $X.X same income tax period tax quarter turning income the $X.X to to income income of for taxes taxes compared XXXX. XX.X% as of of before GAAP in of tax, expense before had

nondeductible, in effective tax year-over-year was expenses. by quarter the provision tax flat, this the certain financial While driven increases was increase other in acquisition-related and rate

of share For $X.XX the the $X.XX second per for diluted compared as net share reported GAAP second quarter quarter to a per XXXX, loss we XXXX. income of of

second certain quarter for was motion tax rate, quarter to and effective for As long-term decrease non-GAAP the $X.XX XXXX. EPS a tax, in the XXXX majority of when $X.XX adjusted compared to using investments due second items adjusting was normalizing The in for this of the preservation.

up on of of the at of sales sheet days first end the were at quarter Day XXXX, from XX from of XXXX. XXXX or balance end the sequentially and the days days second the highlights. outstanding, at quarter down second of Moving modestly end to DSOs, XX quarter XX the the

As of the year-over-year collections on well in due Growth from Bone extremities increase as OUS timing this call, the last noted our as to was stocking payers business. distributors Therapy

XXXX, million initiatives. Our end to million $XX.X the $XX.X in restricted inventory end and quarter second the X.Xx of management modestly our equivalents quarter compared the X.Xx primarily the XXXX, at end second at inventory to quarter, cash due at in turns, of XXXX. second the the improved totaled quarter second to cash, of the Cash, versus

working operations in quarter expansion Cash growth. increases capacity $XX.X quarter was from were to million down and accounts receivable, cervical in prior second investments from million, in $X.X support for MX-C infrastructure from to other our in to up million to for capital Capital the investments quarter inventory due due top XXXX, line flow and the primarily global year, our artificial the primarily million $X.X discs. expenditures IT the the $X.X manufacturing in

operations $XX of Based million. Consistent of for sales some free during remainder million CapEx from taking now to decrease strategies, flow from we $XX compared and to improve million, expect prior ramp to year. prior Free XXXX the capital our year. as enhancements we quarter expect years, flow expenditures $XX.X tracking by we to million to million $XX the calculate recent cash outsourcing our prior million of the $X our with our the manufacturing which $XX cash flow, was cash on guidance in a

will it Brad. With that, now I turn to back

Bradley Mason

Thanks, Doug.

representing including year $XXX full X.X% to XXXX, currency of a million, to to constant range for guidance reported X% The a X.X% report remains company currency. to million approximately outlook in our Regarding sales net of year-over-year $XXX in to million expect unchanged. headwind, $X the or X% continues increase

also cadence the the toward heavily for high fourth year QX growth quarter. to the half for with growth We be and expect the to the reported in mid-single-digits sale of weighted year continue last single-digits

to legacy half in in implants the mentioned earnings the the including as our last been of the spine last MX-C U.S.; I of of that As sales attracted of sales lastly, motion sales; ramp-up the our up has weighted Biologics preservation, by the sales markets call, force and our headwinds ramp the U.S. cadence major factors, are the sales on potential this new number of in third a driven conversion portfolio selective now in year first fixation disc continue high ongoing partners currency to toward year. of the

of including EBITDA to Spinal that for heavily tax of XXXX, in year Kinetics, adjusted well. as will adjusted per of million year be XX%. $X.XX the be rate to weighted to end million will $XX EBITDA, I range full Primarily sales continue non-GAAP, adjusted and the long-term a ramp, share a be due to using earnings $X.XX $XX toward to our expect believe the we this

open With the now for lines questions. up ready that, operator, to we're

Operator

Instructions]. [Operator

Bijou Our from comes the first Craig from question Fitzgerald. of line Cantor

Craig Bijou

Well, the let Jon CEO. with new me start as

in So specific -- and had you Brad, a and forward. or of the very you experience a ortho had obviously, business going saw strategy years you what for spine.

vision thoughts right find for was the of succeed of the when someone Jon role, maybe the other for some your that then why looking just is it CEO to future -- candidates shared around So And how at the kind that new to company? you. important person

Bradley Mason

Sure.

it think, was I Craig, important. actually very

myself be quarters the board is of the I have more terms about that X, back top even or talking half last, continue and that year. through in and organic we where -- been what growth delivering been think accelerate And to what probably and vision is now opportunities. what with -- we've been the inorganic Jon will line for shared on we've in X our and delivering the of to on

there, those brings brings is step that think in And other industry. So he Biologics companies that is he places business Jon He knows, table I terms sorts my prepared in is an with incredible our the experiences And much in in be think to I out have of in and certainly the asset knows experiences some his that he things things, the did table. that I the terms strategy. some to how with out will very our the distribution And and things of in central are to and company. casting of he his right not and the said as Spine aligned. remarks, of I people

one. number that's So

part Second your of it. Craig, sorry, question, lost track I'm I of

Craig Bijou

person answered to just on pretty was Brad. the right you But I think It much No. any other he's succeed it, why thoughts you.

Bradley Mason

-- on mean having Spine. in Spine it's I and in think in time, the that take be come with period and of solution Jon pending elegant for willing the be leaders couldn't very this of situation I a think recent our retirement I today, I of happier my to one the No, loss a -- role Yes. to we're is

transition. So very think for -- I as I perfectly success. up And it smooth be will a think very, it's set

Craig Bijou

that seeing think revenue you in like was do you in I Spinal about that could on is about when feedback confidence saw the little going in the to QX. disruption improvement provide? spinal loss see saw that you some if anecdotal you wanted I then just Are Obviously, And the seeing Kinetics, QX, to And you it that you then the seeing but expect are gives -- it confidence? what -- the helpful. sequential What I nonorganic the QX part Spinal That's Implants in there some wanted anecdotal the a of bit you out. from or or you and Great. to gives that, maybe business. call so or just basis, can Or the that have half? know there is QX? you're what talk you second than -- you better a later rebound that disruption there, looks

Bradley Mason

terms to question, to on some have spine year of for low got motion to exactly. in or call, confidence, the can answer I've -- -- And -- But going and business. it's your fixation, high half of But the you the head. low and MX. get digits I'm digits in MX, of of digit, our give driven or numbers in us it the it guys impact. for give off the obviously, growth have for we follow-up to to first -- So the single single the the don't implant get out year top by room preservation adoption I who can is to be I in you that pull a second of MX for a the in the double and me the figure will which positive is expect the implants, we through includes full that's what think spine it

larger should have to of who -- begin now days some expect to ramp XX, signed start well. the distributors ago also an end to as to of as get impact up XX we we And year. that toward We these have the

good we the going to primary pull and I step the it the And those very and starting. is MX feel from are if through distributors. it, addition where at think from we back So driver about in look that I be to

So think point, I shape. at good this in we're

Craig Bijou

in. Brad's if But leads Obviously, the I to -- sales in still more maybe one higher. in the And revenue appreciate if on second EBITDA. more the can more -- of you on about it -- Got the implied percentage half. comments significantly is squeeze Doug, it. script I EBITDA,

color -- steps meet was just up guidance? in the So a little of color your bit what from hoping, maybe on second a And bit I perspective half? margin you how little EBITDA

Douglas Rice

a question. it's fair No,

contribution we'd really P&L. think I all our expect of components from

gross margins normalize. to You'd expect

I think QX reasons I was an my for in script. outlier, the mentioned

MX you'll we United sales States the lot and sales. normalize commissions as think and marketing know, as ramp in back start see in the sales improve half of costs, the cost as I you launch of a of the our and the incurred to our of ahead around year

in start to sales quarter, the So flow-through our probably the you'll see to Those drivers. I the biggest as start think two fourth ramp normalize. are

Operator

Our next BTIG. question Zimmerman comes from Ryan from the line of

Ryan Zimmerman

want I to MX, revenue a base already very It Just up thus few on follow Brad, the the wonder could it. Craig's just achieved of based suggests a if you questions. implanting high number. to with speak certainly far surgeon on

as per into Should And little and implant kind it moderates over mean, who of today kind QX? -- so of adopters about think QX whose as think help question another rolling well. the can leg? as I and then surgeon maybe and you maybe us revenue we of to expect And this in understand bit? we the a I is QX early maybe implanting you versus have of How some the early these QX, then then that

Bradley Mason

question, Good Ryan. Sure.

even what think what you're bit is actually little So we expect I per surgeon, or a not. than it believe seeing less maybe

the to part that went already that care not surgeons they their significant their was we of the the we that were trained, they taking with to so had retraining less those surgeons MX IDE, our who of -- than make we're of the been And and study. first the for in that restricted to past. -- were think used needs, sure participation in had taking were surgeons surgeons care activities we the I

funnel weeks, That said, opened a are around bit that to in going and now recent additional country. surgeons up we the

instrument sets available. We have

We have implants available.

six people more. dedicated training, have full-time to adding We we're three

that think the So be very we good. ramp will

when MX or when cases when and up. delay and use cases their decides a -- is gets surgeon their typically, first trained, ramp There or -- -- and between to when do the they as a their

already the hospital or the that registration of cases implants, already can some we're they've be things. decision sorts on be just can made and set, those approval, Some a

and surgeons that year, over not So swing, as expect by would would to we we year-end. be be all will go XXX the have over through at I -- said up then full of in -- surgeons Certainly, a those trained but point. expect at XXX we I

the overall, So case think we're -- process. the volume just than is XX from very but first done cases seeing that it's less it's the still probably early see I in have we'll what

Ryan Zimmerman

Okay. pressure called you -- in That's pricing fair. the this, missed is And I just the have out might I then abnormally quarter high. but that

product why better I motion on your And you in relative core Spine X.X% think you that the XX.X% dynamic? rest increase Fixation to in through What decrease year? the seeing does mentioned are the of the about preservation. pricing get

Bradley Mason

really Ryan. question, Yes, good

So had if business. some, I overall, implant they in high competitors, the of -- listen well our pricing to you the spine industry We of saw some that. bit as say, a pressure unusually would

what we let's that's of X/X So say, called out. probably,

our So recently early that internally, the meaning -- affected premium of that ASP XX launched coming some get is we last to just the other and of in of months, days, our some well. are as were of recently so pricing products third off able the the launched --

rolling we through happen expect the year. to that off or the as off, ramping those we with So continue better don't ASPs, go to

to hopefully, market, but a expect in general, -- the decrease internally, decrease decrease pressure pricing as will see So certainly, the general, we in will well. in market, the

Ryan Zimmerman

And for queue. me hop one Okay. last back I'll in and

guidance, you up, $X.XX I the about on investments the On for step strategic nice year. took think a

previously. was color give about you little what what it on Doug? more a I million us can that is, $X from think formally Just

Bradley Mason

it, Ryan. Yes. Yes, I'll take

too along, to we're we've all look not we of active. We off So very spent if remain year. what last as historically, going -- it's far you said

we continue really areas active, that for to been play. we're and can have look opportunities going that We the generate accelerating to in growth

had pretty us it's being So just we year. to similar what last and historically active

Operator

Thalmann. line the Cohen comes question of next Ladenburg Jeffrey from from Our

Jeffrey Cohen

So two areas.

And of you of to up want some far the average training have typical on the as of been not of could what's the where involved physicians And the kind IDE? training's -- with Ryan's questions goes. the in case about IDEs that follow place? as the cases taking on talk I First, number

Bradley Mason

part first the of the question first first. part So -- first

also is cadaver So is the This training, not training the field. and is Lewisville this with training in taking place models. in

We one model tools best training training Actually, have are developed comments a -- proprietary of for physicians -- about. one it's the excited training used. very the back that of best in they the the tools they've ever

in And also out groups so mean pretty that that that's do doing other ready they things. they're launched those -- the we going until But then We them can surgeries our we we're are number expose surgeries in can out and field. monthly our and at we for the of be of in products going as the in Lewisville large in come sorts well. and But some I preference. have they're least as field, in training here a are to sessions be well and go. to typically, of surgeons with to while them to

Sorry. second of the question The part was?

Jeffrey Cohen

their you as question. in list to your the for to facilities going backlog you're guess as at I them this follow I surgeons No, far point? bringing waiting is, training as catching your of that -- Okay. or up with think on is is answered that a

Bradley Mason

Absolutely. yes. a is There's lot of there the demand Absolutely, MX -- for disc.

Jeffrey Cohen

about had from Trinity? better But looks understanding. little quarter. selling I'm ASPs? from coming you get a just bit trying more platform? Is coming Biologics it Is Great. solid a products segment? that like could It you a is secondly, coming the and diverse talk more it to from And an then

Bradley Mason

some a We bit total of little Biologics But well other it. -- ancillary sales. only XX% our Trinity, than our our what's driving volume are remember, volume in more are It's Biologics. that's -- more of products less of

really seeing. -- primary it's of in, and Trinity that added we've kicking that that's the And we're is distribution year So driver in the the we increase. volume last

Jeffrey Cohen

Biologics, higher you're kind the end But seeing from macro the bigger of guess strength Okay. I standpoint? of at still picture,

Bradley Mason

Absolutely. Yes.

We are.

Operator

Our last from Jim question Sidoti & the line from comes of Company. Sidoti

James Sidoti

the questions. that that entirely assume of is the almost decline on I Couple The fixation, spinal correct? U.S., was

Bradley Mason

-- The Say again. sorry. I'm callout on

James Sidoti

business, weakness the hardware, hardware, spinal U.S. the all On was right? in that spinal

Bradley Mason

basically U.S. international U.S., It's little of Yes. but There's yes. bit basically a

James Sidoti

you're new think is and into what you the once the half back distribution of out, saying you in get those XXXX? worked the that results And improve year

Bradley Mason

That's correct. Correct.

James Sidoti

strategic that for the I be Or is investments, acquisitions that clear, you for just Okay. to acquisitions want And for you're then is that looking charge $X.X completed? now? million at

Douglas Rice

strategic for our quarter and up with line. finish ago And of spending roughly the company ways grow reflects with as spend and few for represents Jim, to flat Spinal on it a the continually integration regards Brad is a million was the it to minutes Kinetics. $X.X year, last we it some grow what also what looking us mentioned our top

James Sidoti

Kinetics go think Okay. to do needs And at can he with solo? this the you Spinal do before point the disc in the curve, cases how surgeon many

Bradley Mason

it's it's model training. received disc seven So initial the part along those IDE, they have the or typically, the lines, used If probably probably after to four if disc they've of the used and cases. before, were they three they've five not cases, something not

James Sidoti

Okay. been three months? And the in last Or consistent? pretty has number has that changed that

Bradley Mason

No. That's consistent.

Operator

now We Brad. will time. have no at over turn further the back question I call to this

Bradley Mason

Thank Operator, Take and you, thank soon. forward and you, look you the time calling for to in to care. talking We appreciate everyone, again today.

Operator

us. joining This for today's you conference thank gentleman, call. concludes and Ladies

You may now disconnect.

Orthofix Medical (OFIX) 5 Aug 192019 Q2 Earnings call transcript