Orthofix Medical Inc.

Hello and a warm welcome to Autofix Medical's Q2 2022 earnings call. My name is Melissa and I'll be your operator today. Should you wish to ask a question following the presentation, you can do so by pressing star followed by one on your telephone. I now have the pleasure of handing over to our host, Alexa Huerta, Senior Director of Investor Relations to begin. Alexa, over to you.

Thank you, Operator, and good morning, everyone. Welcome to the OrthoFix Second Quarter 2022 Earnings Call. Joining me on the call today are our President and Chief Executive Officer, John Cervosic, and Chief Financial Officer, Doug Rice. I'll start with a safe harbor statement and then pass it over to John. During this call, we will be making forward-looking statements that involve risks and uncertainties. All statements other than those of the historical facts are forward-looking statements, including any earnings guidance we provide and any statements about our plans, beliefs, strategies, expectations, goals, or objectives. Investors are cautioned not to place undue reliance on such forward-looking statements as there is no assurance that the matter contained in such statements will occur. The forward-looking statements we will make on today's call are based on our beliefs and expectations as of today, August 5, 2022. We do not undertake any obligation to revise or update such forward-looking statements. Some factors that could cause actual results to be materially different from the forward-looking statements made by us on the call include the risk factors disclosed under the heading Risk Factors in our Form 10-K for the year ended December 31st, 2021, and Form 10-Q for the quarter ended June 30th, 2022, filed this morning, August 5th, 2022, as well as additional SEC filings we make in the future. If you need copies of these documents, please contact my office at Workafix in Louisville, Texas. In addition, on today's call, we will refer to various non-GAAP financial measures. We believe that in order to properly understand our short-term and long-term financial trends, investors may wish to review these matters as a supplement to the financial measures determined in accordance with U.S. GAAP. Please refer to today's press release announcing our second quarter 2022 results for reconciliations of these non-GAAP financial measures to our U.S. GAAP financial results. At this point, I will turn the call over to John.

Thank you, Alexa. Welcome, everyone, and thank you for joining our second quarter 2022 results conference call. On today's call, I'll provide an update of our second quarter performance and review progress towards our strategic initiatives before handing the call over to Doug who will provide our financial update. I'll close the call with our perspectives on the balance of 2022 before opening the line for questions. Starting with our second quarter performance, total revenue in the quarter was 118.1 million and was flat year over year on a constant currency basis. As a result of our commercial channel investments and new product offerings, we delivered solid execution across our spine business and achieving strong performance in our global orthopedic business. These positive results were partially offset by macro headwinds, which had greater than anticipated effects on our business. In particular, we continue to see slower-than-expected rebound in elective complex procedure volumes due to ongoing hospital staffing issues, as well as patient reluctance to seek elective procedures in select areas, which impacted our BGT, spinal implants, and biologic businesses. reported revenue for the quarter was materially impacted by the strength of the US dollar relative to our other currencies in which we transact negatively impacting reported revenue by approximately $2.7 million. Turning to the performance of our two business units, I will comment first on the spine, followed by orthopedics. Starting with bone growth therapies, or BGT, cells for the quarter were 48 million, down 4% on a reported basis and constant currency basis compared to second quarter of 2021. The decrease in the quarter was largely a result of a reduction in complex procedures, which generate a relatively large portion of our spine BGT prescriptions, continued staffing issues, and patient caution to seek elective surgeries. On a positive note, we continue to capture market share with PhysioSTEM and are seeing early commercial traction of the CellSTEM. These share gains and sales tractions reflect investments we've made in our fracture management channel, which calls primarily on orthopedic and podiatric communities to treat fresh and non-union fractures. Moving to our spinal implants, which includes both spine fixation and motion preservation, Revenue was down 6% on a reported basis and down 5% on a constant currency basis as compared to the second quarter of 2021. The decline was due in part to lower than expected complex cases volumes in the US as well as global competitive headwinds in motion preservation. We continue our positive view of the disk replacement market and the leading edge technology that M6C artificial disk provides with its demonstrated clinical outcomes. Turning to our biological portfolio, revenue was flat on a reported and constant currency basis compared to 2021. During the quarter, we saw positive trends from new product introductions, such as fiber fuse, and from new distributors added in the last 12 months. These trends help offset the macro headwinds which negatively impacted hospitals abilities to perform the complex elective procedures that often require our biologic solutions. Moving on to global orthopedic business cells were up 2% on a reported basis and 11% on a constant currency basis over 2021. This growth was primarily a result of the strength in international geographies driven by the benefits from investments we have made in our sales organization, as well as revenue from international stocking distributors. In the U.S., we have started to see positive benefits from the new sales leadership team put in place over the last 12 months. Both markets are also starting to benefit from our recent product introductions of TruLock Evo and Galaxy Gemini. Now moving on to our strategic initiatives. Let's start with the product innovation and differentiation. Since January of 2020, we've launched 28 spine and orthopedic products. Starting with BGT, in May, we received FDA PMA approval for our Cell Stem Bone Healing Therapy. A sales team uses lipids or ultrasound technology for the healing of both fresh and non eating fractures. We started the initial limited US market launch during the second quarter, which included conducting Salesforce training and initial contracting with our payers. We are pleased to see a high rate of physician adoption from our early training and education initiatives, and we are expecting more meaningful revenue contribution as we move towards the end of 2022 and into 2023 and beyond. Moving to biologics, during the quarter we achieved the first clinical implantation of Virtuos, our advanced first-of-its-kind, shell-stable, complete autograph substitute. Virtuox was developed as part of our strategic partnership with MTF Biologics, who prepares this complete autographed bone substitute through a proprietary process that preserves all biologic components necessary for bone healing within the graft. It is provided in a room temperature, ready to use moldable graft. Virtuos offers significant logistical and cost-saving advantages to hospitals with improved shipping, storage, operating room efficiency due in part to its environmentally friendly packaging. Surgeons involved in the exclusive launch of Virtuos have provided favorable feedback, and we look forward to broader commercialization later in the year. I'll comment later in the call on an exciting announcement we made earlier this week on our strategic partnership with CG Bio for a recombinant bone morphogenic protein or BMP2 product. Turning to new products in orthopedics, we partnered with Lima Orthopedics in the U.S. to create a solution for patients with hip dysplasia or abnormalities of the hip that lead to leg length discrepancy. This novel hip distalization procedure solution using our FitBone Intermedium Limb Lengthening technology reflects the strength and versatility of the FitBone platform and patented portfolio and will be available through the FDA compassionate use exemption. Turning to our second initiative, the ongoing development of our commercial channel to expand patient and surgeon access to our products worldwide. In Q2, our U.S. strategic channel partners continued to see growth over the prior year. As you recall, our channel partners include distributors that carry multiple OrthoFix product categories, such as hardware and biologics. Most of our channel investment in the quarter was focused on adding U.S. direct reps in BGT to support the launch of a cell stem, as well as growing our orthopedics commercial infrastructure. Both investment areas are important for the future growth and we are pleased with the progress we are making here. Our internal team worked hard during the quarter to bring the launch of two significant new products on a limited basis in BGT and biologics. With these launches associated with physician education and sales training, we put ourselves in a great position for success as the macro environment improves and the volume of elective procedures return to historical trends. Now I'll turn the call over to Doug to review our financial performance.