Orthofix Medical Inc.

Thank you for standing by. My name is Brendan, and I'll be your conference operator today. At this time, I would like to welcome everyone to the OrthoFix Medical Link quarter one earnings call. Excuse me. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, again, press the star and one. Thank you. Senior Director of Investor Relations, Alexa Huerta, you may begin the conference.

Thank you, Operator, and good afternoon, everyone. Welcome to the OrthoFix first quarter 2023 earnings call. Joining me on the call today are President and Chief Executive Officer Keith Valentine and Chief Financial Officer John Bostjancic. During this call, we will be making forward-looking statements that involve risk and uncertainty. All statements other than those of 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, May 9, 2023. 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 31, 2022, and Form 10-Q filed this afternoon, May 9, 2023, as well as additional SEC filings we make in the future. 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 US GAAP. Please refer to today's press release announcing our first quarter 2023 results for reconciliations of these non-GAAP financial measures to our US GAAP financial results. At this point, I will turn the call over to Keith.

Thank you, Alexa, and thank you, everyone, for joining us this afternoon. I am pleased with our strong financial and operational performance in the first quarter following a combination of OrthoFix and C-Spine on January 5th. The merger of these two companies creates a leading global spine in orthopedics company. And the new leadership team has remained focused on continuing to execute on our growth strategies and cross-selling opportunities across all portfolios. Revenue for the first quarter was $175 million, representing reported growth of 65% and pro forma growth of 11% year over year. Our strong quarter is indicative of our commitment to deliver consistent above-market growth through innovative products via our expanded commercial reach. Since January, our team has worked tirelessly to integrate the two companies, and I believe we're already starting to see some of the benefits of our complementary portfolios throughout this stronger and more aligned organization. For today's call, I'll start my remarks with some commentary on each product category, including any product innovation initiatives, followed by operational highlights and commercial channel updates. Then I'll ask John to provide a more detailed look at financial performance and guidance for the full 2023 year before we open the call for your questions. Our Bone Growth Therapies Division, or BGT, enjoyed a solid start to the year with 14% year-over-year revenue growth, totaling $48 million in the first quarter. We generated double-digit growth in both the spine and fracture management channels. In 2022, we invested in a realignment of the BGT sales and sales management teams to expand the organization and to bring more dedicated focus to each of the spine and fracture management channels. This positioned us well to take advantage of the anticipated cross-selling opportunities in spine following the merger and to accelerate market share taking in the fracture management share following the launch of a sell stem. Our most recent solution, which adds a fresh fracture indication to our already expansive portfolio of indications. Within the spine channel, we generated growth from both spine stem and cervical stem, the only PMA-approved cervical BGS device in the US market. While we're pleased with the significant inflection in sales growth in the first quarter, we believe that annual growth rates will normalize to mid-single digits throughout the remainder of 2023 to account for the fairly low comp in the first quarter of 2022. As for spinal implants and enabling technologies, which includes both legacy companies' technology portfolios, we reported global revenue of $61 million, reflecting 13% year-over-year growth on a pro forma basis. More specifically, in the U.S. market, where we generate the substantial majority of that revenue, we reported 21% growth in the spinal fixation franchise in mid-single-digit growth in the M6C motion preservation product line as we continue to focus on stabilizing that franchise. Overall, U.S. sales growth was driven by the more exclusive high-volume distributors we onboarded in recent years, who are leading the efforts to take market share generated by increasing surge in interest in the multiple products we launched within the past couple of years. We remain committed to continuous product innovation and have made critical decisions on rationalizing the spinal implants portfolio by leveraging the best of both companies' spinal implant systems to enable above-market revenue growth with a more streamlined product offering that we expect to increase overall asset utilization and therefore the efficiency of our revenue. In Q1, we announced the full commercial launch of the Mariner Deformity Pedicle Screw System, an extension of our foundational Mariner technology platform, which will address the unique clinical requirements of complex adult deformity in spine cases. in addition we expanded our access solutions for the 1.8 billion dollar mis procedures market with the full launches of the lattice lateral retractor system which optimizes the lateral procedure to provide access to challenging anatomy during surgery and the fathom pedicle-based retractor system which allows the surgeon to control the precise length of each blade and dial in a customized lateral medial tilt, providing a rigid construct to address each patient's unique anatomy. In early February, we announced the new US sales leadership team for spinal implants and biologics, and we defined smaller, more focused territories to increase our presence in those markets. We are excited to bring that sales leadership team and our key distributor partners together for our inaugural combined company global sales meeting next month. Within the enabling technologies franchise, the first quarter marked the sale of our 50th 7D Flash system unit outside the United States. This comes on the heels of having announced the 100th global placement of 7D Flash system unit in late 2022. to date. We have placed seven units under active earn-out arrangements that are expected to generate an average of $4 million of revenue per year over the respective earn-out periods. This machine vision technology is providing significant value to the institutions that are utilizing its capabilities, and we look forward to expanding our market reach across the world through the expanded global distribution network. In the first quarter, we launched four new tract tools to be used in our navigated percutaneous model. And we also completed our first fully integrated 7D flash system case utilizing a legacy orthofix spinal implant system, which signals the flexibility and ease of use of the 7D flash system. And finally, we are pleased with the publication of a study in a recent Journal of Pediatric Orthopedics that highlights radiation and time savings benefits when using the 7D flash system in complex pediatric cases. The study noted that the system reduced operative time by approximately 64 minutes and reduced interoperative radiation exposure and time by 66% and 68% on average, respectively. We are excited to now be able to leverage our enabling technologies platform to support growth across all product lines of the combined company and to service the full continuum of care with this novel technology. We have seen a shift in the sector as more and more cases are relying on navigation and planning systems, and we believe this creates an opportunity for us to accelerate share gains. In biologics, we generated global revenue of $41 million, representing 7% year-over-year growth on a pro forma basis. In the U.S., where the substantial majority of that revenue is generated, we also reported 7% revenue growth on a pro forma basis, which was driven primarily by recently onboarded distribution in the U.S. The Biologics franchise provides surgeons with a full spectrum of biologic solutions, led by our flagship of cell-based demineralized bone matrix and Trinity cellular bone matrix solutions. to enhance the fusion process and promote bone repair and growth in a surgeon preference market. There are significant cross-selling opportunities across the entire OrthoFix portfolio in conjunction with the use of biologics for improved patient outcomes. In global orthopedics, sales grew by 14% at constant currency over the first quarter of 2022, with revenue totaling $26 million. This performance was driven across our diverse portfolio and was led by a solid commercial execution in both the U.S. and international markets and continued acceleration from 2022 product launches. The investment in U.S. sales leadership and our European direct sales channels over the last 12 months are bearing fruit, and we are enjoying continued pickup from the 2022 launches of the Truelock, Evo, and Galaxy Gemini systems. These single-use sterile pack products are simple and efficient solutions for surgeons and hospitals, reducing complexity in the OR. In 2023, we intend to continue our investment in product innovation, targeting end of year to introduce the next offering from the FitBone platform. Our investments in product innovation, sales channel, and our market leading medical education programs are all designed to continue our current higher than historic growth in the orthopedics business. While we're still in the early stages of identifying and leveraging cross-selling opportunities between all of our highly complementary portfolios and business segments, we believe that we are making good progress to be able to realize many of these opportunities to generate accelerated revenue growth later this year and to carry that growth momentum into 2024 and to help us further expand our commercial reach. And finally, we believe that the announcement of our new U.S. sales management responsible for spinal implants and biologics was an important first step in removing the uncertainty paralysis that can result from a merger like ours. And that certainly is now supporting our efforts to attract more strategic distribution. To date, we have not experienced any meaningful revenue dis- synergies in the spinal implants business. As our first quarter results would support, and we remain cautiously optimistic that we can successfully navigate through any remaining dis- synergy risk to the business. Looking ahead, We are encouraged by the momentum we have coming out of the first quarter. That momentum and the confidence we have in our teams to continue to execute was a major factor in raising our revenue guidance to between $750 million to $756 million for the full year 2023. The integration of the two companies is progressing smoothly, and we are pleased to report that we are ahead of plan with respect to realizing the many operating expense synergies outlined in prior communications. We're seizing on the opportunity to capture market share and expand our commercial footprint on a global scale with our combined portfolio, and we have plenty of runway for a balance of further growth and scale. From a macro perspective, we've seen procedure volume trends rebounding and some expansion and developments within the spine market that I believe OrthoFix is in a great position to capitalize on. Competitive pressures across all our markets will reward innovative organizations like OrthoFix, and we have the robust portfolio to meet the needs of patients and surgeons across the continuum of care. With initiatives like increased product utilization and offerings, higher revenue per case, and effective cross-selling, our commercial team is ready to leverage the steady underlying market demand we're experiencing, and I can't wait to see what else 2023 brings. With that, I'll turn the call over to John to provide a more detailed look at our financials in the first quarter and to provide more robust financial guidance for the full year.