Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Orthofix Medical Inc (OFIX, Financial) delivered above-market growth across virtually the entire portfolio in Q2 2024.
- Net revenue for Q2 2024 was $198.6 million, representing a 6% year-over-year growth on a constant currency basis.
- US spine fixation grew 12%, more than twice the market rate, capturing increased market share.
- The company began a limited market release for two new interbody designs, expanding their lumbar interbody fusion product portfolio.
- Orthofix Medical Inc (OFIX) raised its full-year net sales and adjusted EBITDA guidance based on continued positive momentum and strong performance.
Negative Points
- Non-GAAP adjusted gross margins slightly decreased to 71.3% in Q2 2024 from 71.6% in Q2 2023.
- Non-GAAP research and development expenses remained relatively flat at 9% of net sales for the quarter.
- The company expects variability in growth rates due to the nature of the international business and timing of stocking distributor orders.
- Orthofix Medical Inc (OFIX) is not guiding to individual quarters being free cash flow positive, only the second half of the year as a whole.
- The company acknowledges that the growth in bone growth therapies (BGT) may slow down to market rates over time as they leverage synergies from the SeaSpine merger.
Q & A Highlights
Q: Julie, can you talk a little bit more about the levers you pull to get to cash flow positive faster than expected? And maybe more important, how much more opportunity there may be in those levers or others? Should we expect positive free cash flow in 3Q and 4Q or just in the second half in some, and then with the exception maybe of the seasonally heaviest spend in 1Q '25, should free cash flow stay positive from here out?
A: We saw a really good drop through on our EBITDA, improved working capital efficiency with inventory utilization, and DSO improvement. We believe we will be free cash flow positive for 2025, though not every quarter due to seasonal payments in Q1.
Q: The implied drop-through in the second half is something like 40%. Is that how we should be thinking about drop-through as a rule of thumb beyond 2024?
A: Generally, we would expect to be in the 30%-35% range as we annualize our synergies. We won't maintain the 40% range over time.
Q: How is the enabling tech segment shaping up relative to the growth of that segment? What do you see for the pipeline in terms of 7D demand?
A: 7D is fundamental for sustainable growth. We are focusing on creating more replacement of our machine for earn-out, which will drive higher implant utilization and sustainable growth. We are also investing in R&D to enhance 7D's capabilities.
Q: Where do you think you're at in terms of cross-selling bone Stim into the legacy SeaSpine customer base? How long do you think these tailwinds can continue?
A: We are still at the infancy of our merger with SeaSpine, so there is still room to drive synergies. Over time, we may see a natural slowdown to market rates or above market rates, but for now, we see continued opportunity.
Q: From your commentary, it sounds like most of the growth or placements are focused on open surgical procedures and MIS is still sort of a work in progress. Is that the right interpretation?
A: 7D is well-positioned for MIS procedures in the ASC setting. While it performs well for MIS, we are investing in making our MIS capabilities even better over time.
Q: Can you give us an update in terms of what's happened with your sales force this quarter in terms of ads? Will there be a more aggressive increase in the sales force as the cash position improves?
A: We don't give specifics about our distribution network. Our commercial strategy focuses on sustainable growth and quality of revenue, not just growth for the sake of growth. We aim to be the best partner for our commercial network.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
