Orthofix Medical Inc. Q4 FY2025 earnings call

• Fourth quarter capped a year of meaningful operational progress with strong performance in Bone Growth Therapies and U.S. Limb Reconstruction, and double-digit net sales growth in global Spine Fixation. • Key accomplishments include 10% annual growth in Global Spine Fixation, 8% Q4 growth in U.S. Limb Reconstruction, 7% Q4 growth in BGT. • 2026 priorities include sharpening commercial execution, driving deeper market penetration of 7D navigation system, improving gross margin, and maintaining targeted capital allocation. • Milestones for 2026 include full market release of VIRATA Spinal Fixation System in second half, and continued progress in Limb Reconstruction and BGT businesses.

Bone Growth Therapies (BGT) net sales were $68.3 million in Q4, up 7%, significantly outperforming the market. Global Limb Reconstruction sales were $38 million in Q4, driven by 8% U.S. growth. Global Spine Fixation Q4 net sales grew 10% for the year and in Q4, with U.S. Spine Fixation net sales growing 6% for the year and 5% for the quarter. The top 30 U.S. distributor partners for Spine grew net sales 25% year-over-year and 27% on a trailing 12-month basis in Q4.

• 2026 full year net sales expected to be $850 million to $860 million, midpoint $855 million. • Full year non-GAAP adjusted EBITDA expected $95 million to $98 million. • Expected to generate positive free cash flow for full year 2026, excluding potential legal settlements. • Net sales growth anticipated to be ~5% in first half and ~6% in second half of 2026. • Adjusted gross margin expected ~72.5% for full year 2026. • Long-range plan updated to 2028, with 6.5%-7.5% net sales CAGR from 2026-2028, mid-teens non-GAAP adjusted EBITDA as % of net sales in 2028, and positive free cash flow from 2026-2028 excluding legal settlements.

• Actual results may differ materially from forward-looking statements due to factors discussed in SEC filings. • CMS team pilot program in Q1 2026 will have a onetime 1% impact on quarterly growth rate. • Tariff impact expected $1-2 million in 2026. • Potential legal settlements which could impact free cash flow.

Q: Maybe I'm going to start with just a clarification question for Julie. Just that on the CMS impact you're going to see in BGT, just clarify, the 1 point headwind you called out, is that isolated to the BGT franchise? And is that in the first quarter? Or is that a full year impact and total top line?

A: Matt, good to talk to you again. Yes, so the CMS change that we talked about, it's an immaterial impact for the year overall, but we'll have about a 1% impact in the quarter specific to BGT revenue only.

Q: My follow-up question, it's on the LRP. Maybe if you could just take a step back and reflect a bit more on what is essentially taking just a year longer to manifest in the business relative to the original LRP. It sounds like from your comments, Massimo, that the channel optimization initiative just took a little bit longer to execute.

A: Thank you, Matt. Look, this just reflects all the work that we did in the last couple of years. our goal was to create a company with stronger foundation and much more focus on how we go to market. So we made the right decision to be very aggressive to pursue our distributor transition. Right now, as you heard, 75% of our U.S.A. net sales now are coming from our top 30 distributor in Spine. And this is going to give us a much stronger predictability about how we go to market.

Q: I'll start with the 2026 revenue guide. Maybe for you, Julie. Can you flesh out the 3 main line items a bit quantitatively mentioned above market growth for BGT, any finer points numerically for the 2026 revenue guide would be helpful. And qualitative commentary would be great as well.

A: Yes. So I think we continue to expect above-market growth for BGT, like you mentioned, again, above-market growth for our Limb Reconstruction business. the commentary that we made was that the second half will see the U.S. return to double-digit growth in the U.S. Limb Reconstruction business. And then we expect another year of similar performance to what we saw in U.S. Spine -- or Global Spine business. We finished, as a reminder, 2025 at 10% global growth in the Spine business.

Q: Could you provide some additional color on 7D placements in 2025 in the installed base?

A: Yes. So we placed 30% -- we had a 30% increase in our placements in 2025. We don't give the numbers specifically for our installed base. But the other thing that we're really excited about is that collectively, we saw our earnout units exceed their purchase volume commitments by more than 50%, which again, we believe validates our strategy to move from capital sales to an earnout model.

Q: You mentioned a renewed focus on advancing Biologics portfolio. Can you provide any more color on that? Maybe, if you could elaborate on what that means strategically and how we can think about its contribution over the next couple of years?

A: Yes. Thank you for the question. So what we did, we made some internal shifting in terms of leadership. So we just give -- we wanted to give Biologics back a very clear and important central focus for who we are. And so we recognize there is a lot of work to do here, but I truly believe we have a strong biologic portfolio. So we saw some decline last year, primarily related to our distributor transition. But now we are very focused on scaling our commercial network and making sure that the execution is going to be there. So we already made the changes that we believe is going to optimize our sales channel, and we are expecting for our U.S.A. Biologic performance to get back to marketplace as we continue to focus on it.

Q: So Julie, I may have missed this, but did you provide any commentary around tariff impact for this included in your guidance for '26 or also tariff impact that actually was in '25?

A: Yes. So it's included in our guidance. We talked about it kind of mid-last year when it -- so we expect about $1 million to $2 million impact in 2026.

Q: And that's roughly where it came in, in '25?

A: Little higher than that in '25 because it was more of -- it wasn't a full year impact.

Q: And then just in terms of the -- you mentioned potential legal settlements and obviously, timing on that is difficult to predict. But have you guys -- and I suspect this is in the K, but have you guys reserved for a legal settlement at all?

A: Yes. We did take an accrual in Q3 and you can refer to the K for more information about it.

Q: In terms of free cash flow, if I'm looking at my calculations, it looks like you guys improved free cash flow from '24 to '25 by maybe $7.5 million to $8 million. I was curious, I mean is that a decent guesstimate for the level of improvement you might see in '26 versus '25, an additional $7 million, $8 million, something like that?

A: Yes. I mean, excluding legal settlements, that would probably be in the range to maybe slightly more than that. But the legal settlements will impact that number.

Q: And it sounds like you guys maybe expect legal settlements in this coming year?

A: That is included in our guidance that the breakeven excepts excluding legal settlements, so the timing still be determined, but that's what we assume.