(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of ~~October 31, 2022,~~May 4, 2023, ~~20,007,946~~36,544,297 shares of common stock were issued and outstanding.

This Quarterly Report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (“the Exchange Act”), and Section 27A of the Securities Act of 1933, as amended, relating to our business and financial outlook, which are based on our current beliefs, assumptions, expectations, estimates, forecasts, and projections. All statements, other than statements of historical fact, contained in this report, are forward-looking statements. In some cases, you can identify forward-looking statements by ~~terminology~~terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “intends,” “predicts,” “potential,” or “continue” or the negative version of those terms and other ~~comparable terminology.~~similar expressions. Forward-looking statements include, but are not limited to, statements about:

~~These forward-looking~~Forward-looking statements are not guarantees of future performance and involve risks, uncertainties, estimates, and ~~assumptions that are difficult to predict.~~assumptions. Any or all forward-looking statements that we make may turn out to be wrong (due to inaccurate assumptions that we make or otherwise), and our actual outcomes and results may differ materially from those expressed in ~~these~~ forward-looking statements. Potential risks and uncertainties that could cause actual results to differ materially include, but are not limited to, those set forth in Part I, Item 1A under the heading Risk Factorsof our Annual Report on Form 10-K for the year ended December 31, 2022 ("2022 10-K"); Part II, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations;~~Operations of the 2022 10-K; and elsewhere throughout the ~~Annual Report on Form~~2022 10-K, ~~for the year ended December 31, 2021,~~ and in any other documents incorporated by reference. You should not place undue reliance on any ~~of these~~ forward-looking statements. Further, any forward-looking statement in this report speaks only as of the date hereof, unless it is specifically otherwise stated to be made as of a different date. WeExcept as required by law, we undertake no obligation to update, and expressly disclaim any duty to update, our forward-looking statements, whether as a result of circumstances or events that arise after the date hereof, new information, or otherwise.

Solely for convenience, our trademarks and trade names in this report are referred to without the ® and ™ symbols, but such references should not be construed as any indicator that we will not assert, to the fullest extent under applicable law, our rights thereto.

The accompanying notes form an integral part of these condensed consolidated financial statements

Condensed Consolidated Statements of Operations and Comprehensive ~~Loss~~Income (Loss)

The accompanying notes form an integral part of these condensed consolidated financial statements


	Nine Months Ended September 30,						Three Months Ended March 31,
(Unaudited, U.S. Dollars, in thousands)	2022			2021			2023			2022
Cash flows from operating activities
Net loss	$	(12,687	)	$	(5,567	)	$	(60,938	)	$	(4,460	)
Adjustments to reconcile net loss to net cash from operating activities
Depreciation and amortization		21,598			22,153			12,670			7,516
Inventory reserve expenses								7,412			2,332
Amortization of inventory fair value step up								11,636			—
Amortization of operating lease assets, debt costs, and other assets		2,321			2,645			1,696			798
Provision for expected credit losses		1,713			376			208			600
Deferred income taxes		21			2,228			379			(36	)
Share-based compensation expense		13,521			11,470			13,020			4,332
Interest and gain (loss) on valuation of investment securities		254			(305	)
Change in valuation of investment securities								(207	)		(9	)
Change in fair value of contingent consideration		(17,200	)		(2,375	)		—			(5,500	)
Other		1,124			743			(383	)		528
Changes in operating assets and liabilities, net of effects of acquisitions
Accounts receivable		51			2,729			4,792			5,392
Inventories		(20,019	)		(866	)		(16,781	)		(8,543	)
Prepaid expenses and other current assets		16			(6,987	)		2,225			(1,891	)
Accounts payable		3,955			(2,983	)		(3,560	)		1,387
Other current liabilities		(4,571	)		(3,951	)		(5,842	)		(6,993	)
Contract liability (Note 9)		(4,791	)		(5,951	)
Payment of contingent consideration		—			(6,595	)
Contract liability								—			(3,395	)
Other long-term assets and liabilities		808			(68	)		(347	)		233
Net cash from operating activities		(13,886	)		6,696			(34,020	)		(7,709	)
Cash flows from investing activities
Capital expenditures for property, plant, and equipment		(16,159	)		(11,560	)		(11,472	)		(5,329	)
Capital expenditures for intangible assets		(1,101	)		(1,221	)		(363	)		(338	)
Contingent consideration payments related to asset acquisitions		(1,500	)		—
Cash acquired in the SeaSpine merger								29,419			—
Other investing activities		126			(1,250	)		(500	)		—
Net cash from investing activities		(18,634	)		(14,031	)		17,084			(5,667	)
Cash flows from financing activities
Proceeds from issuance of common shares		2,400			6,238			—			—
Payments related to withholdings for share-based compensation		(1,467	)		(2,184	)		(1,958	)		(69	)
Payments related to finance lease obligation		(2,441	)		(395	)		(160	)		(2,141	)
Payment of contingent consideration		—			(8,405	)
Borrowings under credit facility								45,000			—
Payment of debt acquired from SeaSpine merger								(26,899	)		—
Other financing activities		(68	)		(927	)		—			(23	)
Net cash from financing activities		(1,576	)		(5,673	)		15,983			(2,233	)
Effect of exchange rate changes on cash		(2,091	)		(598	)		221			(321	)
Net change in cash, cash equivalents, and restricted cash		(36,187	)		(13,606	)
Cash, cash equivalents, and restricted cash at the beginning of period		87,847			96,821
Cash, cash equivalents, and restricted cash at the end of period	$	51,660		$	83,215

Components of cash, cash equivalents, and restricted cash at the end of period
Cash and cash equivalents	$	51,660		$	82,710
Restricted cash		—			505
Cash, cash equivalents, and restricted cash at the end of period	$	51,660		$	83,215
Net change in cash and cash equivalents								(732	)		(15,930	)
Cash and cash equivalents at the beginning of period								50,700			87,847
Cash and cash equivalents at the end of period							$	49,968		$	71,917

Noncash investing activities - Purchase of intangible assets	$	2,000		$	—		$	—		$	2,000

The accompanying notes form an integral part of these condensed consolidated financial statements

The Company has incurred significant integration and restructuring costs in connection with the Merger. The following table summarizes integration costs incurred for the three months ended March 31, 2023, and 2022, respectively.

In the first quarter of 2023, the Company approved and initiated certain restructuring activities to streamline costs and to better align talent with operational needs following the consummation of the Merger. The Company expects to incur total pre-tax expense of approximately $16.9 million associated with the restructuring activities, which will be recognized within operating expenses. The table below provides a summary of restructuring costs incurred during the quarter and the resulting liability as of March 31, 2023, which is recognized within other current liabilities:

I~~nventory previously reported as field/consignment has been reclassified to finished products to conform with current period presentation.~~

6.7. Fair value measurements and investments

The fair value measurements of the Company’s financial assets and liabilities measured on a recurring basis were as follows:


	September 30, 2022										December 31, 2021			March 31, 2023											December 31, 2022
(U.S. Dollars, in thousands)	Level 1		Level 2			Level 3		Total			Total
(Unaudited, U.S. Dollars, in thousands)														Level 1		Level 2			Level 3			Total			Total
Assets
Neo Medical convertible loan agreements	$	—	$	—			5,600	$	5,600		$	7,148		$	—	$	—		$	7,180		$	7,180		$	7,140
Neo Medical preferred equity securities		—		6,084			—		6,084			5,413			—		6,084			—			6,084			6,084
Bone Biologics equity securities		—		—			—		—			309			—		—			—			—			—
Other investments		—		—			1,611		1,611			1,505			—		—			1,829			1,829			1,726
Total	$	—	$	6,084		$	7,211	$	13,295		$	14,375		$	—	$	6,084		$	9,009		$	15,093		$	14,950
Liabilities
Lattus contingent consideration														$	—	$	—			(11,500	)	$	(11,500	)	$	—
Spinal Kinetics contingent consideration	$	—	$	—			—	$	—		$	(17,200	)		—		—			—			—			—
Deferred compensation plan		—		(1,206	)		—		(1,206	)		(1,314	)		—		(1,415	)		—			(1,415	)		(1,515	)
Total	$	—	$	(1,206	)	$	—	$	(1,206	)	$	(18,514	)	$	—	$	(1,415	)	$	(11,500	)	$	(12,915	)	$	(1,515	)

Neo Medical Convertible Loan Agreements and Equity Investment

In October 2020, the Company purchased preferred equity securities of Neo Medical SA, a privately held Swiss-based company developing a new generation of products for spinal surgery ("Neo Medical"), for consideration of $5.0 million. The Company also entered into a Convertible Loan Agreement pursuant to which ~~Orthofix~~the Company loaned Neo Medical CHF 4.6 million, or $5.0 million at the date of issuance (the “Convertible Loan”). In October 2021, the Company entered into ~~an additional~~a second Convertible Loan Agreement (the ~~“Additional~~“Second Convertible Loan” and together with the Convertible Loan, the “Neo Medical Convertible Loans”), pursuant to which the Company loaned Neo Medical an additional CHF 0.6 million, or $0.7 million as of the date of issuance.

The equity securities are recorded in other long-term assets and are considered an investment that does not have a readily determinable fair value. As such, the Company measures this investment at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer.

The table below presents a reconciliation of the beginning and ending balances of the Company’s investment in Neo Medical preferred equity securities:


(U.S. Dollars, in thousands)	2022		2021
(Unaudited, U.S. Dollars, in thousands)					2023		2022
Fair value of Neo Medical preferred equity securities at January 1	$	5,413	$	5,000	$	6,084	$	5,413
Conversion of loan into preferred equity securities		671		—		—		671
Fair value of Neo Medical preferred equity securities at September 30		6,084		5,000
Fair value of Neo Medical preferred equity securities at March 31						6,084		6,084
Cumulative unrealized gain on Neo Medical preferred equity securities		413		—		413		413

The Company ~~made an election~~elected to convert the ~~Additional~~Second Convertible Loan into shares of Neo Medical’s preferred equity securities in January 2022. The ~~remaining~~ Convertible Loan is recorded in other long-term assets as an available for sale debt security as of ~~September 30, 2022. The Convertible Loan is recorded at fair value, with applicable interest recorded in interest income.~~March 31, 2023. The fair value of the Convertible Loan is based upon significant unobservable inputs, including the use of option-pricing models, Monte Carlo simulations for certain periods, and a probability-weighted discounted cash flow model, requiring the Company to develop its own assumptions. Therefore, the Company categorized these investments as Level 3 financial assets.

Some of the more significant unobservable inputs used in the fair value measurement of the Convertible Loan include applicable discount rates, implied volatility, the likelihood and projected timing of repayment or conversion, and projected cash flows in support of the estimated enterprise value of Neo Medical. Holding other inputs constant, changes in these assumptions could result in a significant change in the fair value of the Convertible Loan. If the amortized cost of the Convertible Loan exceeds its estimated fair value, the security is deemed to be impaired, and must be evaluated for the recognition of a credit loss. As of ~~September 30, 2022,~~March 31, 2023, the Company has ~~not~~not recognized any credit loss related to the Convertible Loan.

1013

The following table provides a reconciliation of the beginning and ending balances of the Convertible Loans, measured at fair value using significant unobservable inputs (Level 3):


(U.S. Dollars, in thousands)	2022			2021
(Unaudited, U.S. Dollars, in thousands)							2023			2022
Fair value of Neo Medical Convertible Loans at January 1	$	7,148		$	7,160		$	7,140		$	7,148
Interest recognized in interest income, net		326			305			116			112
Foreign currency remeasurement recognized in other expense, net		(437	)		(270	)		61			(69	)
Unrealized loss recognized in other comprehensive loss		(766	)		(115	)		(137	)		(740	)
Conversion of loan into preferred equity securities		(671	)		—
Fair value of Neo Medical Convertible Loans at September 30		5,600			7,080
Amortized cost basis of Neo Medical Convertible Loans at September 30		5,425			5,314
Conversion of Second Convertible Loan into preferred equity securities								—			(671	)
Fair value of Neo Medical Convertible Loans at March 31								7,180			5,780
Amortized cost basis of Neo Medical Convertible Loans at March 31								6,084			5,581

The following table provides quantitative information related to certain key assumptions utilized within the valuation as of ~~September 30, 2022:~~March 31, 2023:


(U.S. Dollars, in thousands)	Fair Value as of September 30, 2022		Unobservable inputs	Estimate
(Unaudited, U.S. Dollars, in thousands)							Fair Value as of March 31, 2023		Unobservable inputs	Estimate
Neo Medical Convertible Loan	$	5,600	Cost of equity discount rate		17.4	%	$	7,180	Cost of equity discount rate		18.0	%
			Implied volatility		70.2	%			Estimated equity volatility		77.5	%

Bone Biologics Equity Securities

Until August of 2022, the Company held an investment in common stock of Bone Biologics Inc. (“Bone Biologics”, NASDAQ: BBLG), a developer of orthobiologic products. The Company disposed of its remaining holdings in Bone Biologics equity securities during the third quarter of 2022.~~Changes in the fair value of the investment recorded during the nine months ended September 30, 2022 and 2021, are shown in the table below:~~

(U.S. Dollars, in thousands)

2022

2021

Fair Value of Bone Biologics equity securities at January 1

$
309

$
—

Fair value adjustments recognized in other expense, net

(183
)

—

Proceeds from the disposition of equity securities

(126
)

—

Fair Value of Bone Biologics equity securities at September 30

$
—

$
—

Other Investments

Other investments represent assets and investments recorded at fair value that are not deemed to be material for disclosure on an individual basis. The fair value of these assets is based upon significant unobservable inputs, such as probability-weighted discounted cash flow models, requiring the Company to develop its own assumptions. Therefore, the Company has categorized these assets as Level 3 financial assets. As of ~~September 30, 2022,~~March 31, 2023, this balance was classified within other long-term assets.

Spinal Kinetics Contingent Consideration

The Company recognized a contingent consideration obligation in connection with the acquisition of Spinal Kinetics in 2018. The ~~Spinal Kinetics contingent consideration consists of potential milestone payments of up to $60.0~~ ~~million in cash. The contingent milestone payments included (i) $15.0~~ ~~million upon U.S. Food and Drug Administration (“FDA”) approval of the M6-C artificial cervical disc (the “FDA Milestone”) and (ii) revenue-based milestone payments of up to $45.0~~ ~~million in connection with sales of the acquired artificial discs. To trigger the applicable payments, milestones must be achieved within~~ ~~five years~~ ~~of April 30, 2018. The FDA Milestone was achieved and paid in 2019 and a revenue-based milestone payment, totaling $15.0~~ ~~million, was achieved and paid in 2021 upon meeting certain net sales targets.~~

~~The~~ estimated fair value of the remaining Spinal Kinetics contingent consideration, attributable to a revenue-based milestone, was concluded to be zero as of ~~September 30, 2022,~~March 31, 2023, as the Company ~~does~~did not ~~expect to~~ achieve the milestone prior to April 30, ~~2023. The estimated fair value reflects assumptions made by management as~~2023, the end of ~~September 30, 2022,~~the measurement period for achieving such as the expected timing and volume of elective procedures and the impact of these procedures on future revenues. Any changes in fair value are recorded as an operating expense within acquisition-related amortization and remeasurement.milestone.

The following table provides a reconciliation of the beginning and ending balances for the Spinal Kinetics contingent consideration measured at estimated fair value using significant unobservable inputs (Level 3):

(U.S. Dollars, in thousands)

2022

2021

Spinal Kinetics contingent consideration estimated fair value at January 1

$
17,200

$
35,400

Decrease in fair value recognized in acquisition-related amortization and remeasurement

(17,200
)

(2,000
)
Payment made

—

(15,000
)
Spinal Kinetics contingent consideration estimated fair value at September 30

$
—

$
18,400


(Unaudited, U.S. Dollars, in thousands)	2023		2022
Spinal Kinetics contingent consideration estimated fair value at January 1	$	—	$	17,200
Decrease in fair value recognized in acquisition-related amortization and remeasurement		—		(5,500	)
Spinal Kinetics contingent consideration estimated fair value at March 31	$	—	$	11,700

In connection with the Merger, the Company assumed a contingent consideration obligation under a purchase agreement between SeaSpine and Lattus Spine LLC ("Lattus") executed in December 2022. Under the terms of the agreement, the Company may be required to make installment payments at certain dates based on future net sales of certain products (the "Lateral Products").

The estimated fair value of the Lattus contingent consideration as of the closing of the Merger, January 5, 2023, was $11.5 million. The estimated fair value of the Lattus contingent consideration is determined using a probability-weighted discounted cash flow model and significant inputs which are not observable in the market. The significant inputs include assumptions related to the timing and probability of the product launch dates, estimated future sales of the products, estimated commission rates, discount rates matched to the timing of payments, and probability of success rates. The Company determined that the estimated fair value of the

Lattus contingent consideration as of March 31, 2023, also approximated the fair value of the contingent liability as of the closing of the Merger.

~~The Company’s contract liabilities largely related to a prepayment of $13.9~~ million received in April 2020 from the Centers for Medicare and Medicaid Service ("CMS") as part of the Accelerated and Advance Payment Program of the Coronavirus Aid, Relief, and Economic Security Act. The remaining balance of the contract liability was recouped by CMS during the second quarter of 2022.

The Company’s contract assets, excluding accounts receivable (“Other Contract Assets”), largely consist of payments made to certain distributors to obtain contracts, gain access to customers in certain territories, and to provide the benefit of exclusive distribution of the Company's products. Other Contract Assets are included in other long-term assets or other current assets, dependent upon the original term of the related agreement, and totaled $~~1.3~~ ~~million and $1.4~~ ~~million as of September 30, 2022, and December 31, 2021, respectively.~~

On July 30, 2022, the Company entered into an exclusive License and Distribution Agreement (the "License Agreement") with CGBio Co., Ltd. (“CGBio”), a developer of innovative, synthetic bone grafts. The Agreement grants Orthofix the exclusive right to conduct pre-clinical and clinical studies, commercialize, promote, market, and sell the Novosis recombinant human bone morphogenetic protein-2 (rhBMP-2) bone growth materials and other future tissue regenerative solutions in the U.S. and Canada. As consideration, the Company agreed to pay CGBio an upfront payment of $~~1.4~~

~~million with additional payments contingent upon the achievement of specified development milestones. The $1.4~~ ~~million upfront payment was paid in the third quarter of 2022 and was recognized as acquired IPR&D costs, which was then immediately expensed.~~

~~14.~~15. Earnings per share (“EPS”)

The Company uses the two-class method of computing basic EPS due to the existence of non-vested restricted stock awards with nonforfeitable rights to dividends or dividend equivalents (referred to as participating securities). For the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, no ~~significant~~ adjustments were made to net income for purposes of calculating basic and diluted EPS.

The following is a reconciliation of the weighted average shares used in diluted EPS computations.

Three Months Ended
September 30,

Nine Months Ended
September 30,

(In thousands)

2022

2021

2022

2021

Weighted average common shares-basic

20,091

19,770

20,007

19,634

Effect of dilutive securities

Unexercised stock options and stock purchase plan

—

—

—

—

Unvested restricted stock units

—

—

—

—

Weighted average common shares-diluted

20,091

19,770

20,007

19,634


	Three Months Ended March 31,
(Unaudited, In thousands)	2023		2022
Weighted average common shares-basic		35,734		19,898
Effect of dilutive securities
Unexercised stock options and stock purchase plan		—		—
Unvested restricted stock units		—		—
Weighted average common shares-diluted		35,734		19,898

There were ~~2.4~~7.2 million and ~~2.1~~2.5 million weighted average outstanding stock options and restricted stock units not included in the diluted EPS computation for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and~~ ~~2.2~~ ~~million and~~ ~~1.6~~ ~~million weighted average outstanding stock options and restricted stock units not included in the diluted EPS computation for the nine months ended September 30, 2022 and 2021,~~ respectively, because inclusion of these awards was ~~anti-dilutive or, for performance-based and market-based restricted stock units, all necessary conditions had not been satisfied by the end of the respective period.~~anti-dilutive.

~~15. Subsequent Events~~

~~Merger Agreement with SeaSpine~~

On October 10, 2022, Orthofix Medical Inc. (“Orthofix”), through a wholly-owned subsidiary, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with SeaSpine Holdings Corporation (“SeaSpine”). Pursuant to the Merger Agreement, and subject to approval of Orthofix stockholders and SeaSpine stockholders and the satisfaction or waiver of other specified closing conditions, the Orthofix and SeaSpine businesses will combine in an all-stock merger of equals. The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, the Company's wholly-owned subsidiary will merge with and into SeaSpine (the “Merger”), with SeaSpine continuing as a wholly-owned subsidiary of Orthofix following the transaction.

Subject to the terms and conditions of the Merger Agreement, at the effective time and as a result of the Merger, each share of common stock of SeaSpine issued and outstanding immediately prior to the effective time of the Merger will be converted into the right to receive ~~0.4163~~ shares of common stock of Orthofix. In addition, at the effective time and as a result of the Merger, Orthofix will assume SeaSpine’s existing equity incentive plans in connection with the Merger, and outstanding SeaSpine equity awards will be automatically converted into Orthofix equity awards (on the same vesting schedule and other terms and conditions as existed prior to such conversion). The conversion of such equity awards will occur at the same exchange ratio as applies to SeaSpine common stock in the Merger, and the exercise price of converted SeaSpine stock options will also be correspondingly adjusted.

~~Upon completion of the Merger, Orthofix stockholders will own approximately~~ ~~56.5% of the combined company on a fully diluted basis and SeaSpine stockholders will own approximately~~ ~~43.5~~%.

Pursuant to the terms of the Merger Agreement, as of the effective time of the Merger, the board of directors of the combined company will consist of nine individuals, including five individuals who are nominees of the board of directors of Orthofix immediately prior to the effective time and four individuals who are nominees of the board of directors of SeaSpine immediately prior to the effective time. The Merger Agreement contemplates that Jon Serbousek will serve as Executive Chairman of the Board, and Keith Valentine will serve as President and Chief Executive Officer and as a member of the Board.

~~The transaction is expected to close in the first quarter of 2023, subject to approval by both companies’ shareholders and customary closing conditions and regulatory approvals.~~

1719

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of Orthofix Medical Inc.’s (sometimes referred to as “we,” “us” or “our”) financial condition and results of ~~our~~ operations should be read in conjunction with the discussion under the heading “Forward-Looking Statements” and our condensed consolidated financial statements and related notes thereto appearing elsewhere in this Form 10-Q.

Executive Summary

~~We are~~Following our recent merger (the “Merger”) with SeaSpine Holdings Corporation ("SeaSpine"), the newly merged Orthofix-SeaSpine organization is a leading global ~~medical device~~spine and orthopedics company with a ~~spine~~comprehensive portfolio of biologics, innovative spinal hardware, bone growth therapies, specialized orthopedic solutions, and ~~orthopedics focus. Our mission is to deliver innovative, quality-driven solutions as we partner with health care professionals to improve patient mobility.~~a leading surgical navigation system. Headquartered in Lewisville, Texas, our spine and orthopedic products are distributed in ~~more than 60~~approximately 68 countries via our sales representatives and distributors. For more information, please visit www.Orthofix.com. Information included on our website is not incorporated into, or otherwise creates a part of, this report.

Notable financial metrics in the ~~third~~first quarter of ~~2022~~2023 and recent achievements include the following:

•

Net sales of ~~$114.0~~$175.2 million, an increase of 1%65% on a reported basis and 5%66% on a constant currency basis over prior year

•

Global Spine net sales growth of 81% on both a reported basis and constant currency basis, driven largely by the Merger, coupled with organic growth from our Bone Growth Therapies and Spinal Implants product categories

•

Global Orthopedics net sales growth of ~~19%~~9% on a reported basis and 14% on a constant currency basis, ~~driven by new product~~with growth observed in both the U.S. and ~~channel investments~~

•

~~Orthofix and MTF Biologics recognized with the 2022 Spine Technology Award from Orthopedics This Week for Virtuos Lyograft, the first of its kind, shelf-stable and complete autograft substitute~~international markets

•

Announced ~~agreement~~the full commercial launch of the Lattus Lateral Access System and the Fathom Pedicle-Based Retractor System, which addresses an estimated $1.8 billion market related to ~~merge with SeaSpine, creating a leading global~~minimally invasive spine ~~and orthopedics company~~procedures

Results of Operations

The following table provides certain items in our condensed consolidated statements of operations as a percent of net sales:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2022 (%)			2021 (%)			2022 (%)			2021 (%)
(Unaudited)													2023 (%)			2022 (%)
Net sales		100.0			100.0			100.0			100.0			100.0			100.0
Cost of sales		26.8			25.2			26.7			24.1			37.0			26.6
Gross profit		73.2			74.8			73.3			75.9			63.0			73.4
Sales and marketing		48.7			49.9			50.1			48.4			53.5			50.9
General and administrative		16.9			14.5			16.1			15.1			27.9			18.2
Research and development		10.5			11.0			10.6			10.7			13.3			10.5
Acquisition-related amortization and remeasurement		2.2			(0.3	)		(2.8	)		1.4			2.4			(3.3	)
Operating income (loss)		(5.1	)		(0.3	)		(0.7	)		0.3			(34.1	)		(2.9	)
Net loss		(9.4	)		(1.9	)		(3.7	)		(1.6	)		(34.8	)		(4.2	)

Net Sales by Product Category and Reporting Segment

The following tables provide net sales by major product category by reporting segment:


	Three Months Ended September 30,				Percentage Change						Three Months Ended March 31,				Percentage Change
(U.S. Dollars, in thousands)	2022		2021		Reported			Constant Currency
(Unaudited, U.S. Dollars, in thousands)											2023		2022		Reported			Constant Currency
Bone Growth Therapies	$	46,531	$	45,168		3.0	%		3.0	%	$	47,714	$	41,948		13.7	%		13.7	%
Spinal Implants		25,857		28,151		-8.1	%		-7.1	%
Spinal Implants and Enabling Technologies												60,862		26,615		128.7	%		129.1	%
Biologics		13,798		12,806		7.7	%		7.7	%		40,630		14,092		188.3	%		188.2	%
Global Spine		86,186		86,125		0.1	%		0.4	%		149,206		82,655		80.5	%		80.6	%
Global Orthopedics		27,810		26,303		5.7	%		19.0	%		25,998		23,763		9.4	%		13.6	%
Net sales	$	113,996	$	112,428		1.4	%		4.8	%	$	175,204	$	106,418		64.6	%		65.7	%

1820

Nine Months Ended
September 30,

Percentage Change

(U.S. Dollars, in thousands)

2022

2021

Reported

Constant Currency

Bone Growth Therapies

$
136,244

$
137,821

-1.1
%

-1.1
%
Spinal Implants

80,693

83,943

-3.9
%

-3.0
%
Biologics

42,686

41,351

3.2
%

3.2
%
Global Spine

259,623

263,115

-1.3
%

-1.1
%
Global Orthopedics

78,861

76,300

3.4
%

12.7
%
Net sales

$
338,484

$
339,415

-0.3
%

2.0
%

Global Spine

Global Spine offers the following ~~Product~~product categories:

Bone Growth Therapies, which manufactures, distributes, sells, and provides support services for market leading devices ~~that enhance bone fusion.~~used adjunctively in high risk spinal fusion procedures and to treat both non-union and acute fractures in the orthopedic space. Bone Growth Therapies uses distributors and a direct sales ~~representatives~~channel to sell its devices and provide associated support services to hospitals, healthcare providers, and patients.

Spinal Implants and Enabling Technologies, which designs, develops, and markets a broad portfolio of spine fixation and motion preservation ~~and spine fixation~~ implant products used in surgical procedures of the spine. The portfolio also consists of image-guided surgical solutions to facilitate degenerative, minimally invasive, and complex surgical procedures. Spinal Implants and Enabling Technologies distributes its products globally through a network of distributors and sales representatives to sell spine products to hospitals and healthcare providers.

Biologics, which provides a portfolio of ~~regenerative products~~advanced and ~~tissue forms that allow physicians~~traditional bone graft substitutes designed to ~~successfully treat~~improve bone fusion rates following a ~~variety~~wide range of ~~spinal~~orthopedic surgeries, including spine, hip, and ~~orthopedic conditions.~~extremities procedures. Biologics markets its tissues to hospitals and healthcare providers, primarily in the U.S., through a network of employed and independent sales representatives.

Three months ended ~~September 30, 2022~~March 31, 2023 compared to ~~2021~~2022

Net sales of ~~$86.2~~$149.2 million, an increase of ~~$0.1~~$66.6 million or ~~0.1%~~80.5%

•

Bone Growth Therapies net sales increased ~~$1.4~~$5.8 million or ~~3.0%~~13.7%, largely driven by ~~the successful commercial roll-out~~an increase in complex spine procedures, which are typically paired within our CervicalStim and SpinalStim devices, and growth in our fracture sales channel as a result of ~~our AccelStim Bone Healing Therapy, which was launched late~~investments made in the ~~second quarter~~commercial channel in the prior year, as well as the launch of ~~2022,~~AccelStim for the healing fresh and ~~higher order volumes~~non-union fractures

•

Spinal Implants and Enabling Technologies net sales ~~decreased $2.3~~increased $34.2 million or ~~8.1%~~128.7%, primarily due to ~~a change in procedure mix~~the contribution of SeaSpine net sales in the ~~U.S. for Spinal Fixation, large international orders~~first quarter of 2023 in ~~2021 that did not reoccur, as well as global competitive headwinds in Motion Preservation~~addition to growth driven by the onboarding of new, high-volume distribution partners along with multiple new product launches

•

Biologics net sales increased ~~$1.0~~$26.5 million or ~~7.7%~~188.3%, largely driven by ~~successful new product introductions, such as FiberFuse and Virtuos~~

~~Nine months ended September 30, 2022 compared to 2021~~

~~Net sales~~the contribution of ~~$259.6 million, a decrease of $3.5 million or 1.3%~~

•

~~Bone Growth Therapies~~SeaSpine net sales ~~decreased $1.6 million or 1.1%, primarily~~in the first quarter of 2023 in addition to growth driven by ~~a continued slowdown in complex procedure volumes due to hospital restrictions at~~ the ~~beginning~~onboarding of ~~the year and continued staffing issues, which impacted complex spine procedures, partially offset by the successful commercial roll-out of our AccelStim Bone Healing Therapy in 2022~~

•

~~Spinal Implants net sales decreased $3.3 million or 3.9%, primarily due to a change in procedure mix~~new distribution partners in the U.S. ~~for Spinal Fixation, lower-than-expected complex procedures case volumes earlier~~as we are now able to provide one of the most comprehensive biologics portfolios in both the ~~year,~~demineralized bone matrix and cellular allograft product categories as ~~well as global competitive headwinds in Motion Preservation~~

•

~~Biologics net sales increased $1.3 million or 3.2%, driven by successful new product introductions, such as FiberFuse and Virtuos~~a result of the Merger

Global Orthopedics

Global Orthopedics offers products and solutions that allow physicians to successfully treat a variety of orthopedic conditions specifically related to limb reconstruction and deformity correction unrelated to the spine. Global Orthopedics distributes its products globally through a network of distributors and sales representatives to sell orthopedic products to hospitals and healthcare providers.

Three months ended ~~September 30, 2022~~March 31, 2023 compared to ~~2021~~2022

Net sales of ~~$27.8~~$26.0 million, an increase of ~~$1.5~~$2.2 million or ~~5.7%~~9.4%

•

Double-digit growth in the U.S. and internationally, on a constant currency basis, ~~from strategic~~largely as a result of investments made in ~~our commercial channels and momentum from~~ new product ~~introductions~~launches and commercial execution within our U.S. sales channel and from an increase in international stocking distributor orders

•

Partially offset by a decrease of ~~$3.5 million due to movement in foreign currency exchange rates~~

~~Nine months ended September 30, 2022 compared to 2021~~

~~Net sales of $78.9 million, an increase of $2.6 million or 3.4%~~

•

~~Double-digit growth internationally on a constant currency basis paired with solid growth in the U.S. from strategic investments in our commercial channels and momentum from new product introductions~~

•

~~Partially offset by a decrease of $7.1~~$1.0 million due to movement in foreign currency exchange rates

Gross Profit


	Three Months Ended September 30,									Nine Months Ended September 30,									Three Months Ended March 31,
(U.S. Dollars, in thousands)	2022			2021			% Change			2022			2021			% Change
(Unaudited, U.S. Dollars, in thousands)																			2023			2022			% Change
Net sales	$	113,996		$	112,428			1.4	%	$	338,484		$	339,415			(0.3	%)	$	175,204		$	106,418			64.6	%
Cost of sales		30,573			28,307			8.0	%		90,491			81,660			10.8	%		64,875			28,318			129.1	%
Gross profit	$	83,423		$	84,121			(0.8	%)	$	247,993		$	257,755			(3.8	%)	$	110,329		$	78,100			41.3	%
Gross margin		73.2	%		74.8	%		(1.6	%)		73.3	%		75.9	%		-2.7	%		63.0	%		73.4	%		(10.4	%)

Three months ended ~~September 30, 2022~~March 31, 2023 compared to ~~2021~~2022

Gross profit ~~decreased $0.7~~increased $32.2 million

•

~~Decrease~~Gross profit largely increased due to the contribution of SeaSpine results in ~~gross profit driven primarily by increased inventory reserves related to set builds to support an expanding~~the first quarter of 2023, as SeaSpine contributed approximately $60.9 million net sales ~~force and increased safety stock requirements driven by the risk of global supply chain disruption~~

•

~~Decrease also driven by unfavorable changes in shipping costs, increased manufacturing overhead costs, and unfavorable movements in foreign currency exchange rates~~

•

Partially offset by ~~favorable changes~~$11.6 million in amortization of the inventory fair value step up at acquisition, which is being recognized over the expected sales ~~mix~~

~~Nine months ended September 30, 2022 compared to 2021~~

~~Gross profit decreased $9.8 million~~

•

~~Decrease in gross profit driven primarily by changes in our sales mix as well increased~~cycles of the acquired inventory ~~reserves related to set builds for an expanding sales force and increased safety stock requirements driven by the risk of global supply chain disruption~~

•

~~Decrease also driven~~Further offset by ~~unfavorable changes~~approximately $0.7 million in ~~shipping costs, increased manufacturing overhead costs, and unfavorable movements in foreign currency exchange rates~~inventory-related charges as a result of product rationalization decisions that have been made related to the Merger

Sales and Marketing Expense

Three Months Ended September 30,

Nine Months Ended September 30,

(U.S. Dollars, in thousands)

2022

2021

% Change

2022

2021

% Change

Sales and marketing

$
55,461

$
56,097

(1.1
%)

$
169,486

$
164,220

3.2
%
As a percentage of net sales

48.7
%

49.9
%

(1.2
%)

50.1
%

48.4
%

1.7
%


	Three Months Ended March 31,
(U.S. Dollars, in thousands)	2023			2022			% Change
Sales and marketing	$	93,791		$	54,137			73.2	%
As a percentage of net sales		53.5	%		50.9	%		2.6	%

Three months ended ~~September 30, 2022~~March 31, 2023 compared to ~~2021~~

~~Sales and marketing expense decreased $0.6 million~~

•

~~Decrease of $1.8 million attributable to differences in the timing of certain sales meetings and conferences in~~ 2022 ~~as compared to 2021~~

•

~~Partially offset by an increase of $0.9 million in commission expenses, largely resulting from changes in sales volume and sales mix~~

~~Nine months ended September 30, 2022 compared to 2021~~

Sales and marketing expense increased ~~$5.3~~$39.7 million

•

~~Significant increases~~Increase largely due to the contribution of SeaSpine results in ~~travel,~~the first quarter of 2023 and the overall increase in net sales ~~events,~~as compared to the prior year period, which resulted in increased variable expenses, such as commissions and ~~surgeon and~~bonus expenses associated with the achievement of sales ~~education trainings as in-person events have largely resumed in 2022~~objectives

•

~~Significant increase also attributable to the hiring of additional~~Included within sales and marketing ~~headcount to support growth~~expenses for the first quarter of 2023 are integration-related expenses of $1.9 million, which are mainly comprised of severance and ~~initiatives across all product lines~~retention costs

General and Administrative Expense


	Three Months Ended September 30,									Nine Months Ended September 30,									Three Months Ended March 31,
(U.S. Dollars, in thousands)	2022			2021			% Change			2022			2021			% Change			2023			2022			% Change
General and administrative	$	19,322		$	16,312			18.5	%	$	54,496		$	51,091			6.7	%	$	48,811		$	19,328			152.5	%
As a percentage of net sales		16.9	%		14.5	%		2.4	%		16.1	%		15.1	%		1.0	%		27.9	%		18.2	%		9.7	%

Three months ended ~~September 30, 2022~~March 31, 2023 compared to ~~2021~~2022

General and administrative expense increased ~~$3.0~~$29.5 million

•

Increase ~~of $2.6 million on strategic investments, primarily attributable to~~largely due ~~diligence and deal-related costs related~~ to the ~~pending~~contribution of SeaSpine results in the first quarter of 2023 and resulting integration costs incurred as a result of the Merger

•

Included within general and administrative expenses for the first quarter of 2023 are merger ~~with SeaSpine~~and integration-related expenses of $17.3 million, which are mainly comprised of (i) professional fees totaling $9.8 million, inclusive of a $5.5 million payment to Orthofix's financial advisor for the Merger upon closing of the transaction, and (ii) severance and retention costs totaling $7.0 million

•

Increase ~~of $0.8~~also driven by $5.9 million in higher share-based compensation ~~expenses~~expense as ~~the tenure~~a result of ~~our new management team increases~~

•

~~Partially offset by~~ a ~~decrease in other compensation costs, partly stemming~~larger employee base post-Merger and from ~~the departure~~accelerated vesting of certain ~~former executives and from macroeconomic pressures on certain variable compensation expenses~~

~~Nine months ended September 30, 2022 compared to 2021~~

~~General and administrative expense increased $3.4 million~~

•

~~Increase~~equity-based awards as a result of ~~$3.0 million on strategic investments, primarily attributable to due diligence and deal-related costs related to~~ the ~~pending merger with SeaSpine~~

•

~~Increase of $1.8 million in share-based compensation expenses as the tenure of our new management team increases~~

•

~~Partially offset by a decrease in other compensation costs, partly stemming from the departure of certain former executives and from macroeconomic pressures on certain variable compensation expenses~~Merger

Research and Development Expense


	Three Months Ended September 30,									Nine Months Ended September 30,									Three Months Ended March 31,
(U.S. Dollars, in thousands)	2022			2021			% Change			2022			2021			% Change
(Unaudited, U.S. Dollars, in thousands)																			2023			2022			% Change
Research and development	$	11,943		$	12,360			(3.4	%)	$	35,913		$	36,378			(1.3	%)	$	23,307		$	11,212			107.9	%
As a percentage of net sales		10.5	%		11.0	%		(0.5	%)		10.6	%		10.7	%		(0.1	%)		13.3	%		10.5	%		2.8	%

Three months ended ~~September 30, 2022~~March 31, 2023 compared to ~~2021~~2022

Research and development expense ~~decreased $0.4~~increased $12.1 million

•

~~Decrease~~Increase largely due to the contribution of SeaSpine results in the first quarter of 2023 and resulting integration ~~activities attributable to certain recent asset acquisitions, as well~~costs incurred as a ~~decline in costs associated with certain clinical studies~~result of the Merger

•

~~Partially offset by an increase~~Included within research and development expenses for the first quarter of 2023 are merger and integration-related expenses of $1.6 million, which are mainly comprised of severance and retention costs

•

Increase of $1.0 million related to ~~costs to comply with the~~our European Union ~~Medical Device Regulations and increases in new product development expenses~~medical device regulation implementation efforts

~~Nine months ended September 30, 2022 compared to 2021~~

~~Research and development expense decreased $0.5 million~~

•

~~Decrease~~Increase of $0.8 million related to the attainment of a development milestone with MTF Biologics achieved in ~~2021 that did not recur in 2022~~

•

~~Decrease in integration activities attributable to certain recent asset acquisitions~~

•

~~Partially offset by an increase related to costs to comply with~~ the ~~European Union Medical Device Regulations and increases in new product development expenses~~first quarter of 2023

Acquisition-related Amortization and Remeasurement


	Three Months Ended September 30,									Nine Months Ended September 30,									Three Months Ended March 31,
(U.S. Dollars, in thousands)	2022			2021			% Change			2022			2021			% Change
(Unaudited, U.S. Dollars, in thousands)																			2023			2022			% Change
Acquisition-related amortization and remeasurement	$	2,484		$	(335	)		(841.5	%)	$	(9,678	)	$	5,028			(292.5	%)	$	4,134		$	(3,499	)		(218.1	%)
As a percentage of net sales		2.2	%		(0.3	%)		2.5	%		(2.9	%)		1.4	%		(4.3	%)		2.4	%		(3.3	%)		5.7	%

Acquisition-related amortization and remeasurement consists of (i) amortization related to intangible assets acquired through business combinations or asset acquisitions, (ii) remeasurement of any related contingent consideration arrangement, and (iii) ~~recognized~~ costs associated with acquired in-process research and development assets, which are recognized immediately upon acquisition.

Three months ended ~~September 30, 2022~~March 31, 2023 compared to ~~2021~~2022

Acquisition-related amortization and remeasurement increased ~~$2.8~~$7.6 million

•

Increase of ~~$1.4~~$5.5 million ~~in costs associated with acquired in-process research and development assets, which are recognized immediately upon acquisition,~~ related to ~~our License and Distribution Agreement with CGBio Co., Ltd.~~

•

~~Increase~~a benefit recognized in the first quarter of ~~$1.3 million related to~~2022 from the remeasurement of potential revenue-based milestone payments associated with the Spinal Kinetics ~~acquisition as~~acquisition; we ~~recorded a benefit of $1.0 million in 2022 compared to a benefit of $2.3 million in 2021~~

~~Nine months ended September 30, 2022 compared to 2021~~

~~Acquisition-related amortization and remeasurement decreased $14.7 million~~

•

~~Decrease of $15.2 million related to the remeasurement of potential revenue-based milestone payments associated with the Spinal Kinetics acquisition, as we do~~did not ~~expect to~~ achieve the remaining ~~revenue-based~~ milestone prior to April 30, 2023, ~~based on current net sales trends~~the end of the measurement period for achieving such milestone

•

~~Partially offset by an increase~~Increase in amortization expense of ~~$0.4~~$2.1 million during the first quarter of 2023 associated with intangible assets recognized as a result of the ~~reassessment of contingent consideration associated with the acquisition of a former distributor recognized in 2021~~Merger

Non-operating Income and Expense


	Three Months Ended September 30,									Nine Months Ended September 30,									Three Months Ended March 31,
(U.S. Dollars, in thousands)	2022			2021			% Change			2022			2021			% Change
(Unaudited, U.S. Dollars, in thousands)																			2023			2022			% Change
Interest expense, net	$	(277	)	$	(433	)		(36.0	%)	$	(1,059	)	$	(1,400	)		(24.4	%)	$	(1,289	)	$	(375	)		243.7	%
Other expense, net		(3,308	)		(1,789	)		84.9	%		(7,436	)		(3,528	)		110.8	%		676			(936	)		(172.2	%)

Three months ended ~~September 30, 2022~~March 31, 2023 compared to ~~2021~~2022

Interest expense, net increased$0.9 million

•

Increase of $0.6 million attributable to an early termination prepayment penalty associated with the payoff of the assumed indebtedness of SeaSpine as of the close of the Merger

•

Increase of $0.5 million attributable to an increase in borrowings outstanding on our secured revolving credit facility in the first quarter of 2023 as no such balance was outstanding in the prior year

Three months ended March 31, 2023 compared to 2022

Other ~~expense,~~income (expense), net increased $~~1.5~~1.6 million

•

Increase ~~in expense primarily~~of $1.8 million associated with ~~movements~~changes in foreign currency exchange rates, ~~and the resulting gains and/or losses~~as we recorded a non-cash remeasurement gain of $0.6 million in ~~each period, with the change primarily attributable to the strengthening of the U.S. Dollar against the Euro in 2022~~

~~Nine months ended September 30, 2022~~2023 compared to ~~2021~~

~~Other expense, net increased $3.9~~a loss of $1.2 million

•

Increase in expense primarily associated with movements in foreign currency exchange rates and the resulting gains and/or losses recorded in each period, with the change primarily attributable to the strengthening of the U.S. Dollar against the Euro in 2022

Income Taxes


	Three Months Ended September 30,									Nine Months Ended September 30,									Three Months Ended March 31,
(U.S. Dollars, in thousands)	2022			2021			% Change			2022			2021			% Change
(Unaudited, U.S. Dollars, in thousands)																			2023			2022			% Change
Income tax expense	$	1,344		$	(364	)		(469.2	%)	$	1,968		$	1,677			17.4	%	$	611		$	71			760.6	%
Effective tax rate		(14.3	%)		14.4	%		(28.7	%)		(18.4	%)		(43.1	%)		24.7	%		(1.0	%)		(1.6	%)		0.6	%

Three months ended ~~September 30, 2022~~March 31, 2023 compared to ~~2021~~2022

•

~~Increase~~The increase in tax expense compared to the prior year period was primarily a result of changes in valuation allowances

~~Nine months ended September 30, 2022 compared to 2021~~

•

~~Increase in~~The primary factors affecting our tax expense ~~compared to~~for the ~~prior year period was primarily a result~~first quarter of ~~changes in valuation allowances~~2023 were financial statement losses not benefitted

Segment Review

Our business is managed through two reporting segments: Global Spine and Global Orthopedics. The primary metric used in managing the business by segment is ~~EBITDA~~adjusted earnings before interest, tax, depreciation, and amortization (“Adjusted EBITDA”) (which is described further in Note 1011 to the Notes to the Unaudited Condensed Consolidated Financial Statements contained herein). The following table presents adjusted EBITDA by segment and reconciles consolidated adjusted EBITDA to loss before income taxes:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
(U.S. Dollars, in thousands)	2022			2021			2022			2021
(Unaudited, U.S. Dollars, in thousands)														2023			2022
Adjusted EBITDA by reporting segment
Global Spine	$	10,116		$	13,908		$	46,775		$	44,835				14,981			14,033
Global Orthopedics		(473	)		(196	)		(5,991	)		(650	)			44			(804	)
Corporate		(11,168	)		(8,663	)		(28,846	)		(24,522	)			(11,821	)		(6,120	)
Total EBITDA	$	(1,525	)	$	5,049		$	11,938		$	19,663
Consolidated adjusted EBITDA														$	3,204		$	7,109

Reconciling items:
Interest expense, net															1,289			375
Depreciation and amortization		(7,570	)		(7,151	)		(21,598	)		(22,153	)			12,670			7,516
Interest expense, net		(277	)		(433	)		(1,059	)		(1,400	)
Share-based compensation expense															13,020			4,332
Foreign exchange impact															(583	)		1,242
SeaSpine merger-related costs															20,740			—
Strategic investments															661			970
Acquisition-related fair value adjustments															11,636			(5,500	)
Legal judgments/settlements															469			193
Medical device regulation															3,629			1,952
Business interruption - COVID-19															—			343
All other															—			75
Loss before income taxes	$	(9,372	)	$	(2,535	)	$	(10,719	)	$	(3,890	)		$	(60,327	)	$	(4,389	)

Liquidity and Capital Resources

Cash and cash equivalents at ~~September 30, 2022,~~March 31, 2023, totaled ~~$51.7~~$50.0 million compared to ~~$87.8~~$50.7 million at December 31, ~~2021.~~2022.


	Nine Months Ended September 30,									Three Months Ended March 31,
(U.S. Dollars, in thousands)	2022			2021			Change
(Unaudited, U.S. Dollars, in thousands)										2023			2022			Change
Net cash from operating activities	$	(13,886	)	$	6,696		$	(20,582	)	$	(34,020	)	$	(7,709	)	$	(26,311	)
Net cash from investing activities		(18,634	)		(14,031	)		(4,603	)		17,084			(5,667	)		22,751
Net cash from financing activities		(1,576	)		(5,673	)		4,097			15,983			(2,233	)		18,216
Effect of exchange rate changes on cash		(2,091	)		(598	)		(1,493	)		221			(321	)		542
Net change in cash and cash equivalents	$	(36,187	)	$	(13,606	)	$	(22,581	)	$	(732	)	$	(15,930	)	$	15,198

The following table presents free cash flow, a non-GAAP financial measure, which is calculated by subtracting capital expenditures from net cash from operating activities:

Nine Months Ended September 30,

(U.S. Dollars, in thousands)

2022

2021

Change

Net cash from operating activities

$
(13,886
)

$
6,696

$
(20,582
)
Capital expenditures

(17,260
)

(12,781
)

(4,479
)
Free cash flow

$
(31,146
)

$
(6,085
)

$
(25,061
)


	Three Months Ended March 31,
(Unaudited, U.S. Dollars, in thousands)	2023			2022			Change
Net cash from operating activities	$	(34,020	)	$	(7,709	)	$	(26,311	)
Capital expenditures		(11,835	)		(5,667	)		(6,168	)
Free cash flow	$	(45,855	)	$	(13,376	)	$	(32,479	)

Operating Activities

Cash flows from operating activities decreased ~~$20.6~~$26.3 million

•

~~Decrease~~Unfavorable change in net ~~income~~loss of ~~$7.1~~$56.5 million

•

~~Net decrease~~Favorable change of ~~$13.6~~$35.9 million ~~for~~associated with non-cash gains and losses, largely related tothe amortization of the inventory fair value step up at acquisition, share-based compensation expense, changes in ~~the~~ fair value of contingent consideration, inventory reserve expenses, depreciation and amortization

•

~~Net decrease~~Unfavorable change of ~~less than $0.1~~$5.7 million relating to changes in working capital accounts, primarily attributable to changes in ~~inventories, accounts payable, prepaid expenses~~inventory levels, partially offset by recoupment activity associated with the CMS Accelerated and ~~other current assets, and the payment of a contingent consideration milestone~~Advance Payment Program in the prior year

Two of our primary working capital accounts are accounts receivable and inventory. Days sales in receivables were 58 days at March 31, 2023, compared to 61 days at ~~September 30, 2022, compared to 56 days at September 30, 2021.~~March 31, 2022. Inventory turns decreased to ~~1.2~~0.7 times as of ~~September 30, 2022~~March 31, 2023 compared to 1.3 times as of ~~September 30, 2021.~~March 31, 2022.

Investing Activities

Cash flows from investing activities ~~decreased $4.6~~increased $22.8 million

•

~~Decrease~~Increase of ~~$4.5~~$29.4 million ~~associated with capital expenditures compared~~attributable to cash acquired as a result of the ~~prior year period~~

•

~~Decrease of $1.5 million associated with the payment of a contingent consideration milestone related to an asset acquisition in 2022~~Merger

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Partially offset by an increase of $6.1 million in ~~other investing activities~~capital expenditures, largely due to the inclusion of ~~$1.4 million~~SeaSpine within the first quarter of 2023 operating results

Financing Activities

Cash flows from financing activities increased ~~$4.1~~$18.2 million

•

Increase of ~~$8.4~~$45.0 million associated with ~~cash paid in 2021~~borrowings under our secured revolving credit facility for working capital purposes, including to fund certain Merger-related expense, during the ~~achievement~~first quarter of a revenue-based milestone associated with the Spinal Kinetics acquisition; the milestone payment totaled $15.0 million with a portion of the payment reflected in both operating and financing activities2023

•

~~Decrease in net proceeds of $3.1 million from the issuance of common shares, primarily related to the exercise of stock options in the prior year period~~

•

~~Decrease~~Increase of $2.0 million related to the conclusion of the FITBONE Contract Manufacturing and Supply Agreement with Wittenstein, resulting in a $2.0 million payment in the first quarter of 2022

•

~~Increase~~Partially offset by a decrease of ~~$0.9~~$26.9 million ~~attributable to other financing activities~~associated with the termination and repayment of SeaSpine's credit facility

•

Further offset by a decrease in net proceeds of $1.9 million from the issuance of common shares, primarily related the payment of tax withholding obligations for share-based compensation arrangements

Credit Facilities

AsOn January 3, 2023, we borrowed $30.0 million under our $300.0 million secured revolving credit facility for working capital purposes, including to fund certain Merger-related expenses. Following the completion of ~~September 30, 2022,~~the Merger, we terminated SeaSpine's credit facility and all applicable commitments with Wells Fargo Bank, National Association and repaid all outstanding obligations in respect to principal, interest, and fees on January 5, 2023.

In addition, we borrowed $15.0 million under our secured revolving credit facility on March 3, 2023, thus, as of March 31, 2023, we had no$45.0 million borrowings outstanding under our secured revolving credit facility. In addition, we had no borrowings outstanding under our available lines of credit in Italy, which provide up to an aggregate amount of €5.5 million ($~~5.4~~6.0 million). We were in compliance with all required financial covenants of our credit facilities as of ~~September 30, 2022.~~March 31, 2023.

Other

For information regarding contingencies, see Note 78 to the Notes to the Unaudited Condensed Consolidated Financial Statements contained herein.

~~Merger Agreement with SeaSpine~~

The transaction is expected to close in the first quarter of 2023, subject to approval by both companies’ shareholders and customary closing conditions and regulatory approvals. For additional discussion of this matter, see Note 15 of the Notes to the Unaudited Condensed Consolidated Financial Statements.

~~The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)~~

In April 2020, we received $13.9 million in funds from the Centers for Medicare and Medicaid Service ("CMS") Accelerated and Advance Payment Program under the CARES Act. Recoupment of amounts received under the CMS Accelerated and Advance Payment Program was completed in the second quarter of 2022.

~~Spinal Kinetics Contingent Consideration~~

As part of the consideration for the Spinal Kinetics acquisition, we agreed to make contingent milestone payments of up to $60.0 million. One milestone payment, which was for $15.0 million, became due upon FDA approval of Spinal Kinetics’ M6-C artificial cervical disc, which was achieved and paid in 2019. A revenue-based milestone payment, totaling $15.0 million, was achieved and paid in 2021 upon meeting certain net sales targets.

The remaining milestone payment is a revenue-based milestone payment of $30.0 million in connection with future sales of the acquired artificial discs. The fair value of the contingent consideration arrangement was concluded to be zero as of September 30, 2022, as we do not expect to achieve the milestone prior to the deadline of April 30, 2023. For additional discussion of this matter, see Note 6 of the Notes to the Unaudited Condensed Consolidated Financial Statements.

~~Neo Medical Convertible Loan~~

In October 2020, we entered into a Convertible Loan Agreement (the “Convertible Loan”) with Neo Medical SA, a privately held Swiss-based Medtech company (“Neo Medical”), whereby we loaned CHF 4.6 million ($5.0 million as of the issuance date) to Neo Medical. The loan bears interest at 8.0%, with interest due semi-annually. The Convertible Loan matures in October 2024; however, if a change in control of Neo Medical occurs prior to maturity, the Convertible Loan shall become immediately due upon such event.

~~Related Party Transaction~~

In February 2021, we entered into a technology assignment and royalty agreement with a medical device technology company partially owned and controlled by the wife of President and Chief Executive Officer, Jon Serbousek, whereby we acquired the intellectual property rights to certain assets for consideration of up to $10.0 million. Consideration was comprised of $1.0 million due at signing and $9.0 million in contingent consideration, dependent upon multiple milestones, such as receipt of 510(k) clearance or the attainment of certain net sales targets. None of the contingent consideration has been achieved as of September 30, 2022.

IGEA S.p.A Exclusive License and Distribution Agreement

In April 2021, we entered into an Exclusive License and Distribution Agreement (the “License Agreement”) with IGEA S.p.A (“IGEA”), an Italian manufacturer and distributor of bone and cartilage stimulation systems. Per the terms of the License Agreement, we have the exclusive right to sell IGEA products in the U.S. and Canada. As consideration for the License Agreement, we agreed to pay up to $4.0 million, ~~of which $0.5 million was paid in the second quarter of 2021,~~ with certain payments contingent upon achieving an FDA milestone. ~~We received FDA approval for the AccelStim device in May 2022, triggering an obligation to pay the~~As of March 31, 2023, we have remaining ~~$3.5 million~~liabilities under this agreement of ~~consideration, of which $1.5 million was paid in the second quarter of 2022. Of the remaining~~ $2.0 million ~~obligation, $1.0 million is classified~~which have been accrued in full within other current ~~liabilities, which is due to be paid on the first anniversary of FDA approval,~~ and ~~$1.0 million is classified within other~~ long-term ~~liabilities, which is due to be paid on the second anniversary of FDA approval. The License Agreement also includes certain minimum purchase requirements.~~liabilities.

CGBio Co., Ltd. Exclusive License and Distribution Agreement

On July 30, 2022, we entered into a long-term strategic License and Distribution Agreement (the “Agreement”) with CGBio Co., Ltd. (“CGBio”), a developer of innovative, synthetic bone grafts. The agreement grants us the exclusive right to conduct pre-clinical and

clinical studies, commercialize, promote, market, and sell the Novosis recombinant human bone morphogenetic protein-2 (rhBMP-2) bone growth materials and other future tissue regenerative solutions in the U.S. and Canada. As consideration, we paid CGBio an upfront payment of $1.4 million with additional payments contingent upon the achievement of specified development milestones.

Lattus Spine LLC ("Lattus") Contingent Consideration

In connection with the Merger, we assumed a contingent consideration obligation under a purchase agreement between SeaSpine and Lattus executed in December 2022. Under the terms of the agreement, we may be required to make installment payments at certain dates based on future net sales of certain products (the "Lateral Products"). The estimated fair value of the contingent consideration arrangement as of March 31, 2023, was $11.5 million; however, the actual amount ultimately paid could be higher or lower than the estimated fair value of the contingent consideration. As of March 31, 2023, we classified the remaining contingent consideration liability within other long-term liabilities. For additional discussion of this matter, see Note 7 of the Notes to the Unaudited Condensed Consolidated Financial Statements.

Off-balance Sheet Arrangements

As of ~~September 30, 2022,~~March 31, 2023, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, cash flows, liquidity, capital expenditures or capital resources that are material to investors.

Contractual Obligations

There have been no material changes in any of our material contractual obligations as disclosed in our Form 10-K for the year ended December 31, ~~2021.~~2022.

Critical Accounting Estimates

Our discussion of operating results is based upon the condensed consolidated financial statements and accompanying notes. The preparation of these statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Our critical accounting estimates are ~~detailed~~described in Item 7 of our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. There have been no significant changes to our critical accounting ~~estimates.~~estimates during the quarter covered by this report.

Recently Issued Accounting Pronouncements

See Note 2 of the Notes to the Unaudited Condensed Consolidated Financial Statements for detailed information regarding the status of recently issued or adopted accounting pronouncements. ~~As of September 30, 2022, we do not expect any of the issued Accounting Standards Updates to materially affect our condensed consolidated financial statements upon adoption.~~

Non-GAAP Financial Measures

We believe that providing non-GAAP financial measures that exclude certain items provides investors with greater transparency to the information used by senior management in its financial and operational decision-making. We believe it is important to provide investors with the same non-GAAP ~~metrics~~financial measures used to supplement information regarding the performance and underlying trends of our business operations to facilitate comparisons to historical operating results and internally evaluate the effectiveness of our operating strategies. Disclosure of these non-GAAP financial measures also facilitates comparisons of our underlying operating performance with other companies in the industry that also supplement their GAAP results with non-GAAP financial measures.

The non-GAAP financial measures used in this filing may have limitations as analytical tools and should not be considered in isolation or as a replacement for GAAP financial measures. Some of the limitations associated with the use of these non-GAAP financial measures are that they exclude items that reflect an economic cost that can have a material effect on cash flows.

Constant Currency

Constant currency is calculated by using foreign currency rates from the comparable, prior-year period to present net sales at comparable rates. Constant currency can be presented for numerous GAAP measures, but is most commonly used by management to analyze net sales without the impact of changes in foreign currency rates.

Adjusted EBITDA

EBITDA is a non-GAAP ~~metric~~financial measure defined as earnings before interest income (expense), income taxes, depreciation, and amortization. Adjusted EBITDA is the primary metric used by our Chief Operating Decision Maker in managing the business. Adjusted EBITDA represents earnings before interest income (expense), income taxes, depreciation, and amortization and excludes the impact of: share-based compensation, gains and losses related to foreign currency translation, SeaSpine Merger-related costs, strategic investments, acquisition-related fair value adjustments, gains or losses recognized on investment securities, legal judgments and settlements, charges related to initial compliance with regulations set forth by the European Union Medical Device Regulation, and gains and losses related to the realized effects the COVID-19 pandemic has had on our business operations.

Free Cash Flow

Free cash flow is calculated by subtracting capital expenditures from net cash from operating activities. Management uses free cash flow as an important indicator of how much cash is generated or used by our normal business operations, including capital expenditures. Management uses free cash flow as a measure of progress on its capital efficiency and cash flow initiatives.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our market risks as disclosed in our Form 10-K for the year ended December 31, ~~2021.~~2022.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) designed to provide reasonable assurance that the information required to be disclosed in reports filed or submitted under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. These include controls and procedures designed to ensure that this information is accumulated and communicated to management, including our President and Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management, with the participation of the President and Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~September 30, 2022.~~March 31, 2023. Based on this evaluation, our President and Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of ~~September 30, 2022.~~March 31, 2023.

On January 5, 2023, the Company completed a merger of equals with SeaSpine, whose financial statements reflect total assets and revenues constituting 52% and 35%, respectively, of the condensed consolidated financial statement amounts as of and for the

three months ended March 31, 2023. As permitted by the rules of the SEC, the Company will exclude SeaSpine from its annual assessment of the effectiveness on internal control over financial reporting for the year ending December 31, 2023, the year of acquisition. Management continue to monitor SeaSpine's internal controls over financial reporting.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting ~~known to the President and Chief Executive Officer or the Chief Financial Officer~~ that occurred ~~for~~during the quarterly period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For information regarding legal proceedings, see Note 78 to the Notes to the Unaudited Condensed Consolidated Financial Statements contained herein, which is incorporated by reference into this Part II, Item 1.

Item 1A. Risk Factors

~~The following risk factors supplement and should be read in conjunction with those contained in~~There have been no material changes from the risk factors disclosed in ~~the “Risk~~"Part I, Item 1A. Risk Factors” ~~section of~~in our Form 10-K for the year ended December 31, ~~2021,~~2022, except as follows.

~~Risks Related~~We hold our cash and cash equivalents that we use to meet our working capital and operating expense needs in deposit accounts that could be adversely affected if the ~~Pending Merger with SeaSpine~~financial institutions holding such funds fail.

We hold our cash and cash equivalents used to meet our working capital and operating expense needs in deposit accounts at multiple financial institutions. The ~~merger~~balance held in these accounts typically exceeds the Federal Deposit Insurance Corporation ("FDIC") standard deposit insurance limit or similar government guarantee schemes. If a financial institution in which we hold such funds fails or is subject to significant adverse conditions ~~some~~in the financial or ~~all of which may not be satisfied, or completed on a timely basis, if at all. Failure to complete the merger~~credit markets, we could ~~have material adverse effects on Orthofix and SeaSpine.~~

The completion of the merger is subject to a number of conditions, including, among other things, the receipt of the Orthofix stockholder approval and the SeaSpine stockholder approval and receipt of certain regulatory approvals, which make the completion and timing of the merger uncertain. The failure to satisfy all of the required conditions could delay the completion of the merger for a significant period of time or prevent it from occurring at all. There can be no assurance that the conditions to the completion of the merger will be satisfied or waived or that the merger will be completed.

~~If the merger is not completed, each of Orthofix and SeaSpine may be materially adversely affected and, without realizing any of the benefits of having completed the merger, will~~ be subject to a ~~number~~risk of ~~risks, including the following:~~

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~~the market price~~loss of ~~Orthofix common stock~~all or ~~SeaSpine common stock could decline;~~

•

~~Orthofix~~a portion of such uninsured funds or ~~SeaSpine could owe a substantial termination fee to the other party in specified circumstances;~~

•

if the merger agreement is terminated and the Orthofix Board or the SeaSpine Board seeks another business combination, Orthofix stockholders or SeaSpine stockholders, as applicable, cannot be certain that Orthofix or SeaSpine, as applicable, will be able to find a party willing to enter into a transaction on terms equivalent to or more attractive than the terms that the other party has agreed to in the merger agreement;

•

time and resources, financial and other, committed by Orthofix’s and SeaSpine’s management to matters relating to the merger could otherwise have been devoted to pursuing other beneficial opportunities;

•

~~Orthofix or SeaSpine may experience negative reactions from the financial markets or from its customers, suppliers or employees; and~~

•

Orthofix and SeaSpine will each be required to pay its costs relating to the merger, such as legal, accounting, financial advisory and printing fees, whether or not the merger is completed (subject to certain exceptions).

~~In addition, if the merger is not completed, each of Orthofix and SeaSpine could~~ be subject to ~~litigation related~~a delay in accessing all or a portion of such uninsured funds. Any such loss or lack of access to ~~any failure to complete the merger or related to any enforcement proceeding commenced against such party to perform its obligations under the merger agreement. Any of~~ these ~~risks~~funds could ~~materially and~~ adversely impact ~~Orthofix’s or SeaSpine’s ongoing business, financial condition, financial results~~our short-term liquidity and ~~stock price.~~ability to meet our operating expense obligations.

~~Similarly, delays~~For example, on March 10, 2023, Silicon Valley Bank ("SVB"), and Signature Bank, were closed by state regulators and the FDIC was appointed receiver for each bank. The FDIC created successor bridge banks and all deposits of SVB and Signature Bank were transferred to the bridge banks under a systemic risk exception approved by the United States Department of Treasury, the Federal Reserve, and the FDIC. If financial institutions in ~~the completion of the merger could, among other things, result~~which we hold funds for working capital and operating expenses were to fail, we cannot provide any assurances that such governmental agencies would take action to protect our uninsured deposits in additional transaction costs, loss of revenue or other negative effects associated with delay and uncertainty about completion of the merger and could materially and adversely impact Orthofix’s and SeaSpine’s ongoing business, financial condition, financial results and stock price following the completion of the merger.a similar manner.

The merger is subject to the expiration or termination of applicable waiting periods and the receipt of approvals, consents or clearances from several regulatory authorities that may impose conditions that could have an adverse effect on Orthofix, SeaSpine or the combined company or, if not obtained, could prevent completion of the merger.

Before the merger may be completed, any applicable waiting period (and any extension thereof) under the HSR Act relating to the completion of the merger must have expired or been terminated and any authorization or consent from a governmental authority required to be obtained with respect to the merger under certain other applicable foreign regulatory laws must have been obtained. In deciding whether to grant the required regulatory authorization or consent, the relevant governmental entities will consider the effect of the merger within their relevant jurisdiction, including, among other things, the impact on the parties’ respective customers and suppliers. The terms and conditions of the authorizations and consents that are granted, if any, may impose requirements, limitations or costs or place restrictions on the conduct of the combined company’s business or may materially delay the completion of the merger.

Under the merger agreement, Orthofix and SeaSpine have agreed to use their respective reasonable best efforts to obtain such authorizations and consents, and each of Orthofix and SeaSpine has agreed take all actions, and to do promptly, or cause to be done, and to assist and cooperate with each other in doing, all things necessary, proper or advisable under applicable laws to carry out the intent and purposes of the merger agreement and to consummate the transactions contemplated by the merger agreement. However, Orthofix’s and SeaSpine’s obligations to take such actions are subject to limitations, including that neither Orthofix nor SeaSpine will be required to divest, sell, dispose of, or license or agree to divest, sell, dispose of, or license any assets, businesses, rights or operations.

In addition, at any time before or after the completion of the merger, and notwithstanding the termination of applicable waiting periods, the applicable U.S. or foreign regulatory authorities or any state attorney general could take such action under antitrust or applicable foreign investment laws as such party deems necessary or desirable in the public interest. Such action could include, among other things, seeking to enjoin the completion of the merger or seeking divestiture of substantial assets of the parties. In addition, in some circumstances, a third party could initiate a private action challenging, seeking to enjoin, or seeking to impose conditions on the merger. Orthofix and SeaSpine may not prevail and may incur significant costs in defending or settling any such action.

~~There can be no assurance that the conditions to the completion of the merger set forth in the merger agreement relating to applicable regulatory laws will be satisfied.~~

The merger agreement contains provisions that limit Orthofix’s and SeaSpine’s ability to pursue alternatives to the merger, could discourage a potential competing transaction counterparty of Orthofix or SeaSpine from making a favorable alternative transaction proposal, and provide that, in specified circumstances, each of Orthofix and SeaSpine would be required to pay a termination fee.

The merger agreement contains provisions that make it more difficult for SeaSpine to sell its business to a party other than Orthofix, or for Orthofix to sell its business. These provisions include a general prohibition on each party soliciting any acquisition proposal. Further, there are only limited exceptions to each party’s agreement that its board of directors will not withdraw or modify in a manner adverse to the other party the recommendation of its board of directors in favor of the adoption of the merger agreement, in the case of SeaSpine, or the approval of the stock issuance, in the case of Orthofix, and the other party generally has a right to attempt to match any acquisition proposal that may be made. However, at any time prior to the adoption of the merger agreement by SeaSpine stockholders, in the case of SeaSpine, or the approval of the Orthofix share issuance proposal by Orthofix stockholders, in the case of Orthofix, such party’s board of directors is permitted to make an adverse recommendation change if it determines in good faith that the failure to take such action would be reasonably likely to be inconsistent with its fiduciary duties under applicable law.

In some circumstances, upon termination of the merger agreement, SeaSpine would be required to pay a termination fee of approximately $10.6 million to Orthofix, and in some circumstances, upon termination of the merger agreement, Orthofix would be required to pay a termination fee of approximately $13.7 million to SeaSpine, each as contemplated by the merger agreement.

The parties believe these provisions are reasonable and not preclusive of other offers, but these restrictions might discourage a third party that has an interest in acquiring all or a significant part of either SeaSpine or Orthofix from considering or proposing an acquisition proposal, even if that party was prepared to pay consideration with a higher per-share value than the currently proposed merger consideration, in the case of SeaSpine, or that party was prepared to enter into an agreement that may be favorable to Orthofix or its stockholders, in the case of Orthofix. Furthermore, the termination fees described above may result in a potential competing acquirer proposing to pay a lower per-share price to acquire the applicable party than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable by such party in certain circumstances.

~~The exchange ratio is fixed and will not be adjusted in the event of any change in either Orthofix’s or SeaSpine’s stock price.~~

Upon completion of the merger, each issued and outstanding share of SeaSpine common stock (other than excluded shares) will be converted into the right to receive the merger consideration, which is equal to 0.4163 fully paid and nonassessable shares of Orthofix common stock (and, if applicable, cash in lieu of fractional shares). This exchange ratio was fixed in the merger agreement and will not be adjusted for changes in the market price of either Orthofix common stock or SeaSpine common stock.

It is impossible to accurately predict the market price of Orthofix common stock at the completion of the merger and, therefore, impossible to accurately predict the market value of the shares of Orthofix common stock that SeaSpine stockholders will receive in the merger. The market price for Orthofix common stock may fluctuate both prior to the completion of the merger and thereafter for a variety of reasons, including, among others, general market and economic conditions, the demand for Orthofix’s or SeaSpine’s products and services, changes in laws and regulations, other changes in Orthofix’s and SeaSpine’s respective businesses, operations, prospects and financial results of operations, market assessments of the likelihood that the merger will be completed,

~~and the expected timing of the merger. Many of these factors are beyond Orthofix’s and SeaSpine’s control. As a result, the market value represented by the exchange ratio will also vary.~~

~~Each party is subject to business uncertainties and contractual restrictions while the merger is pending, which could adversely affect each party’s business and operations.~~

In connection with the pendency of the merger, it is possible that some customers, suppliers and other persons with whom Orthofix and/or SeaSpine has a business relationship may delay or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationships with Orthofix or SeaSpine, as the case may be, as a result of the merger or otherwise, which could negatively affect Orthofix’s or SeaSpine’s respective revenues, earnings and/or cash flows, as well as the market price of Orthofix common stock or SeaSpine common stock, regardless of whether the merger is completed.

Under the terms of the merger agreement, each of Orthofix and SeaSpine is subject to certain restrictions on the conduct of its business prior to completing the merger, which may adversely affect its ability to execute certain of its business strategies, including the ability in certain cases to modify or terminate contracts, acquire or dispose of assets, incur indebtedness, pay dividends, incur capital expenditures or settle claims. Such limitations could adversely affect each of Orthofix’s and SeaSpine’s business and operations prior to the completion of the merger.

~~Each of the risks described above may be exacerbated by delays or other adverse developments with respect to the completion of the merger.~~

Completion of the merger may trigger change in control or other provisions in certain distributor, customer and other agreements to which Orthofix or SeaSpine is a party, which may have an adverse impact on the combined company’s business and results of operations following completion of the merger.

The completion of the merger may trigger change in control and other provisions in certain agreements to which Orthofix or SeaSpine is a party. If Orthofix or SeaSpine is unable to negotiate waivers of those provisions, counterparties may exercise their rights and remedies under the agreements, including terminating the agreements or seeking monetary damages or equitable remedies. Even if Orthofix and SeaSpine are able to negotiate consents or waivers, the counterparties may require a fee for such waivers or seek to renegotiate the agreements on terms less favorable to Orthofix or SeaSpine. Any of the foregoing or similar developments may have an adverse impact on the combined company’s business and results of operations following completion of the merger.

Uncertainties associated with the merger may cause a loss of management personnel and other key employees, which could adversely affect the future business and operations of the combined company following completion of the merger.

Orthofix and SeaSpine are dependent on the experience and industry knowledge of their officers and other key employees to execute their business plans. The combined company’s success after the completion of the merger will depend in part upon the ability of the combined company to retain certain key management personnel and employees of Orthofix and SeaSpine. Prior to the completion of the merger, current and prospective employees of Orthofix and SeaSpine may experience uncertainty about their roles following the completion of the transactions, which may have an adverse effect on the ability of each of Orthofix and SeaSpine to attract or retain key management and other key personnel. In addition, no assurance can be given that the combined company, after the completion of the merger, will be able to attract or retain key management personnel and other key employees to the same extent that Orthofix and SeaSpine have previously been able to attract or retain their own employees.

Orthofix’s executive officers and directors and SeaSpine’s executive officers and directors have interests in the merger that may be different from, or in addition to, Orthofix’s stockholders’ and SeaSpine’s stockholders’ interests.

When considering the recommendation of the Orthofix Board that Orthofix stockholders approve the Orthofix share issuance proposal and the recommendation of the SeaSpine Board that the SeaSpine stockholders approve the SeaSpine merger proposal, such stockholders should be aware that certain directors and executive officers of Orthofix and directors and executive officers of SeaSpine have certain interests in the merger that may be different from, or in addition to, the interests of such stockholders. The Orthofix Board was aware of the interests of Orthofix’s directors and executive officers, the SeaSpine Board was aware of the interests of SeaSpine’s directors and executive officers, and each board considered such interests, among other matters, when it approved the merger agreement and in making its recommendations to its stockholders. Additional interests of the executive officers of Orthofix in the merger include certain performance stock unit achievement rights and certain post separation cash severance and equity acceleration rights, in each as a result of the Orthofix Board’s determination to treat the transaction as a “Change in Control” under applicable agreements and equity plans. Additional interests of the directors include continued service on the board of the combined company or certain equity acceleration rights in the event that the director is not continuing. Additional interests of the directors and executive officers of SeaSpine in the merger include (i) the payment of certain severance and other

benefits upon a qualifying termination of employment or service following the completion of the merger, (ii) continued employment or service on the board of the combined company and (iii) the continued provision of indemnification and insurance coverage for current and former directors and executive officers of SeaSpine in accordance with the merger agreement. As a result of these interests, these directors (as applicable) and executive officers might be more likely to support and to vote in favor of the proposals described in this joint proxy statement/prospectus than if they did not have these interests. Orthofix stockholders and SeaSpine stockholders should consider whether these interests might have influenced these directors (as applicable) and executive officers to recommend adopting the merger agreement.

~~Following the merger, the composition of the combined company board of directors will be different than the composition of the current Orthofix Board or the current SeaSpine Board.~~

The Orthofix Board currently consists of nine directors and the SeaSpine Board currently consists of nine directors. Upon completion of the merger, the board of directors of the combined company will consist of nine directors, including five directors designated by Orthofix and four directors designated by SeaSpine. This new composition of the board of directors of the combined company may affect the future decisions of the combined company.

~~Other Risk Factors~~

~~The conflict between Russia and Ukraine may continue to cause global economic instability and potentially disrupt supply chains.~~

In February 2022, Russia unlawfully invaded Ukraine, creating an ongoing humanitarian and global security crisis. In response, the U.S. and many other countries have imposed robust sanctions on Russia and may impose additional sanctions in the future. The ongoing invasion has caused significant damage and disruption to various aspects of the global economy. We have never conducted any meaningful business within Russia, and do not believe that the invasion will have material direct effects on our business or operations. However, we cannot predict the broader and longer-term consequences of this conflict or the sanctions imposed in response, and such consequences could include, among other things, general disruptions to global finance markets, exchange rates, and worldwide supply chains. Geopolitical instability and uncertainty resulting from the invasion could potentially have a negative impact on our ability to sell to, ship products to, collect payments from, and support customers in certain regions based on trade restrictions, embargoes and export control law restrictions, and logistics restrictions. These considerations could adversely affect our costs, risks, and efficiencies related to our supply chain and logistics. The potential effects of the conflict between Russia and Ukraine also could affect many of the other risk factors described in Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

We have not made any repurchases of our common stock during the ~~third~~first quarter of ~~2022.~~2023.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

There are no matters to be reported under this heading.

Item 6. Exhibits


~~2.1~~		Agreement and Plan of Merger, dated as of October 10, 2022, by and among Orthofix Medical Inc., Orca Merger Sub Inc. and SeaSpine Holdings Corporation (filed as an exhibit to the Company’s Current Report on Form 8-K dated October 11, 2022 and incorporated herein by reference).

~~3.1~~		~~Amended and Restated Bylaws of Orthofix Medical Inc. (filed as an exhibit to the Company’s Current Report on Form 8-K dated October 11, 2022 and incorporated herein by reference).~~

31.1*		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.

31.2*		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.

32.1*		Section 1350 Certifications of each of the Chief Executive Officer and Chief Financial Officer.

101.INS*		Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).

101.SCH*		Inline XBRL Taxonomy Extension Schema Document.

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104*		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

* Filed herewith.

3230

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	ORTHOFIX MEDICAL INC.

Date: ~~November 3, 2022~~May 9, 2023	By:	/s/ ~~JON SERBOUSEK~~KEITH VALENTINE
	Name:	~~Jon Serbousek~~Keith Valentine
	Title:	President and Chief Executive Officer, Director

Date: ~~November 3, 2022~~May 9, 2023	By:	/s/ ~~DOUG RICE~~JOHN BOSTJANCIC
	Name:	~~Doug Rice~~John Bostjancic
	Title:	Chief Financial Officer

3331


Delaware		98-1340767
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3451 Plano Parkway, Lewisville, Texas		75056
(Address of principal executive offices)		(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.10 par value per share	OFIX	Nasdaq Global Select Market


(U.S. Dollars, in thousands, except par value data)	September 30, 2022			December 31, 2021		March 31, 2023			December 31, 2022
	(Unaudited)					(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	51,660		$	87,847	$	49,968		$	50,700
Accounts receivable, net of allowances of $5,948 and $4,944, respectively		75,633			78,560
Accounts receivable, net of allowances of $6,691 and $6,419, respectively							113,313			82,857
Inventories		100,277			82,974		221,933			100,150
Prepaid expenses and other current assets		19,325			20,141		24,827			22,283
Total current assets		246,895			269,522		410,041			255,990
Property, plant, and equipment, net		57,820			59,252		136,818			58,229
Intangible assets, net		47,513			52,666		122,129			47,388
Goodwill		71,317			71,317		202,711			71,317
Deferred income taxes		1,544			1,771
Other long-term assets		24,571			22,095		45,437			25,705
Total assets	$	449,660		$	476,623	$	917,136		$	458,629

Liabilities and shareholders’ equity
Current liabilities
Accounts payable	$	28,003		$	26,459	$	45,875		$	27,598
Current portion of finance lease liability		638			2,590		664			652
Other current liabilities		49,007			76,781		91,029			55,374
Total current liabilities		77,648			105,830		137,568			83,624
Long-term borrowings under credit facility							45,000			-
Long-term portion of finance lease liability		19,407			19,890		19,068			19,239
Other long-term liabilities		19,066			13,969		51,341			18,906
Total liabilities		116,121			139,689		252,977			121,769
Contingencies (Note 7)
Contingencies (Note 8)
Shareholders’ equity
Common shares $0.10 par value; 50,000 shares authorized; 20,007 and 19,837 issued and outstanding as of September 30, 2022 and December 31, 2021, respectively		2,001			1,983
Common shares $0.10 par value; 50,000 shares authorized; 36,463 and 20,162 issued and outstanding as of March 31, 2023 and December 31, 2022, respectively							3,647			2,016
Additional paid-in capital		328,387			313,951		721,145			334,969
Retained earnings		8,313			21,000
Retained earnings (accumulated deficit)							(59,687	)		1,251
Accumulated other comprehensive loss		(5,162	)		—		(946	)		(1,376	)
Total shareholders’ equity		333,539			336,934		664,159			336,860
Total liabilities and shareholders’ equity	$	449,660		$	476,623	$	917,136		$	458,629


(Unaudited, U.S. Dollars, in thousands)	Number of Common Shares Outstanding		Common Shares		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity			Number of Common Shares Outstanding		Common Shares		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
At December 31, 2021		19,837	$	1,983	$	313,951		$	21,000		$	—		$	336,934
At December 31, 2022																		20,162	$	2,016	$	334,969		$	1,251		$	(1,376	)	$	336,860
Net loss		—		—		—			(4,460	)		—			(4,460	)		—		—		—			(60,938	)		—			(60,938	)
Other comprehensive loss, net of tax		—		—		—			—			(1,162	)		(1,162	)
Other comprehensive income, net of tax																		—		—		—			—			430			430
Share-based compensation expense		—		—		4,332			—			—			4,332			—		—		13,020			—			—			13,020
Common shares issued in connection with SeaSpine merger																		16,047		1,605		375,140			—			—			376,745
Common shares issued, net		5		1		(70	)		—			—			(69	)		254		26		(1,984	)		—			—			(1,958	)
At March 31, 2022		19,842	$	1,984	$	318,213		$	16,540		$	(1,162	)	$	335,575
Net income		—		—		—			2,489			—			2,489
Other comprehensive loss, net of tax		—		—		—			—			(1,659	)		(1,659	)
Share-based compensation expense		—		—		4,460			—			—			4,460
Common shares issued, net		158		16		1,065			—			—			1,081
At June 30, 2022		20,000	$	2,000	$	323,738		$	19,029		$	(2,821	)	$	341,946
Net loss		—		—		—			(10,716	)		—			(10,716	)
Other comprehensive loss, net of tax		—		—		—			—			(2,341	)		(2,341	)
Share-based compensation expense		—		—		4,729						—			4,729
Common shares issued, net		7		1		(80	)		—			—			(79	)
At September 30, 2022		20,007	$	2,001	$	328,387		$	8,313		$	(5,162	)	$	333,539
At March 31, 2023																		36,463	$	3,647	$	721,145		$	(59,687	)	$	(946	)	$	664,159


(Unaudited, U.S. Dollars, in thousands)	Number of Common Shares Outstanding		Common Shares		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity			Number of Common Shares Outstanding		Common Shares		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
At December 31, 2020		19,424	$	1,942	$	292,291	$	59,379		$	3,252		$	356,864
At December 31, 2021																	19,837	$	1,983	$	313,951		$	21,000			—		$	336,934
Net loss		—		—		—		(5,816	)		—			(5,816	)		—		—		—			(4,460	)		—			(4,460	)
Other comprehensive loss, net of tax		—		—		—		—			(1,573	)		(1,573	)		—		—		—			—			(1,162	)		(1,162	)
Share-based compensation expense		—		—		3,721		—			—			3,721			—		—		4,332			—			—			4,332
Common shares issued, net		51		5		1,617		—			—			1,622			5		1		(70	)		—			—			(69	)
At March 31, 2021		19,475	$	1,947	$	297,629	$	53,563		$	1,679		$	354,818
Net income		—		—		—		2,420			—			2,420
Other comprehensive loss, net of tax		—		—		—		—			(81	)		(81	)
Share-based compensation expense		—		—		3,907		—			—			3,907
Common shares issued, net		194		20		1,200		—			—			1,220
At June 30, 2021		19,669	$	1,967	$	302,736	$	55,983		$	1,598		$	362,284
Net loss		—		—		—		(2,171	)		—			(2,171	)
Other comprehensive loss, net of tax		—		—		—		—			(334	)		(334	)
Share-based compensation expense		—		—		3,842		—			—			3,842
Common shares issued, net		72		7		1,205		—			—			1,212
At September 30, 2021		19,741	$	1,974	$	307,783	$	53,812		$	1,264		$	364,833
At March 31, 2022																	19,842	$	1,984	$	318,213		$	16,540		$	(1,162	)	$	335,575


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Large Accelerated filer	☐	Accelerated filer	☒
~~Accelerated filer~~	☐

Non-Accelerated filer	☐	Smaller Reporting Company	☐

		Emerging Growth Company	☐


		Page
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements	4

	Condensed Consolidated Balance Sheets as of ~~September 30, 2022~~March 31, 2023, and December 31, ~~2021~~2022	4

	Condensed Consolidated Statements of Operations and Comprehensive ~~Loss~~Income (Loss) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	5

	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023, and 2022 ~~and 2021~~	6

	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~	7

	Notes to the Unaudited Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1820

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27

Item 4.	Controls and Procedures	27

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	2829

Item 1A.	Risk Factors	2829

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3129

Item 3.	Defaults Upon Senior Securities	3129

Item 4.	Mine Safety Disclosures	3129

Item 5.	Other Information	3129

Item 6.	Exhibits	3229

SIGNATURES		3331


Topic	Description of Guidance	Effective Date	Status of Company's Evaluation
Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (ASU 2022-03)	Clarifies the guidance in Topic 820, Fair Value Measurement,, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and introduces new disclosure requirements for equity securities subject to contractual sale restrictions. Certain of the provisions are to be applied retrospectively with other provisions applied prospectively.	January 1, 2024	The Company is currently evaluating the impact this ASU may have on its consolidated financial statements.


(Unaudited, U.S. Dollars, in thousands, except shares and price per share)
Share Consideration:
Orthofix common shares to be issued in exchange for SeaSpine common shares		16,047,315
Orthofix closing price per share as of January 4, 2023	$	22.76
Estimated fair value of shares issued in exchange for SeaSpine common shares	$	365,237
Estimated fair value of Orthofix stock options and RSUs issued in exchange for outstanding SeaSpine equity awards	$	11,508
Total estimated fair value of consideration	$	376,745


(Unaudited, U.S. Dollars, in thousands, except shares and price per share)	As of January 5, 2023		Assigned Useful Life
Assets acquired:
Current assets
Cash and cash equivalents	$	29,419
Accounts receivable, net		35,313
Inventories		129,610
Prepaid expenses and other current assets		4,600
Total current assets		198,942
Property, plant, and equipment, net		68,911
Customer relationships		27,100	13 years
Developed technology		45,400	6 - 8 years
In-process research and development ("IPR&D")		5,600	Indefinite
Other long-term assets		20,472
Total identifiable assets acquired	$	366,425

Liabilities assumed:
Current liabilities
Accounts payable	$	21,602
Other current liabilities		41,224
Total current liabilities		62,826
Long-term borrowings under SeaSpine credit facility		26,298
Other long-term liabilities		31,950
Total liabilities assumed		121,074
Net identifiable assets acquired	$	245,351
Total fair value of consideration transferred		376,745
Residual goodwill	$	131,394


	Three Months Ended March 31,
(Unaudited, U.S. Dollars, except per share data)	2023	2022
Net sales	$175.2 million	$157.1 million
Net loss	($45.2) million	($42.6) million


	Three Months Ended March 31,
(Unaudited, U.S. Dollars, in millions)	2023		2022
Compensation-related integration costs		10.3	$	—
Fee paid to financial advisor to the Merger		5.5		—
Professional fees / consulting fees		4.2		—
Product rationalization charges		0.7		—
Other costs to complete		1.6		—
Total		22.3	$	—


(Unaudited, U.S. Dollars, in millions)	Balance as of December 31, 2022		Charges Incurred		Payments Made			Balance as of March 31, 2023
Severance costs	$	—	$	8.6	$	(1.0	)	$	7.6
Retention costs		—		1.3		—			1.3
Payroll taxes		—		0.3		—			0.3
Total	$	—	$	10.2	$	(1.0	)	$	9.2


(U.S. Dollars, in thousands)		Classification	September 30, 2022		December 31, 2021
(Unaudited, U.S. Dollars, in thousands)								Classification	March 31, 2023		December 31, 2022
Right-of-use assets ("ROU assets")	Right-of-use assets ("ROU assets")						Right-of-use assets ("ROU assets")
Operating leases		Other long-term assets	$	6,819	$	3,155		Other long-term assets	$	21,280	$	6,788
Finance leases		Property, plant and equipment, net		17,613		18,600		Property, plant and equipment, net		17,106		17,360
Total ROU assets			$	24,432	$	21,755			$	38,386	$	24,148

Lease Liabilities
Current
Operating leases		Other current liabilities	$	1,503	$	1,834		Other current liabilities	$	3,241	$	1,638
Finance leases		Current portion of finance lease liability		638		2,590		Current portion of finance lease liability		664		652
Long-term
Operating leases		Other long-term liabilities		5,443		1,443		Other long-term liabilities		18,525		5,376
Finance leases		Long-term portion of finance lease liability		19,407		19,890		Long-term portion of finance lease liability		19,068		19,239
Total lease liabilities			$	26,991	$	25,757			$	41,498	$	26,905


(U.S. Dollars, in thousands)	Nine Months Ended September 30, 2022		Nine Months Ended September 30, 2021
(Unaudited, U.S. Dollars, in thousands)					Three Months Ended March 31, 2023		Three Months Ended March 31, 2022
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	3,001	$	3,469	$	1,674	$	1,068
Operating cash flows from finance leases		665		680		214		222
Financing cash flows from finance leases		2,441		395		160		2,141
ROU assets obtained in exchange for lease obligations
Operating leases		5,429		460		15,316		4,470
Finance leases		—		149		—		—


(U.S. Dollars, in thousands)	Currency Translation Adjustments			Neo Medical Convertible Loans			Other Investments		Accumulated Other Comprehensive Loss
Balance at December 31, 2021	$	(711	)	$	711		$	—	$	—
Other comprehensive loss		(4,413	)		(766	)		17		(5,162	)
Income taxes		—			—			—		—
Balance at September 30, 2022	$	(5,124	)	$	(55	)	$	17	$	(5,162	)


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2022		2021		2022		2021
Weighted average common shares-basic		20,091		19,770		20,007		19,634
Effect of dilutive securities
Unexercised stock options and stock purchase plan		—		—		—		—
Unvested restricted stock units		—		—		—		—
Weighted average common shares-diluted		20,091		19,770		20,007		19,634