(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 ~~May 4,~~November 2, 2020, ~~19,202,587~~19,333,698 shares of common stock were issued and outstanding.

This 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. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “intends,” “predicts,” “potential,” or “continue” or other comparable terminology. These forward-looking statements are not guarantees of our future performance and involve risks, uncertainties, estimates, and assumptions that are difficult to predict, including the risks described in Part II Item 1A under the heading Risk Factors of this filing; Part I, Item 1A under the heading Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form ~~10-K”)~~10-K); and other Securities and Exchange Commission (“SEC”) filings. In addition to the risks described there, factors that could cause or contribute to such differences may include, but are not limited to, risks relating to the effects of the COVID-19 pandemic on our business, including (i) surgeries that use our products being delayed or cancelled as a result of hospitals and surgery centers being closed or limited to ~~life-threatening~~life threatening and/or essential procedures, (ii) portions of our global workforce being unable to work fully and/or effectively due to illness, quarantines, government actions (including "shelter in place" orders or advisories), facility closures, or other reasons related to the pandemic, (iii) disruptions to our supply chain, (iv) ~~volatility in global capital markets limiting our access to financing for potential acquisitions or working capital, (v)~~ customers and payors being unable to satisfy contractual obligations to us, including the ability to make timely payment for purchases, ~~(vi)~~(v) general economic weakness in markets in which we operate affecting customer spending, and (vii) other unpredictable aspects of the pandemic. To the extent that the COVID-19 pandemic continues to adversely ~~affects~~affect our business and financial results, it may also have the effect of heightening many of the other risks described in Part I, Item 1A under the heading Risk Factors in our 2019 Form 10-K, such as our ~~need~~ability to generate sufficient cash flows to ~~service indebtedness~~run our business and our ability to protect our information technology networks and infrastructure from unauthorized access, misuse, malware, phishing, and other events that could have a security impact as a result of our remote working environment or otherwise. As a result of these various risks, our actual outcomes and results may differ materially from those expressed in these forward-looking statements.

This list of risks, uncertainties, and other factors is not complete. We discuss some of these matters more fully, as well as certain risk factors that could affect our business, financial condition, results of operations, and prospects, in reports we file from time-to-time with the ~~SEC,~~Securities and Exchange Commission (“SEC”), which ~~our~~are available to read at www.sec.gov. 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. You should not place undue reliance on any of these forward-looking statements. Further, any forward-looking statement speaks only as of the date hereof, unless it is specifically otherwise stated to be made as of a different date. 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.

(U.S. Dollars, in thousands, except share data)	March 31, 2020			December 31, 2019			September 30, 2020			December 31, 2019
	(Unaudited)						(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	57,739		$	69,719		$	79,810		$	69,719
Restricted cash		529			684			490			684
Accounts receivable, net of allowances of $5,591 and $3,987, respectively		77,798			86,805
Accounts receivable, net of allowances of $5,524 and $3,987, respectively								73,053			86,805
Inventories		82,744			82,397			82,859			82,397
Prepaid expenses and other current assets		21,185			20,948			18,457			20,948
Total current assets		239,995			260,553			254,669			260,553
Property, plant and equipment, net		64,836			62,727
Property, plant, and equipment, net								63,689			62,727
Intangible assets, net		58,770			54,139			62,309			54,139
Goodwill		82,646			71,177			83,503			71,177
Deferred income taxes		36,133			35,117			38,047			35,117
Other long-term assets		11,110			11,907			14,915			11,907
Total assets	$	493,490		$	495,620		$	517,132		$	495,620
Liabilities and shareholders’ equity
Current liabilities
Accounts payable	$	19,641		$	19,886		$	16,943		$	19,886
Current portion of finance lease liability		357			323			498			323
Other current liabilities		45,963			64,674			75,938			64,674
Total current liabilities		65,961			84,883			93,379			84,883
Long-term portion of finance lease liability		22,471			20,648			22,463			20,648
Long-term debt								—			—
Other long-term liabilities		49,689			62,458			46,394			62,458
Total liabilities		138,121			167,989			162,236			167,989
Contingencies (Note 9)
Shareholders’ equity
Common shares $0.10 par value; 50,000,000 shares authorized; 19,056,178 and 19,022,619 issued and outstanding as of March 31, 2020 and December 31, 2019, respectively		1,906			1,902
Common shares $0.10 par value; 50,000,000 shares authorized; 19,267,420 and 19,022,619 issued and outstanding as of September 30, 2020 and December 31, 2019, respectively								1,927			1,902
Additional paid-in capital		275,686			271,019			285,203			271,019
Retained earnings		82,527			57,749			68,757			57,749
Accumulated other comprehensive loss		(4,750	)		(3,039	)		(991	)		(3,039	)
Total shareholders’ equity		355,369			327,631			354,896			327,631
Total liabilities and shareholders’ equity	$	493,490		$	495,620		$	517,132		$	495,620

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

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

	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
(Unaudited, U.S. Dollars, in thousands, except share and per share data)	2020			2019			2020			2019			2020			2019
Net sales	$	104,823		$	109,112			110,985		$	113,499		$	288,943		$	338,461
Cost of sales		23,409			23,708			26,243			24,896			72,818			74,416
Gross profit		81,414			85,404			84,742			88,603			216,125			264,045
Sales and marketing		54,313			53,694			52,926			54,805			150,718			165,363
General and administrative		17,865			20,472			16,541			21,090			49,453			63,497
Research and development		9,964			9,229			9,962			7,982			28,691			26,191
Acquisition-related amortization and remeasurement (Note 13)		(7,582	)		6,457			1,138			23,608			(2,766	)		31,873
Operating income (loss)		6,854			(4,448	)		4,175			(18,882	)		(9,971	)		(22,879	)
Interest expense, net		(423	)		(257	)
Other expense, net		(798	)		(404	)
Interest income (expense), net								(731	)		186			(2,055	)		386
Other income (expense), net								1,817			(8,146	)		6,088			(8,786	)
Income (loss) before income taxes		5,633			(5,109	)		5,261			(26,842	)		(5,938	)		(31,279	)
Income tax benefit		20,032			6,006
Net income	$	25,665		$	897
Income tax benefit (expense)								(607	)		(13,656	)		17,833			(8,869	)
Net income (loss)							$	4,654		$	(40,498	)	$	11,895		$	(40,148	)

Net income per common share:
Net income (loss) per common share:
Basic	$	1.33		$	0.05		$	0.24		$	(2.14	)	$	0.62		$	(2.13	)
Diluted		1.32			0.05			0.24			(2.14	)		0.61			(2.13	)
Weighted average number of common shares:
Basic		19,143,934			18,750,184			19,335,718			18,957,876			19,217,057			18,847,728
Diluted		19,299,820			19,191,146			19,398,567			18,957,876			19,319,302			18,847,728

Other comprehensive loss, before tax
Other comprehensive income (loss), before tax
Unrealized loss on debt security		—			(2,593	)		—			—			—			(2,593	)
Reclassification adjustment for amortization of historical unrealized gains on debt security								—			(345	)		—			(1,034	)
Reclassification adjustment for other-than-temporary impairment on debt security								—			(5,193	)		—			(5,193	)
Currency translation adjustment		(1,711	)		(449	)		2,275			(1,893	)		2,048			(2,195	)
Other comprehensive loss before tax		(1,711	)		(3,042	)
Income tax related to other comprehensive loss		—			641
Other comprehensive loss, net of tax		(1,711	)		(2,401	)
Other comprehensive income (loss) before tax								2,275			(7,431	)		2,048			(11,015	)
Income tax related to other comprehensive income (loss)								—			1,388			—			2,200
Other comprehensive income (loss), net of tax								2,275			(6,043	)		2,048			(8,815	)
Comprehensive income (loss)	$	23,954		$	(1,504	)	$	6,929		$	(46,541	)	$	13,943		$	(48,963	)

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

(Unaudited, U.S. Dollars, in thousands, except share data)	Number of Common Shares Outstanding		Common Shares		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total Shareholders’ Equity			Number of Common Shares Outstanding		Common Shares		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
At December 31, 2019		19,022,619	$	1,902	$	271,019	$	57,749		$	(3,039	)	$	327,631			19,022,619	$	1,902	$	271,019		$	57,749		$	(3,039	)	$	327,631
Cumulative effect adjustment from adoption of ASU 2016-13		—		—		—		(887	)		—			(887	)		—		—		—			(887	)		—			(887	)
Net income		—		—		—		25,665			—			25,665			—		—		—			25,665			—			25,665
Other comprehensive loss, net of tax		—		—		—		—			(1,711	)		(1,711	)		—		—		—			—			(1,711	)		(1,711	)
Share-based compensation		—		—		3,859		—			—			3,859			—		—		3,859			—			—			3,859
Common shares issued, net		33,559		4		808		—			—			812			33,559		4		808			—			—			812
At March 31, 2020		19,056,178	$	1,906	$	275,686	$	82,527		$	(4,750	)	$	355,369			19,056,178	$	1,906	$	275,686		$	82,527		$	(4,750	)	$	355,369
Net loss																	—		—		—			(18,424	)		—			(18,424	)
Other comprehensive income, net of tax																	—		—		—			—			1,484			1,484
Share-based compensation																	—		—		4,699			—			—			4,699
Common shares issued, net																	152,885		15		1,902			—			—			1,917
At June 30, 2020																	19,209,063	$	1,921	$	282,287		$	64,103		$	(3,266	)	$	345,045
Net income																	—		—		—			4,654			—			4,654
Other comprehensive income, net of tax																	—		—		—			—			2,275			2,275
Share-based compensation																	—		—		3,841			—			—			3,841
Common shares issued, net																	58,357		6		(925	)		—			—			(919	)
At September 30, 2020																	19,267,420	$	1,927	$	285,203		$	68,757		$	(991	)	$	354,896

(Unaudited, U.S. Dollars, in thousands, except share data)	Number of Common Shares Outstanding		Common Shares		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income			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, 2018		18,579,688	$	1,858	$	243,165	$	87,078		$	3,296		$	335,397			18,579,688	$	1,858	$	243,165		$	87,078		$	3,296		$	335,397
Cumulative effect adjustment from adoption of ASU 2016-02		—		—		—		71			—			71			—		—		—			71			—			71
Cumulative effect adjustment from adoption of ASU 2018-02		—		—		—		(938	)		938			—			—		—		—			(938	)		938			—
Net income		—		—		—		897			—			897			—		—		—			897			—			897
Other comprehensive loss, net of tax		—		—		—		—			(2,401	)		(2,401	)		—		—		—			—			(2,401	)		(2,401	)
Share-based compensation		—		—		5,685		—			—			5,685			—		—		5,685			—			—			5,685
Common shares issued, net		211,081		21		4,012		—			—			4,033			211,081		21		4,012			—			—			4,033
At March 31, 2019		18,790,769	$	1,879	$	252,862	$	87,108		$	1,833		$	343,682			18,790,769	$	1,879	$	252,862		$	87,108		$	1,833		$	343,682
Net loss																	—		—		—			(547	)		—			(547	)
Other comprehensive loss, net of tax																	—		—		—			—			(371	)		(371	)
Share-based compensation																	—		—		5,849			—			—			5,849
Common shares issued, net																	40,812		4		(823	)		—			—			(819	)
At June 30, 2019																	18,831,581	$	1,883	$	257,888		$	86,561		$	1,462		$	347,794
Net loss																	—		—		—			(40,498	)		—			(40,498	)
Other comprehensive loss, net of tax																	—		—		—			—			(6,043	)		(6,043	)
Share-based compensation																	—		—		5,844			—			—			5,844
Common shares issued, net																	43,603		5		(668	)		—			—			(663	)
At September 30, 2019																	18,875,184	$	1,888	$	263,064		$	46,063		$	(4,581	)	$	306,434

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

	Three Months Ended March 31,						Nine Months Ended September 30,
(Unaudited, U.S. Dollars, in thousands)	2020			2019			2020			2019
Cash flows from operating activities
Net income	$	25,665		$	897
Adjustments to reconcile net income to net cash from operating activities
Net income (loss)							$	11,895		$	(40,148	)
Adjustments to reconcile net income (loss) to net cash from operating activities
Depreciation and amortization		6,327			5,727			22,299			18,180
Amortization of operating lease assets, debt costs, and other assets		1,005			773			2,811			2,724
Provision for expected credit losses		679			46			945			861
Deferred income taxes		(1,027	)		(1,582	)		(2,471	)		(3,309	)
Share-based compensation		3,859			5,685			12,399			17,378
Interest and loss on valuation of investment securities		219			(593	)		219			5,000
Change in fair value of contingent consideration		(9,000	)		5,400			(7,600	)		28,140
Other		(744	)		586			(1,798	)		1,307
Changes in operating assets and liabilities, net of effects of acquisitions
Accounts receivable		6,712			(2,027	)		11,551			(3,298	)
Inventories		(848	)		(2,477	)		246			(4,995	)
Prepaid expenses and other current assets		(496	)		1,427			2,453			1,637
Accounts payable		28			1,883			(3,106	)		447
Other current liabilities		(1,333	)		(12,439	)		5,742			347
Contract liability (Note 11)								13,851			—
Payment of contingent consideration		—			(1,340	)		—			(1,340	)
Other long-term assets and liabilities		(18,582	)		(3,005	)		(17,455	)		(2,841	)
Net cash from operating activities		12,464			(1,039	)		51,981			20,090
Cash flows from investing activities
Acquisition of a business		(18,000	)		—			(18,000	)		—
Capital expenditures for property, plant and equipment		(4,285	)		(4,643	)
Capital expenditures for property, plant, and equipment								(11,625	)		(13,737	)
Capital expenditures for intangible assets		(659	)		(273	)		(1,079	)		(1,144	)
Purchase of investment securities								(5,000	)		—
Asset acquisitions and other investments		(1,240	)		(6,400	)		(7,240	)		(6,400	)
Net cash from investing activities		(24,184	)		(11,316	)		(42,944	)		(21,281	)
Cash flows from financing activities
Proceeds from revolving credit facility								100,000			—
Repayment of revolving credit facility								(100,000	)		—
Proceeds from issuance of common shares		948			6,331			3,839			6,821
Payments related to withholdings for share-based compensation		(136	)		(2,298	)		(2,029	)		(4,271	)
Payment of contingent consideration		—			(13,660	)		—			(13,660	)
Payments related to finance lease obligation		(92	)		(99	)		(204	)		(276	)
Other financing activities		(405	)		(670	)		(1,023	)		(1,224	)
Net cash from financing activities		315			(10,396	)		583			(12,610	)
Effect of exchange rate changes on cash		(730	)		(230	)		277			(885	)
Net change in cash, cash equivalents, and restricted cash		(12,135	)		(22,981	)		9,897			(14,686	)
Cash, cash equivalents, and restricted cash at the beginning of period		70,403			72,189			70,403			72,189
Cash, cash equivalents, and restricted cash at the end of period	$	58,268		$	49,208		$	80,300		$	57,503

Components of cash, cash equivalents and restricted cash at the end of period
Cash and cash equivalents	$	57,739		$	46,668		$	79,810		$	56,849
Restricted cash		529			2,540			490			654
Cash, cash equivalents, and restricted cash at the end of period	$	58,268		$	49,208		$	80,300		$	57,503

Noncash investing activities - Purchase of intangible assets							$	1,575		$	—

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

Orthofix Medical Inc., together with its subsidiaries (the “Company” or “Orthofix”), is a global medical device company focused on musculoskeletal products and therapies. The Company’s mission is to ~~improve patients' lives by providing superior reconstruction and regenerative musculoskeletal~~deliver innovative, quality-driven solutions ~~to physicians worldwide.~~while partnering with health care professionals on improving patients’ lives. Headquartered in Lewisville, Texas, Orthofix’s spine and orthopedic extremities products are distributed in more than 70 countries via the Company's sales representatives and distributors.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Pursuant to these rules and regulations, certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair statement have been included. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Form 10-K for the year ended December 31, 2019. Operating results for ~~the~~ three and nine months ended ~~March 31,~~September 30, 2020 are not necessarily indicative of the results that may be expected for other interim periods or the year ending December 31, 2020.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, the Company evaluates its estimates, including those related to revenue recognition; contractual allowances; allowance for expected credit losses; inventories; valuation of intangible assets; goodwill; fair value measurements, including contingent consideration; litigation and contingent liabilities; tax matters; and share-based compensation. Actual results could differ from these estimates.

~~In March 2020, the World Health Organization categorized~~The global Coronavirus Disease 2019 ("COVID-19") ~~as a~~ pandemic has significantly affected the Company’s patients, communities, employees and business operations. The pandemic has led to the cancellation or deferral of elective surgeries and procedures within certain hospitals, ambulatory surgery centers, and other medical facilities; restrictions on travel; the implementation of physical distancing measures; and the ~~President~~temporary or permanent closure of certain businesses. In addition, broad economic factors resulting from the ~~United States declared~~pandemic, including increased unemployment rates and reduced consumer spending, are affecting the ~~COVID-19 outbreak a national emergency. The~~Company’s patients and partners. These circumstances have negatively affected the Company’s net sales, particularly during the period from March 2020 through May 2020, when elective surgery restrictions were most pronounced, though these effects remain ongoing in certain geographical areas. However, the Company remains focused on protecting the health and wellbeing of its employees, partners, patients, and the communities in which it operates while assuring the continuity of its business operations.

The Company's condensed consolidated financial statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented. At this time, the future trajectory of the COVID-19 pandemic remains uncertain, both in the U.S. and in other markets. Progress continues to be made on therapeutic treatments and vaccine candidates, though the efficacy and timing of various treatments and vaccines is uncertain.

~~The impact of COVID-19 on~~Given these various uncertainties, it is unclear the extent to which lingering slowdowns in elective procedures will affect the Company’s business ~~is highly uncertain~~during the remainder of 2020 and difficult to predict, as information surrounding the pandemic is rapidly evolving. Although the President of the United States has recently announced a plan to ease social distancing and quarantine measures, with other countries, such as Italy, announcing similar plans, there are still many unknowns and risks, such as the rate at which and timing of when elective surgical procedures will resume, the impact to capital markets and the possibility of local and global economic recession. Any resulting economic disruption could have a material impact on our business. In addition, the long-term impactbeyond. The expected effects of COVID-19 on the Company’s business will depend on ~~many~~various factors including ~~but not limited~~(i) the magnitude and length of increased case waves during the fall and winter, (ii) the comfort level of patients in returning to ~~the duration~~clinics and severity of the pandemic and the impact it has on our partners, patients and communities in which we operate, all of which are uncertain. The Company’s future results of operations and liquidity will be materially impacted due to the decrease in elective surgical procedures and could be further impacted by delays in payments from customers, supply chain interruptions, extended "shelter in place" orders or advisories, facility closures or other reasons related to the pandemic. As of the date of issuance of these condensed consolidated financial statements,hospitals, (iii) the extent to which localized elective surgery shutdowns occur, (iv) the unemployment rate’s effect on potential patients lacking medical insurance coverage, and (v) general hospital capacity constraints occurring because of the need to treat COVID-19 patients.

In addition, while the Company has not seen such effects to date, risk remains that COVID-19 could ~~materially impact the Company’s financial conditions, liquidity~~have material negative effects on contractual counterparties, leading to supply chain disruptions or ~~results of operations is uncertain.~~ counterparty payment defaults and bankruptcies (including bankruptcies to hospital systems that significantly rely on revenue from elective surgeries).

These matters are ~~further~~also described in Part II, Item 1A of this Form 10-Q under the heading Risk Factors.

On March 27, 2020, the President of the United States signed the CARES Act into federal law, ~~the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"),~~ which is aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act had ~~a $3.0 million~~no impact to the Company’s income tax benefit reported within the condensed

consolidated ~~financial~~ statements of operations for the ~~three~~nine months ended ~~March 31,~~September 30, 2020.

The CARES Act has provided financial relief to the Company through other various programs, which are each described in further detail below.

In April 2020, the Company received $13.9 million in funds from the Centers for Medicare & Medicaid Services (“CMS”) Accelerated and Advance Payment Program. For discussion of the Company’s accounting for these funds, see Note 11.

The Company also automatically received, as a durable medical equipment provider, without request, $4.7 million in funds from the U.S. Department of Health and Human Services in April 2020 as ~~a result~~part of ~~a beneficial rate difference on~~ the ~~potential federal loss carryback. The~~Provider Relief Fund. Upon review of the qualifying criteria required to retain the funding, which primarily relate to lost revenues or the incurrence of expenses attributable to COVID-19, it was determined that the Company ~~is in~~met the ~~process~~criteria to retain the funds received. During the quarter ended June 30, 2020, the Company recognized other income of ~~analyzing provisions~~$4.7 million related to ~~certain payroll tax credits to determine the financial impact on our condensed consolidated financial statements impacts of the various provisions~~this in-substance grant.

In addition, as part of the CARES Act, the Company is permitted to defer all employer social security payroll tax payments for the ~~condensed consolidated financial statements. For additional discussion, see Notes 15 and 17.~~remainder of the 2020 calendar year, such that 50% of the taxes is deferred until December 31, 2021, with the remaining 50% deferred until December 31, 2022. As of September 30, 2020, the Company has deferred $2.2 million associated with this program, all of which is classified within other long-term liabilities.

2. Recently adopted accounting standards and recently issued accounting pronouncements

Adoption of Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and ~~subsequent~~Subsequent Amendments

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13 (which was then further clarified in subsequent ASUs), which requires that credit losses for certain types of financial instruments, including trade ~~accounting receivables,~~accounts receivable, be estimated based on expected credit losses among other changes. Effective January 1, 2020, the Company adopted ASU 2016-13 using a modified retrospective approach. Therefore, results for reporting periods after January 1, 2020 are presented under Topic 326, while prior period amounts are not adjusted and continue to be reported in accordance with the historical accounting guidance. See Note 11 for additional discussion of the Company’s adoption of Topic 326 and its resulting accounting policies.

Adoption of ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04, which eliminates Step 2 of the previous goodwill impairment test, which required a hypothetical purchase price allocation to measure goodwill impairment. Under ASU 2017-04, a goodwill impairment loss will now be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the recorded amount of goodwill. The Company adopted this ASU effective January 1, 2020 on a prospective basis. Adoption of this ASU did not impact the Company’s condensed consolidated balance sheet, statements of ~~income,~~operations, or cash flows, but is expected to impact the measurement of any future goodwill impairment.

Adoption of ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement

In August 2018, the FASB issued ASU 2018-13, which eliminates certain disclosures, such as the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, and adds new disclosure requirements for Level 3 measurements. The Company adopted this ASU effective January 1, 2020, with certain provisions of the ASU applied retrospectively and other provisions provided prospectively. Adoption of this ASU did not impact the Company’s condensed consolidated balance sheet, statements of ~~income,~~operations, or cash flows; however, adoption of the ASU did result in modified disclosures in Note 8.

Adoption of ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

In August 2018, the FASB issued ASU 2018-15, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The accounting for the service element of a hosting arrangement that is a service contract was not affected by the amendments in this update. The Company adopted this ASU effective January 1, 2020 on a prospective basis. Adoption of this ASU did not have a material impact to the Company’s condensed consolidated balance sheet, statements of ~~income,~~operations, or cash flows, but is expected to impact future cloud computing arrangements.

In March 2020, the FASB issued ASU 2020-04, which provides temporary optional guidance to ease the potential financial reporting burden of the expected market transition away from LIBOR. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contract modifications, hedge accounting, and other transactions affected by reference rate reform if certain criteria are met through December 31, 2022. The Company adopted this ASU effective March 12, 2020, the effective date of the ASU, on a prospective basis. Adoption of this ASU did not have a material impact to the Company’s condensed consolidated balance sheet, statements of ~~income,~~operations, or cash flows, but is expected to impact the future borrowing rate used for the Company’s secured revolving credit facility.

On February 3, 2020, the Company, through a wholly owned subsidiary, entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Wittenstein SE (“Wittenstein”), a privately-held German-based company, to acquire assets associated with the FITBONE intramedullary lengthening system for limb lengthening of the femur and tibia bones. Under the terms of the Purchase Agreement, as consideration for the acquired assets, the Company paid ~~$18~~$18.0 million in cash consideration and entered into a ~~manufacturing supply contract~~Contract Manufacturing and Supply Agreement (“CMSA”) with Wittenstein. The Company has accounted for this acquisition as a business combination. The acquisition was completed on March 26, 2020.

The following table summarizes the preliminary estimated fair values of assets acquired and liabilities assumed at the acquisition date. A final determination of the allocation of the purchase price to assets acquired and liabilities assumed has not been made and is subject to completion of the Company’s valuation of the assets acquired and liabilities assumed, which may take up to one year.

The Company recorded goodwill of ~~$11.1~~$11.3 million in connection with the acquisition, of which $11.1 million was assigned to the Global Extremities reporting segment and $0.2 million was assigned to the Global Spine reporting segment. Specifically, goodwill includes synergies associated with the purchase of the acquired assets and is expected to be deductible for tax purposes.

The IPR&D intangible asset is considered an indefinite-lived asset until the completion or abandonment of the associated research and development efforts. Accordingly, during the development period after the acquisition, this asset is not amortized but, instead, is subject to impairment review and testing provisions. Upon completion of the IPR&D project, the Company will determine the useful life of the asset and begin amortization.

~~In addition, the~~The Company also entered into a ~~Contract Manufacturing and Supply Agreement (“CMSA”)~~CMSA with Wittenstein for an initial term of up to two years to manufacture the FITBONE product line. The Company is accounting for the CMSA as a finance lease. See Note 5 for further discussion of the recognized finance lease.

The Company ~~recognized~~did 0t recognize significant acquisition-related costs during the three months ended September 30, 2020 and 2019 and recorded $0.4 million and $0.3 million of acquisition related costs ~~that were expensed~~ during the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019, respectively. These costs are included in the condensed consolidated statements of ~~income and comprehensive income (loss)~~operations within general and administrative expenses. Additionally, the Company recognized $0.8 million and $1.0 million in revenues related to the FITBONE product line during the three and nine months ended September 30, 2020.

In July 2020, the Company, through a wholly owned subsidiary, entered into an agreement to acquire certain assets of a medical device distributor. The Company agreed to pay consideration of up to $7.6 million in accordance with the parties’ agreement. The following table summarizes the fair values of assets acquired and of consideration paid:

(U.S. Dollars, in thousands)	March 31, 2020		December 31, 2019		September 30, 2020		December 31, 2019
Raw materials	$	7,479	$	9,587	$	7,779	$	9,587
Work-in-process		10,618		14,027		12,050		14,027
Finished products		35,242		20,712		26,384		20,712
Field/consignment		29,405		38,071		36,646		38,071
Inventories	$	82,744	$	82,397	$	82,859	$	82,397

A summary of the Company’s lease portfolio as of ~~March 31,~~September 30, 2020 and December 31, 2019 is presented in the table below:

(U.S. Dollars, in thousands, except lease term and discount rate)	Classification	March 31, 2020		December 31, 2019
(U.S. Dollars, in thousands)						Classification	September 30, 2020		December 31, 2019
Right-of-use assets ("ROU assets")
Operating leases	Other long-term assets	$	5,530	$	5,798	Other long-term assets	$	4,972	$	5,798
Finance leases	Property, plant and equipment, net		21,911		20,207	Property, plant and equipment, net		21,001		20,207
Total ROU assets			27,441		26,005			25,973		26,005

Lease Liabilities
Current
Operating leases	Other current liabilities		1,902		1,875	Other current liabilities		1,999		1,875
Finance leases	Current portion of finance lease liability		357		323	Current portion of finance lease liability		498		323
Long-term
Operating leases	Other long-term liabilities		3,786		4,084	Other long-term liabilities		3,166		4,084
Finance leases	Long-term portion of finance lease liability		22,471		20,648	Long-term portion of finance lease liability		22,463		20,648
Total lease liabilities		$	28,516	$	26,930		$	28,126	$	26,930

(U.S. Dollars, in thousands)	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019		Nine Months Ended September 30, 2020		Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	1,059	$	950	$	3,170	$	3,037
Operating cash flows from finance leases		229		222		458		687
Financing cash flows from finance leases		92		99		204		276
ROU assets obtained in exchange for lease obligations
Operating leases		275		200		619		598
Finance leases		1,949		21,179		1,949		21,179

In March 2020, the Company entered into a CMSA with Wittenstein for an initial term of two years to manufacture the FITBONE product line. As consideration, ~~for the CMSA,~~ the Company will pay $2.0 million to Wittenstein at the conclusion of the CMSA if certain conditions are met in

relation to the prompt delivery of manufactured products. The Company is accounting for the CMSA as a finance lease as the Company has the right to direct the use of and to obtain substantially all of the economic benefits of the dedicated equipment used to manufacture the products and has the option to obtain title and possession of the equipment at the conclusion of the CMSA. As a result, the Company recognized both a finance lease ~~finance~~ liability and a related ROU asset of $1.9 million as of the commencement date of the CMSA.

In December 2019, the Company approved and initiated a targeted restructuring plan in the U.S. to streamline costs and to better align talent with the Company’s strategic initiatives. The plan consists primarily of the realignment of certain personnel, representing ~~an extremely~~a limited number of positions, which ~~will~~ require severance payments. As of December 31, 2019, the Company recorded a liability of $3.2 million in connection with this activity, all of which was recognized in 2019 within general and administrative expenses. During the ~~first quarter of~~three and nine months ended September 30, 2020, the Company recorded an additional ~~accrual~~accruals of ~~$1.2~~$1.1 million and $2.5 million, respectively, associated with these activities. Payments were made during the ~~departure of a former executive officer.~~three and nine months ended September 30, 2020 totaling $1.1 million and $2.1 million, respectively. As of ~~March 31,~~September 30, 2020, the Company had a liability of ~~$4.4~~$3.7 million associated with ~~this~~the restructuring plan.

As of March 31, 2020, the Company had 0 borrowings under its five year $300 million secured revolving credit facility. In addition, the Company had 0 borrowings on its €5.5 million ($6.1 million) available lines of credit in Italy. The Company was in compliance with all required financial covenants as of March 31, 2020.

As a precautionary measure to increase the Company’s cash position and preserve financial flexibility ~~in view of~~during the ~~current~~ uncertainty resulting from the COVID-19 pandemic, the Company ~~subsequently~~ completed a borrowing of $100.0 million under its five year $300 million secured revolving credit facility on April 16, 2020. The Company made payments of $100.0 million in the third quarter of 2020 to fully pay down the outstanding balance. As of September 30, 2020, the Company had no borrowings outstanding under the secured revolving credit facility and was in compliance with all required financial covenants.

In addition, the Company had 0 borrowings on its €5.5 million ($6.4 million) available lines of credit in Italy as of September 30, 2020.

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

	March 31, 2020											December 31, 2019			September 30, 2020											December 31, 2019
(U.S. Dollars, in thousands)	Level 1		Level 2			Level 3			Total			Total			Level 1		Level 2			Level 3			Total			Total
Assets
Bone Biologics equity securities	$	—	$	—		$	—		$	—		$	219		$	—	$	—		$	—		$	—		$	219
Total	$	—	$	—		$	—		$	—		$	219		$	—	$	—		$	—		$	—		$	219
Liabilities
Contingent consideration	$	—	$	—		$	(33,700	)	$	(33,700	)	$	(42,700	)
Spinal Kinetics contingent consideration															$	—	$	—		$	(35,100	)	$	(35,100	)	$	(42,700	)
Other contingent consideration															$	—	$	—		$	(375	)	$	(375	)	$	—
Deferred compensation plan		—		(1,235	)		—			(1,235	)		(1,255	)		—		(1,366	)		—			(1,366	)		(1,255	)
Total	$	—	$	(1,235	)	$	(33,700	)	$	(34,935	)	$	(43,955	)	$	—	$	(1,366	)	$	(35,475	)	$	(36,841	)	$	(43,955	)

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 future milestone payments of up to $60.0 million in cash. The milestone payments included (i) ~~up to~~ $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 future sales of the acquired artificial discs. Milestones must be achieved within five years of April 30, 2018 to trigger applicable payments. In February 2019, the FDA Milestone was achieved and paid.

The estimated fair value of the remaining Spinal Kinetics contingent consideration was ~~$33.7~~$35.1 million as of ~~March 31,~~September 30, 2020. The estimated fair value reflects assumptions made by management as of ~~March 31,~~September 30, 2020, including the impact of COVID-19 on significant unobservable assumptions, such as the expected timing and volume of elective procedures and the impact of these procedures on future revenues. However, as the impact of COVID-19 on the Company’s business ~~is highly~~remains uncertain and difficult to ~~predict, and as~~predict. As information surrounding the pandemic is ~~rapidly evolving,~~continuing to evolve, the actual amount ultimately paid could be higher or lower than the fair value of the remaining contingent consideration. ~~As of March 31,~~At September 30, 2020, the Company has classified ~~the full balance~~$14.7 million of the liability attributable to the revenue-based milestone within other current liabilities, as the Company currently expects to pay one of the revenue-based milestones in the next twelve months, and the remaining ~~$33.7~~$20.4 million within other long-term liabilities. Any changes in fair value are recorded as an operating expense ~~and included~~ within acquisition-related amortization and remeasurement.

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)	2020			2019			2020			2019
Contingent consideration at January 1	$	42,700		$	28,560
Spinal Kinetics contingent consideration estimated fair value at January 1							$	42,700		$	28,560
Increase (decrease) in fair value recognized in acquisition-related amortization and remeasurement		(9,000	)		5,400			(7,600	)		28,140
Payment made		—			(15,000	)		—			(15,000	)
Contingent consideration at March 31	$	33,700		$	18,960
Spinal Kinetics contingent consideration estimated fair value at September 30							$	35,100		$	41,700

The ~~$9.0~~$7.6 million decrease in fair value in 2020 is primarily attributable to a change in management’s forecast of future net sales of artificial discs because of uncertainty in the market and the economy ~~from the impact of~~attributable to COVID-19.

The Company estimated the fair value of the remaining potential future revenue-based milestone payments using a Monte Carlo simulation and a discounted cash flow model. This fair value measurement is based on significant inputs that are unobservable in the market and thus represents a Level 3 measurement. The key assumptions in applying the valuation model include the Company’s forecasted future revenues for Spinal Kinetics products, the expected timing of payment, applicable discount rates applied, and assumptions for potential volatility of the Company’s forecasted revenue. Significant changes in these assumptions could result in a significantly higher or lower fair value.

The following table provides a range of key assumptions used within the valuation as of ~~March 31,~~September 30, 2020.

(U.S. Dollars, in thousands)

Fair Value as of

March 31, 2020

Valuation Technique

Unobservable inputs

Range

Fair Value as of

September 30, 2020

Valuation Technique

Unobservable inputs

Range

Contingent consideration

33,700

Discounted cash flow

Revenue discount rate

5.0% - 5.3%

Spinal Kinetics contingent consideration

35,100

Discounted cash flow

Revenue discount rate

7.41% - 7.49%

Payment discount rate

6.7% - 7.0%

Payment discount rate

4.33% - 4.40%

Projected year of payment

2021 - 2022

Projected year of payment

2021 - 2022

Other contingent consideration is attributable to an agreement closed in the third quarter of 2020 to acquire certain assets of a medical device distributor as a portion of the consideration is based upon meeting certain revenue-based targets.

Until October of 2019, the Company held a debt security and a related warrant to purchase common stock of eNeura, Inc. (“eNeura”), a privately held medical technology company that is developing devices for the treatment of migraines. On October 25, 2019, the Company and eNeura settled the debt security for a $4.0 million cash payment and agreed to transfer the warrant to ~~eNeura.~~eNeura as part of such settlement. As such, at September 30, 2019, the Company determined the Restructured Debt Security and Warrant were impaired and adjusted the carrying value of the Restructured Debt Security to $4.0 million, its settlement value, by recording a net other-than-temporary impairment of $6.5 million in other expense, net, which includes a reclassification of the related unrealized gains included in accumulated other comprehensive income of $5.2 million.

The following table provides a reconciliation of the beginning and ending balances for the eNeura debt security and warrant measured and reflected in the condensed consolidated balance sheets at fair value using significant unobservable inputs (Level 3) prior to the settlement discussed above:

(U.S. Dollars, in thousands)	2020		2019			2020		2019
eNeura debt security and Warrant at January 1	$	—	$	17,820		$	—	$	17,820
Gains or losses recorded for the period
Recognized in other comprehensive income (loss)		—		(2,593	)		—		(2,593	)
Change in classification of debt security to held to maturity		—		(15,227	)		—		(15,227	)
Issuance of Warrant as consideration for extension		—		491
eNeura debt security and Warrant at March 31	$	—	$	491
Issuance of Warrant as consideration for prior extension of debt maturity date							—		491
Impairment of warrant							—		(491	)
eNeura debt security and Warrant at September 30						$	—	$	—

In addition to the matters described below, in the normal course of its business, the Company is involved in various lawsuits from time to time and may be subject to certain other contingencies. The Company believes any losses related to these matters are individually and collectively immaterial as to a possible loss and range of loss.

In 2015, the Italian Parliament introduced rules for entities that supply goods and services to the Italian National Healthcare System. This healthcare law is expected to impact the business and financial reporting of companies operating in the medical technology sector that sell medical devices in Italy. A key provision of the law is a ‘payback’ measure, requiring ~~companies selling~~ medical ~~devices~~device companies in Italy to make payments to the Italian government if medical device expenditures exceed regional maximum ceilings. Companies are required to make payments equal to a percentage of expenditures exceeding maximum regional caps. There is considerable uncertainty about how the law will operate and what the exact timeline is for finalization. The Company’s current assessment of the IMDP involves significant judgment regarding the expected scope and actual implementation terms of the measure as the latter have not been clarified to date by Italian authorities. The Company accounts for the estimated cost of the IMDP as sales and marketing expense and recorded expense of $0.4 million and $0.3 million for the three months ended ~~March 31,~~September 30, 2020 and 2019, respectively, and $1.1 million and $1.0 million for the nine months ended September 30, 2020 and 2019, respectively. As of ~~March 31,~~September 30, 2020, the Company has accrued ~~$5.2~~$6.3 million related to the IMDP, which it has classified within other long-term liabilities; however, the actual liability could be higher or lower than the amount accrued once the law has been clarified by the Italian authorities.

In September 2019, in relation to an ongoing legal dispute with a former Brazilian distributor, approximately $0.5 million (based upon foreign exchange rates as of ~~March 31,~~September 30, 2020) of the Company’s cash in Brazil was frozen upon request to satisfy a judgment. Although the Company is appealing the judgment, this cash has been reclassified to restricted cash. As of ~~March 31,~~September 30, 2020, the Company has an accrual of $1.3 million related to this matter.

The components of and changes in accumulated other comprehensive loss were as follows:

(U.S. Dollars, in thousands)	Currency Translation Adjustments			Accumulated Other Comprehensive Loss			Currency Translation Adjustments			Accumulated Other Comprehensive Loss
Balance at December 31, 2019	$	(3,039	)	$	(3,039	)	$	(3,039	)	$	(3,039	)
Other comprehensive loss		(1,711	)		(1,711	)
Other comprehensive income								2,048			2,048
Income taxes		—			—			—			—
Balance at March 31, 2020	$	(4,750	)	$	(4,750	)
Balance at September 30, 2020							$	(991	)	$	(991	)

The Company has two reporting segments, which consist of Global Spine and Global Extremities. Within the Global Spine reporting segment there are three product categories: Bone Growth Therapies, Spinal Implants and Biologics.

The ~~table~~tables below presents net sales by major product category by reporting segment:

	Three Months Ended March 31,							Nine Months Ended September 30,
(U.S. Dollars, in thousands)	2020		2019		Change			2020		2019		Change
Bone Growth Therapies	$	45,443	$	47,283		-3.9	%	$	120,888	$	146,228		-17.3	%
Spinal Implants		22,926		22,903		0.1	%		67,025		69,076		-3.0	%
Biologics		13,949		15,732		-11.3	%		40,319		48,784		-17.4	%
Global Spine		82,318		85,918		-4.2	%		228,232		264,088		-13.6	%
Global Extremities		22,505		23,194		-3.0	%		60,711		74,373		-18.4	%
Net sales	$	104,823	$	109,112		-3.9	%	$	288,943	$	338,461		-14.6	%

The table below presents product sales and marketing service fees, which are both components of net sales:

	Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
(U.S. Dollars, in thousands)	2020		2019		2020		2019		2020		2019
Product sales	$	91,421	$	93,934	$	96,305	$	97,833	$	250,161	$	291,632
Marketing service fees		13,402		15,178		14,680		15,666		38,782		46,829
Net sales	$	104,823	$	109,112	$	110,985	$	113,499	$	288,943	$	338,461

Product sales primarily consist of the sale of bone growth therapies devices, motion preservation products, and internal and external fixation products. Marketing service fees are received from MTF Biologics based on total sales of biologics tissues and relate solely to the Global Spine reporting segment. Revenues exclude any value added or other local taxes, intercompany sales and trade discounts. Shipping and handling costs for products shipped to customers are included in cost of sales.

As discussed in Note 2, the Company adopted ASU No. 2016-13 - Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent amendments, using ~~the~~a modified retrospective approach. Adoption of the new standard resulted in an increase to the Company’s allowance for expected credit losses of $1.1 million, an increase in deferred income tax assets of $0.2 million, and a decrease in retained earnings of $0.9 million as of January 1, 2020. The net impact of adoption to the Company’s balance sheet as of January 1, 2020 is presented in the table below. The standard did not have a material impact to the Company’s condensed consolidated statements of ~~income~~operations or cash flows.

(U.S. Dollars, in thousands)	December 31, 2019			Impact of Adoption of ASC 326			January 1, 2020
Assets
Current assets
Cash, cash equivalents, and restricted cash	$	70,403		$	—		$	70,403
Accounts receivable, net		86,805			(1,120	)		85,685
Inventories		82,397			—			82,397
Prepaid expenses and other current assets		20,948			—			20,948
Total current assets		260,553			(1,120	)		259,433
Deferred income taxes		35,117			233			35,350
Other long-term assets		199,950			—			199,950
Total assets	$	495,620		$	(887	)	$	494,733
Liabilities and shareholders’ equity
Total liabilities	$	167,989		$	—		$	167,989
Shareholders’ equity
Common shares	$	1,902		$	—		$	1,902
Additional paid-in capital		271,019			—			271,019
Retained earnings		57,749			(887	)		56,862
Accumulated other comprehensive loss		(3,039	)		—			(3,039	)
Total shareholders’ equity		327,631			(887	)		326,744
Total liabilities and shareholders’ equity	$	495,620		$	(887	)	$	494,733

Subsequent to the adoption of ASU 2016-13, the Company’s allowance for expected credit losses represents the portion of the receivable’s amortized cost basis that an entity does not expect to collect over the receivable’s contractual life, considering past events, current conditions, and reasonable and supportable forecasts of future economic conditions.

The process for estimating the ultimate collection of accounts receivable involves significant assumptions and judgments. The determination of the contractual life of accounts receivable, the aging of outstanding receivables, as well as the historical collections, write-offs, and payor reimbursement experience over the estimated contractual lives of such receivables, are integral parts of the estimation process related to reserves for expected credit losses and the establishment of contractual allowances. Accounts receivable are analyzed on a quarterly basis to assess the adequacy of both reserves for expected credit losses and contractual allowances. Revisions in allowances for expected credit loss estimates are recorded as an adjustment to bad debt expense within sales and marketing expenses. Revisions to contractual allowances are recorded as an adjustment to net sales. These estimates are periodically tested against actual collection experience. In addition, the Company analyzes its receivables by geography and by customer type, where appropriate, in developing estimates for expected credit losses.

The following table provides a detail of changes in the Company’s allowance for expected credit losses for the three and nine months ended ~~March 31,~~September 30, 2020:

The Company’s contract liabilities largely relate to a prepayment of $13.9 million received in April 2020 from the CMS as part of the Accelerated and Advance Payment Program of the CARES Act intended to increase cash flow to providers of services and suppliers impacted by the COVID-19 pandemic.

On October 1, 2020, the President of the United States signed the “Continuing Appropriations Act, 2021 and Other Extensions Act,” which relaxed a number of the Medicare Accelerated and Advance Payment Programs recoupment terms for providers and suppliers that received funds from the program. Under these new terms, recoupment will be delayed until one year after payment was issued. After that first year, Medicare will automatically recoup 25% of Medicare payments otherwise owed to the provider or supplier for 11 months. At the end of the 11-month period, recoupment will increase to 50% for another 6 months. Thus, during these time periods, rather than receiving the full amount of payment for newly submitted claims, the Company’s outstanding accelerated / advance payment balance will be reduced by the recoupment amount until the full balance has been repaid.

As of September 30, 2020, the Company has classified $6.9 million of this contract liability within other current liabilities and $6.9 million within other long-term liabilities based upon the Company’s estimates of when such funds will be recouped. The Company did not recognize any net sales during the three and nine months ended September 30, 2020, respectively, attributable to the satisfaction of performance obligations related to the CMS prepayment.

The Company’s contract assets, excluding trade 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 the exclusive distribution of Orthofix 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 ~~$3.3~~$2.3 million and $3.7 million as of ~~March 31,~~September 30, 2020, and December 31, 2019, respectively.

The Company has 2 reporting segments: Global Spine and Global Extremities. The primary metric used in managing the Company is earnings before interest, tax, depreciation, and amortization (“EBITDA”). Corporate activities are comprised of the operating expenses and activities of the Company not necessarily identifiable within the two reporting segments, such as human resources, finance, legal, and information technology functions. The table below presents EBITDA by reporting segment:

	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
(U.S. Dollars, in thousands)	2020			2019			2020			2019			2020			2019
Global Spine	$	22,417		$	10,575		$	19,960		$	(6,033	)	$	38,670		$	21,065
Global Extremities		(1,894	)		(173	)		1,258			1,229			(3,995	)		3,806
Corporate		(8,140	)		(9,527	)		(6,196	)		(15,949	)		(16,259	)		(38,356	)
Total EBITDA	$	12,383		$	875		$	15,022		$	(20,753	)	$	18,416		$	(13,485	)
Depreciation and amortization		(6,327	)		(5,727	)		(9,030	)		(6,275	)		(22,299	)		(18,180	)
Interest expense, net		(423	)		(257	)
Interest income (expense), net								(731	)		186			(2,055	)		386
Income (loss) before income taxes	$	5,633		$	(5,109	)	$	5,261		$	(26,842	)	$	(5,938	)	$	(31,279	)

The table below presents net sales by geographic destination for each reporting segment and for the consolidated Company:

	Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
(U.S. Dollars, in thousands)	2020		2019		2020		2019		2020		2019
Global Spine
U.S.	$	77,106	$	79,526	$	83,477	$	82,816	$	215,819	$	246,943
International		5,212		6,392		4,339		5,275		12,413	$	17,145
Total Global Spine		82,318		85,918		87,816		88,091		228,232		264,088

Global Extremities
U.S.		6,043		6,598		6,356		6,636		16,439		20,078
International		16,462		16,596		16,813		18,772		44,272		54,295
Total Global Extremities		22,505		23,194		23,169		25,408		60,711		74,373

Consolidated
U.S.		83,149		86,124		89,833		89,452		232,258		267,021
International		21,674		22,988		21,152		24,047		56,685		71,440
Net sales	$	104,823	$	109,112	$	110,985	$	113,499	$	288,943	$	338,461

Acquisition-related amortization and remeasurement consists of amortization related to intangible assets acquired through business combinations or asset acquisitions and the remeasurement of any related contingent consideration arrangement. Components of acquisition-related amortization and remeasurement are as follows:

	Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
(U.S. Dollars, in thousands)	2020		2019		2020		2019		2020		2019
Cost of sales	$	181	$	187	$	149	$	169	$	535	$	536
Sales and marketing		696		610		668		583		2,897		1,885
General and administrative		2,530		4,564		2,770		4,760		7,939		13,888
Research and development		452		324		254		332		1,028		1,069
Total	$	3,859	$	5,685	$	3,841	$	5,844	$	12,399	$	17,378

	Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
(U.S. Dollars, in thousands)	2020		2019		2020		2019		2020		2019
Stock options	$	304	$	2,112	$	786	$	599	$	1,840	$	3,637
Time-based restricted stock awards and units		2,421		1,706		1,632		3,805		6,804		8,462
Market-based restricted stock units		670		1,347		1,049		1,092		2,529		4,015
Stock purchase plan		464		520		374		348		1,226		1,264
Total	$	3,859	$	5,685	$	3,841	$	5,844	$	12,399	$	17,378

During the three months ended ~~March 31,~~September 30, 2020 and 2019, the Company issued ~~33,559~~58,357 and ~~211,081~~43,603 shares, respectively, of common stock related to stock purchase plan issuances, stock option exercises, and the vesting of restricted stock awards and units.

During the nine months ended September 30, 2020 and 2019, the Company issued 244,801 and 295,496 shares, respectively, of common stock related to stock purchase plan issuances, stock option exercises, and the vesting of restricted stock awards and units.

Income tax provisions for interim periods are based on an estimated annual income tax rate, adjusted for discrete tax items. As a result, the Company’s interim effective tax rates may vary significantly from the statutory tax rate and the annual effective tax rate.

For the three months ended ~~March 31,~~September 30, 2020 and 2019, the effective tax rate was ~~(355.6%)~~11.5% and ~~117.6%~~(50.9)%, respectively. For the nine months ended September 30, 2020 and 2019, the effective tax rate was 300.3% and (28.4)%, respectively. The primary factors affecting the Company’s effective tax rate for the three and nine months ended ~~March 31,~~September 30, 2020, were statute expirations related to unrecognized tax benefits, financial ~~benefits~~deductions not recognized for tax purposes, limits on executive compensation, and reversal of tax benefits related to certain performance stock units forfeited in the current year. The financial deductions not recognized for tax purposes are primarily related to the remeasurement of contingent ~~consideration, anticipated benefits related to provisions of the CARES Act, and limits on executive compensation.~~consideration.

The CARES Act, among other things, includes income tax provisions relating to net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, and technical corrections to tax depreciation methods for qualified improvement property. As of September 30, 2020, the Company does 0t expect a significant impact to its income tax expense (benefit) for fiscal year 2020 as a result of the ~~anticipated impacts of~~CARES Act.

During the ~~Act,~~three and nine months ended September 30, 2020, the Company recognized a net benefit of ~~$3.0~~less than $0.1 million ~~in the first quarter of 2020.~~

~~During the first quarter, the~~and $17.8 million, respectively, related to uncertain tax benefits. The net benefit resulted from expired statute of limitations ~~expired~~ related to certain unrecognized tax ~~benefits, which resulted in the recognition of a net benefit of $17.8 million.~~benefits. The Company believes it is reasonably possible that, in the next 12 months, the amount of unrecognized tax benefits related to the resolution of federal, state and foreign matters could be reduced by ~~$0.2~~$0.1 million to ~~$0.7~~$0.6 million as audits close and statutes expire.

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 ~~March 31,~~September 30, 2020, ~~and 2019,~~ 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 March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019		2020		2019
Weighted average common shares-basic		19,143,934		18,750,184		19,335,718		18,957,876		19,217,057		18,847,728
Effect of dilutive securities
Unexercised stock options and stock purchase plan		95,594		277,992		10,607		—		41,701		—
Unvested restricted stock awards and units		60,292		162,970		52,242		—		60,544		—
Weighted average common shares-diluted		19,299,820		19,191,146		19,398,567		18,957,876		19,319,302		18,847,728

There were ~~1,168,410~~1,771,113 and ~~484,421~~1,814,544 weighted average outstanding stock options and restricted stock awards and units not included in the diluted EPS computation for the three months ended ~~March 31,~~September 30, 2020 and 2019, respectively, and 1,527,735 and 1,880,423 weighted average outstanding stock options and restricted stock awards and units not included in the diluted EPS computation for the nine months ended September 30, 2020 and 2019, respectively, because inclusion of these awards was anti-dilutive or, for performance-based and market-based restricted stock awards and units, all necessary conditions had not been satisfied by the end of the respective period.

On October 1, 2020, the Company ~~received $13.9~~and Neo Medical SA, a privately held Swiss-based company developing a new generation of products for spinal surgery (“Neo Medical”), entered into a partnership that includes a co-development agreement covering the parties’ joint development of single use instruments for cervical spine procedures, and a distribution agreement under which Orthofix will exclusively distribute Neo Medical’s thoracolumbar procedure solutions to certain U.S. customer accounts.

Separately, the Company also purchased shares of Neo Medical’s preferred stock for consideration of $5.0 million ~~in funds from~~and entered into a Convertible Loan Agreement pursuant to which Orthofix loaned Neo Medical CHF 4.6 million (the “Convertible Loan”). The loan bears interest at 8.0%, with interest due semi-annually. At each interest payment date, the ~~Centers for Medicare & Medicaid Services (“CMS”) Accelerated and Advance Payment Program as part~~borrower may elect to capitalize any interest due to the then outstanding principal balance of the ~~CARES Act. As part~~loan. The Convertible Loan matures on October 1, 2024, provided that if a change in control of ~~this program,~~Neo Medical occurs prior to the maturity date, the Convertible Loan shall become immediately due upon such event.

The Convertible Loan may be convertible by either party into shares of Neo Medical’s preferred stock. The price per share at which the loan converts is dependent upon i) the party electing conversion and ii) Neo Medical’s price per share in its most recent fundraising activities at the time of conversion, as specified within the agreement.

In relation to the purchased equity shares, the Company was ~~permitted~~required to ~~request up~~pay the requisite funds into a blocked capital increase account administered by a third party on September 30, 2020, prior to ~~100%~~the closing of the ~~Medicare payment amounts received for the prior three-month period. Repayment of this~~transaction. This amount is ~~required to begin 120 days after the issuance~~classified within other long-term assets as of the payment. After the 120 day period, every claim submitted by the Company will be offset against the accelerated / advanced payment. Thus, instead of receiving payment for newly submitted claims, the Company’s outstanding accelerated / advance payment balance will be reduced by the claim payment amount.

In addition, in April 2020, the Company automatically received, without request, $4.7 million in funds from the U.S. Department of Health and Human Services as part of the CARES Act Provider Relief Fund. Permanent retention of these is subject to certain qualifying criteria and the Company is currently assessing whether it qualifies to retain the funding.

Other aspects of the CARES Act that the Company is evaluating include (i) the deferral of employer social security payroll tax payments and (ii) the use of the employee retention tax credit. The Company anticipates that it will defer all employer social security payroll tax payments for the remainder of the 2020 calendar year, such that 50% of the taxes is deferred until December 31, 2021, with the remaining 50% deferred until December 31, 2022. The employee retention tax credit provides an additional tax credit to employers that (i) have either fully or partially suspended operations because of government orders associated with COVID-19 or (ii) experience a substantial decline in income but continue to pay employees their wages.

Further, as precautionary measures to increase the Company’s cash position and preserve financial flexibility in view of the current uncertainty resulting from the COVID-19 pandemic, the Company (i) completed a borrowing of $100.0 million under its secured revolving credit facility on April 16, 2020, (ii) initiated temporary salary reductions for U.S. employees and the Board of Directors beginning in April 2020, and (iii) suspended the Company’s 401(k) match program until September 30, 2020.

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 “Forward-Looking Statements” and our condensed consolidated financial statements and related notes thereto appearing elsewhere in this Form 10-Q.

We are a global medical device company focused on musculoskeletal products and therapies. Our mission is ~~to improve patients' lives by providing superior reconstruction and regenerative musculoskeletal~~deliver innovative, quality-driven solutions ~~to physicians worldwide.~~as we partner with health care professionals on improving patients’ lives. Headquartered in Lewisville, Texas, our spine and orthopedic extremities products are distributed in more than 70 countries via our sales representatives and distributors.

Notable ~~highlights~~financial metrics and achievements in the ~~first~~third quarter of 2020 include the following:

The global COVID-19 pandemic has significantly affected our patients, communities, employees and business operations. The pandemic has led to the cancellation or deferral of elective surgeries and procedures with certain hospitals, ambulatory surgery centers, and other medical facilities; restrictions on travel; the implementation of physical distancing measures; and the temporary or permanent closure of businesses. In addition, broad economic factors resulting from the pandemic, including increased unemployment rates and reduced consumer spending, are affecting our patients and partners. These circumstances have negatively affected the sales of our products, particularly during the period from March 2020 the World Health Organization categorized Coronavirus Disease 2019 ("COVID-19") as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The Company remainsthrough May 2020 when elective surgery restrictions were most pronounced, though these effects remain ongoing in certain geographical areas. However, we remain focused on protecting the health and wellbeing of ~~its~~our employees, partners, patients, and the communities in which ~~it operates~~we operate while assuring the continuity of ~~its~~our business operations.

~~The impact of COVID-19 on~~At this time, the ~~Company’s business is highly uncertain and difficult to predict, as information surrounding the pandemic is rapidly evolving. Although the President~~future trajectory of the ~~United States has recently announced a plan~~COVID-19 pandemic remains uncertain, both in the U.S. and in other markets. Progress continues to ~~ease social distancing~~be made on therapeutic treatments and ~~quarantine measures, with other countries~~vaccine candidates, though the efficacy and timing of various treatments and vaccines is uncertain.

Given these various uncertainties, it is unclear the extent to which lingering slowdowns in ~~Europe, such as Italy, announcing similar plans, there are still many unknowns and risks, such as the rate in which~~ elective ~~surgical~~ procedures will ~~resume,~~affect our business during the ~~impact to capital markets,~~remainder of 2020 and beyond. We expect that the ~~possibility of local and global economic recession. Any resulting economic disruption could have a material impact on our business. In addition, the long-term impact~~effects of COVID-19 on our business will depend on ~~many~~various factors including ~~but not limited~~(i) the magnitude and length of increased case waves during the fall and winter, (ii) the comfort level of patients in returning to ~~the duration~~clinics and ~~severity of~~hospitals, (iii) the pandemic and the impact it has on our partners, patients and communities in which we operate, all of which are uncertain. Our future results of operations and liquidity will be materially impacted due to the decrease in elective surgical procedures and could be further impacted by delays in payments from customers, supply chain interruptions, extended "shelter in place" orders or advisories, facility closures, or other reasons related to the pandemic. The extent to which localized elective surgery shutdowns occur, (iv) the unemployment rate’s effect on potential patients lacking medical insurance coverage, and (v) general hospital capacity constraints occurring because of the need to treat COVID-19 patients.

In addition, while we have not seen such effects to date, risk remains that COVID-19 could ~~materially impact the Company’s financial conditions, liquidity,~~have material negative effects on contractual counterparties, leading to supply chain disruptions or ~~results of operations is uncertain.~~counterparty payment defaults and bankruptcies (including bankruptcies to hospital systems that significantly rely on revenue from elective surgeries).

The following table provides certain items in our condensed consolidated statements of operations and comprehensive income (loss) as a percent of net sales:

	Three Months Ended March 31,						Three Months Ended September 30,					Nine Months Ended September 30,
	2020 (%)			2019 (%)			2020 (%)		2019 (%)			2020 (%)			2019 (%)
Net sales		100.0			100.0			100.0		100.0			100.0			100.0
Cost of sales		22.3			21.7			23.6		21.9			25.2			22.0
Gross profit		77.7			78.3			76.4		78.1			74.8			78.0
Sales and marketing		51.8			49.2			47.7		48.3			52.2			48.9
General and administrative		17.0			18.8			14.9		18.6			17.1			18.8
Research and development		9.5			8.5			9.0		7.0			9.9			7.7
Acquisition-related amortization and remeasurement		(7.2	)		5.9			1.0		20.8			(0.9	)		9.4
Operating income (loss)		6.6			(4.1	)		3.8		(16.6	)		(3.5	)		(6.8	)
Net income		24.5			0.8
Net income (loss)								4.2		(35.7	)		4.1			(11.9	)

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

	Three Months Ended March 31,				Percentage Change						Three Months Ended September 30,				Percentage Change
(U.S. Dollars, in thousands)	2020		2019		Reported			Constant Currency			2020		2019		Reported			Constant Currency
Bone Growth Therapies	$	45,443	$	47,283		(3.9	%)		(3.9	%)	$	47,066	$	48,836		-3.6	%		-3.6	%
Spinal Implants		22,926		22,903		0.1	%		0.5	%		25,505		22,947		11.1	%		10.7	%
Biologics		13,949		15,732		(11.3	%)		(11.3	%)		15,245		16,308		-6.5	%		-6.5	%
Global Spine		82,318		85,918		(4.2	%)		(4.1	%)		87,816		88,091		-0.3	%		-0.4	%
Global Extremities		22,505		23,194		(3.0	%)		(0.6	%)		23,169		25,408		-8.8	%		-11.5	%
Net sales	$	104,823	$	109,112		(3.9	%)		(3.4	%)	$	110,985	$	113,499		-2.2	%		-2.9	%

Global Extremities offers products and solutions that allow physicians to successfully treat a variety of orthopedic conditions unrelated to the spine. Global Extremities distributes its products globally through a network of distributors and sales representatives to sell orthopedic products to hospitals and health providers.

	Three Months Ended March 31,									Three Months Ended September 30,									Nine Months Ended September 30,
(U.S. Dollars, in thousands)	2020			2019			% Change			2020			2019			% Change			2020			2019			% Change
Net sales	$	104,823		$	109,112			(3.9	%)	$	110,985		$	113,499			(2.2	%)	$	288,943		$	338,461			(14.6	%)
Cost of sales		23,409			23,708			(1.3	%)		26,243			24,896			5.4	%		72,818			74,416			(2.1	%)
Gross profit	$	81,414		$	85,404			(4.7	%)	$	84,742		$	88,603			(4.4	%)	$	216,125		$	264,045			(18.1	%)
Gross margin		77.7	%		78.3	%		(0.6	%)		76.4	%		78.1	%		(1.7	%)		74.8	%		78.0	%		-3.2	%

	Three Months Ended March 31,									Three Months Ended September 30,									Nine Months Ended September 30,
(U.S. Dollars, in thousands)	2020			2019			% Change			2020			2019			% Change			2020			2019			% Change
General and administrative	$	17,865		$	20,472			(12.7	%)	$	16,541		$	21,090			(21.6	%)	$	49,453		$	63,497			(22.1	%)
As a percentage of net sales		17.0	%		18.8	%		(1.8	%)		14.9	%		18.6	%		(3.7	%)		17.1	%		18.8	%		(1.7	%)

	Three Months Ended March 31,									Three Months Ended September 30,									Nine Months Ended September 30,
(U.S. Dollars, in thousands)	2020			2019			% Change			2020			2019			% Change			2020			2019			% Change
Research and development	$	9,964		$	9,229			8.0	%	$	9,962		$	7,982			24.8	%	$	28,691		$	26,191			9.5	%
As a percentage of net sales		9.5	%		8.5	%		1.0	%		9.0	%		7.0	%		2.0	%		9.9	%		7.7	%		2.2	%

	Three Months Ended March 31,									Three Months Ended September 30,									Nine Months Ended September 30,
(U.S. Dollars, in thousands)	2020			2019			% Change			2020			2019			% Change			2020			2019			% Change
Acquisition-related amortization and remeasurement	$	(7,582	)	$	6,457			(217.4	%)	$	1,138		$	23,608			(95.2	%)	$	(2,766	)	$	31,873			(108.7	%)
As a percentage of net sales		(7.2	%)		5.9	%		(13.1	%)		1.0	%		20.8	%		(19.8	%)		(0.9	%)		9.4	%		(10.3	%)

Acquisition-related amortization and remeasurement consists of amortization related to ~~intangibles~~intangible assets acquired through business combinations or asset acquisitions and the remeasurement of any related contingent consideration arrangement.

Acquisition-related amortization and remeasurement decreased ~~$14.0~~$22.5 million

~~Other expense,~~Interest income (expense), net, ~~increased $0.4~~decreased $0.9 million

	Three Months Ended March 31,									Three Months Ended September 30,									Nine Months Ended September 30,
(U.S. Dollars, in thousands)	2020			2019			% Change			2020			2019			% Change			2020			2019			% Change
Income tax expense (benefit)	$	(20,032	)	$	(6,006	)		233.5	%	$	607		$	13,656			(95.6	%)	$	(17,833	)	$	8,869			(301.1	%)
Effective tax rate		(355.6	%)		117.6	%		(473.2	%)		11.5	%		(50.9	%)		62.4	%		300.3	%		(28.4	%)		328.7	%

The ~~decrease~~increase in the effective tax rate compared to the prior year period rate was primarily a result of the following factors:

The primary factors affecting our effective tax rate for the third quarter of 2020 are as follows:

The increase in the effective tax compared to the prior year period rate was primarily a result of the following factors:

The primary factors affecting our effective tax rate for the ~~first quarter of~~nine months ended September 30, 2020 are as follows:

Our business is managed through two reporting segments: Global Spine and Global Extremities. The primary metric used in managing the business by segment is ~~EBITDA.~~EBITDA (which is described further in Note 12 to the Notes to the Unaudited Condensed Consolidated Financial Statements contained herein). The following table presents EBITDA by segment and reconciles consolidated EBITDA to income (loss) before income taxes:

Cash, cash equivalents, and restricted cash at ~~March 31,~~September 30, 2020, totaled ~~$58.3~~$80.3 million compared to $70.4 million at December 31, 2019, with the decrease largely a result of $18.0 million in cash paid to acquire assets associated with the FITBONE intramedullary lengthening system for limb lengthening of the femur and tibia bones.2019.

	Three Months Ended March 31,									Nine Months Ended September 30,
(U.S. Dollars, in thousands)	2020			2019			Change			2020			2019			Change
Net cash from operating activities	$	12,464		$	(1,039	)	$	13,503		$	51,981		$	20,090		$	31,891
Net cash from investing activities		(24,184	)		(11,316	)		(12,868	)		(42,944	)		(21,281	)		(21,663	)
Net cash from financing activities		315			(10,396	)		10,711			583			(12,610	)		13,193
Effect of exchange rate changes on cash		(730	)		(230	)		(500	)		277			(885	)		1,162
Net change in cash, cash equivalents and restricted cash	$	(12,135	)	$	(22,981	)	$	10,846		$	9,897		$	(14,686	)	$	24,583

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:

	Three Months Ended March 31,									Nine Months Ended September 30,
(U.S. Dollars, in thousands)	2020			2019			Change			2020			2019			Change
Net cash from operating activities	$	12,464		$	(1,039	)	$	13,503		$	51,981		$	20,090		$	31,891
Capital expenditures		(4,944	)		(4,916	)		(28	)		(12,704	)		(14,881	)		2,177
Free cash flow	$	7,520		$	(5,955	)	$	13,475		$	39,277		$	5,209		$	34,068

Two of our primary working capital accounts are accounts receivable and inventory. Days sales in receivables were 6861 days at ~~March 31,~~September 30, 2020 compared to 6665 days at ~~March 31, 2019.~~September 30, 2019, with much of this decrease attributable to a decrease in net sales as a result of COVID-19, coupled with continued collections on accounts receivable. Inventory turns remained consistent at 1.2 times as of ~~March 31,~~September 30, 2020 and 2019.

AsIn the third quarter, we repaid $100.0 million of ~~March 31, 2020, there had been no material changes to~~outstanding principal under our five year $300 million secured revolving credit ~~facilities~~facility, which was originally borrowed in the second quarter. Therefore, as ~~disclosed in our Form 10-K for the year ended December 31, 2019. As~~ of ~~March 31,~~September 30, 2020, we had no borrowings outstanding ~~indebtedness, borrowing capacity of $300 million~~ under ~~our~~the secured revolving credit ~~facility, and~~facility. In addition, we had no borrowings outstanding under on our €5.5 million ($~~6.1~~6.4 million) in available lines of credit in Italy.

~~Subsequently,~~ We were in compliance with all required financial covenants as ~~a precautionary measure, to increase our cash position and preserve financial flexibility in view~~ of ~~the current uncertainty resulting from the COVID-19 pandemic, in April 2020, we completed a borrowing of $100.0 million under our secured revolving credit facility.~~September 30, 2020.

For information regarding Contingencies, see Note 9 to the Notes to the Unaudited Condensed Consolidated Financial Statements contained herein.

~~Our future liquidity will be materially impacted due~~In April 2020, as precautionary measures to increase our cash position and preserve financial flexibility in response to the ~~decrease~~uncertainty from the COVID-19 pandemic, we (i) completed a borrowing of $100.0 million under our secured revolving credit facility (which was subsequently repaid in ~~elective surgical procedures~~full in the third quarter of 2020), (ii) instituted temporary salary reductions for U.S. employees and ~~could be further impacted~~the Board of Directors, which were in effect for two months during the second quarter of 2020, (iii) suspended the 401(k) match program through the remainder of fiscal year 2020, and (iv) initiated organizational travel restrictions and a temporary reduction in new hiring.

On March 27, 2020, the CARES Act was signed into U.S. federal law, which provided emergency assistance and health care for individuals, families, and businesses affected by ~~delays in payments from customers, extended "shelter in place" orders or advisories, facility closures or other reasons related to~~ the ~~pandemic. As of the date of issuance of these condensed consolidated financial statements, the extent to which~~ COVID-19 ~~could materially impact our liquidity is uncertain.~~pandemic.

In April 2020, we received $13.9 million in funds ~~as part~~from the ~~Centers for Medicare & Medicaid Services (“CMS”)~~CMS Accelerated and Advance Payment Program ~~as part~~to increase cash flow to providers of services and suppliers impacted by the COVID-19 pandemic. On October 1, 2020, the President of the ~~CARES Act. As part~~United States signed the “Continuing Appropriations Act, 2021 and Other Extensions Act,” which relaxed previously existing recoupment terms for providers and suppliers that received funds from the program. Under these new terms, recoupment will be delayed until one year after payment was issued. After that first year, Medicare will automatically recoup 25% of ~~this program, we were permitted~~Medicare payments otherwise owed to ~~request up to 100%~~the provider or supplier for 11 months. At the end of the ~~Medicare payment amounts received~~11-month period, recoupment will increase to 50% for another 6 months. Thus, during these time periods, rather than receiving the ~~prior three-month period. Repayment~~full amount of this amount is required to begin 120 days after the issuance of the payment. After the 120 day period, every new claim submitted will be offset against the accelerated / advanced payment. Thus, instead of receiving payment for newly submitted claims, ~~the Company’s~~our outstanding accelerated / advance payment balance iswill be reduced by the ~~claim payment amount.~~recoupment amount until the full balance has been repaid.

In addition, in April 2020, we automatically received, without request, $4.7 million in funds from the U.S. Department of Health and Human Services as part of the ~~CARES Act~~ Provider Relief ~~Fund, subject~~Fund. Upon review of the qualifying criteria required to ~~certain eligibility criteria. However,~~retain the funding, which primarily relate to lost revenues or the incurrence of expenses attributable to COVID-19, it was determined that we ~~are currently assessing whether we qualify for~~met the ~~funding.~~criteria to retain the funds received.

~~Other aspects~~Further, as part of the CARES Act, ~~that~~ we are ~~continuing~~permitted to ~~evaluate include (i) the deferral of employer social security payroll tax payments and (ii) the use of the employee retention tax credit. We anticipate that we will~~ defer all employer social security payroll tax payments for the remainder of the 2020 calendar year, such that 50% of the taxes is deferred until December 31, 2021, with the remaining 50% deferred until

December 31, 2022. ~~The employee retention tax credit provides an additional tax credit to employers that (i)~~As of September 30, 2020, we have ~~either fully or partially suspended operations because of government orders~~deferred $2.2 million associated with ~~COVID-19 or (ii) experience a substantial decline in income but continue~~this program.

~~Further, as precautionary measures to increase our cash position and preserve financial flexibility considering the current uncertainty resulting from~~ the COVID-19 pandemic ~~we (i) borrowed $100.0 million against~~that remain, both in the U.S. and in other markets, our ~~secured revolving credit~~liquidity may be impacted in the future by the potential of continued decreases in elective surgical procedures, delays in payments from customers, facility closures, or other reasons related to ~~fund operations on April 16, 2020, as discussed above (ii) initiated temporary salary reductions for U.S. employees and~~ the ~~Board~~COVID-19 pandemic. As of ~~Directors beginning~~the date of issuance of these condensed consolidated financial statements, the extent to which COVID-19 is likely to materially impact our liquidity in ~~April 2020, and (iii) suspended~~ the ~~401(k) match program until September 30, 2020.~~future remains uncertain.

~~As part~~Under the terms of the ~~consideration for the~~acquisition agreement under which we acquired Spinal Kinetics, ~~acquisition,~~ we agreed to make contingent milestone payments ~~in the future~~ of up to $60.0 million in ~~cash.~~cash to Spinal Kinetics’ former shareholders. One milestone payment, which was for $15.0 million, became due upon FDA approval of Spinal Kinetics’ M6-C artificial cervical disc (the “FDA Milestone”). The FDA Milestone was achieved and paid in 2019.

The remaining milestone payments are comprised of revenue-based milestone payments of up to $45.0 million in connection with future sales of the acquired artificial discs. The fair value of the contingent consideration arrangement as of ~~March 31,~~September 30, 2020 was ~~$33.7~~$35.1 million; however, the actual amount ultimately paid could be higher or lower than the fair value of the contingent ~~consideration.~~consideration (though not greater than $45.0 million). As of ~~March 31,~~September 30, 2020, wewe classified ~~the full balance of the remaining $33.7~~$14.7 million of the liability attributable to the revenue-based milestone within other current liabilities, as we expect to pay one of the revenue-based milestones in the next twelve months, and the remaining $20.4 million within other long-term liabilities.For additional discussion of this matter, see Note 8 of the Notes to the Unaudited Condensed Consolidated Financial Statements.

On February 3, 2020, we entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Wittenstein SE (“Wittenstein”), a privately-held German-based company, to acquire assets associated with the FITBONE intramedullary lengthening system for limb lengthening of the femur and tibia bones. Under the terms of the Purchase Agreement, as consideration for the acquired assets, we paid ~~$18~~$18.0 million in cash consideration and entered into a ~~manufacturing supply contract~~Contract Manufacturing and Supply Agreement (“CMSA”) with Wittenstein. The acquisition was completed on March 26, 2020 and was treated as a business combination.

~~In addition, the Company also entered into a Contract Manufacturing and Supply Agreement (“CMSA”)~~The CMSA with Wittenstein ~~for~~has an initial term of up to two years to manufacture the FITBONE product line. As consideration for the CMSA, ~~the Company~~we will pay $2.0 million to Wittenstein at the conclusion of the CMSA if certain conditions are met in relation to the prompt delivery of manufactured products.

In July 2020, we entered into an agreement to acquire certain assets of a medical device distributor. We have agreed to pay consideration of up to $7.6 million in accordance with the parties’ agreement. As of September 30, 2020, we have paid $6.1 million per this agreement.

On October 1, 2020, we entered into a partnership with Neo Medical SA, a privately held Swiss-based Medtech company (“Neo Medical”), that includes a co-development agreement covering the parties’ joint development of single use instruments for cervical spine procedures, and a distribution agreement under which Orthofix will exclusively distribute Neo Medical’s thoracolumbar procedure solutions to certain U.S. customer accounts.

Separately, we also purchased shares of Neo Medical’s preferred stock for consideration of $5.0 million and entered into a Convertible Loan Agreement, whereby we loaned CHF 4.6 million to Neo Medical (the “Convertible Loan”). The loan bears interest at 8.0%, with interest due semi-annually. The Convertible Loan matures in October 2024, provided that if a change in control of Neo Medical occurs prior to maturity, the Convertible Loan shall become immediately due upon such event.

In relation to the purchased equity shares, the Company was required to pay the requisite funds into a blocked capital increase account administered by a third party on September 30, 2020, prior to the closing of the transaction. This amount is classified within other long-term assets as of September 30, 2020.

In September 2019, in relation to an ongoing legal dispute with a former Brazilian distributor, approximately $0.5 million (based upon foreign exchange rates as of ~~March 31,~~September 30, 2020) of our cash in Brazil was frozen upon request to satisfy a judgment. Although we are appealing the judgment, this cash has been reclassified to restricted cash.

For additional discussion regarding these matters, see Note 9 of the Notes to the Unaudited Condensed Consolidated Financial Statements.

As of ~~March 31,~~September 30, 2020, 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.

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, 2019.

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 in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019. There have been no significant changes to our critical accounting estimates except for the following:

Subsequent to the adoption of ASU 2016-13, our allowance for expected credit losses represents the portion of the receivable’s amortized cost basis that we do not expect to collect over the receivable’s contractual life, considering past events, current conditions, and reasonable and supportable forecasts of future economic conditions.

The process for estimating the ultimate collection of accounts receivable involves significant assumptions and judgments. The determination of the contractual life of accounts receivable, the aging of outstanding receivables, as well as the historical collections, write-offs, and payor reimbursement experience over the estimated contractual lives of such receivables, are integral parts of the estimation process related to reserves for expected credit losses and the establishment of contractual allowances. Accounts receivable are analyzed on a quarterly basis to assess the adequacy of both reserves for expected credit losses and contractual allowances. Revisions in allowances for expected credit loss estimates are recorded as an adjustment to bad debt expense within sales and marketing expenses. Revisions to contractual allowances are recorded as an adjustment to net sales. These estimates are periodically tested against actual collection experience. In addition, ~~the Company analyzes its~~we analyze our receivables by geography and by customer type, where appropriate, in developing estimates for expected credit losses.

See Note 2 of the Notes to the Unaudited Condensed Consolidated Financial Statements for detailed information regarding the status of recently issued accounting pronouncements.

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 used to supplement information regarding the performance and underlying trends of our business operations in order 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 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.

EBITDA is a non-GAAP metric defined as earnings before interest income (expense), income taxes, depreciation, and amortization. EBITDA is the primary metric used by our Chief Operating Decision Maker in managing the business.

Free cash flow is calculated by subtracting capital expenditures from net cash from operating activities. ~~Free~~Management uses free cash flow isas 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.

There have been no material changes to our market risks as disclosed in our Form 10-K for the year ended December 31, 2019.

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 ~~March 31,~~September 30, 2020. 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 ~~March 31,~~September 30, 2020.

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 the quarterly period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

For information regarding legal proceedings, see Note 9 to the Notes to the Unaudited Condensed Consolidated Financial Statements contained herein, which is incorporated by reference into this Part II, Item 1.

~~There have been no material changes to~~The following risk factors supplement and should be read in conjunction with those contained in the risk factors disclosed in the “Risk Factors” section of our Form 10-K for the year ended December 31, 2019 ~~except as disclosed below:~~and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020, and June 30, 2020.

The novel coronavirus pandemic ~~measures intended~~has materially affected our business in 2020 and is likely to ~~prevent its spread,~~cause further unpredictable effects during the remainder of 2020 and ~~government actions~~beyond

The novel coronavirus discovered in late 2019, and the disease it causes known as COVID-19, has caused significant affects to ~~mitigate its economic impact have had~~our business in 2020, and ~~may continue~~is likely to ~~have a~~cause significant ~~negative~~effects during the remainder of 2020 and into 2021. For Orthofix, the most significant effect to date on our business has been a significant reduction in elective surgery procedure volumes, which represent the majority of procedures in which our products are used. This reduction in procedure volumes began suddenly in March 2020 when shelter in place and ~~results of operations.~~

~~In late 2019, a new strain of coronavirus, which causes the viral disease known as COVID-19, was discovered~~social distancing instructions were instituted in China. In the succeeding several months, it became clear that the virus is highly contagious, and that a meaningful percentage of patients with COVID-19 develop critical illness requiring intensive care. Though initial statements by public health and government officials indicated that the virus generally was contained to limited geographic locations, by late March of 2020 it became clear that significant community spread of the virus was occurring in wide portions of the U.S. and many ~~European countries. That month, the World Health Organization declared the outbreak~~of our other sales markets, and caused a ~~pandemic,~~pronounced reduction in revenue during April 2020 and ~~the U.S. Health and Human Services Secretary declared a public health emergency in the U.S.~~

~~By the end of March~~May 2020, when a significant ~~percentage~~number of ~~the U.S. population was subject~~hospitals were either closed for elective procedures or otherwise operating at significantly reduced volumes. Generally, this reduction in procedure volumes dissipated during June 2020 and July 2020, as many regions were able to meaningful restrictions on activities, which included limitations on the operation of non-essential businesses, requirements that individuals remain in or close to their homes, school closures, limitations on large gatherings, travel restrictions and other policies to promote or enforce physical distancing. Similar restrictions have been implemented in many other countries in which we operate. At some hospitals and surgery centers, COVID-19 concerns have caused non-essential surgeries to be indefinitely postponed to minimize risk to patients and healthcare providers, and to preserve healthcare capacityreopen for ~~COVID-19 patients. Many businesses have been forced to institute telework~~elective procedures, and a significant portion of our employee base has been teleworking since mid-March of 2020. These circumstances have caused significant disruptions to the U.S. and global economies, and negatively affected our business and operations since these sudden and significant governmental interventions began in March 2020.

with an existing patient backlog. At the present time, ~~social distancing measures appear to~~volumes have ~~lowered the rate of spread~~rebounded significantly, though there residual reductions in demand continue.

The future trajectory of the ~~virus~~COVID-19 pandemic remains uncertain, both in the U.S. and in other markets. Within the U.S., case counts appear to be increasing throughout much of the country as cold weather increases. Similarly, a recent surge of cases has occurred in Europe, and ~~some geographic regions are preparing~~several countries have begun reinstituting lockdown measures. However, less cases appear to ~~relax~~be progressing to severe disease than earlier in the year, and progress continues to be made on therapeutic treatments and vaccine candidates, though the efficacy and timing of various treatments and vaccines remains uncertain.

Given these ~~measures in a phased manner, with the hope that such relaxation of measures will restart and/or boost economic activity. However,~~various uncertainties, it is ~~likely~~unclear the extent to which lingering slowdowns in elective procedures will continue to affect our business during the remainder of 2020 and beyond. We expect that ~~a vaccine for~~the effects of COVID-19 ~~if one ultimately proves~~on our business will depend on various factors including (i) the magnitude and length of increased case waves during the fall and winter, (ii) the comfort level of patients in returning to beclinics and hospitals, (iii) the extent to which localized elective surgery shutdowns occur, (iv) the unemployment rate’s effect on potential patients lacking medical insurance coverage, and (v) general hospital capacity constraints occurring because of the need to treat COVID-19 patients.

During the second and third quarters of 2020, we focused on making our facilities safe and effective, will not be available until at least mid-2021. In addition, no existing therapeutic drug has yet been conclusively proved effective in preventing patients infected with this novel coronavirus from developing severegiven updated COVID-19 ~~disease. As a result, many epidemiologists and~~ public health ~~experts warn~~guidelines, and we believe that our employee workforce has done excellent work in adapting to the new environment. In particular, we have been able to continue our manufacturing activities to keep pace with customer orders. However, given the potential for further shelter in place orders in our largest manufacturing and operational centers (particularly, Lewisville, Texas and Verona, Italy), there remains a risk that a significant ~~risk exists of further waves of virus spread in 2020 and 2021, even if the existing outbreak is curtailed~~localized surge in the ~~summer of 2020. If one or much such further waves occur, it is possible that onerous social distancing measures~~virus could ~~be reinstituted in the U.S. and elsewhere, with further significant curtailment of global and/or regional economic activity resulting.~~

Because the severity, magnitude and duration of the COVID-19 outbreak and its economic consequences are uncertain and rapidly changing, the impact on our business, financial condition and results of operations remains uncertain and difficultcause disruption to predict. The sudden disruption of global economic activity that occurred in March 2020 resulted in decreased revenues and lower earnings per share during the first quarter of 2020, and we expect that negative impacts on our revenues may continue during the course of the pandemic. In addition, the general economic disruption could significantly increase the probability or consequences of the risks our business faces in ordinary circumstances, such as risks associated with our supplier, distributor, vendor and customer relationships, and the potential that such counterparties could default on existing contractual and financial obligations to the Company, or become unable or unwilling to make payments in a timely manner.

~~These disruptions could also impact~~ our manufacturing, ~~supply chain,~~distribution, administrative and the ability of employees to access our manufacturing and distribution facilities, and timing of our product shipments to customers. Illness to our employees, or facility closures mandated by government authorities, could lead toother business operations (including downtime at our manufacturing facilities ~~interrupting~~and the interruption of the production of our ~~products. General economic weakness~~products).

In addition, while we have not seen such effects to date, risk remains that COVID-19 could have material negative effects on contractual counterparties, leading to supply chain disruptions or counterparty payment defaults and ~~fear of the virus could negatively affect customer spending, or the desire of patients~~bankruptcies (including bankruptcies to ~~pursue surgical and other medical procedures. Restrictions~~hospital systems that significantly rely on ~~travel affecting our salespersons could cause a reduction in sales. Other unpredictable aspects of the pandemic also may affect our business and operations in ways that are unforeseeable.~~revenue from elective surgeries).

To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in Part I, Item 1A under the heading Risk Factors in our 2019 Form 10-K, such as our need to generate sufficient cash flows to service indebtedness and our ability to protect our information technology networks and infrastructure from unauthorized access, misuse, malware, phishing and other events that could have a security impact as a result of our remote working environment or otherwise.

All of these factors, collectively, could materially adversely affect our business, financial condition and results of operations.

Our inability to access funding or the terms on which such funding is available could have a material adverse effect on our financial condition, particularly in light of ongoing market dislocations resulting from the COVID-19 pandemic.

On October 25, 2019, we and certain of our wholly-owned subsidiaries (collectively, the “Borrowers”) entered into a Second Amended and Restated Credit Agreement (the “Amended Credit Agreement”). The Amended Credit Agreement provides for a $300 million secured revolving credit facility maturing on October 25, 2024. At the time that we entered into the Amended Credit Agreement, no amounts were borrowed thereunder. However, due to the uncertainty related to COVID-19, on April 16, 2020, the Company borrowed $100 million under the Amended Credit Agreement to preserve available cash to fund operations and strategic initiatives in the event that the COVID-19 pandemic results in a prolonged slowdown of elective surgical and other medical procedures, thereby decreasing our sales and revenue.

Certain of our subsidiaries (collectively, the “Guarantors”) are required to guarantee the repayment of any obligations under the Amended Credit Agreement. The obligations with respect to the Amended Credit Agreement are secured by a pledge of substantially all of the personal property assets of the Borrowers and each of the Guarantors, including accounts receivables, deposit accounts, intellectual property, investment property, inventory, equipment and equity interests in their respective subsidiaries.

The Amended Credit Agreement contains customary affirmative and negative covenants, including limitations on our ability to incur additional debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, pay dividends and distributions, pay subordinated indebtedness, and enter into affiliate transactions. In addition, the Amended Credit Agreement contains financial covenants requiring us to maintain, on a consolidated basis as of the last day of any fiscal quarter, a total net leverage ratio of not more than 3.5 to 1.0 (which ratio can be permitted to increase to 4.0 to 1.0 for no more than 4 fiscal quarters following a material acquisition) and an interest coverage ratio of at least 3.0 to 1.0. The Amended Credit Agreement also includes events of default customary for facilities of this type and upon the occurrence of such events of default, subject to customary cure rights, all outstanding loans under the Facility may be accelerated and/or the lenders’ commitments terminated.

We believe that we are in compliance with the covenants, and there were no events of default, at March 31, 2020 (and in prior periods). However, there can be no assurance that we will be able to meet such financial covenants in future fiscal quarters. The failure to do so could result in an event of default under such agreement (including an obligation that we repay the $100 million amount currently outstanding), which could have a material adverse effect on our financial position in the event that we have significant amounts drawn under the facility at such time.

~~In addition, issues related to financing sometimes are exacerbated in times of significant disruption and dislocation in the financial markets, such as those that have been experienced~~An FDA panel recently ~~due to the COVID-19 pandemic. Though the Company’s lenders have not yet expressed any such concerns (and, to the contrary, have indicated~~recommended that financing remains available and undisrupted), it is possible that our lenders could become unwilling or unable to provide us with financing under the Amended Credit Agreement, even if we were otherwise in compliance with its terms, due to macroeconomic or other concerns related to COVID-19, general economic conditions or otherwise. If the Company were unable to further access financing under the Amended Credit Agreement, the Company’s cost of financing could materially increase, or the Company could be unable to access such financing entirely. Any such events could materially and adversely affect our financial condition and results of operations.

~~The FDA recently scheduled a hearing to consider whether~~ bone growth stimulator devices ~~should~~ be ~~down classified~~reclassified by the FDA from Class III to Class II devices, ~~and if such a down classification of this device category occurred, it~~which could increase future competition for us in this product category and negatively affect our future sales of such products.

We have the market-leading ~~Bone Growth Stimulation~~bone growth stimulation platform with the only cervical spinal indication granted by the U.S. Food and Drug Administration (the "FDA"), and the only mobile device app accessory designed to help patients adhere to their prescriptions and improve their clinical outcomes, STIM onTrack™ 2.1. We also are ~~also~~ investing in investigational device exemption ~~(IDE)~~(“IDE”) studies to expand indications for use in areas such as rotator cuff tears. Our bone growth therapy products currently are designated as Class III devices. Class III devices are subject to the FDA’s most rigorous pathway to approval for medical ~~devices.~~devices in the U.S. The FDA may change classification of a device only if the proposed new class has sufficient regulatory controls to provide reasonable assurances of safety and effectiveness.

In ~~2015,~~September 2020, the ~~FDA included Class III~~FDA’s Orthopaedic and Rehabilitation Devices Panel recommended that bone growth stimulator devices be reclassified from Class III to Class II devices with “special controls” to ensure patient safety and therapy efficacy. These proposed special controls include the condition that such devices be subject to rigorous clinical studies and post market surveillance for any new products. This would be in addition to other special controls and the Class II general requirement that any new products ~~in its strategic priority work plan, as part~~show “substantial equivalence” to already-cleared or approved devices.

We believe that the panel’s recommendation correctly recognizes the importance of ~~a list of 32 product categories it would review~~premarket approval (PMA)-like clinical data for ~~possible down classification. The purpose of~~these devices, so that manufacturers continue to be required to submit robust clinical data under the ~~listing and review by~~approval or clearance process to ensure the FDA of these 32 product categories was to further one of the FDA’s general strategic priorities of reducing regulatory burdens. This action occurred after the FDA had convened an advisory panel in 2006 and ultimately determined at that time, for safety and efficacy ~~reasons,~~of these devices for patients. We, along with other bone growth stimulation manufacturers, submitted comments in response to ~~maintain~~ the ~~Class III status for these devices. Shortly after~~FDA’s proposed rulemaking to underscore the ~~issuance~~panel’s recommendation of the ~~2015 work plan, we and other manufacturers~~need for robust clinical data prior to approval or clearance of bone growth stimulator products, ~~submitted a public comment letter opposing the possible down classification.~~together with post market surveillance requirements.

In ~~February 2020,~~ the ~~FDA announced that it would hold an Advisory Committee panel meeting in~~long-term, the ~~near-term~~recommended reclassification could enhance the ability of competitors to consider whether bone growth stimulator products should be reclassified from Class III devices to Class II devices. The specific timing of such meeting currently is unclear, as the FDA has postponed non-essential meetings temporarily due to the COVID-19 pandemic. Together with the other manufacturers of bone growth stimulators, we intend to participate in the panel meeting if and when it is rescheduled, as we did in 2006, and submit testimony supporting the importance of maintaining bone growth stimulator devices as Class III devices. However, if such a down classification were to occur, and new entrants toenter the market ~~were~~if they are able to create technologies with comparable efficacy to our devices, which could result in our ~~bone growth therapy~~ products ~~could face~~facing additional competition, ~~which could~~thereby negatively ~~affect~~affecting our future sales of these products.

We have provided $10 million in investments and ~~results~~loans to a privately-held company in Switzerland and may not be able to recoup our investment.

In October 2020, we entered into agreements with Neo Medical SA, a privately-held Swiss-based medical technology company developing a new generation of products for spinal surgery (“Neo Medical”). Our collaboration with Neo Medical focuses on co-developing with them a cervical platform and deploying single-use, sterile-packed procedure solutions designed to increase operating room efficiencies, reduce procedural times and costs, improve patient outcomes through novel device designs and techniques, and reduce infection rates. These instruments are designed surgical settings including acute care hospitals, outpatient hospitals and also ambulatory surgery centers. Under our agreements with Neo Medical, we will also exclusively distribute Neo Medical’s thoracolumbar procedure solutions to certain U.S. accounts.

In connection with these arrangements, we purchased $5 million of Neo Medical’s preferred stock, and loaned $5 million to Neo Medical pursuant to a convertible loan agreement. The loan, which is denominated in Swiss Francs and accrues interest at an annual rate of 8%, is convertible by either party into additional shares of Neo Medical’s preferred stock. If not otherwise converted to preferred stock in the interim, the loan and all accrued interest become due and payable in October 2024.

Neo Medical is using the proceeds of our preferred stock purchase and loan to fund its ongoing operations. However, no assurance can be made that Neo Medical’s business ultimately will be successful. As such, we could ultimately be unable to recoup any value for the preferred stock that we purchased, and unable to recoup the amount of our loan.

We have not made any repurchases of our common stock during the ~~first~~third quarter of 2020.

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.

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

		Page
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements	4

	Condensed Consolidated Balance Sheets as of ~~March 31,~~September 30, 2020, and December 31, 2019	4

	Condensed Consolidated Statements of ~~Income~~Operations and Comprehensive Income (Loss) for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019	5

	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019	6

	Condensed Consolidated Statements of Cash Flows for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019	7

	Notes to the Unaudited Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2021

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2731

Item 4.	Controls and Procedures	2831

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	2932

Item 1A.	Risk Factors	2932

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3133

Item 3.	Defaults Upon Senior Securities	3133

Item 4.	Mine Safety Disclosures	3133

Item 5.	Other Information	3134

Item 6.	Exhibits	3234

SIGNATURES		3335

Topic		Description of Guidance		Effective Date		Status of Company's Evaluation
Simplifying the accounting for income taxes (ASU 2019-12)		Reduces the complexity of accounting for income taxes by eliminating certain exceptions to the general principles in ASC 740, Income ~~Taxes.~~Taxes. Additionally, the ASU simplifies U.S. GAAP by amending the requirements related to the accounting for "hybrid" tax regimes and also adding the requirement to evaluate when a step up in the tax basis of goodwill should be considered part of the business combination and when it should be considered a separate transaction. Certain of the provisions are to be applied retrospectively with other provisions applied prospectively.		January 1, 2021		The Company is currently evaluating the impact this ASU may have on its consolidated financial statements.

(U.S. Dollars, in thousands)	Fair Value		Balance Sheet Classification	Assigned Useful Life
Assets acquired
Inventories	$	528	Inventories
Developed technology		4,500	Intangible assets, net	8 years
Customer relationships		800	Intangible assets, net	15 years
Trade name		600	Intangible assets, net	15 years
In-process research and development ("IPR&D")		440	Intangible assets, net	Indefinite
Total identifiable assets acquired		6,868
Goodwill		11,132
Total fair value of consideration transferred	$	18,000


☒	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	☐

Non-Accelerated filer	☐	Smaller Reporting Company	☐

		Emerging Growth Company	☐

(U.S. Dollars, in thousands)	Preliminary Acquisition Date Fair Value		Balance Sheet Classification	Assigned Useful Life
Assets acquired
Inventories	$	528	Inventories
Developed technology		4,500	Intangible assets, net	8 years
Customer relationships		800	Intangible assets, net	15 years
Trade name		600	Intangible assets, net	15 years
In-process research and development ("IPR&D")		300	Intangible assets, net	Indefinite
Total identifiable assets acquired		6,728
Goodwill		11,272
Total fair value of consideration transferred	$	18,000

(U.S. Dollars, in thousands)	Three Months Ended September 30, 2020			Nine Months Ended September 30, 2020
Allowance for expected credit losses beginning balance	$	6,364		$	3,987
Impact of adoption of ASU 2016-13		—			1,120
Current period provision (recovery) for expected credit losses		(619	)		945
Writeoffs charged against the allowance and other		(309	)		(647	)
Effect of changes in foreign exchange rates		88			119
Allowance for expected credit losses ending balance	$	5,524		$	5,524

(U.S. Dollars, in thousands)	2020
Allowance for expected credit losses at December 31, 2019	$	3,987
Impact of adoption of ASU 2016-13		1,120
Current period provision for expected credit losses		679
Writeoffs charged against the allowance and other		(114	)
Effect of changes in foreign exchange rates		(81	)
Allowance for expected credit losses at March 31, 2020	$	5,591

10.1		Consulting Agreement, dated July 4, 2020, between Michael Finegan and Orthofix Medical Inc. (filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed on August 6, 2020 and incorporated herein by reference).

10.2*		Change in Control and Severance Agreement, dated September 11, 2020, between Paul Gonsalves and Orthofix Medical Inc.

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).

	ORTHOFIX MEDICAL INC.

Date: ~~May 8,~~November 5, 2020	By:	/s/ JON SERBOUSEK
	Name:	Jon Serbousek
	Title:	President and Chief Executive Officer, Director

Date: ~~May 8,~~November 5, 2020	By:	/s/ DOUG RICE
	Name:	Doug Rice
	Title:	Chief Financial Officer