Orthofix at CG 2025 Musculoskeletal Conference: Strategic Innovations and Challenges

On Monday, 10 March 2025, Orthofix Medical Inc. (NASDAQ: OFIX) presented at the CG 2025 Musculoskeletal Conference. The company reported strong growth in 2024, driven by strategic capital allocation and differentiated technologies. However, challenges such as the discontinuation of the M6 product line due to declining demand were also discussed.

Key Takeaways

• Orthofix achieved 7% growth in 2024, with significant contributions from its U.S. Spine Fixation and Orthopedics businesses.
• The company improved EBITDA margins by over 200 basis points and generated $21 million in free cash flow in the second half of the year.
• Orthofix discontinued the M6 product line to focus on areas with competitive advantages, particularly spine fixation and enabling technologies.
• A $275 million credit facility and a $50 million increase in cash position strengthened the company’s balance sheet.
• The long-range plan aims for a 6.5%-7.5% net sales CAGR and mid-teens EBITDA margin expansion by 2027.

Financial Results

• Overall growth for 2024 was 7%.
• U.S. Spine Fixation business grew by 14%, and U.S. Orthopedics business by 16%.
• EBITDA margins improved by over 200 basis points, with guidance suggesting a 130 basis point expansion in 2025.
• Free cash flow of $21 million was generated in the second half of 2024, a significant turnaround from a negative $100 million in 2023.
• The cash position improved to $85 million by the end of 2024, up from $35 million in 2023.
• A $275 million credit facility is in place, with $115 million available.

Operational Updates

• Discontinued the M6 product line due to decreasing demand and profitability issues.
• Achieved a record 70 placements of the 7D Navigation System, reflecting 150% growth.
• Focused on securing exclusive distribution agreements and leveraging infrastructure for bone growth therapy.
• Launched over 50 new products in the spine portfolio in recent years.

Future Outlook

• Committed to delivering 7% growth at the midpoint of their long-range plan.
• Expecting mid-teens adjusted EBITDA and free cash flow generation.
• Anticipating stepwise gross margin improvements towards 2026 and 2027.
• Investing in a spinal screw system integrated with 7D technology.
• Planning to scale down the 7D form factor for ambulatory surgery centers and introduce new features in the next quarter.

Q&A Highlights

• The M6 product line was discontinued due to a highly differentiated market segment with limited cross-selling opportunities.
• Spine growth sustainability is supported by a fresh portfolio and 7D technology, enhancing customer retention.
• Orthofix is competing in deformity capabilities through the 7D system, which is compatible with existing hospital technologies.

For more detailed insights, readers are encouraged to refer to the full conference call transcript.

Full transcript - CG 2025 Musculoskeletal Conference:

Caitlin Cronin, Medical Device Team, Canaccord Genuity: Good morning, everyone, and thank you for joining us at this year’s Canaccord Genuity Musculoskeletal Conference. My name is Caitlin Cronin, and I’m on the medical device team here at Canaccord Genuity. I’m here with Orthofix, a global medical device company specializing in differentiated orthopedic and spinal solutions. And we’re very pleased to be joined today by Massimo Calafiore, CEO Julie Andrews, CFO and Julie Dewey, Chief Investor Relations and Communications Officer. And before we begin, I want to remind everyone of any relevant disclosures which can be found on our conference and our firm website.

We’ll begin with a brief presentation from Massimo followed by a fireside chat. And I will try to leave time for a few minutes for questions from the audience. And with that, turn it over to Massimo.

Massimo Calafiore, CEO, Orthofix: Good morning, everybody. Thank you for having me here, having us here. And thank you for to all of you to be here to hear our story. So just to start, our usual forward looking statements. So you can read it at your leisure, but okay, for who is not familiar about Torsofix, we are a global med tech company founded in Italy in 1980 and now we are globally in more than 50 countries, 1,600 employees.

And as Kathleen said, we are like we are very we have differentiated in a different business segment. So the majority of our revenue comes from our spine vertical, so spine biology, biologic product and enabling technologies. And we have a very successful bone growth therapy business and Orthopaedics. But Orthopaedics is there, let’s say, from where everything started in Orthofix in 1980. We have some different offices worldwide, but our is in Louisville.

So we enter in a very successful Q4. A Q4 that was a combination of the our ability to execute quarter over quarter since we took the leadership of the organization. Just to give you some time reference, I’m in role of just slightly more than one year, like Julie joined me right after. After. So it’s been a pretty fast journey in the first six months to build up the leadership team that is in place right now.

So as Q4 like we did in a previous quarter working together, all of the businesses grow way faster than the market, so great success in all of the different vertical. But at the same time, what we show a great responsibility on managing the business, so a very healthy free cash flow generation, an increase of EBITDA, our EBITDA keep increasing much faster than our revenue. So not just let’s say, so we were able to in just for quarter to deliver what everybody that are investing in Earth’s office is going to see. A company can change patient life day in, day out, but at the same time create real value for the shareholders. So what expecting from us moving forward?

You know, like I said, our main business is to change patient life. So laser focused on investing on the differentials technologies areas. I think that we are being very diligent and very deliberate on how we invest our capital. That one is like or the number one, what we are doing very well that we’re not doing before is really capitalizing on our ability to go in an account and start to enter through different areas. Because just to give you an example, our spine team can access an account from the biologic side, enabling tech, BGT or spine, under therapeutics the same.

We can leverage our orthopedics devices or our BGT device, so the ability to have a multiple point of access. Very strong foundation. So for people that for a very strong foundation. So for people that follow our story, our balance sheet at the beginning of our tenure today changed night and day. So again, a foundation to start to do a lot of fun stuff moving forward as well.

And this one, I think that is the slide that exemplifies our progress. We move from in 2023 to be more than $100,000,000 free cash flow negative. We enter Q2 of twenty twenty five, twenty twenty four with a generation of $21,000,000 So again, this is just an example how that you can grow in this market in a profitable way. And I think that actually I start to see and this is why investor appreciated our story and this is why more and more people are interested in what we are doing. So in Q3, we presented our three years long range business plan, which pretty much follow what I just said.

Our growth of the organization in all of the different businesses faster than market that on a combined basis is going to be between 6.57.5% net sales CAGR. An increase of our EBITDA to the mid teen, so we’re expecting 300 basis point of gross margin expansion between now and 2027. And as I said before, at the same time, keep being focused on free cash flow generation. So I said, this discipline is a very discipline on managing our finance and deliberate on our capital investment on creating technology in areas where we can win, where we believe we can win is going to be what Orthofix of the what Orthofix is going to be in the future. So at the end, why to invest in us?

Why to believe that we can be that we can generate value? Strong fundamentals and you saw the success that we had on managing our company. A very focused commercial strategy, I believe that creating multiple access point into account is creating a lot of value for us, even in areas where we are like the clear number one market player like in bone growth therapy. At the end, everything happened because of people. So a leadership team in the just in less than one year was able to make all of these changes and create all of these value for us.

I said discipline on capital allocation at the same time with the relentless execution. And of course, everything to make sure that we keep deliver what we said that we deliver. So consistency on this year is just a demonstration to all of the people, all of the investor that wants to believe in Orthofix that we can deliver day, year in and year out, consistent results at different levels from 25% to 27%. So I couldn’t be more excited about what we’re doing. I couldn’t be more excited about the technology that we’re bringing there and how disciplined we have been.

So and with that, let Kathleen ask us some questions.

Caitlin Cronin, Medical Device Team, Canaccord Genuity: Thanks, Massimo. So you guys announced results recently. Could you highlight for us what you want investors to really understand coming out of the Q4 results?

Massimo Calafiore, CEO, Orthofix: Look, I think that 2024 has been a fantastic year for us. Imagine that at the same time, we are to keep creating value, keep going deeper in the market, but while making a lot of changes in the organization. So for many that have been in my seat, you can appreciate how difficult can be, but we did lose momentum. And we are very excited because all of the changes that we made are bringing us in 2025 with much stronger footing. So you know, our commercial discipline, our financial discipline, our differentiable technology, differentiated technology, all of the different markets is creating a very compelling opportunity for us.

Yes.

Julie Andrews, CFO, Orthofix: And just a couple of the numbers to highlight. We grew our U. S. Spine Fixation business 14%. Our U.

S. Orthopedics business grew 16%. We had a record number of 70 placements in the year, 150% growth in that. And then we improved our EBITDA margins by over 200 basis points. And then also we’re free cash flow positive in the second half of the year of $21,000,000 So just a fantastic year overall, 7% growth for the full year.

So very pleased with the performance.

Caitlin Cronin, Medical Device Team, Canaccord Genuity: That’s great. And Massimo, as you alluded to, you guys announced some portfolio management decisions on the earnings call. Maybe let’s touch a little bit on the M6 discontinuation and just the rationale there. So demand had been decreasing. I mean, why was that the case anything from a product efficacy standpoint that would cause a decrease in demand or influence your decision to discontinue the product?

Massimo Calafiore, CEO, Orthofix: Yes. So I said disciplined capital allocation is what we did. We need to make sure to invest in area that we can win. And besides motion preservation, other areas of orthopedics were not the area where we saw that we could make a difference for our patients. So we discontinued I think that a few product lines in Orthopaedics and we decided to phase out M6 that after changing life of 100,000 patients was start to see a decrease of interest.

And so that one, I think that was drove the decision for us. And but still, let’s say, the technology is still there available. We’re going to there is pocket of surgeons that like the technology, so we’re going to keep, let’s say, decreasing they’re going to keep let them access the available inventory until it’s going to be phased out.

Julie Andrews, CFO, Orthofix: Yes. And with M6, back to Massimo’s point on just the disciplined capital allocation. So it was not only a drag on our revenue growth, but also it was negative from a profit standpoint and a use of cash. And again, our focus is making sure that we’re investing in areas that we believe we have competitive advantage in with, you know, our seven d enabling technology and how that pulls through spine fixation. That’s really our focus going forward in the spine business.

Caitlin Cronin, Medical Device Team, Canaccord Genuity: And, you know, you noticed divesting other orthopedic lines as well. Do you have plans for divesting anything else going forward?

Massimo Calafiore, CEO, Orthofix: No. I think that we feel pretty good about where we are in 2025. Our goal was to arrive at the beginning of this year in thinking about what is the basis finally that we want to create for that we can use to build upon and enabling technologies in an area where we can win. We believe that in spinal deformities in an area that we can win. In Orthopaedics, we have all of this great opportunity to redefining limb reconstruction, so a lot of excitement there.

At the same time, we keep investing on our commercial infrastructure and technology for bone growth therapy. So we feel very strongly about where we are today.

Caitlin Cronin, Medical Device Team, Canaccord Genuity: Great. Maybe let’s turn to long range expectations that you announced on your Q3 call. I think 7% growth at the midpoint now expected for the life of the plan with the M6 divestiture. Do you view this as aspirational or conservative?

Massimo Calafiore, CEO, Orthofix: This is what we commit to deliver. So consistency has been and discipline has been a word common to our lingo right now in Orthofix. So the growth rate on our long range business plan is something we are confident we can achieve.

Caitlin Cronin, Medical Device Team, Canaccord Genuity: And then you’re also expecting expansion to mid teens adjusted EBITDA and free cash flow generation as well. Can you talk about the cadence of these improvements over the life of the plan? Do you expect the improvements to be linear or more stepwise?

Julie Andrews, CFO, Orthofix: Yeah, we expect them to be a little bit more stepwise. In particular, we’ve talked about the gross margin improvement. There are some pretty large projects in there, and so the benefits will be a little bit back end loaded. We’ve talked this year, our guidance implied EBITDA margin expansion of about 130 basis points in 2025. And so then that kind of sets you up for our future expansion growth being a little bit more stepwise into ’26 and ’27.

Caitlin Cronin, Medical Device Team, Canaccord Genuity: That’s great. And then where do you stand from a balance sheet perspective? And how does this help you achieve your long range goals?

Julie Andrews, CFO, Orthofix: Yeah. So I mean, we ended the year in a much better position. We refinanced the company in November. We have a $275,000,000 credit facility in place, finished the year with $85,000,000 in cash on our balance sheet and 115,000,000 in our credit facility that we have access to, should we want to do something with that. And so improved our cash position by about $50,000,000 from $35,000,000 at the end of ’twenty three to $85,000,000 at the end of ’twenty four.

Caitlin Cronin, Medical Device Team, Canaccord Genuity: Great. And then maybe let’s turn to the commercial strategy. I think sharpening your commercial focus has really been one of your key LRP initiatives as you look to leverage your broad portfolio across your multiple call points. Could you give the audience a little bit more color on how you’re sharpening your commercial focus across your spine ortho and BGT commercial orgs?

Massimo Calafiore, CEO, Orthofix: Yes. So let’s start to the spine business. In spine, we go through third party distributor, our commercial partner. So one of the focus since the beginning of my tenure has been, okay, how can we create how can we start to leverage now the combined portfolio of Orthofix and C Spine into to create more exclusivity. So a great deal of focus on bringing larger distributors that can be exclusive with us, selling the entire portfolio, including biologic and but also a team that can have a very good use of our asset, our resources.

So from the strategic point of view, we start to go deeper in the account to leveraging the different technology, but also wider start to find partners that could actually scale with us. And if you see this year, there was a direct conversion on our improvement on inventory management that lead that led also to a very good use of cash. So let’s see, once we start to see that investing on distributor can scale, it can bring us a lot of opportunity to us. If you see when we move into orthopedics, really redefine more clearly our mission to be a company that can access, can redefine how Lindbergh Construction is thought, is helping us to find also distributors that can sell our mission in a more effective ways in the account. So this is why you can start to see accelerated growth in this specific market because we are redefining the market.

And when you go to Bone Growth Therapy, it’s really leveraging our state of the art infrastructure that we have in Louisville, our state of the art commercial team that we can control, let’s say, much better because we have more than 50% is direct. So in every single business segment that we are keep evolving our commercial thinking, so we can start to leverage all of the technologies that we’re investing on much better. And finally, we closed the loop, start to deleverage seven d. One of the things that we did different is start to drive a lot of earn outs with our seven d technologies. Our the fact that we are having more earn outs is creating more stickiness into the account.

We’re having a lot of success. Just to giving you an example, the majority of our earn outs, almost 80% of our earn outs agreement is way ahead or was the contractual obligation. So this is just show the quality of the implants that we have on one hand and the quality of the enabling technology that we have on the other.

Caitlin Cronin, Medical Device Team, Canaccord Genuity: And you touched on your progress on gaining larger distributors in spine. I mean, any risk here to losing distributors given the M6C discontinuation?

Massimo Calafiore, CEO, Orthofix: No, because what we noticed is that the market segment was very highly differentiated. Surgeons that were accessing M6 were mostly just focused on motion preservation. So not a lot of cross selling between the two.

Caitlin Cronin, Medical Device Team, Canaccord Genuity: Got it. Maybe let’s turn to your spine portfolio and strategy there. So I guess another strong quarter in U. S. Spine fixation double digit growth.

I mean, do you think this is sustainable? What is driving this high growth in The U. S?

Massimo Calafiore, CEO, Orthofix: Yes. I think we are bringing the basis of being a sustainable business out there. Like the technology is there. In the last few years, we launched more than 50 products. We have right now a very fresh portfolio, especially on our interbody interbody.

So anterior access and lateral are a very good growth for us. At the same time, the combination between a fresh portfolio with the seven d is creating the stickiness that we want in the implant. But look, at the end, it’s just the beginning for us. If you see the evolution on the technology perspective, it still is thinking about all new products that you can use in conjunction with 7D to create Aviva enhanced experience. So what you’re going to see with our focus in the format and fixation, a series of launches that are going not just helping us to propel the company forward from the pure revenue perspective, but also to enhance this procedural approach that we want to bring combining implant with enablement tech with access.

And the combination all of these, if you create real value in the yard for surgeons, at the end that one is what really matters. It’s going to help us to create much more interaction with our product. But at the same time, again, we sell biologic. We have a great steam business with our bone growth therapy team. So if you’re not if you start to think about us as a company, they can start to follow the entire continuum of care of the patient.

Our patient doesn’t leave us when they leave the OR. It stay with us post op with bone growth therapy. And so being a med tech, a highly differentiated company as we are, is giving us more leverage to create the stickiness that we want.

Caitlin Cronin, Medical Device Team, Canaccord Genuity: Maybe let’s touch a little bit further on deformity. And you’ve talked about leveraging your deformity capabilities to drive share gains. I mean, how are you leveraged to deformity currently? And then what from kind of an implant innovation perspective are you planning on doing to fill any gaps or just improving on your current offering?

Massimo Calafiore, CEO, Orthofix: It’s going to be a few fold. Right now, we are let’s say, we are very let’s say, we are competing in the formative mostly through seventy, seventy state of the art for open surgery right now in different account globally. Actually one of the interesting statistics for us is that we are so different that we are kind of agnostic of any enabling technology that is already there in the hospital. So you can see seven d even if there is a robot, if seven d if there is a competitor, just because in the specific market we are winning. So that one is like phase number one.

Phase number two is going to be still investing on enhancement of the enabling technology platform, but at the same time investing on a spinal screw system. This is going to be fully designed from the ground up as integrated with seven d. So again, if you keep delivering it, if we can keep delivering differentiable technology associated with a much smoother experience with the surgeons, we can see how we can keep winning in the specific space.

Caitlin Cronin, Medical Device Team, Canaccord Genuity: And then maybe just a minute or two on seven d. Aside from deformity, any color on how you’re innovating there? And in terms of the placements, talk about where you’re seeing placements. Are these competitive conversions for you? Are you placing seven d into kind of legacy Orthofix accounts?

Massimo Calafiore, CEO, Orthofix: So seven d already can be used into Brain. So again, it’s another value that you bring into the hospital system. So you have an airborne technology platform that has multiple use. At the same time, we just got the approval for the EVD, for the EVD, our EVD device, which helps surgeon to dry catheter in brain in case, you know, you need to address a post trauma accident. Accident.

It’s interesting that it’s a very widely large market with a procedure that is considered by many as, let’s say, routine. The reality in the hospital system is that the majority of this procedure are done in acute and most of the time from surgeons that are like at the beginning of their career. So the actual factor, the actual complication factor is very high. But even if it’s not our direct competency, again, it’s another way that we go to the administration to show value. So and there one given the small footprint is just let’s say, the beginning of a new phase of seven d scaling down the form factor that it may help us to access ASC.

So a lot of excitement there. There is things that we’re going to start to introduce on the on seven d in the next quarter or so that are very highly differentiable and I’m very excited about the future there. At the present time, as I talked before about earn outs and most of the time is all new revenue for us. So the vast majority of the seven d placement are done in accounts where we are not present yet or accounts that are looking to increase the utilization of our device. So every single dollar of revenue we bring from there is all new for us.

Caitlin Cronin, Medical Device Team, Canaccord Genuity: Great. I think we’ll end it there. Thanks, everyone.

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