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Product / Company Performance

Orthofix Reports 3Q18 Revenue of $111.7MM, +6.1% vs. 3Q17 -



Orthofix’s 3Q18 performance was driven by their bone growth and trauma products with total revenue of $111.7MM, +6.1% vs. 3Q17. The company also made progress on their realigning their organizational structure, an initiative leadership expects to improve performance of the spine and orthobiologics segments.


Top Line Growth Amid Restructuring

Orthofix’s top line performance was driven by Bone Growth Therapies (previously called BioStim) and trauma, as well as a slight rebound in orthobiologics. The company benefitted from an unusually high number of open orders remaining from 2Q18 that were booked as third quarter sales, though leadership noted sales growth was still 5.9% year-over-year when normalizing for these open orders.

While the overall Spinal Implant segment grew 9.7% year-over-year, $2.9MM of those sales are attributable to Spinal Kinetics. Within the segment, spinal fixation products saw a 4.5% decrease vs. 3Q17. International softness hindered fixation sales, as did the continuing disruption caused by reorganization and leadership changes. Orthobiologics performance continues to be negatively impacted from the contractual reduction in the marketing service fee Orthofix receives from MTF Biologics as of March 2018. Normalizing for this change, Orthofix’s biologics sales increased 3.7% year-over-year, led by increasing volumes of Trinity products.

Leadership changes in the company’s spine and orthobiologics segments caused disruptions with distributors. Presidents Ray Fujikawa and Bob Goodwin, of Spinal Fixation and Biologics respectively, are transitioning out of the company. Those roles will be unified under the leadership of Brad Niemann.  President and CEO Brad Mason said, “The vast majority of our independent reps are not exclusive to us. So, as they see [leadership] change they can tend to get nervous and back off a little and maybe sell some of their other lines a little more aggressively than ours.”

Orthofix 3Q18 and YTD segment sales and growth on an as-reported basis, is as follows.

  3Q18 3Q17 $ Change % Change
Spine $22.1 $20.2 $1.9 9.7%
Trauma $26.9 $25.4 $1.5 5.8%
Orthobiologics $14.6 $15.2 -$0.6 -3.8%
Other (Bone Growth Therapies) $48.1 $44.4 $3.6 8.2%
Total  $111.7 $105.2 $6.5 6.1%


  YTD18 YTD17 $ Change % Change
Spine $73.5 $65.5 $8.0 12.3%
Trauma $66.0 $65.2 $0.9 1.3%
Orthobiologics $50.0 $50.1 -$0.1 -0.3%
Other (Bone Growth Therapies) $142.4 $136.1 $6.3 4.6%
Total  $332.0 $316.9 $15.0 4.7%


3Q18 Revenue by Geographic Region

Ex-U.S. regions performed well overall, but leadership called out shortfalls in Germany and Australia in the spinal fixation and orthobiologics segments. Orthofix remains confident that Spinal Kinetics General Manager Tom Afzal can leverage his extensive international contacts, particularly in Germany, to ramp up sales in underperforming regions.

Orthofix’s orthopaedic revenue by geographic region is as follows.

Geographic Region 3Q18 3Q17 $ Change % Change
US $86.8 $83.5 $3.2 3.9%
Ex-US $25.0 $21.7 $3.2 14.8%
Total  $111.7 $105.2 $6.5 6.1%


Unified Approach for Future Growth

Leadership said that the company made significant progress in optimizing their organizational structure which will have a unifying effect on strategy, leadership, marketing, operations, R&D and sales logistics. This cohesion will be crucial for Orthofix to more fully leverage their current products as well as future products like the M6 disc that is expected to be FDA approved in mid-2019.

Orthofix expects the realignment of their Spine business and the approval of the M6 disc to have a pull-through effect on orthobiologics sales by mid-2019. Per CEO Brad Mason, “I think once we can attract larger, more influential distributors in addition to who we have out there today, through the attraction of our M6 disc and our Bone Growth Therapies products, we will see a nice uptick in the Biologics business over time.”

Considering updated guidance from company leadership and current market conditions, we project Orthofix’s 2018 revenue of $452.5MM, +4.3% vs 2017.


Net Earnings

Administrative expenses for the quarter were 20.3% of sales primarily due to costs incurred by the integration of Spinal Kinetics and corporate redomicile to the U.S. Researching and development costs increased year-over-year due to efforts associated with FDA premarket approval of the M6 disc.

3Q18 Amount ($MM) % of Sales
Sales $111.7  
   Sales and Marketing -$49.9 44.7%
   Administrative -$22.7 20.3%
   Cost of Goods -$24.0 21.5%
   R&D -$9.6 8.6%
   Other -$6.7 6.0%
Net Earnings  -$1.2 -1.1%


Sources: Orthofix; ORTHOWORLD estimates. All revenue figures presented in USD $MM.

Mike Evers is ORTHOWORLD’s Market Analyst. He can be reached by email.


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