Okay. Good morning, everybody. Thank you for being here. We are so excited to have Orthofix here with us.
Thank you.
To my right, we have Massimo Calafiore, CEO, Julie Andrews, CFO, and Julie Dewey, Chief Investor Relations and Communications Officer. I guess starting off high level, Massimo, you joined Orthofix in 2024. Talk about what the company was like when you first joined and what has changed since then.
Well, when we joined in 2024, now we found a company with a pretty solid portfolio across the vertical where we compete, but with a lot of challenges from on the operating model. If we need to divide the journey, let's say, in a lot of different phases, since we join with Julie, step number one was stabilize the company. We did a big thorough work to work on our balance sheet. We spent a good amount of time to build up the leadership team and start to understand the core pillar of the company where we need to be focused on.
Step number two has been, okay, start to work on the innovation pillar that could drive the company forward, in the future. At the same time, start to understand and realize what was the best commercial model for the organization.
If you look at all of the vertical that we have, Spine, OTS, and Limb Reconstruction, we start to ask ourself, what is the best way to go to commercialize our product in the most efficient way? We start a journey in Spine, working on optimizing our distribution network, a work on what we call now Therapeutic Solutions, that was formerly known as BGT. How we can leverage the expertise and the market leadership that we have there in order to keep expanding the market to grow, even being a business leader and looking at orthopedics.
How can we rationalize the portfolio to give a real identity of what we do? We focus on a specific segment, and now we define it, the market we compete as a Limb Reconstruction. Pretty much a big rationalization in the company at every level.
Great. I guess looking forward from here, where do you expect the company to be if you look out, let's say, three years, in terms of end markets or what the revenue growth profile could look like and profitability?
Starting this year, 2027, 2028 and beyond is now the moment to start to bear the fruit of all of the decision that we make at the time. From the innovation perspective, in Spine, we are pretty much gearing up to the biggest launch in the history of this organization with the Virata Spinal Fixation System. It's going to be a multi-year product launch that is going to address all of the different market segments. We're going to be starting with the open degenerative segment in Spine, and over time, we're going to work in MIS and Deformity. Keep investing in 7D, our enabling technology platform that is very highly differentiable in the marketplace. A lot of exciting innovation there. If you move into orthopedics or Limb Reconstruction, we are keep investing on TrueLok Elevate.
That has been a great commercial success for us, addressing ulcer in the foot for our patient. In OTS, keep thinking we are investing a good amount of money and energy to optimize the back office that we have. Now we work very hard on our commercial model. We were very targeted on our investment in innovation, now is the moment to keep focusing on it.
Got it. Turning to recent results, how would you characterize the Q1 growth rate on a normalized basis, let's say, excluding selling day, headwind, and international stocking tailwind? How did that compare to your internal expectations?
Yeah. For when you normalize, in Q1 for the selling day, and then also the CMS TEAM impact, where there was a pilot program, our growth was approximately 5% in the quarter, which was in line with our expectations. We had about a $2 million international stocking. I wouldn't characterize that as like a real pull forward. It's just timing, which can be lumpy from quarter to quarter, and don't expect a clawback in the future quarter related to that.
Yeah. You referenced CMS TEAM. Can we talk a little bit about that pilot program? I think you had initially laid out the impact. It turned out to be a little less than that. Why was that, and how should we think about the impact from CMS TEAM?
Yeah. CMS TEAM was really a one-time change, so we don't expect an ongoing impact related to that. It was a pilot program that CMS does from time to time for certain episodes of care. It included BGT, this time. It was a small, very limited number of accounts. Ultimately with just the volume and the impact on those accounts, really the hospital kind of helps manage the timing of those orders, and it had a limited impact. A little less than 0.5% impact. I think we'd expected about 100 basis points of impact.
Got it. On the topic of CMS, I think since you had last reported earnings, there was a change to CMS reimbursement for non-invasive bone growth stimulators. Can we walk through what changed?
Yes. The key point is that CMS updated billing requirements and then also recalculated the reimbursement for bone growth stimulators following the FDA reclass from a Class III to a Class II device in April. The underlying coverage framework remains in place, the reimbursement levels went down about 10% for the Medicare reimbursed portion of the business. This is updated and reflected in our updated guidance that we released May 21st, and we are engaging with CMS now on the process that they used to change that. It was kind of an atypical process that they went through to introduce that reimbursement change. The reimbursement change does impact only the Medicare portion of our business. We do have commercial payers and other business that it's not impacting.
How did you go about establishing your new guidance? What parameters did you use? Just as an example, what percent of the bone growth stimulator business is reimbursed by ?
Yes. We don't break that out specifically. There's really three primary revenue streams that will be somewhat impacted. Medicare, where Medicare's primary, of course, 100% of that population is impacted by the 10% reimbursement reduction. We have Medicare Advantage and commercial payer plans. A portion of those plans, we have contracts with all of those payers. A portion of those contracts use CMS as reimbursement rates as part of the calculation of their reimbursement. Those will be impacted, we believe, as well. We basically looked at the volume we expect from all of the payers that would be impacted and applied from May 18th is when we expected it. For Medicare, it will be May 18th. For the commercial payers that have a contract that would be impacted, it could be longer.
We felt like it was prudent to expect that it may be starting May 18th.
Got it. As part of this guidance change, you also pulled your LRP. Should we be looking for a new set of LRP targets? How are you thinking about your longer term plan?
I think we're right now in the process of assessing what this means long term. We're of course looking at our cost structure as well. We did update our EBITDA guidance. If you think about the revenue impact at $12 million with our revenue impact, it is pricing. It is basically you would expect a full drop through. Our EBITDA guidance, we changed it $5 million at the midpoint, we're doing a lot internally in terms of operating discipline and, of course, the near-term things that you do, hiring freeze, travel reduction, those types of things. As we think about the longer-term plan, we're really thinking about how we can use AI and automation and those types of things to really address our cost structure in a different way.
Got it. Looking at your new guidance, what are the key areas of upside and downside on both top and bottom lines?
Yeah. I think upside, one, I've said we did build in basically the price reduction starting from May 18th for all of the impacted. When we have a price increase, which has been the contracts and Medicare Advantage plans that are calculated based on the CMS reimbursement rate can take one to three quarters to update their pricing. I assume that if it's a decrease, they may be a little faster to update their pricing. That could be some upside. We have launches this year with the Virata launch on the spine side, and we believe we've baked in the appropriate number. Potentially, there could be some upside in with our launches.
Got it. I guess, turning to the businesses now. In spine, it seems like it was pretty significant commercial transition. Can you talk about that being mostly behind you? What % of U.S. spine revenue would you say is now flowing through the larger and more targeted distributors that you were targeting?
Yeah. As I said that at the beginning of the journey, the goal was to build a sustainable company. If you see in med tech, especially in companies that compete in the market where we compete, the utilization of resources can be very varying. This is why I think we were ready to support even the changes that we got from the CMS. As Julie pointed out, we've been very efficient on managing our organization. One of the things that we did, when we joined, we found, especially in spine, a commercial organization that's very fragmented. What was the direct outcome of this fragmentation is where a poor utilization of our assets.
In order to have a much higher return on the investment capital in our asset, the idea was, okay, let's start to analyze all of the partners that we have, and let's start to identify the one that can scale, the one that can create density, the one that actually can commercialize more efficiently our products. Now, after a couple of years of work, we have 75% of our revenue now is managed by our larger shop. And we're very excited to have to went through this journey because fast-forward today, we're going to have a partner that can really start to work on all our technology. They can start to commercialize 7D with our hardware.
We said since day one that we want to create a sustainable business, and I think that how we reacted, how we absorbed this impact with the change of reimbursement is just a testament of the good stuff that.
Yeah, I think to follow on to that, just a couple of stats. Our top 30 distributors in the U.S. grew 27% in Q1, and 24% on a trailing 12-month basis. Again, they now have greater than 75% of our revenue in spine, up from less than 50% in Q1 of 2024 when we joined.
Got it. Are those new distributors or more just shifting more of the revenue towards those?
I think that it is a mix. We start to consolidate revenue to asset, to the partner we believe that we could scale. We've been very focused also converting and attracting a new distributor. We've been pretty successful of bringing new revenue in areas that were not underserved by the current team. I was very pleased to see the interest that is around our entire portfolio. It speaks very loudly about the quality of the product that we have and across the board.
Throughout the spine commercial transition, have you realigned incentives as it relates to quotas, rebates, and bundling? I think this is something your competitors do a lot of, so it'd be interesting to hear about.
Yeah. We don't really talk about the specifics of our quota. We have realigned incentives to support higher growth and profitable growth and stronger execution. I think it's modeled now, aligned with our strategic accounts that are high-performing distributors and integrated portfolio, versus just looking at specifically pure volume. We are really focused on that profitable growth model. That's what we're using to make decisions and drive off of, not just revenue growth at all costs.
Got it. Okay. Turning to 7D Flash, can you describe the importance of this product launch? Then also, what are the placements year to date, and how is this tracking against your internal plan?
Yeah. We plan to do our 7D metrics on an annual or biannual basis. Our last metrics we disclosed was in our Q4 call in 2025, and we're really focused on our Voyager earn-out placements rather than the capital sale model, because we believe that the strength that can bring to our spine hardware portfolio and that synergy there is really strong, that pull-through. In 2025, our Voyager earn-out placements grew 30%. Then as of Q4, what we're really seeing and what's exciting for us in terms of its ability to pull through, is that those earn-out customers collectively exceeded their purchase volume commitments by more than 50%. To us, that's the real key metric that we're looking at in terms of what we're able to pull through on the spine hardware side to continue to drive deeper account penetration.
Yeah. For us, 7D was one of the main pillars of our strategy. This is why we decide, okay, in order to really take advantage of enabling technology, you need to create pull-through. If you see within the ecosystem on competitors that work in orthopedics and spine, they've been successful creating this direct relationship between placement of enabling tech and utilization of hardware. We believe on the quality of the hardware product that we have. We believe on the strength of 7D, and the metrics that Julie provided before is just a testament of the strength that we're seeing there.
All of this is always, if you think about every decision that we make, it just bring what I said before, a business that is very sustainable because you create density, you create a higher utilization, you can optimize the cash that you need in order to buy some of that.
Great. Sticking with 7D for a second, what do you think are the gating factors to broader adoption? Is it just the change in workflow, surgeon interest, sales reps, or competition?
For us, it's just we need to strengthen the collaboration. We are doing that, strengthen the collaboration between the capital team and our commercial team. One thing that we did a few months ago, was kind of reshuffle a little bit the leadership around 7D. We put in charge a person that has been a leader in spine for many years, that has a very deep connection within our distribution network. All of this is helping us to keep opening up more doors.
At the same time, what is very important is that everybody are seeing within my network that having a 7D placement in an account help for growth. It's little by little, I think that we are making very substantial progress on commercialization. At the same time, we change the strategy about how we were approaching our medical community.
One thing that we start to be focused on is the residence fellowship, big institution, something that originally the organization was not doing. All of this, entering within, keep showing the 7D FLASH technology to residents and fellow. Placing the 7D FLASH technology in a big institution, it just start to create this direct relationship between us, the technology, and the medical community. Now we start to bear the fruit because we start to see fellow, they move from the institution, now they go to work, is often happen that the first thing that they ask is for 7D in the hospital. I think that we're doing the right stuff. It's just for us, keep investing on the commercial infrastructure, keep investing on the evolution of the technology, because we believe that we have a winning horse.
Got it. I should also just say, if anyone in the audience has questions, feel free to raise your hand. Otherwise, we can keep going, but feel free to cut me off. Okay. Turning to Virata a little bit, can you talk about some of the feedback from the limited market release? What types of accounts did you specifically target while you were in limited market release? How are you planning to expand this as you're entering full market release in the second half of the year?
Yeah. Virata is important for us as organization because it's spine at the end. Pedicle screws are the product that are most utilized in the OR. Within the portfolio that we found, our Mariner, the tower system was the oldest. We embrace this journey of development, and you can imagine that we were able to bring within a system, years and years of experiences within the spine market. A lot to focus on the efficiency in the OR, on the ergonomics of the system. We start to think about what the surgeon will need to start to address everything, all of the challenges can happen during the surgery. At the same time, we have a system which was designed from the get-go with 7D in mind. We are creating a great synergy and a great experience of utilization of Virata with 7D.
The feedback that we're getting on the limited release on both, when it was for the open degenerative procedure, and now for minimally invasive procedure, been stellar. All of this motivated to make a very sizable investment on capital. There is a lot of excitement about the product coming in to the marketplace. From the commercial point of view, we are being very dogmatic how we're going to approach the market. The company has been leading historically using our cervical portfolio. There is a lot of room, a lot of accounts where there is still a limited use of our product. We are seeing a lot of low-hanging fruit where we can go because, again, we are replacing a product that was now at the end of the useful life. It's going to be a great vector of growth for us.
Got it. Can you talk about what it means that 7D and Virata were designed to be used together? What does that actually mean in practice for surgeons? Also, how much incremental revenue do you get for a case using both of these?
The first part of your question-
Yeah
Was how they work together?
Yeah. What does it mean in practice that they're designed to work together? How does that influence surgeon workflow?
Okay. What we do is, pretty much all of the enabling technology are open system by definition, so you can use it with all of the different product. What we had in mind, how can we create a much better experience utilizing Virata with 7D. 7D Flash, we call him Flash because he creates. You imagine that right now when you go in the OR, you need to spend 20, 25 minutes with competitive product in order just to start the procedure. You can flash in less than 60 seconds. You can imagine already the efficiency that you have in the system, per se. Now, when you're joining with Virata, there is a lot of little nuances between how our instruments are designed, how our instruments are recognized by the system.
There is a lot of efficiencies that we're going to bring to the surgeon on being able to go through the procedure, taking advantage of the core efficiency the 7D has, with additional efficiency on pairing the instrumentation with the enabling technology platform. A lot of excitement around what we are doing because now surgeon can even go beyond what they learn during their journey in the OR, applying now with Virata.
Got it. How much incremental revenue per case do you get for using 7D and Virata? How much of this is included in your current guidance?
Yeah. Our guidance incorporates Virata. We don't break that out specifically. Our 2026 guidance incorporates a late year launch of Virata. Then, of course, Virata will be a foundational system for us, as Massimo talked about. We have the open DGen and MIS and deformity launches that will be multi-year. We expect it to continue to contribute to our revenue growth in 2027 and beyond and be a strong contributor.
Got it. Turning to biologics for a bit. You've talked about the improvements you've seen in spine as kind of the blueprint for improving growth in biologics. I guess, what is the cause for the softness of biologics historically, and how are you planning to stabilize the business?
One thing that we did, we had within the organization, a leader with a lot of experience in biologics. We start to see some softness within the segment. We decided to change leadership in order to get a renewed focus within the vertical. That was very important to us. We are like market, second or third position in most of the categories where we participate, but the synthetic market. We said, "Okay, it's time to change the course." What we are doing, first of all, we start to try to expand the market and start to focus on the utilization of biologics outside spine, also in orthopedics. Start to use the Limb Reconstruction network that we have to start to commercialize our biologics product. At the same time, we start to open up our commercial model too.
Let's say that in the areas where we have a pretty large distributor, we tend to concentrate the distribution of hardware and biologics within one single partner. In other areas, we start to see a lot of traction, also utilizing the commercial network that has also competitive hardware. A more, let's say, consultative model around biologics. With Patrick now, we are looking at how we can expand commercially within segment. How can we be more thoughtful about how we go market to market? Finally, we start to see the vertical turn the corner. I think that we are having month-over-month, you can see, let's say, a pretty steady progress on the biologics side. I'm very pleased to see the direct impact that the decision that we made is having, and we see biologics to be a good contributor moving forward.
Therapeutic Solutions grew around 5% in Q1, which I think is around double the market growth that you guys characterized. Can you talk through what is driving this outperformance? Whether you think you can keep up this growth rate for the rest of the year.
Yeah. On OTS, one of the things that we did since we joined is really, okay, how can we leverage the network that we have in order to have a deeper penetration? We start to work very hard on creating much more synergies between all our different commercial channels, not be disjointed anymore, but be much more collaborative. There was a direct impact on all of this strategy on just looking at the number. In the STIM business, we are the market leader, and since we joined, we experienced above market growth quarter-over-quarter, which has been pretty rewarding and fantastic if you see where we are with our vertical there. At the same time, being the market leader, we start to do a lot of work to keep expanding the reach and the understanding of what this technology brings to patients.
Similar to what I said in spine, a great focus on resident fellows and teaching institution. A lot of focus on creating more a synergistic approach with the surgeon community. At the same time, keep investing on what we believe is a very differentiating factor for us, which is the customer experience that we give. When I say customer is a patient level, but also on how the patient interact with surgeon. I think the STIMConnect has been very important for us now towards all of our vertical spine and what we call fracture. We can create a more direct connection experience between the patient and the surgeons. Bringing innovation at the same time, keep leveraging the commercial network that we have.
Frankly, the fact that we experience the declassification now from Class III from Class II in the vertical is actually bringing new opportunities. Because if you think and if you follow the story, we never talk much about innovation within the vertical, but now I think that we're going to have the opportunity to start to explore how to utilize the commercial infrastructure and the commercial leadership that we have expanding outside what was the base business. Another good lever for us of growth in the foreseeable future.
In the prior guidance, it included assumptions for first half versus second half constant currency growth. I guess in light of the new guide, I wanted to talk to you guys, do you have any updated expectations for the cadence of constant currency throughout the rest of the year and updated expectations?
Just from a currency standpoint, we're not assuming any changes to current rates. Our implied guidance for the rest of the year would be about a 4% back half revenue growth, when you adjust for the CMS reimbursement change.
Got it. I think you guys have talked about greater consistency and execution. I guess, what does this look like in practice? What are the causes for some of the inconsistency in the past?
I think that at the end, when you go through all of the changes that I described in the last hour, in the last 40 minutes where we talk, it's kind of a natural effect that sometimes you have check and balances between everything that we did. Maybe the growth trajectory has not been, for some, as strong as was expected. At the same time, we always said since day one that our goal was to deliver great technology, but with profitability in mind. Our EBITDA improved since we moved, we always improved the wealth of the organization. We also improved the return to our shareholders. Optimize one with the other. With faster, yes, but it's going to be a detriment of something else.
This is why I believe that the company right now is clearly undervalued and underestimated because our story is saying that if you see we can be profitable and make great progress in markets that normally can drive a utilization resources that's higher than other markets. We were able to absorb, as said, a pretty sizable market change, without making a sudden move to, let's say, to address the challenge that we had in front of us. We were steady on our strategy. We never deviate, and we arrive in the second part of 2026, entering 2027.
I said before, we're expecting to bear the fruit of all our decisions. We kept investing in technology. The technology is getting released. We were steady on how we want to optimize our commercial network in order to have a better utilization of our resources.
We are investing now in order to support a higher growth, moving forward. I think that there is an underestimation about all of the stuff that we've done internally in order to create a company that is much more solid, maybe more solid than many in the market where we compete.
Got it. I think that's a great place to wrap up since we're at time. Thank you guys for being here.
Thank you very much.