Hello, everyone. Thank you for joining us, and welcome to the Orthofix Q3 2026 earnings call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Julie Dewey. Please go ahead.
Thank you, and good morning, everyone. Welcome to Orthofix's third quarter 2026 earnings call. I'm Julie Dewey, Orthofix's Chief IR and Communications Officer. Joining me today are our President and Chief Executive Officer, Massimo Calafiore, and our Chief Financial Officer, Julie Andrews. Earlier today, Orthofix released financial results for the third quarter ended September 30th, 2026. The press release and supplemental presentation are available on our investor relations website. A replay of this call will be posted shortly after we conclude. Before we begin, please note that our remarks include forward-looking statements. These statements involve risks and uncertainties, and actual results may differ materially. All statements other than those of historical facts are forward-looking statements. We do not undertake any obligation to revise or update such forward-looking statements, except as required by law.
Factors that could cause actual results to differ materially are discussed in our most recent filings with the SEC and may be included in our future filings with the SEC. We will also reference certain non-GAAP financial measures during today's call, including certain growth rates presented on a pro forma constant currency basis and excluding discontinued M6 artificial disc product lines. Reconciliations to the most directly comparable U.S. GAAP measures and additional information are included in our press release and supplemental materials. Here's today's agenda. Massimo will begin with business performance and operational highlights. Julie Andrews will then review our financial results and guidance. After that, we'll open the call for questions. With that, I'll turn the call over to Massimo to discuss our third quarter performance. Massimo?
Thank you, Julie, and good morning, everyone. I appreciate you joining us today. While third quarter results were below our expectation, we saw continued strength in Limb Reconstruction and Therapeutic Solutions, and further stabilization in U.S. Biologics. In U.S. Spine, market softness and unplanned supplier delays created inventory and instrument set constraints. We have a clear recovery plan and are accelerating actions to improve execution and position the business for stronger performance. We are concentrating resources behind our strongest partners and highest value technology, simplifying the portfolio and aligning costs with a more focused business. These actions are intended to establish a stronger foundation for growth, profitability, and cash generation over time. To recap this action in more detail, first, we are concentrating resources behind our strongest commercial partners. We are accelerating exits from non-strategic, lower-performing relationships and redeploying instrument sets to faster-growing core distributors.
These distributors now generate around 80% of U.S. spinal implant revenue, with a similar concentration among core products. We have already seen this strategy work in markets where we consolidated distribution around stronger partners. Our core partners' consigned assets turn around 20% faster than the loaner-heavy model used by many distributors we are exiting. This allows existing sets to support more procedures and revenue with less incremental investment. Second, we are simplifying our product portfolio and concentrating investment behind our highest value technologies. We are focusing inventory, capital, and commercial support on differentiated platforms with the greatest growth potential, including VIRATA. We continue to expect the full market launch of our VIRATA spinal implant system for open procedures later in the fourth quarter. Third, we are aligning costs and organizational resources with a more focused business.
As we simplify the network and portfolio, we expect to reduce support costs and redirect resources towards the opportunities with the strongest growth and return potential. Fourth, we are focusing our innovation pipeline on technologies with the greatest potential to drive adoption and long-term growth. That includes VIRATA and further integration of our enabling technologies, such as the 7D navigation system, for which we received two 510(k) clearances this quarter covering additional software enhancements. The combination of these actions and the supplier delays are creating near-term net sales pressure as we exit lower-value business. We expect this transition to unfold over the coming quarters, with the anticipated fourth-quarter impact reflected in our updated guidance. We are carefully sequencing relationship exits and asset redeployment with the goal of maintaining surgical support and product availability, while positioning our strongest partners for growth. We expect progress in stages.
First, we anticipate improved inventory and instrument set availability and utilization among core distributors. Next, we expect stronger growth from core products and partners. Over time, we expect those improvements to support better channel productivity, profitability, and cash conversion. While spine remains our most immediate focus, we continue to make progress in several other parts of the portfolio. U.S. Biologics net sales were roughly flat sequentially, despite the typical seasonal softness, providing another sign of stabilization. October offered another encouraging data point, as the business returned to positive year-over-year growth. Our priority is to build on this momentum through stronger account execution, higher utilization, and continued focus on priority products, including OsteoCove. In global Limb Reconstruction, growth in the quarter was driven by strong international demand and continued adoption of FITBONE and TRUELOK Elevate.
These two platforms are driving the majority of the franchise's growth and address large unpenetrated markets where we believe our differentiated technology can support sustained growth. In the U.S., we remain focused on increasing distributor productivity and expanding market development activities to convert clinical interest into broader adoption and net sales growth. As those capabilities mature, we expect improved U.S. growth and greater predictability. We also continue to invest in innovation across Limb Reconstruction. In September, we submitted a 510(k) pre-market notification for an automated version of the TRUELOK Elevate system, designed to improve the patient experience and support a key growth driver. We are also pursuing potential additional indications, including diabetic foot ulcer, a large and underserved market where we believe our core technologies may have broader clinical application. These investments are intended to expand our addressable market, strengthen our clinical differentiation, and support long-term value creation.
Turning to Therapeutic Solutions, the business delivered 4% volume growth, which was above market growth, while maintaining attractive margins and strong cash generation, reinforcing its role as a stable contributor to the portfolio. Our priority is to improve prescription conversion and use digital capabilities, including AccelStim 2.0 and STIM onTrack, with the goal of strengthening physician and patient engagement while maintaining investment discipline. Taken together, our immediate priority is improving U.S. Spine execution while sustaining momentum across the stronger areas of our portfolio. Across the business, we remain focused on disciplined execution, thoughtful capital allocation, and measurable progress. With that, I will turn the call over to Julie Andrews to review our third-quarter financial results and outlook.
Thank you, Massimo, and good morning. For purposes of consistency, the growth rates I will reference today are on a pro forma constant currency basis and exclude the discontinued M6 product lines. Third-quarter reported net sales were $207.9 million, an increase of 2.3% year-over-year. Growth in Limb Reconstruction and Therapeutic Solutions helped offset weaker performance in spine. The drivers varied by business. Let me walk you through the quarter in more detail. Global spinal implants, biologics, and enabling technologies generated $107.4 million in net sales, a decrease of approximately 1% versus the prior year period. Global spine fixation net sales increased 1% on a constant currency basis, while U.S. Spine fixation declined 5%. Performance was affected by a softer market-driven procedural environment and continued declines among smaller distributors.
In addition, supplier delays and instrument set constraints limited our ability to consistently support demand among our top 30 distributors, whose pace of growth weakened but remained above the market. The financial effects of these actions are reflected in our updated guidance, which I will discuss shortly. In biologics, stabilization in the U.S. continued in the third quarter, with net sales roughly flat sequentially despite typical seasonal softness. While the recent trend is encouraging, we recognize that sustained improvement is still needed. Therapeutic Solutions generated $64 million in net sales, up 4% year-over-year. The business continued to deliver steady revenue growth, strong margins, and cash generation. Global Limb Reconstruction delivered net sales of $36.4 million in the third quarter, an increase of 9% on a constant currency basis. Growth was driven by strong international demand and continued adoption of FITBONE and TRUELOK Elevate.
U.S. growth was essentially flat in the quarter, but we believe the underlying trajectory and portfolio mix are improving. FITBONE and TRUELOK Elevate each grew in excess of 20%, providing encouraging evidence that the transition toward high-growth Limb Reconstruction opportunities is gaining traction. The remaining pressure was concentrated in a limited number of product lines and distributor relationships rather than across the franchise. Moving down the P&L, non-GAAP adjusted gross margin was 70.7%, reflecting an unfavorable geographic mix during the quarter. Adjusted EBITDA was $26 million, or 12.5% of pro forma net sales, compared with $24.6 million, or 12.1% in the prior year period. The improvement primarily reflected continued cost discipline and resource alignment, partially offset by lower spine revenue, unfavorable geographic mix, and reduced operating leverage. We ended the quarter with $86.9 million in cash equivalents, and restricted cash.
The change in cash primarily reflected working capital timing, investment instrument sets ahead of the commercial launch of VIRATA, and inventory to support our European MDR strategy. Let me now turn to our updated full-year outlook. Again, all measures are provided on a non-GAAP pro forma basis, reflect current foreign currency exchange rates, and exclude the discontinued M6 product lines. Our outlook does not contemplate any additional exchange rate changes during the remainder of the year. We now expect full-year 2026 pro forma net sales in the range of $825 million-$830 million. The revised guidance reflects third-quarter performance, continued softness in the spine market, and the anticipated impact of accelerated actions to improve U.S. Spine commercial execution, inventory and instrument set availability, and productivity. It also reflects the timing of international Limb Reconstruction orders and foreign exchange headwinds.
We now expect full-year 2026 non-GAAP adjusted EBITDA of $86 million-$88 million. The impact of lower revenue and unfavorable mix is expected to be partially offset by continued cost discipline, lower incentive compensation, and resource allocation actions. Looking to the fourth quarter, we expect sequential growth from two primary drivers: normal seasonality and inventory purchases under the European distributor arrangement. As previously disclosed, most of the approximately $15 million 2026 net sales benefit from the European distributor arrangement should be recognized in the fourth quarter. As a reminder, the European distributor arrangement creates a temporary free cash timing headwind in 2026 because inventory-related cash outflows occur this year, while cash receipts are expected in 2027. This timing does not change our view of the business's underlying earnings power, cash-generating potential, or long-term economics.
Consistent with our standard practice, we expect to provide formal 2027 guidance on our fourth quarter call. As previously disclosed, our European MDR strategy for spine is expected to create an approximately $22 million net sales headwind in 2027 while MDR requirements are completed. This is a temporary regulatory-driven impact that reflects the timing of revenue recognition, not a change in underlying demand. As we move through this transition, our focus remains on disciplined execution. Now let me turn it back to Massimo for closing remarks. Massimo?
Thank you, Julie. Our priorities are clear: improve U.S. Spine execution, stabilize biologics, build on the strengths of Limb Reconstruction Therapeutic Solutions, and maintain financial discipline. The actions are underway, and our focus is translating them into measurable operating and financial progress. We look forward to updating you as we execute against these priorities. Before we take your question, I want to thank our employees and commercial partners for their continued commitment to supporting surgeons and patients around the world. With that, let's open the call for questions.
Thank you. We will now begin the question-and-answer session. Please limit yourself to one question and a couple of follow-ups. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Matt Blackman with TD Cowen. Your line is open. Please go ahead.
Hi, everyone. It's Drew on for Matt today. Massimo, maybe just start with you. Apologies, this is a bunch of questions kind of rolled into one. We all know about the ongoing efforts to revamp the distributor network in spine, but maybe can you discuss a little more of what you're seeing in terms of market softness versus the distributor network, and really what's the lift ahead to get this business even to a market level growth? What's the steps over the next three months, six months, and 12 months? Just how should we be kind of thinking about that and the impact for the VIRATA launch as well?
Yeah. Thank you for the question. Yeah, this quarter has been, let's say, more difficult than the precedented because what you said. We saw a market softness that normally is not impacting us, but we saw happening in some of our top customers, so indicating that the procedural volume was not as strong as we saw the previous quarter. Together, combining the optimization that we are doing around our distributor, we had some delay on delivery of instrumentation and implant from some of our key suppliers. We took measure to make sure they are going back on track, and so this is reflecting on our, let's say, refined guidance. But the strategy is not changing. I think now we start to Our business is concentrated, or 80% of our business is concentrated in our top distributors.
We are moving ahead, stabilizing our supply chain, and we made a lot of investment, as previously said, on the launch of VIRATA, which is on track to be on Q4. So, what I'm expecting now is, let's say, going through this current quarter, but I see that we're going to be pretty well positioned for 2027. So, in brief, you're going to see an improvement this stage, but the strategy is not changing. We're later focused on making sure our top distributor are well-equipped to drive the growth together with 7D.
Got it. Just as a follow-up there, when you look at the distributor network, I think you were just saying that there was some market softness, but just to push you on that a little bit, what is your confidence that this is actually procedural softness versus any type of market share loss in the quarter, or as you are thinking about the fourth quarter?
Yeah, because of what I said before, we saw always a pretty stable performance, especially in our top accounts. The cases were not here this quarter. I do not believe that we are losing market share per se. I think that our core distributor are still growing well above the market, and that one for us is our leading indicator of how we are performing. Because I said before, everything else is kind of part of our strategy. We talked for several quarter the fact that we are exiting a bunch of distributors that now represent just 20% of our overall business. This quarter and in Q4, we need just to deal with this temporary disruption of our supply chain, but the fixes are underway to be ready to close the year strong and start 2027.
Got it. Julie, just turning to you. Obviously, we all want to know 2027 and your thoughts there, and there is a lot of moving pieces. Just as a general framework, should we be thinking that Limb Recon and Therapeutic Solutions can grow at or above market levels, and that maybe the fourth quarter spine revenue or implied spine revenue is at least a good way or reasonable way to think about a run rate for 2027?
Yeah, I mean, Drew, we are not providing guidance. I think generally our comments and what we have seen in our performance with Therapeutic Solutions and Limb Recon is above market growth. Then, we do have the MDR headwind next year against the spine business that will be impacting that growth rate overall. So, I think it is early to comment on exactly what spine will look like, but I think generally, once you take out the Q4 or the 2026 MDR revenue, we should expect to see a kind of a Q3, Q4 performance as we enter 2027.
That's all from me. Thank you.
Thank you.
Your next question comes from the line of Tom Stephan with Stifel. Your line is open. Please go ahead.
Great. Hey, guys. Thanks for taking the questions. I will try to stick with 2027. On a core revenue basis, backing out the Europe dynamics, I guess directionally, should we still be thinking about positive revenue growth next year? Again, considering Limb Reconstruction, Therapeutic Solutions, and then it sounds like, Massimo, to your comments, you feel you will be pretty well positioned for 2027 on the U.S. Spine side. Again, on a kind of core revenue basis, is positive revenue growth kind of directionally the right place to be when thinking about 2027? And I have a follow-up.
Yeah. Again, not providing full guidance on 2027, but yeah, I mean, backing out the MDR, we would expect our core revenue to be in the positive territory as we work through these supplier issues in the fourth quarter and come out with a full quarter of VIRATA launch for Q1 of 2027.
Got it. Super helpful. Then I will shift gears a little bit. Massimo, this might be for you, but as we look at segment performance, it has been a little varied. I hope that is fair to say. Limb Reconstruction, strong. Biologics, it sounds like, is stabilizing in what appears to be maybe a tougher environment. BGT, still solid. Then conversely, spine fixation, a bit weaker. So, Massimo, can you just give us the latest on kind of the company's current view of the portfolio, and maybe potential opportunities to monetize, to rationalize, optimize, et cetera? Thanks.
Yeah. No, thank you for the question. You are right. Right now, our story, it kind of has two different sides. The strategy that we implemented in the last couple of years is clearly bearing the fruit in some side of the business, and I was very pleased to see biologic start to perform as we were expecting at ending the year. So that one, I think that it reflects that the choices that we made are paying off. Around our spine segment, if you think about, we have been very consistent on the measure that we took. This quarter has been a little choppy for some market dynamics and some unexpected delays from some of our core suppliers. We do not talk about and I do not want to comment about strategic decision that we want to take.
I want to just comment that we are not changing our strategy when it is just to go through some temporary condition that we are seeing in spine and keep position in the organization and all of the segment to perform as we expect. But I said earlier, strategically, the decision that we made couple of years ago in some of the segment are paying off when it is just to go through some temporary market dynamics.
Makes sense. Thanks again.
A reminder, if you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. Your next question comes from the line of Caitlin Roberts with Canaccord. Your line is open. Please go ahead.
Great. Thanks for taking the questions. Just to start on the supply challenges specifically, what were they? Were the challenges concentrated in any product lines? Just where are you guys in recovering from that?
It was, let's say, concentrated some delay on our instrument manufacturing, some specific product line around interbodies. We took action and we start a strong collaboration with our suppliers, and we feel that we course-correct what was supposed to be course-corrected with them. I think that we are about to be out for this. Between end of Q4, we are going to be, again, ready to support the end of the year and starting of 2027. It was kind of unexpected, but we all work together in order to rectify.
Understood. Then just any color on the 7D demand in the quarter and just on also the two 510(k)s that you called out?
Yeah. We keep investing in our technology platforms in general. So you saw that on the 510(k)s that we got with 7D kind of enhance some of the capabilities that they're already there, and we gained some optimization of the workflow. So very pleased about what we did there. When we started, our customer base increased, and we got a lot of feedbacks to make sure that the platform keep improving, and the team did a fantastic job. Taking the comment and keep upgrading the platform. About this quarter, I do not think that we are not giving any general information about our performance, but what I can tell you is that now you start to see the regular seasonal demand for capital that you see every year.
I will add this, Caitlin. Our earnout customers, what we have mentioned before, we still are seeing them exceeding their contracted spinal and hardware and biologics purchase commitments. So that continued into Q3 as well.
Understood. Thanks so much.
Your next question comes from the line of Mike Petusky with Barrington Research. Your line is open. Please go ahead.
Hey, good morning. This is probably for Julie. Just on the supplier issue, when you sort of look at the reduced guidance, what percentage of that reduced guidance is sort of associated with the headwinds associated with the supplier issue?
Yeah. We are not providing exact breakout of all of the components, but I would say, we had a miss in Q3 that is contemplated in the guidance, and then as we look into Q4, a combination of the supplier delays, market softness, which we saw in our top accounts, as well as then some international and recon timing of orders and some FX headwind are the components that make it up.
Okay. I am just curious if it feels like maybe somewhere in the last couple of quarters you have provided this, and I do not think I heard it today, but maybe I missed it. Did you guys disclose approximately how much your core distributors, your top distributors grew in the quarter?
We did not. We said they grew above market, but weakened pretty significantly compared to the growth that we've seen, which again, we believe is two things, the supply challenges and then some market softness.
Okay. Could you say whether the growth was above or below 5%? Just in any way to give a sense?
Yeah, I would say it slowed to the mid-single digits.
Okay. All right. I suspect I know the answer to this, but I'm going to ask it anyway. Last quarter, you guys talked about potentially reintroducing longer-term financial targets. Feels like maybe now's not quite the time, but I'm just curious, when you come out with 2027, is there any chance that there'll also be an LRP there, or is 2027 enough work?
I think we'll have to play that out over the coming months, Mike. We're not committing to the timeline at the moment.
Okay. All right. That's all I got. Thanks.
Thank you.
There are no further questions at this time. I will now turn the call back to Julie Andrews for closing remarks.
Thank you for your questions and for joining us today. We appreciate your time and interest in Orthofix. If you need any additional information, please reach out. We look forward to updating you next quarter, and this concludes today's call.
This concludes today's call. Thank you for attending. You may now disconnect.