Orthofix International NV Stock

Hello, everyone. Thank you for joining us, and welcome to the Orthofix Q3 2026 Earnings Call. [Operator Instructions] 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 30, 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 continuous strength in Limb Reconstruction and therapeutic solution and further stabilization in U.S. biologic.

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 the 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're concentrating resources behind our strongest commercial partners. We are accelerating exits from nonstrategic 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 the strategies work in markets where we consolidated distribution around stronger partners.

Our core partners consigned asset turn around 20% faster than the loaner heavy model used by many distributors we are exiting. This allow 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 platform with the greatest growth potential, including VIRATA.

We continue to expect the full market launch of our VIRATA spinal implant system open procedure later in the fourth quarter.

Third, we are aligning cost and organizational resources with a more focused business. As we simplified the networking 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 17 navigation system for which we received two 510(k) clearances this quarter covering additional software enhancement.

The combination of this action 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 deployment with the goal of maintaining surgical support and product availability while position our strongest partner for growth.

We expect progress in stages. First, we anticipate improved inventory in the 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 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 [ osteocolve ].

In global Limb Reconstruction, growth in the quarter was driven by strong international demand and continued option of 7D FLASH and TrueLok Elevate. These two platforms are driving the majority of the franchise's growth. and address large and penetrated 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 continued to invest in innovation across Limb Reconstruction. In September, we submitted a 510(k) premarket notification for an automated version of the TrueLok Elevate system, designed to improve the patient experience and support the key growth driver.

We're also pursuing potential additional indication, 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. strengthened 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 priorities to improve prescription conversion and use digital capabilities, including AccelStim 2.0 and [ steam ] on track, 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'll 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'll 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 to 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 in 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'll 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 and 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 limey construction 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%, and 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, cash equivalents and restricted cash. The change in cash primarily reflected working capital timing, investment instrument sets ahead of the commercial launch of VIRATA in 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 reflects 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 to $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 to $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' 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, stabilized biologics build on the strength of Limb Reconstruction therapeutic solution 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 questions, 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.

[Operator Instructions] Your first question comes from the line of Matt Blackman with TD Cowen. Please go ahead.

It's Drew on for Matt today. Massimo, maybe just start on part with you. And apologies if this is a bunch of questions kind of rolled into one. But I mean, we all know about the ongoing efforts to revamp the distributor network in spine.

But maybe can you discuss a little bit more of like 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? Like what's the steps over the next 3 months, 6 months and 12 months? Just how should we be kind of thinking about that and the impact for the VIRATA launch as well?

Yes. Thank you for the question. Yes, 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 procedure volume was not a 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 implants from some of our key suppliers. We took a 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 that going through this current quarter, but I see that we're going to be pretty well positioned for of 2027.

So in brief, it's going to -- you're going to see an improvement at this stage and -- but the strategy is not changing. We are laser focused on making sure we're a top distributor are well equipped to drive the growth together with.

Got it. And just as a follow-up there. When you look at the distributor network, I think you're just saying that there was some market softness. But just to push you on that a little bit, what's your confidence that this is actually procedural softness versus any type of market share loss in the quarter or as you're kind of thinking about the fourth quarter?

Yes. Because of what I said before, we saw always a pretty stable performance, especially on our -- in our top accounts. And just the case we're not here this quarter. I don't believe that we are losing market share per se. I think that we -- our core distributors are still growing well above the market. And that one for us is a leading indicator of how we are performing.

Because I said before, everything else is kind of part of our strategy. We talked for several quarters the fact that we're exiting a bunch of distributors that now represent just 20% of overall business. And 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 in start of 2027.

Got it. And Julie, just turning to you. Obviously, we all want to know 2027 and your thoughts there. And there's a lot of moving pieces, but 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 a reasonable way to think about a run rate for 2027.

Yes. I mean, Drew, we're not providing guidance. I think generally, our comments and what we've seen in our performance with therapeutic solutions and Limb Recon is above market growth. And 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's 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 kind of a Q3, Q4 performance as we enter as we enter 2027.

Your next question comes from the line of Tom Stephan with Stifel.

Great. I'll try to stick with 2027. So -- on a core revenue basis, backing out the Europe dynamics, I guess, like directionally, should we still be thinking about positive revenue growth next year, again, considering lime construction, therapeutic solutions. And then it sounds like Massimo to your comments you feel you'll be pretty well positioned for '27 on the U.S. spine side.

So again, on a kind of core revenue basis, is positive revenue growth kind of directionally the right place to be when thinking about '27? And then I have a follow-up.

Yes. Again, not providing full guidance on 2027, but yes. I mean, backing out the [ MDR ], I mean, we would expect our core revenue to be in the positive territory as we work through the supplier issues in the fourth quarter and come out with a full quarter of VIRATA launch for Q1 of 2027.

Got it. Super helpful. And then I'll shift gears a little bit. Massimo, this might be for you. But as we look at segment performance, it's been a little varied. I hope that's fair to say. Limb Reconstruction is strong. Biologics, it sounds like it's stabilizing and what appears to be maybe a tougher environment, BGTs still solid. And 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?

Yes. Thank you for the question. And you're right. Right now, our story kind of has two different sites, like 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 ending the year. So that one is the one I think that reflects the choices that we made are paying off.

Around our Spine segment. If you think about, we have been very consistent on the measures that we took, this quarter has been a little choppy for some market dynamics and some unexpected delays from our -- some of our core suppliers. So it's not -- we don't talk about another 1 to comment about strategic decision that we want to take. I want to just comment that we are not changing our strategy, when it just to go through some temporary conditions that we're seeing in spine and keep position in the organization and all of the segment to perform as we expect.

But as said earlier, strategically the decision that we made a couple of years ago in some of the segment are paying off. We need just to go through some temporary market dynamics.

[Operator Instructions] Your next question comes from the line of Caitlin Roberts with Canaccord.

Great. Just to start on the supply challenges specifically, what were they were the challenges concentrated in any product lines. And 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 inter-parties.

But we took action and we started a strong collaboration with our suppliers, and we feel that we are -- we cross correct, was supposed to be cross corrected with them. So I think that we are about to be out for this. So between end Q4 we're going to be, again, ready to support end of the year and starting in 2027, but was kind of unexpected at we all work together in order to rectify.

Understood. And then just any color on the 7D demand in the quarter and just on also the two 510(k) that you called out?

Yes. So we keep investing in our technology platforms in general. You saw that on the 510(k)s that we got with 7D kind of enhanced some of the capabilities that they're already there and some -- 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 feedback to make sure that the platform keeps improving. And the team did a fantastic job taking the comment and keep upgrading the platform. About this quarter, on thing 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.

And I will add this, Catlin. Our earn-out customer is what we've mentioned before. We still are seeing them exceeding their contracted spinal and hardware and biologics purchase commitments. So that continued into Q3 as well.

Your next question comes from the line of Mike Petusky with Barrington Research.

Probably this for Julie. Just on the supplier issue. I mean, when you sort of look at the reduced guidance. I mean what percentage of that reduced guidance is sort of associated with the headwinds associated with the supplier issue?

Yes. We're not providing exact breakout of all of the components, but I would say we had a miss in Q3 that's in the -- 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 in some international and recon timing of orders and some FX headwind or the components that make it up. .

Okay. And I'm just curious if it feels like maybe somewhere in the last couple of quarters, you've provided this. And I don't 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. I mean could you say whether the growth was above or below 5%? I mean like in any way, give us a sense.

I mean, yes, I would say it slowed to the mid-single digits.

Okay. All right. And then 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. It feels like maybe now is not quite the time. But I'm just curious, when you come out with '27, is there any chance that there will also be an LRP there? Or is '27 enough work?

I think we'll have to play that out over the coming months, Mike, we're not committing to the time line at the moment.

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.

Thank you for standing by. At this time, I would like to welcome everyone to the Orthofix Second Quarter 2026 Earnings Call. [Operator Instructions]

I would now like to turn the call over to Julie Dewey.

Thank you, and good morning, everyone. Welcome to Orthofix's Second Quarter 2026 Earnings Call. I'm Julie Dewey, Orthofix's Chief IR and Communications Officer. Joining me today are President and Chief Executive Officer, Massimo Calafiore; and Chief Financial Officer, Julie Andrews.

Earlier today, Orthofix released its financial results for the second quarter ended June 30, 2026. A copy of the press release and supplemental presentation are available on our Investor Relations website, and 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. 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 start with business performance and operational highlights. Julie Andrews will follow with our financial results and guidance, then we'll open the call for Q&A.

With that, I'll turn the call over to Massimo to discuss our second quarter performance and the progress we're making across our strategic priorities. Massimo?

Thank you, Julie, and good morning, everyone. I appreciate you joining us today. Our second quarter results provide further evidence that the operational actions we have taken over the past year are showing up more clearly in the business. While that progress is encouraging, our transformation remains a work in progress, and we are staying disciplined in how we evaluate growth quality, commercial productivity, and returns.

We delivered 5% pro forma constant currency net sales growth over prior year and saw encouraging trends across several areas of the portfolio, including double-digit growth in Global Limb Reconstruction and Spine Fixation, sequential momentum in Biologics, and the restoration of Medicare reimbursement for bone growth stimulators, which removes a meaningful headwind for our Therapeutic Solutions business as we enter the second half of the year.

While we recognize that transformations are rarely linear and not every part of the portfolio will improve at the same pace, we believe Orthofix today is operating from a stronger position than it was a year ago. Our approach remains disciplined and focused. We believe the underlying drivers of our performance are becoming more constructive, supported by clearer execution priorities and better visibility in key parts of the business.

With that context, let me walk through our business performance in Q2, starting with Spine. In Spine, Global Spine Fixation net sales grew 10% on a constant currency basis, with U.S. Spine Fixation net sales up 3% in the quarter. Our top 30 distributors, who represent approximately 80% of our Spine Fixation sales, continued to perform well. At the same time, we saw a steeper decline across the remaining smaller distributors, where productivity has been below our expectation for several quarters.

We are actively evaluating where we can generate the best long-term returns among this group. As part of the process, we are being disciplined about where we invest resources and where we make choices to consolidate or exit relationships that are not delivering sustainable growth. This approach reflects our focus on profitable growth and strong returns. We expect these challenges with our smaller distributors to continue through the balance of the year. Longer term, our objective is to build a higher quality, more productive distributor network that can support sustainable growth, stronger adoption of new products, and better returns on future commercial investment.

We are also preparing to bring new innovation into the channel. We completed our first clinical cases with our VIRATA minimally invasive system in Q2 and are continuing to prepare for the full market launch of our VIRATA Spinal Implant System later in the fourth quarter.

Importantly, the initial surgeon feedback has been encouraging and supports our continued focus on building an integrated procedural platform that combines VIRATA with our interbody solution, surgical access technology, and 7D Enabling Technologies portfolio. Beyond spine, we believe early signs indicate that our focused execution is contributing to better performance in areas that have been under pressure.

In Biologics, we saw encouraging signs that the business is moving in the right direction. Net sales were approximately flat year-over-year, representing a marked improvement from the contraction we experienced through 2025. This was the second consecutive quarter of improved year-over-year performance, moving from double-digit declines last year to approximately flat performance in Q2.

While we are encouraged by this progress, we believe more consistency is needed before declaring a sustained return to growth. Our priority now is converting this more constructive trajectory into durable growth, supported by stronger account engagement, higher utilization, and targeted commercial focus around key products such as OsteoCove bioactive synthetic bone graft. To further support the long-term growth potential of the business, we are pairing improved commercial execution with targeted investment in clinical evidence generation for OsteoCove and Virtuos and product registry for Strand Plus. This investment is intended to support a more durable recovery.

We saw a different but equally important dynamic in Therapeutic Solutions, where underlying demand remained resilient despite the reimbursement pressure that affected part of the quarter. Therapeutic Solutions, formerly Bone Growth Therapies, delivered 3% year-over-year net sales growth despite the impact from the Medicare reimbursement decrease that was in effect for a portion of the second quarter. That performance reinforces the durability of the franchise, which continued to benefit from steady demand, a strong margin profile, and favorable cash generation characteristics.

We were also pleased that CMS restored Medicare reimbursement for bone growth stimulators to its prior level following stakeholder feedback, including concerns we raised. This decision removes a meaningful headwind and supports improved second half visibility, with utilization and prescribing trends during the quarter remaining constructive. As we return to a more supportive reimbursement environment, we plan to continue investing in elevating the patient and physician experience within the Therapeutic Solutions franchise.

During the quarter, we launched AccelStim 2.0. This award-winning bone growth therapy device was redesigned with a streamlined form factor to provide enhanced ease of use. It is now compatible with our STIM onTrack mobile app and STIM MD physician platform, giving patients and physicians greater visibility into device utilization and therapy progression, further strengthening the value proposition of the franchise. We view Therapeutic Solutions as more than a highly profitable franchise. Its established physician and patient reach provides a valuable channel for evaluating adjacent growth opportunities where we see clear clinical relevance and attractive returns.

Global Limb Reconstruction demonstrated solid performance during the quarter, supported by strong international momentum and sustained demand across key product families. Net sales grew 11% on a constant currency basis, led by the TrueLok Elevate, and FITBONE. In the U.S., growth was below our expectation, but the primary dynamic was not a lack of clinical interest. Rather, we are still building the commercial infrastructure required to more consistently convert this interest into revenue in what remains an emerging limb reconstruction market.

Our focus is on improving distributor productivity, expanding market development activities, and increasing commercial consistency. As those capabilities mature, we expect U.S. performance to become more consistent over time. We also see opportunities to extend our limb reconstruction expertise into adjacent areas of unmet clinical need. One example is diabetic foot ulcers, a large and underserved market where we believe our core technologies may have broader clinical applications.

Our near-term focus is on generating the clinical evidence needed to support a potential expanded indication while maintaining a disciplined approach to investment and development. We view this as an important pipeline opportunity that could expand the reach of our Limb Reconstruction portfolio and support durable long-term growth.

To recap, Q2 showed tangible progress in several areas of the business, while also reinforcing where continued execution is required. Our focus remains on improving quality of revenue, strengthening commercial productivity, and building a more consistent path to profitability and cash generation. Just as importantly, we believe the combination of focused innovation, a more productive commercial organization, and disciplined capital allocation positions us to create sustainable long-term value for shareholders.

With that, I'll turn the call over to Julie Andrews to review our financial results and guidance.

Thank you, Massimo, and good morning. For purposes of consistency, the growth rates I'll reference today are on a pro forma constant currency basis and exclude the impact from discontinued M6 product lines. From a financial perspective, Q2 results reflected improving revenue trends across several areas of the portfolio, while profitability was impacted by geographic mix and continued investment in priority growth initiatives.

Let me briefly review performance by business segment. Global Spinal Implants, Biologics and Enabling Technologies generated $109 million in net sales, an increase of 4% versus the prior year period. Growth was led by Spine Fixation, which benefited from continued international momentum and timing of international distributor orders.

Therapeutic Solutions generated $64.2 million in net sales, up 3% year-over-year. The business grew despite temporary reimbursement pressure, reinforcing our view that underlying demand remains resilient. With Medicare reimbursement restored, we expect Therapeutic Solutions to contribute more favorably in the second half.

Global Limb Reconstruction delivered net sales of $37.7 million in the second quarter, an increase of 11%. Growth was driven by strong international demand and continued adoption of key product families, including TrueLok Elevate and FITBONE. While growth in the U.S. was more modest during the quarter, our second half assumptions reflect greater commercial productivity, the lapping of sunsetting product lines, and continued prioritization of our highest return growth opportunities.

Moving down the P&L. Non-GAAP adjusted gross margin was 71.7%, reflecting an unfavorable geography mix during the quarter. Adjusted EBITDA was $20.1 million. While net sales trends improved during the quarter, profitability was impacted by geographic mix, credit losses in certain international markets, and continued investment in key launches, partially offset by ongoing cost optimization initiatives. We remain confident that the resource alignment and cost actions underway will support our full year profitability outlook. We ended the quarter with $104.4 million in total cash, including restricted cash, providing us with flexibility to support both our operating priorities and strategic investments.

Before turning to guidance, I want to provide context around our European MDR strategy for spine that is reflected in our updated net sales outlook and is important to understand and model appropriately. As background, SeaSpine made the decision in 2022 to exit the European spine market and focus resources on the U.S., and that strategy remains in place following the merger. Accordingly, we had not been pursuing MDR compliance for the Spine portfolio.

More recently, one of our largest European distributors expressed strong interest in continuing to sell some of our spine products in its territory. We entered into a strategic contractual arrangement under which the distributor is funding our MDR certification-related work required to support continued market access for these spine products. This allows us to preserve a targeted opportunity in Europe, while maintaining our disciplined investment priorities.

To support this arrangement, the distributor intends to purchase sufficient inventory in 2026 to maintain continuity of supply and ensure continued market access while MDR certification and related country-specific market access requirements are completed. These purchases are included in our updated 2026 net sales outlook. The key takeaway is that we expect this arrangement to contribute approximately $15 million of incremental net sales in 2026, with the majority expected to be recognized in Q4.

We are calling this out explicitly because it would be a discrete timing benefit and to be distinguished from the underlying run rate performance of the business. As a result, the arrangement is also expected to create an approximately $22 million net sales headwind in 2027, while MDR requirements are completed.

Let me now turn to our updated full year outlook. Again, all measures are provided on a non-GAAP pro forma basis, are based on current foreign currency exchange rates, and do not contemplate any additional exchange rate changes during the remainder of the year. We now expect full year 2026 net sales in the range of $845 million to $855 million, representing approximately 5% pro forma constant currency growth at the midpoint and an increase of approximately $7 million from the outlook we provided in May.

The updated outlook reflects underlying business trends plus several discrete factors that are shaping our expectations for the balance of the year. First, Medicare reimbursement for bone growth stimulators has been restored to its prior level retroactive to May 18, 2026. Second, our strategic arrangement with our European distributor contributes revenue associated with inventory purchases tied to the MDR transition. Third, we are seeing encouraging trends across several areas of the business, including stabilization in Biologics and continued strength in portions of Limb Reconstruction. And fourth, those positives are offset by ongoing softness among smaller U.S. spine distributors whose performance remains below our expectations and is reflected in our outlook for the balance of the year.

We are increasing our adjusted EBITDA guidance range to $95 million to $98 million. While the MDR-related distributor revenue carries a different margin and timing profile than our core revenue, the restoration of Medicare reimbursement, ongoing cost actions, and continued operational progress returns our profitability outlook to the level we expected before the Medicare reimbursement reduction was introduced in May. Our focus remains on balancing net sales growth, profitability, and cash generation as we execute against our long-term value creation priorities.

As you think about the second half, we expect third quarter net sales to generally be consistent with Q2 as reimbursement restoration and improving trends in several businesses are expected to be largely offset by ongoing softness among smaller U.S. spine distributors. Looking to the fourth quarter, sequential growth is expected to be driven by the timing of inventory purchases associated with the European distributor arrangement and normal seasonality. We currently expect the majority of the approximately $15 million 2026 net sales benefit to be recognized in Q4.

I also want to note that the European distributor arrangement creates a temporary free cash flow timing headwind in 2026, as some cash receipts are projected to occur in 2027, while inventory-related cash outflows occur this year. Importantly, this timing dynamic does not change our view of the underlying cash-generating potential of the business or the quality of earnings reflected in our outlook.

Taken together, we believe our updated outlook reflects more favorable performance indicators in key areas of the business, balanced by the timing of the MDR-related net sales benefit and the continued softness among smaller U.S. spine distributors. We remain focused on improving growth quality, expanding profitability, and strengthening cash generation.

Now let me turn it back to Massimo for closing remarks. Massimo?

Thank you, Julie. Q2 was an important proof point in our transformation. We made progress in several parts of the business, but we remain focused on consistent execution, disciplined investment, and improving the quality of our growth. We believe Orthofix is entering the second half with greater clarity, more favorable trends across several businesses, and a focused approach to driving profitable growth and cash generation.

Our priorities remain clear: improving commercial productivity, advancing differentiated innovation, and generating the clinical evidence needed to support future growth opportunities. Our objective is not growth at any cost. It is durable, profitable growth, supported by better commercial productivity, disciplined investment, and stronger business fundamentals. Before we take your questions, I want to thank our team members and commercial partners around the world for their continued commitment and execution.

With that, let's open the call for questions.

[Operator Instructions] And your first question comes from the line of Caitlin Roberts with Canaccord Genuity.

I guess just to start on guidance. You increased the guidance again, but not as much as prior to the CMS changes. Maybe some more color on what's changed since that time, whether that's the partial quarter impact of the pricing change or if there's more in there from possibly the small spine distributor challenges? Any color on that would be great.

Yes. Thanks, Caitlin. So the updated outlook reflects a combination of underlying business trends and several discrete factors that are shaping our expectations for the balance of the year. So first, on the positive side, we have the restoration of the Medicare reimbursement, which is approximately a $12 million benefit, as well as the European distributor arrangement, which is expected to contribute approximately $15 million of incremental net sales in 2026.

We're also seeing stabilization across and encouraging trends across several areas of the business, including Biologics and portions of our Limb Reconstruction business. At the same time, those factors are being offset by the ongoing softness among our smaller U.S. spine distributors where performance remains below our expectations, and that's reflected in our outlook for the balance of the year. And we believe it was important to be transparent about both the progress we're seeing and the execution risk that remains. And those are the factors that are influencing our reset of our guidance.

Yes. And like every transformation, it is not always linear, and we didn't change our main thesis to be very disciplined on prioritizing quality revenue. So what we see, the softness on this 20% of our smaller distributors is not related to demand, it's really related to the spine channel. And we didn't feel to change how we operate in the business.

But at the same time, I think that it is very important to highlight the fact that we are maintaining our EBITDA target. At the same time, we are doubling down on innovation. I'm sure that you heard about our investment that we're making in Biologics. Biologics is recovering very well. We strongly believe in our product and investing in clinical evidence for OsteoCove, Virtuos, and starting a big registry for Strand Plus.

In orthopedics, we see a great opportunity with the diabetic foot ulcer, and we just submitted our IDE to the FDA, and we are waiting for their feedback. All of this to open up a very great and potentially very lucrative opportunity for the organization.

Understood. And then just any thoughts on reinstating an LRP now with the pricing decision reversed and the guidance for this year increased?

Yes. I think we're still assessing where we are and looking at our actions, particularly related to the smaller spine distributors and how that may impact our LRP over the next year or so.

[Operator Instructions] And your next question comes from the line of Tom Stephan with Stifel.

I wanted to start off on the Europe MDR kind of distributor order dynamic and sort of core growth. So basically, as we think about apples-to-apples guidance on revenue compared to your previous outlook, we should be taking off that $15 million of sales that were not previously there. Like that's incremental. Is that correct as we're trying to get to sort of core growth? I guess to start, Julie, do I have that correct?

Yes.

Okay. Got it. And so if we take out the $15 million tailwind in the back half, I mean, by my math, that would imply core growth on revenue of 1% to 2% in the second half. Hopefully, I have that right as well. So Julie or Massimo, why would growth slow to those levels in the core business, just given 1H and 2Q were kind of in that mid-single-digit range on a pro forma constant currency basis? And then I'll have a couple of follow-ups.

Yes, Tom. So I think when you're looking at it, I think you're in the range, 2% to 3%-ish core growth rate. Again, I think if you look at our smaller U.S. spine distributors, we're seeing a decrease or weakening there beyond what was our expectations, and that's what's really driving it in the back half of the year. And again, we're going to be probably a little bit more discretionary about how we think about those distributors and what we may do with those distributors, whether we continue to consolidate or exit weaker distributors that are not delivering sustainable growth.

Yes. Look, as I said before, we are intentionally prioritizing commercial channel quality. We never changed our thesis. So we want productivity and long-term value creation over growth at all costs. So this is where we are today.

Got it. Okay. Great. And probably a good segue into my second question, just on the declines from the smaller distributors. You talked about how -- Massimo, you talked about how these headwinds will persist the rest of the year. I guess a 2-parter here. One, can you elaborate on just why is this tracking weaker than expected? If you can sort of flesh that out a little bit? And then two, as we think beyond this year, like why won't this be a continued headwind? Or what specifically resolves this issue?

It's just the increased percentage of revenue that is going to be concentrated to our top distributor. So right now, we are at 80% of our total revenue is in the hand of the top 30. So the exercise for us for the remainder of the year is within the 20%, really pick and choose the partners we want to invest on. If you remember, in earlier calls, we divided our overall commercial strategy in 3 different parts. One was focusing on distributors that were already at scale; two, existing distributors that can create scale; and three, identify the smaller distributors in key areas of interest for us to invest on. And this is what is going to keep going.

I think that what is creating right now the headwind that we're seeing is mostly based on asset utilization. We are very disciplined about how we give assets in order to produce the revenue. If the asset don't turn, it's not a good investment for us to keep feeding this smaller shop, because in order to do that, we should totally change our investment thesis, increasing cash spending for bad revenue. So naturally, you see that the work that we are doing is going to just to restate the growth that we are seeing from our top partner over time. Similar to what we did in Biologics. You see we were very disciplined. Despite the headwind last year, we were very focused, and now we start to see we bear the fruit of our strategy. So I'm not expecting this to change into spine.

Got it. That's great. I'll squeeze in one more quick one, if that's okay. Julie, for you, I appreciate the free cash flow commentary and maybe some of the moving parts around the EU MDR order and timing around inventory. But any way you can help us kind of quantify where 2026 free cash flow may land? Any sort of range would be super helpful.

Sure. Thanks, Tom. I mean, we're not providing an updated outlook on free cash flow for the year. We haven't reinstated our guidance there. I think the value of the order is $15 million. So you can kind of estimate and look at what our previous guidance was related to free cash flow and take those factors into consideration.

There are no further questions at this time. I will now turn the call back over to Julie Dewey for closing remarks.

Thank you, everyone, for your questions and for joining us today. We appreciate your time and interest. If you need any additional information, please reach out. We look forward to updating you next quarter. This concludes our call today.

Ladies and gentlemen, thank you all for joining. You may now disconnect.

Good morning, everybody. Thank you. We are so excited to have Orthofix here with us. 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?

When we joined in 2024, 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. So if we need to divide the journey, let's say, in a lot of the different phases since we joined with Julie, step #1 was stabilize the company. So 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 #2 has been, okay, start to work on the innovation pillar that could drive the company forward in the future and at the same time, start to understand and realize what was the best commercial model for the organization. So we went -- so if you look at all of the verticals that we have, spine, OTS and limb reconstruction, we start to ask ourselves, okay, what is the best way to go to commercialize our product in the most efficient way. So we start the journey in spine working on optimizing our distribution network, our work on what we call now orthopedic therapeutic solution 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 in the market to grow even being a business leader and looking at orthopedics, okay, how can we rationalize the portfolio to give a real identity of what we do. So then we focused on a specific segment, and now we define it the market we compete as limb reconstruction. So pretty much a big rationalization in the company at every level.

Great. So I guess looking forward from here, where do you expect the company to be if you look out, let's say, 3 years in terms of end-market serves, what the revenue growth profile could look like and profitability?

Yes. So starting this year and '27, '28 and beyond is now the moment to start to bear the fruit of all of the decisions that we make at the time. So 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 Pedicle Screw system. It's going to be a multiyear product launch that is going to address all of the different market segments. So we're going to be starting with the open region segment 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 keep investing on TrueLok Elevate that has been a great commercial success for us, addressing ulcer in the foot for our patient. And in OTS, keep thinking we are investing a good amount of money and energy to optimize the back office that we have. So now we work very hard on our commercial model. We were very targeted on our investment in innovation and 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 does that compare to your internal expectations?

Yes. So when you normalize in Q1 for the selling day and then also the CMS team's 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. Not -- 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.

Yes. 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?

Yes. So CMS teams was really a onetime change. So we don't expect an ongoing impact related to that. And it was a pilot program that CMS does from time to time for certain episodes of care, and it included BGT this time. And it was a small, very limited number of accounts. And so ultimately, 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. So a little less than 0.5% impact. And I think we'd expected about 100 bps of impact.

Got it. On the topic of CMS, I think since you guys last reported earnings, there was a change to CMS reimbursement for noninvasive bone growth stimulators. Can you walk through what changed?

Yes. So 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, but the reimbursement levels went down about 10% for the Medicare reimbursed portion of the business. And so this is updated and reflected in our updated guidance that we released May 21, 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. But the reimbursement change does impact only the Medicare portion of our business. We do have commercial payers and other business that is not impacting.

How did you go about establishing your new guidance? Like what parameters did you use? Just as an example, like what percent of the bone growth stimulator business is reimbursed by [Technical Difficulty]

Yes. We don't break that out specifically. I mean there's really 3 kind of primary revenue streams that will be somewhat impacted. Medicare, where Medicare is primary, of course, 100% of that population is impacted by the 10% reimbursement reduction. And then 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. So those will be impacted, we believe, as well. So we basically looked at the volume we expect from all of the payers, that would be impacted and kind of applied from May 18 is when we expected it for Medicare, it will be May 18 for the commercial payers that are -- have a contract that would be impacted. It could be longer, but we felt like it was prudent to expect that it may be starting May 18.

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 plan?

Yes. I mean 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. But if you think about the revenue impact of $12 million was our revenue impact, it is pricing. So it is basically a full -- you would expect a full drop-through. Our EBITDA guidance, we changed it to $5 million at the midpoint. And so 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. But 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. I guess looking at your new guidance, what are the key areas of upside and downside on both top and bottom line?

Yes. So I mean I think upside, one, I've said we did build in basically the price reduction starting from May 18 for all of the impacted [Technical Difficulty] when we have a price increase, which has been the normal contracts and Medicare Advantage plans that are calculated based on the CMS reimbursement rate, can take 1 to 3 quarters to update their pricing. I assume that it's a decrease, they may be a little faster to update their pricing. So that could be some upside. And then we have launches this year with the VIRATA launch on the spine side. And we believe we baked in the appropriate number, but potentially, there could be some upside with our launches.

Got it. Turning to the businesses now. In spine, it seems like it's a pretty significant commercial transition. Can you talk about that being mostly behind you, what percent of U.S. spine revenue would you say is now flowing through the larger, more targeted distributors that you were targeting?

Yes. So as I said, at the beginning of the journey, the goal was to build a sustainable company. So if you see in med tech, especially in the companies that compete in the market where we compete, the utilization of resources can be very daring. This is why I think we were ready to support given the changes that we got from the CMS. As Julie pointed out, we've been very efficient on managing our organization. And one of the things that we did when we joined, we found especially in spine, a commercial organization that's very fragmented. And what was the direct outcome of this fragmentation is where a pure utilization of our assets.

So 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 have -- can commercialize more efficiently our product.

So when we joined -- so now after a couple of years of work, we have 75% of our revenue now is managed by our largest shop. And we're very excited to have done -- 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. So we said since day 1 that we want to create a sustainable business. And I think that like how we reacted, how we absorbed this impact with the change of reimbursement is just a testament of the good stuff.

Yes. I think to follow on to that, just a couple of stats. So our top 30 distributors in the U.S. grew 27% in Q1 and 24% on a trailing 12-month basis. So 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 recent, shifting more of the revenue towards us?

I think that it's a mix. So we went to -- we start to consolidate revenue to, as said, to the partner, we believe that we could scale. But we are very -- we've been very focused also on converting and attracting new distributor. We have been pretty successful of bringing new revenue in areas that were not underserved by the current team. And I was very pleased to see the interest that there 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, you realigned incentives as it relates to quotas, rebates and bundling? I think this is something your competitors do a lot of. So it would be interesting to hear about it?

Yes. I mean we don't really talk about the specifics of our quota, but we have realigned incentives to support higher growth and profitable growth and stronger execution. And I think it's modeled now with -- aligned with our strategic accounts that are high-performing distributors and integrated portfolio just versus just looking at specifically pure volume. So we are really focused on kind of that profitable growth model. And so that's what we're using to kind of make decisions to 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? And then also, what are the placements year-to-date? And how is this tracking in your internal plan?

Yes. So we plan to do our 7D metrics kind of on an annual or biannual basis. So our last metrics we disclosed was on 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, that can bring to our spine hardware portfolio and that synergy there is really strong that pull-through. But in 2025, our Voyager earn-out placements grew 30%. And then as it's 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%.

So 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.

Yes. And for us, the 7D was one of the main pillars of our strategy. This is why we decided, 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 have 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, it's just a testament of the strength that we're seeing there.

And all of this is always -- if you think about everything -- 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 high utilization and you can optimize the cash that you need in order to buy some of that.

Sticking with 7D for a second. What do you think are the gating factors to broader adoption? Is it just a change in workflow, surgeon interest, sales reps or competition?

No. 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 is very -- that has been a leader in spine for many years that has a very deep connection within our distribution network. And 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 helps for growth.

So it's little-by-little, I think that we are making very substantial progress on commercialization. At the same time, we changed 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. And all of this entering within skip 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.

So now we start to bear the fruit because we start to see fellow the 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. So I think that we're doing the right stuff. It's just for us to 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 have 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? And how are you planning to expand this as you're entering full-market release in the second half of the year?

Yes. So VIRATA is important for us as an organization because in spine at the end, pedicle screws are the products that are most utilized in the OR. And within the portfolio that we found, our Mariner, that our system was the oldest. So 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. So a lot to focus on the efficiency in the OR on the ergonomics of the system.

We start to think about all of the -- what the surgeon will need to start to address everything, all of the challenges that can happen during the surgery. But at the same time, we have a system which was designed from the get-go with 7D in mind. We saw with a great -- we are creating a great synergy and a great experience of utilization of VIRATA with 7D.

The feedback that we are getting on the limited release on both when it was for the open procedure, open digital procedure and now for minimally invasive procedure has been stellar. And all of this like motivated to make a very sizable investment on capital, and we are -- and 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 in how we're going to approach the market. The company has been leading historically using our cervical portfolio. So there is a lot of room, a lot of accounts where there is still a limited use of our product. So 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. So it's going to be a great vector of growth.

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? And then also, how much incremental revenue do you get for a case using both of these?

The first part of your question was how they work together.

Yes. What do they mean in practice that they're designed to work together? And how does that influence surgeon [indiscernible]

Okay. So what we do is pretty much we -- all of the enabling technology are open system by definition. So you can use it for -- with all of the different products. But what we had in mind, how can we create a much better experience utilizing VIRATA with 7D. So 7D FLASH, we call them flash because it creates -- you imagine that right now, when you go in the OR, you need to spend 20, 25 minutes with competitive product in order to -- just to start the procedure.

You can FLASH in less than 60 seconds. So 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. So 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 that 7D has with additional efficiency on pairing the instrumentation with the enabling technology platform.

So a lot of excitement, a lot of -- around what we are doing because now surgeon can even go beyond what they learn in the -- what they learned during their journey in the OR applying now with VIRATA with 7D.

Got it. How much incremental revenue per case you get for using 7D and VIRATA? And how much of this is included in your current guidance?

Yes. So our guidance incorporates VIRATA. We don't break that out specifically. Our 2026 guidance incorporates a late year launch of VIRATA. And then, of course, VIRATA will be a foundational system for us, as Massimo talked about, we have the open degen and MIS and deformity launches that will be multiyear. And so 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 in biologics historically? And how are you planning to stabilize the business?

So we -- one thing that we did, we try to -- we had within the organization, a leader with a lot of experience in biologics. So we start to see some softness within the segment, and 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, third position in most of the categories where we participate, but the synthetic market. So we said, okay, it's time to change the course.

And what we are doing, first of all, we start to try to expand the market and start to focus on the utilization of the biologic outside spinals and orthopedics. So start to use the limb reconstruction network that we have to start to commercialize our biologic product. At the same time, we start to open up our commercial model to -- so let's say that in the areas where we have a pretty large distributor, we tend to concentrate the distribution of hardware and biologic within one single partner. In other areas, we start to see a lot of traction also utilizing commercial network that has also competitive hardware.

So a more, let's say, consultative model around biologic. So 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. And 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.

So 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 and whether you think you can keep up this growth rate for the rest of the year?

Yes. 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. So 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. And 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 just -- 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.

But 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. So similar to what I said in spine, a great focus on resident fellows and teaching institution, a lot of focus on creating more synergistic approach with the surgeon community.

And 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. And 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. And so bringing innovation at the same time, keep leveraging the commercial network that we have.

And frankly, the fact that we experienced the classification now from Class III for Class II in the vertical is actually is 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 other -- how to utilize the commercial infrastructure and the commercial leadership that we have expanding outside what is -- what was the base business. So 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 want 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?

I mean just from a currency standpoint, we've baked -- 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 in 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 one of the -- at the end, when you go through all of the changes that I described in the last hour, in the last 40 minutes wherever we talk, it's kind of a natural effect that sometimes you have like check balances between everything that we did. So maybe the growth trajectory has not been for some as strong as was expected. But at the same time, we always said since day 1 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. So [Technical Difficulty] one with the other. Bit 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 it needs to be -- our story is saying that if you see we can be profitable and make great progress in markets that normally can drive utilization resources that is 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.

So we were steady on our strategy. We never deviate and we arrive in the second part of '26 entering '27. 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. And we are investing now in order to support a higher growth moving forward.

So 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 out of time. Thank you guys for your time.

Thank you very much.

Thank you for standing by. At this time, I would like to welcome everyone to the Orthofix First Quarter 2026 Earnings Call. [Operator Instructions] Thank you.

I would now like to turn the call over to Julie Dewey.

Thank you, and good morning, everyone. Welcome to Orthofix' First Quarter 2026 Earnings Call. I'm Julie Dewey, Orthofix' Chief IR and Communications Officer. Joining me today are President and Chief Executive Officer, Massimo Calafiore; and Chief Financial Officer, Julie Andrews.

Earlier today, Orthofix released its financial results for the first quarter ended March 31, 2026. A copy of the press release and supplemental presentation are available on our Investor Relations website, and 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. 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 various non-GAAP financial measures during today's call. Reconciliations to U.S. GAAP and additional details are in our press release and supplemental materials. Unless otherwise stated, net sales growth rates are on a pro forma constant currency basis and exclude the discounted M6 artificial disc product lines and all results of operations will be on a non-GAAP as adjusted basis.

Here's today's agenda. Massimo will start with business performance and operational highlights. Julie Andrews will follow with her financial results and guidance, then we'll open up the call for Q&A. With that, I'll turn the call over to Massimo, who will discuss how our early year execution and recent operational actions are beginning to support improved performance as we move through the year.

Massimo?

Thank you, Julie. And good morning, everyone. I appreciate you joining us today. We delivered a good start to 2026. First quarter results reflect steady execution, improving stability and sharper strategic focus. As the quarter progressed, we began seeing the expected progress from our spine commercial channel actions, along with stronger operating discipline, supporting our confidence that performance will continue to build through the year.

While these results reflect meaningful progress, they also crystallize where we could further raise the bar. That's why in April, we took deliberate steps to simplify our spine leadership structure, a proactive move as we continue to scale, enabling technologies like 7D and advance the launch of VIRATA later this year. By bringing decision-making closer to the field and increasing accountability through direct oversight, we're improving speed, consistency and commercial focus where it matters the most.

Stepping back, Q1 reflects where we are as a company today, moving into the next phase of our journey, executing with greater consistency and strengthening our position to benefit from our innovation pipeline as the year unfolds. What we delivered this quarter supports our confidence in continued improvement. Our priorities are straightforward: execute consistently, convert opportunity into results, and demonstrate progress quarter-by-quarter.

Let me turn to business performance highlights, starting with Spine. In Spine, Global Spine Fixation net sales grew 6% on a constant currency basis, with U.S. net sales growth of 4%. Results were supported by enhanced commercial focus, deeper procedural penetration and the ongoing benefits of our distributor transitions. Importantly, those transitions are now largely behind us. As alignment has improved, we are seeing positive momentum from more consistent field execution.

In Q1, our top 30 distributor partners delivered net sales growth of 27% year-over-year and 24% on trailing 12-month basis, reflecting the success of our strategy to prioritize larger, more dedicated distributors and deeper relationship with our top partners. A key driver of that momentum is 7D, which remains a core differentiator in our surgical ecosystem, enhancing precision, workflow and surgeon engagement. Following our leadership realignment, we are intensifying our commercial focus on adoption of our 7D FLASH navigation system to deliver a more integrated spine offering.

While Spine is benefiting from better alignment, we are applying the same discipline to Biologics. Performance improved sequentially during the quarter as we implemented targeted actions to strengthen execution, expand account penetration and increase utilization across the portfolio. We are refining our go-forward strategy, building clinical evidence and supporting advocacy. Collectively, these actions are designed to drive improvement through the year and position Biologics to exit 2026 with stronger momentum and a more durable growth profile.

Beyond Spine and Biologics, our other growth platforms remained resilient. Our Therapeutic Solutions business, formerly Bone Growth Therapies, delivered 5% year-over-year net sales growth and continue to outperform the broader market. Demand remained stable, utilization is improving and prescribing activity is increasing across both spine fusion and fracture care. With its consistent performance and healthy margins, this business continues to be an important contributor to margin and cash generation.

Global Limb Reconstruction posted 3% constant currency growth, reflecting steady demand across our core fixation and reconstruction systems. Over the past year, we sharpened our focus by prioritizing high-value categories, enhancing our mix with platform like TrueLok Elevate and Fitbone and deemphasizing lower return product. We believe this action positions limb reconstruction for acceleration as we move through 2026.

A common thread across the business is the increasing impact of our innovation pipeline. We will have a full year contribution from TrueLok Elevate and Fitbone, and we remain on track for the full market launch of VIRATA in the second half of the year. Together with the continued inspection of our 7D FLASH ecosystem, this platform are designed to deliver differentiated clinical value and support durable multiyear growth.

In closing, Q1 was a solid start of the year. We are carrying that momentum forward with disciplined execution and targeted investment. The quality and the commitment of our U.S. spine distributors is greater than ever and meaningfully contributing to our success. Our innovation pipeline is strong. Our operating model is more focused, and we believe we have the right team and the financial foundation in place. There is more work to do, and we are increasingly confident in our ability to execute, doing fewer things better, sharpening accountability, generating cash and delivering on what we said we would do.

With that, I'll turn the call over to Julie Andrews to review our financial results and guidance.

Thank you, Massimo, and good morning. All growth rates I'll reference today are pro forma constant currency, excluding the impact from discontinued M6 product lines. We delivered a disciplined start to 2026 reflecting an execution that is consistent with our plan. For the first quarter, total global net sales of $196.4 million increased 3% year-over-year. Results reflect steady execution following the Spine Commercial channel actions, and we expect further improvement as productivity continues to increase. Spine Fixation was in line with market growth, while Therapeutic Solutions delivered above-market growth largely offsetting the remaining impact of commercial channel transitions and softness in Biologics.

While timing of certain international stocking orders benefited Q1 in results by approximately $2 million, the majority of performance reflected underlying execution across our core franchises. As a reminder, Q1 had 1 less selling day than last year, which reduced first quarter growth rates by roughly 1.6%. In addition, the CMS TEAM pilot program that began in January and includes bone growth stimulation had a onetime impact of less than 0.5% on our fourth quarter growth rate, slightly less than the 1% impact we had originally anticipated.

Taking these factors into account, our Q1 growth rate was within the range implied by our full year guidance of 5% to 6%. From a segment perspective, global spinal implants, biologics and enabling technologies delivered $105.8 million in net sales for Q1. Our performance was supported by continued growth from our top 30 distributors in the U.S., partially offset by the timing of stocking orders from our Middle East distributors due to the impact of the war.

Therapeutic Solutions, BGT, net sales were $57.8 million, up 5% as we continued to outperform the market. Fracture sales grew 6% in the quarter. We expect growth to remain above market rates of 2% to 3%, driven by disciplined execution, new surgeon additions and competitive conversions, especially in the fracture channel.

Global Limb Reconstruction net sales were $32.8 million in the first quarter, up 3%. U.S. performance was flat, largely due to the timing of OSCAR Capital sales.

We have recently restructured our capital sales team, which we believe positions us for future growth. Early indicators are encouraging with a strengthening capital pipeline. Additionally, we are seeing continued acceleration in the worldwide adoption of TrueLok Elevate and Fitbone. As we sharpen our focus on our core limb reconstruction pillars and benefit from ongoing portfolio and commercial enhancements, we expect to return to double-digit growth in the U.S. in the second half of 2026.

Moving down the P&L. Pro forma non-GAAP adjusted gross margin was 70.7%, a 40 basis point improvement over prior year, reflecting the impact of freight and logistics productivity improvements, partially offset by unfavorable geography mix. First quarter pro forma non-GAAP adjusted EBITDA was $9.7 million, in line with our expectations, reflecting impacts from geography mix and commercial transitions. We ended the quarter with $120.9 million in total cash, including restricted cash, providing ample liquidity to support our operating needs and strategic priorities.

The cash increase was a result of financing activities during the quarter, including our draw on the second tranche of our debt facility. As we move through the year, our focus remains on disciplined execution, strengthening our commercial foundation and supporting upcoming product launches that we expect to contribute to growth and margin improvement over time.

Now let me turn to our full year 2026 guidance. Against the backdrop of our fourth quarter performance and current visibility, we are reaffirming our full year 2026 guidance. As Massimo noted, we expect performance to improve as we move through the year, driven by a steadier commercial cadence and increasing contributions from recent and planned product launches balanced against macro and operational considerations.

Net sales are expected to range between $850 million and $860 million, representing approximately 5.5% pro forma constant currency growth at the midpoint. Net sales growth is anticipated to be approximately 5% in the first half of the year and about 6% in the second half of the year. These projections are based on current foreign currency exchange rates and do not account for any further changes to exchange rates for the remainder of the year. Non-GAAP adjusted EBITDA is expected to be between $95 million and $98 million, reflecting approximately 70 basis points of margin expansion at the midpoint. Free cash flow is expected to be positive for the full year, excluding potential legal settlements.

In closing, while progress is evident, we are still early in the year and remain focused on converting improved activity levels into consistent above-market profitable growth. We remain grounded in operational rigor, disciplined capital deployment and prioritizing high-value opportunities across our Spine, Therapeutic Solutions and Limb Reconstruction portfolios with the objective of creating sustainable long-term shareholder value.

Now let me turn it back to Massimo for closing remarks. Massimo?

Thank you, Julie. I am pleased with the progress we made in the first quarter and our anticipated trajectory for the remainder of the year. As we move through 2026, our focus is clear: deliver quarter-by-quarter progress, expand margins, generate cash and translate our innovation and execution into durable shareholder value. Before we open the line for questions, I want to thank our global teams and commercial partners for their performance in Q1 and their continued focus and execution as we continue to build Orthofix into their unrivaled partner in medtech, delivering exceptional experience and life-changing solution.

With that, let's go ahead and open the call for your questions.

[Operator Instructions] Your first question comes from the line of Tom Stephan with Stifel.

Nice start to the year. First question on U.S. Spine. Massimo, you talked about the distributor transitions now largely behind you. U.S. Spine up 4%, probably a bit stronger adjusting for selling days. So Massimo, maybe talk about how we should think about growth in this business as we move through 2026 and beyond as well would be helpful. And then I have a follow-up.

As we described 2026, you're going to see an acceleration of the business towards the year. I think that you have a couple of drivers. All of this, you're going to see a phase out of the annualization of the distributor termination that we made in order to optimize our distributor infrastructure, so a natural acceleration there. But also, as you know, we have a very focused and strong innovation pipeline that is coming. We are on time for the full market launch of the VIRATA open system and on time on the alpha launch of the VIRATA MIS. So we're going to see a very good strong contribution of these two foundational systems for us in the second half of the year.

So the combination between innovation, annualization of the distributor transition and key capital investment that we're making, I'm very confident they're going to drive a very strong 2026. And as you know, we made -- we shortened, let's say, the distance between myself and the business. I think that the optimization on the leadership side has let me be very close to the field, very be present and keep nurturing the talent that we have. So I'm very excited about where we are with Spine. And we made bold decisions to create a strong foundation and now it's on us to execute.

Got it. That's great. Super helpful, Massimo. And then my follow-up just on sort of guidance and cadence for rest of the year. Julie, this may be for you. By reaffirming 1H constant currency growth of 5%, you did 3% in 1Q. I guess, do we think about 2Q as around 7% constant currency? I just want to make sure I'm contextualizing the 5% correctly for 1H. A, is that correct? And then B, for 2H, any comments on selling day dynamics, maybe other fundamental considerations sort of from a headwind perspective in the back half that we should be mindful of for top line?

Yes, so Tom, we are reaffirming our guidance. Our comments were we do expect growth in the first half of the year to be around the 5% and then accelerating to 6% in the second half of the year. And if you look at Q1, when you adjust it for the selling day, 1 less selling day, and the TEAM's impact, we were right at kind of that 5% growth rate in Q1. In Q2, we would expect our growth rate, I think, to be in the 6-ish percent, 6% range would get you there for Q2.

Your next question comes from the line of Caitlin Roberts with Canaccord Genuity.

Maybe just a little bit more color on the geopolitical impact in the Q1. And then just any expectations that might be built into the guidance there?

Caitlin, so built into our guidance, we expect very minimal impact for the full year related to the activities in the Middle East. Q1, there was a little bit of what we see as timing just in our Spine business primarily with orders, but kind of more than made up for with other stocking orders. So very limited impact that we have from that and not necessarily in our guidance for the year.

Understood. And then maybe just talk a little bit about putting the Biologics business under the Limb recon leadership and where you would expect Biologics growth to end 2026?

For Biologics, I think that we are expecting to go back to market growth. It's clear that we have still work to do. But since the realignment, the performance has improved sequentially during the quarter. So the targeted actions that we are putting in place are working. We have strengthened the execution. We expand account penetration. And also, we increased the utilization of the portfolio, as you hinted before, not just in spine, but also in the orthopedic side. So I'm very confident about the quality of our Biologics portfolio.

I think that the optimization that we are putting forward in terms of sales channel and leadership is working. But let me highlight a specific comment that you made. It's not a realignment under orthopedics. It's more a realignment under a leader that is Patrick Fisher, who has a lot of experience in the space. So of course, as I said before, you're going to see a natural expansion in the orthopedic side, but the idea of the realignment was mostly driven by the talent and the experience that we have in the company around this specific space.

Your next question comes from the line of Mathew Blackman with TD Cowen.

Can you hear me okay?

Yes.

Two little housekeeping questions for Julie, and then one question for Massimo. Julie, you didn't call it out, so I'm assuming it wasn't a headwind, but any impact from weather in the quarter? And also there was a big hospital strike on the West Coast. Just any other headwinds to call out besides the ones you did mention already?

And then can you give us just a sense of the size of the Biologics business, even the roughest sense, whether it's as a percent of the total business or a percent of Spine, just for some context there, and then a follow-up for Massimo.

Okay. Matt, no, we didn't see any sustained impact from the weather, and we didn't have an impact from the hospital strike on the West Coast. So those did not impact our business. From a Biologics perspective, we don't break that out separately. So I can't give you a context in terms of the size. I think I'd point you to a couple of places, you can look at pre-merger results, and then also a portion of our Biologics revenue, you can see in our Q with our MTF service fee for that portion.

I'll remember that. And then Massimo, as you sort of look at the top 30 distributors, obviously, tremendous performance there. Is there anything that you can take from that playbook and pour it over to the rest of the distributor book, such that you can sort of bring along that rest of the business? I mean, obviously not sort of approaching 30% growth. But anything that you could do to sort of bring up the tail of the business now that you're seeing, obviously, really solid execution on a large part of the business there. Just curious how you can execute across the entire distributor network now.

The plan that we put in place was divided in different phases. Phase number one is the one that we just accomplished. Now phase number two is really started to pick among the networks that we have, the next tier of distributors that we want to help to grow. And as you hinted, we're going to apply the same discipline and rigor that we apply for our top 30 distributors to the second tier to make sure that over time, they can grow and create the operational excellence we are expecting by our partner. But 2026 is going to be mostly for us working on the next 30, more than -- keep fueling the growth with our top 30 and laser-focused on the second tier.

[Operator Instructions] And your next question comes from the line of Mike Petusky with Barrington Research.

I'm juggling on a couple of conference calls, I may have missed this. Did you guys give any detail around 7D placements, any percentages or just any detail around that this morning?

Mike, we're doing that more on a biannual or annual basis updating this. So our last update on those were in our Q4 call. And as a reminder, for 2025, our Voyager earnout placements increased 30%. And our purchase commitments on those placements exceeded their purchase -- the accounts exceeded their purchase commitments by more than 50%.

Okay. And then I guess I just want to ask around U.S. Ortho or Limb Reconstruction. It feels like the momentum has slowed there last couple of quarters. Can you guys speak to that and maybe speak to actions that you may be taking to try to reaccelerate growth there?

Mike, the momentum hasn't slowed. We've had some transient issues or things that we're dealing with. So we did sunset about 30 product lines last year. We really saw that start to impact in Q4. And then we talked -- and continue some into Q1 as well. And then really the timing of OSCAR sales, which is a capital sale, in Q1 impacted the overall growth rate. But very good results and adoption that we're seeing on Elevate and Fitbone. So again, we expect that business to return in the U.S. to double-digit growth in the back half of 2026.

There are no further questions at this time. I will now turn the call back over to Julie Dewey 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. This concludes today's call.

Ladies and gentlemen, thank you all for joining. You may now disconnect.

Thank you for standing by. At this time, I would like to welcome everyone to the Orthofix Fourth Quarter 2025 Earnings Call. [Operator Instructions]

I would now like to turn the call over to Julie Dewey.

Thank you, operator, and good morning, everyone. Welcome to Orthofix' Fourth Quarter 2025 Earnings Call. I'm Julie Dewey, Orthofix' Chief IR and Communications Officer. Joining me today are President and Chief Executive Officer, Massimo Calafiore; and Chief Financial Officer, Julie Andrews. Today's press release and supplemental presentation are available on the Events & Presentations page in the Investors section of Orthofix.com and 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. 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'll also reference various non-GAAP financial measures. Reconciliations to U.S. GAAP and additional details are in our press release and supplemental materials. Unless otherwise stated, net sales growth rates are on a pro forma constant currency basis and exclude the discontinued M6 artificial disc product lines and all results of operations will be on a non-GAAP as adjusted basis.

Here's today's agenda. Massimo will start with business performance and operational highlights. Julie Andrews will follow with our financial results and our 2026 outlook, then we'll open the call for Q&A.

With that, I'll turn the call over to Massimo.

Thank you, Julie, and good morning, everyone. I appreciate you joining us today. The fourth quarter capped a year of meaningful operational progress for Orthofix. We delivered strong consistent performance in bond growth therapies and U.S. Limb Reconstruction. And the work we did to finalize our Spine commercial channel supported double-digit net sales growth in our global Spine Fixation business.

This momentum contributed to our 8th consecutive quarter of adjusted EBITDA growth and a standout quarter of free cash flow generation. Collectively, this result show the positive impact of our focused commercial initiatives and margin enhancement efforts providing a solid foundation as we enter 2026. Further demonstrating our progress, let me highlight several key accomplishments. Global Spine Fixation Q4 net sales grew 10% for the year and in Q4. In U.S., Spine Fixation net sales grew 6% for the year and 5% for the quarter. While distributor transition implemented earlier in 2025 created some temporary pressure during the quarter, performance improved meaningfully as we exited Q4.

With this transition now largely behind us, variable access to important [ IDN ] accounts and a strengthened highly aligned distributor network in place, we believe the business is set up well for 2026. Building on that momentum, our Spine commercial channel optimization efforts continued to strengthen sales productivity. In Q4, our top 30 U.S. distributor partners grew net sales 25% year-over-year and 27% on a trailing 12-month basis. A clear validation of our focused channel strategy.

Turning to enabling technologies, 7D FLASH navigation continue to be a powerful differentiator across our surgical ecosystem. Voyager earnout placement grew 30% in 2025. And our earnout customers are collectively exceeding their purchase commitments by more than 50%, demonstrating strong utilization and engagement. Looking ahead, One of the most exciting milestone for 2026 will be the full market release of our VIRATA Spinal Fixation System in the second half of the year. VIRATA is [ purpose ] built for the $2 billion U.S. [ pedicle screw ] market, pairing a proprietaries [ crude ] design with intuitive instrumentation that integrates seamlessly with the 7D navigation platform.

We believe VIRATA will enhance surgical efficiency strengthen surgeon confidence and serve as a multiyear growth catalyst for our U.S. Spine business in 2026, 2027 and beyond. Shifting gears, we have rebranded our orthopedics business as a Limb Reconstruction to reflect our strategic focus on 4 high-value clinical categories. Limb preservations, limb lengthening, complex structure management and extremity deformity correction. Together, this represents an estimated $2.6 billion market opportunity, and we believe Orthofix is well positioned given our comprehensive portfolio of internal and external fixation solution.

From our perspective, a few companies are prioritizing this market which give us an opportunity to elevate the care pathway in a category with meaningful long-term growth potential. In 2025, we sharpened our focus on high return opportunities in this business by streamlining our product portfolio, strengthening organization alignment and refining our commercial strategy. These actions drove sustained momentum. U.S. limb construction grew 8% in Q4 and 16% for the full year. This performance was driven by the successful global launch of TrueLok Elevate, FITBONE bone transport and FITBONE trochanteric lengthening nails, each expanding our addressable market enhancing our product mix and fortifying our leadership position as we had in 2026.

Turning to Bone Growth Therapies, the BGT business remained a consistent performer, delivering accelerating momentum throughout the year, a strong sequential fourth quarter growth that benefited from procedural cross-selling. Fourth quarter growth reached 7%, more than double the market rate driven by increased utilization and higher prescribing velocity across both Spine fusion and fracture management. With its consistent performance and healthy margin, BGT continues to be an important contributor to our overall progress.

As we enter 2026, our priorities are clear: Sharpen commercial execution, drive deeper market penetration adoption of our 7D navigation system, improved gross margin through targeted operational initiatives and maintain targeted capital allocation with a continued focus on adjusted EBITDA expansion and free cash flow generation. With full year contribution from TrueLok Elevate and FITBONE, the planned second half of full commercial launch of VIRATA, ongoing benefits from our optimization of our spine commercial channel a renewed focus on advancing our biologics portfolio and sustained momentum across limb reconstruction and BGT business, we believe the company is well positioned to deliver durable top line growth, expanding margins and strong free cash flow in 2026.

Today, we also announced that we are recalibrating the time line for our 3-year financial targets to fully capture the anticipated benefit of our Spine commercial channel optimization. Over the past year, the decision to optimize our Spine commercial channel has proven to be the right one. strengthening our foundation and driving measurable improvement in execution and distributor productivity.

At the same time, the scope and rigor of this transformation required us to implement these changes with deliberate care to increase the likelihood of long-term success. As a result, while the underlying fundamentals of our strategy remain strong, the timing of certain growth benefit has shifted, and we are extending our long-range plan time line by 1 year to fully capture the expected operational and commercial leverage created by this channel enhancement. This adjustment reflects our commitment to disciplined execution should position us to deliver sustainable above-market growth and margin expansion as this initiative mature. In closing, 2025 was a year defined by strengthened commercial capabilities, disciplined execution and meaningful new product launches from our innovation pipeline.

We delivered another year of significant adjusted EBITDA gains and positive free cash flow generation, excluding the impact from M6. As we move into 2026, we are carrying that momentum forward with disciplined commercial execution and targeted capital deployment. While our work is not yet complete, and certain benefits from our [ Span ] initiatives are expected to continue to build over time. We are increasingly confident in our ability to execute. We believe the traction behind our strategy and the strength of our innovation engine position us well as we advance towards our long-term financial goals and create sustainable value for our shareholders.

Thank you for your continued support. I'll now turn the call over to Julie Andrews.

Thank you, Massimo, and good morning, everyone. Before we dive into the numbers, a quick reminder. All net sales growth rates referenced today are pro forma, constant currency, excluding M6 disc, discontinuation impacts. I encourage you to review the reconciliations in our press release and the supplemental materials posted on our website, which include pro forma results through Q4 to support your modeling.

Total global net sales in Q4 reached $218.6 million, a 3% increase supported by strong performances in our Bone Growth Therapies and U.S. limb construction segments. Global spinal implants, biologics and enabling technologies delivered $112.3 million in net sales for Q4. Our performance was supported by targeted distributor transitions in key geographies, partially offset by softness in biologics and our strategic shift from 7D Capital sales to the voyager earnout program. As a reminder, we are still annualizing the impact of the previously disclosed price decrease at a major account, which continues to affect year-over-year comparisons.

Bone Growth Therapies, or BGT net sales were $68.3 million, up 7%, significantly outperforming the market. We expect BGT growth to remain above market rates of 2% to 3%, driven by new [ surgeon ] additions and competitive conversions, especially in the fracture channel. Global limb reconstruction sales were $38 million in the fourth quarter, driven by 8% U.S. growth. This performance reflects our sharpened focus on the [ Korlym ] reconstruction pillars and the deliberate deemphasis of products that are not aligned with the strategy. We expect to return to double-digit growth in the second half of 2026 as these portfolio and commercial refinements continue to take hold.

Moving down the P&L. Pro forma non-GAAP adjusted gross margin was 71.4%, reflecting the impact of the M6 discontinuation and productivity improvements partially offset by unfavorable geography mix due to increased net sales in international spinal implants, biologics and enabling technologies. As Massimo noted, this marks our 8th consecutive quarter of EBITDA margin expansion and an outstanding quarter of robust free cash flow generation, underscoring the scalability of our model and operational discipline.

Fourth quarter pro forma non-GAAP adjusted EBITDA was $29.2 million or 13.4% of net sales with year-over-year margin expansion of approximately 230 basis points. We delivered exceptionally strong free cash flow of $16.8 million in Q4, a clear demonstration of the strength and scalability of our business model. For the full year, free cash flow when excluding restructuring charges, tied to the M6 discontinuation was $3.1 million.

Notably, reported free cash flow was nearly breakeven for 2025, a significant achievement that underscores a meaningful financial progress we made throughout the year. We ended the quarter with $85.1 million in total cash, including restricted cash, which provides us with the flexibility to continue investing in innovation and supporting the long-term growth of the business.

Moving on to 2026 full year guidance. We expect full year net sales of $850 million to $860 million with a midpoint of $855 million. These expected net sales represent implied pro forma constant currency year-over-year growth of approximately 5.5% at the midpoint of the range. These projections are based on current foreign currency exchange rates and do not account for any further changes to exchange rates for the remainder of the year.

We expect full year non-GAAP adjusted EBITDA of $95 million to $98 million, and we expect to generate positive free cash flow for the full year, excluding the impact of any potential legal settlements. While we are not providing quarterly guidance, I do want to provide you with some directional comments on the expected cadence of our business to assist you in modeling our quarterly performance. We expect normalized procedure volume and seasonality throughout 2026 with a more meaningful contribution from newly launched products as the year progresses.

Net sales growth is anticipated to be approximately 5% in the first half of the year and about 6% in the second half of the year. As a reminder, Q1 includes one less selling day than last year, while Q2 includes one additional selling day, each representing roughly a 1.6% impact on quarterly growth rates. In addition, we previously indicated that CMS would begin the team pilot program at some hospitals in January 2026 that covers a few episode of care categories, including BGT. Although we expect the annual impact from this program to be immaterial, it will have a onetime impact on our quarterly growth rate in Q1 of approximately 1%.

Now for some specifics on the individual line items on the P&L for 2026. We expect adjusted gross margin for the full year to be approximately 72.5% as we continue to focus on productivity improvements within our manufacturing and distribution operations. We expect operating expenses as a percent of net sales to be approximately flat to 2025 as we normalize for lower variable and incentive compensation and increased depreciation and stock-based compensation. To assist you with modeling EBITDA, we expect adjusted depreciation and amortization expense for the full year 2026 to be in the range of approximately $38 million to $39 million. Stock-based compensation expense is expected to be approximately $31 million for the year.

Now let's touch briefly on the items below the operating income line. Our expectation for interest and other expenses is approximately $6 million per quarter. We expect adjusted EBITDA margin enhancements of 70 basis points to be weighted more towards the back half of the year due to the timing of revenue and R&D investments. This margin enhancement is driven by productivity improvements and SG&A leverage and is partially offset by increased variable and incentive compensation as well as investment in innovation and clinical evidence.

As a reminder, Q1 historically carries heavier expense loads due to industry conferences and resets of payroll taxes and annual benefits such as 401(k) matching. Additionally, due to the phasing of R&D projects, the previously mentioned CMS team pilot program and certain onetime expenses, we do not anticipate EBITDA leverage in Q1 of this year versus Q1 of 2025. With regard to free cash flow, please keep in mind that while we expect to generate positive free cash flow for the full year 2026, excluding the impact of any potential legal settlements, we do not expect to generate positive free cash flow in every quarter. To provide additional color, we expect $45 million to $50 million in capital expenditures this year. As a reminder, Q1 in particular, has historically been the lowest cash flow quarter due to the payment of the prior year's annual bonuses and Q4 commissions, among other items.

With our full year outlook in place, I'd like to spend a moment on our long-range plan. As Massimo mentioned, we're updating our 3-year financial targets to better reflect the timing of revenue and margin benefits from our spine commercial channel optimization. By extending the time line to 2028, our long-range plan now better matches the pace of progress we're seeing and the ramp-up in commercial leverage we expect to deliver. We think this provides a clearer view of our anticipated growth trajectory and the solid financial foundation expected to support our strategy.

Our refreshed 2026 to 2028 targets include 6.5% to 7.5%, net sales CAGR from 2026 through 2028, mid-teens non-GAAP adjusted EBITDA as a percentage of net sales for the full year 2028 and positive free cash flow generation from 2026 through 2028, excluding the impact of any potential legal settlements. We believe these targets build on our positive momentum and position the company for sustained profitable growth, underpinned by a stronger financial profile and a clear path to long-term value creation.

In closing, we expect 2026 to be a year defined by consistent execution and disciplined financial management. With the strengthened commercial foundation, a differentiated innovation pipeline and clear visibility into margin expansion and positive free cash flow generation, we believe Orthofix is well positioned for profitable growth. We remain grounded in operational rigor, disciplined capital deployment and prioritizing high-value opportunities across our spine, BGT and limb reconstruction portfolios with the objective of creating sustainable long-term shareholder value.

Now let me turn it back to Massimo for closing remarks. Massimo?

Thank you, Julie. I am very pleased with the progress we made in 2025. We successfully executed several high-impact initiatives from optimizing our spine distributor network to restructuring the biologics commercial channel and launching multiple new products. We believe these actions strengthen our commercial platform and have set us up for accelerated growth in the year ahead. We also fortified our financial foundations delivering significant adjusted EBITDA gains and generating near breakeven free cash flow.

We have entered 2026 with optimism and real momentum. Our new U.S. Spine distributors are fully onboarded and already contributing to our growth. As the year gets underway, we are seeing clear signs of progress with encouraging traction across key procedural segments and in our priority geographies. And here is an important milestone. As Q4 2025, more than 75% of our U.S. net sales were driven by our top 30 distributor partners. High-performance teams with the scale, focus and commitment to grow with us.

To put that in perspective, at the start of 2024, this group drove less than half of our net sales, representing an increase of 55% in their shares of our total revenue. This strategically aligned commercial channel is elevating productivity, sharpening execution, and we believe is the means for enabling more consistent and predictable sales performance. a stickier surgeon relationship as we move through 2026.

Our innovation pipeline has never been stronger as we anticipate a variety of meaningful product launches and product enhancements that extend across every major segment of our business. In fact, we expect to introduce over a dozen value-creating products over the next 18 months to drive sustained momentum. These include the full market launch of the VIRATA open system and the alpha launch of the VIRATA MIS system in the second half 2026.

Next-generation automation enhancement for key limb reconstruction systems like TrueLok Elevate and FITBONE. Technology enabling advancements within our BGT portfolio designed to focus strengthen surgery engagement and patient adherence and additional platform extensions and enabling technology upgrades that enhance efficiency and reinforce our competitive position. And we believe we have the right team in place, aligned disciplined and focused on our priorities to drive profitable growth.

Finally, we believe our financial foundation is strong we're optimistic about the opportunities ahead, and we believe we are making the right investments to elevate our execution and create durable long-term value for our shareholders. Before we move to Q&A, I want to express my sincere gratitude to the entire Orthofix teams and our commercial partner. Your commitment to supporting surgeon a patient is what fuels our progress and defines who we are. We are excited about where we are headed. And together, we are continuing to build Orthofix into the arrival partner in med tech delivering exceptional experiences and life-changing solutions.

With that, let's go ahead and open the call for your questions.

[Operator Instructions] And your first question comes from the line of [ Matthew Blackman ] with TD Cowen.

I'm going to start with just a clarification question for Julie. Just that on the CMS impact you're going to see in BGT, just clarify, the 1 point headwind you called out, is that isolated to the BGT franchise? And is that in the first quarter? Or is that a full year impact and total top line? Just want to make sure I capture the impact that you hold out there. And then I've got 1 follow-up.

Okay. Matt, good to talk to you again. Yes, so the CMS change that we talked about, it's an immaterial impact for the year overall, but we'll have about a 1% impact in the quarter specific to BGT revenue only.

Okay. Appreciate that. And then my follow-up question, it's on the LRP. Maybe if you could just take a step back and reflect a bit more on what is essentially taking just a year longer to manifest in the business relative to the original LRP. It sounds like from your comments, Massimo, that the channel optimization initiative just took a little bit longer to execute. I just want to make sure there's nothing else going on.

And then, Julie, on your end, beyond the top line, what do you need to execute on most critically for the margin and cash generation profile to continue to improve it?

Thank you, Matt. No, look, this just reflects all the work that we did in the last couple of years. our goal was to create a company with stronger foundation and much more focus on how we go to market. So we made the right decision to be very aggressive to pursue our distributor transition.

Right now, as you heard, 75% of our U.S. net sales now are coming from our top 30 distributor in Spine. And this is going to give us a much stronger predictability about how we go to market. But -- and also is going to give us the network that we need in order to start to deliver the very meaningful innovation that is going to come in the next 18 months.

As you heard, we are very excited about the VIRATA launch. We are very excited about the over dozen of products that are going to come across all of the business units to support the growth that you want to see in our organization. And in order to materialize that, we needed to have a strong foundation. So I think that we are taking the right decision in order to create the long-term value.

Thanks, Matt. And to the rest of your question on just the mid -- getting to mid-teens EBITDA and positive free cash flow. So we are still working on our gross margin expansion plan, 300 basis points improvement from 71% to 74%. Our guide this year on gross margin, 72.5% put this right in line to achieve that by 2028.

Specifically, we're working on productivity improvements across our manufacturing and distribution operations. to achieve that as well as then as we look at our whole P&L, fixed cost leverage, moderating the expense growth on SG&A while we continue to invest in innovation in the commercial channel and to lead that we have some automation enhancements that we're driving now to drive back office efficiency that we're working on. And all of these things together, as we continue to focus then on our working capital management improved asset utilization will generate positive free cash flow.

Your next question comes from the line of Tom Stephan with Stifel.

I'll start with the 2026 revenue guide. Maybe for you, Julie. Can you flesh out the 3 main line items a bit quantitatively mentioned above market growth for BGT, any finer points numerically for the 2026 revenue guide would be helpful. And qualitative commentary would be great as well.

Yes. So I think we continue to expect above-market growth for BGT, like you mentioned, again, above-market growth for our limb reconstruction business. the commentary that we made was that the second half will see the U.S. return to double-digit growth in the U.S. limb reconstruction business. And then we expect another year of similar performance to what we saw in U.S. Spine -- our Global Spine business, we finished, as a reminder, 2025 at 10% global growth in the Spine business. So those are the big pieces there with our revenue guidance.

Yes. And from the qualitative perspective, Tom, we are very focused and clear on our ability and want to execute. We need to drive a deeper penetration of 7D maximizing the productivity of our U.S.A. Spine distribution network, keep evolving our biologic business our limb reconstruction business. So if you want to summarize what we expect -- what you're going to expect in 2026, a real focus on to commercialize the amazing new technologies that we're bringing to the market. So I'm very excited and positive about where we are starting the year.

Got it. That's great. And then my follow-up also sort of ask about the LRP, grew 4% pro forma this year, maybe closer to 4.5% constant currency in the back half on revenue guiding to 5% to 6% or so in 2026. Hopefully, I have all these numbers right. For the long-term targets, you still view 6.5% to 7.5% is the right long-term revenue CAGR even though it is pushed out a year. And Massimo, I know there's a lot of product launches on the come. The commercial optimization is ongoing, and you do expect to benefit from that. But maybe if you can take a bit of a step back and just talk about your level of confidence that 6.5% to 7.5% is the right target for top line growth for Orthofix?

Yes. Thank you, Tom. We never -- we talked about it in the past. We knew we made a lot of meaningful investment on both on the commercial channel and innovation. So starting the second half of this year, you start to -- we are expecting to start to get the positive impact of the combination of the two. VIRATA launch is important for us is the last -- is one of the products that is going to propel this organization to the next level, focusing into Spine there is amazing technology coming into limb reconstruction between our FITBONE and our TrueLok product line that I'm very excited about. Biologic, a lot of enhancement around the 7D platform.

We made a lot of investment while keep delivering EBITDA margin expansion and free cash flow. So I'm very proud about the discipline of this organization. So everything is going according to what we said all along. So very excited about where we are today, very excited at what the company was going to become tomorrow.

Your next question comes from the line of Caitlin Roberts with Canaccord Genuity.

This is [ Kyle ] on for Caitlin. First one from -- could you provide some additional color on 7D placements in 2025 in the installed base?

Yes. So we placed 30% -- we had a 30% increase in our placements in 2025. We don't give the numbers specifically for our installed base. But the other thing that we're really excited about is that collectively, we saw our earn-out units exceed their purchase volume commitments by more than 50%, which again, we believe validates our strategy to move from capital sales to an earnout model.

That's helpful. And then just shifting maybe for a follow-up. You mentioned a renewed focus on advancing biologics portfolio. Can you provide any more color on that? Maybe, if you could elaborate on what that means strategically and how we can think about its contribution over the next couple of years?

Yes. Thank you for the question. So what we did, we made some internal shifting in terms of leadership. So we just give -- we wanted to give Biologics back a very clear and important central focus for who we are. And so we recognize there is a lot of work to do here, but I truly believe we have a strong biologic portfolio.

So we saw some decline last year, primarily related to our distributor transition. But now we are on -- we are very focused on scaling our commercial network and making sure that the execution is going to be there. So we already made the changes that we believe is going to optimize our sales channel, and we are expecting for our USA Biologic performance to get back to marketplace as we continue to focus on it. I'm very confident that we're going to see a lot of positive momentum on this portfolio this year. So work ahead, but very excited about the basis to where we are today.

Your next question comes from the line of Mike Petusky with Barrington Research.

So Julie, I may have missed this, but did you provide any commentary around tariff impact for this included in your guidance for '26 or also tariff impact that actually was in '25?

Yes. So it's included in our guidance. We talked about it kind of mid-last year when it -- so we expect about $1 million to $2 million impact in 2026.

Okay. And that's roughly where it came in, in '25?

Little higher than that in '25 because it was more -- it wasn't a full year impact.

All right. And then just in terms of the -- you mentioned potential legal settlements and obviously, timing on that is difficult to predict. But have you guys -- and I suspect this isn't the [indiscernible], but have you guys reserved for a legal settlement at all?

Yes. We did take an accrual in Q3 and you can refer to the K for more information about it.

All right. And then just one last question. In terms of free cash flow, if I'm looking at my calculations, it looks like you guys improved free cash flow from '24 to '25 by maybe $7.5 million to $8 million. I was curious, I mean is that a decent guesstimate for the level of improvement you might see in '26 versus '25, an additional $7 million, $8 million, something like that?

Yes. I mean, including legal settlements, that would probably be in the range to maybe slightly more than that. But the legal settlements will impact that number.

And it sounds like you guys maybe expect legal settlements in this coming year?

That is included in our guidance that the breakeven except excluding legal settlements, so the timing still be determined, but that's what we assume.

There are no further questions at this time. I will now turn the call back over to Julie Dewey 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. This concludes today's call.

Ladies and gentlemen, thank you all for joining. You may now disconnect.

All right. Good afternoon, everyone. Thank you for joining us. I'm Danielle Antalffy, I'm the U.S. med tech analyst here at UBS. Very honored to have with us Orthofix Medical. We have President and CEO, Massimo Calafiore. We have Chief -- well, we don't have the Chief Financial Officer, reading off that. We have Julie Dewey, Head of Investor Relations. Unfortunately, Julie Andrews, Chief Financial Officer, could not make it because of travel issues. But I think we got it covered with the folks on this stage.

So Massimo, maybe give a minute or two or five, whatever you need, to give a quick overview of the business for folks that might not be as familiar with Orthofix?

So Orthofix is a med tech company focused on the spine -- on the spine market on both Bone Growth Therapy market, Biologics and Orthopedics. We are a pretty competitive portfolio. We joined -- we started this journey 2 years ago. And -- with the idea in mind to make sure that we would -- to utilize all the commercial synergies that we could of the portfolio that we had while at the same time, funding specific pocket within this broad market where we compete where we can win, but with, in mind, this idea of profitable growth and free cash flow creation.

So in the Spine vertical, we are still subscale, but a pretty strong portfolio with a clear innovation strategy. We have a very competitive and highly differentiable Enabling Technology platform that is 7D that is helping us to create strides in the market and compete with our largest -- with the largest players in the market, but also at the same time, creating a lot of room for us to grow, dislocating a lot of the small companies that participate in to spine within the Spine portfolio, so we cross-sell our Biologic portfolio, which is where we have a pretty good market share in some subcategory.

On the opposite side, in Orthopedics, we did a very good job narrowing our focus on specifics of the category that is the limb reconstruction market. In this specific market, we enjoy a portfolio that is highly differentiable and if you see in between, we are taking advantage of the commercial synergies that we are seeing between the Bone Growth Therapy portfolio into spine and the Bone Growth Therapy portfolio into trauma. So let's say, a very well-balanced and diversified company focus on value creation.

Okay. Got it. And since you and Julie joined back in 2024, you've made a lot of progress on solidifying the foundation of Orthofix. Maybe talk about the progress you've made thus far.

Yes. So at the beginning, when Julie and I started, first thing first was we needed to solidify the base -- the financial base of the organization. So we work very hard to refinance our debt. There was a big overhang for us very successfully. We turned around the cash flow -- the free cash flow generation for the organization when we joined -- the year that we joined the company lost more than $100 million on free cash flow.

$109 million to be exact.

And now let's say, we are free cash flow positive. And since we started, we have 7 quarters in a row of positive EBITDA. So that one great. Second was, okay, everything happened. You need to have a strong team around you. So we hired -- we create a brand-new management team, all people that have specific experience in the spaces where we compete. We believe that in spine orthopedics, you need to have people that know the market is kind of -- to understand the nuances.

And third, we defined a pretty clear innovation agenda focused on 7D, our Enabling Technology platform, refining the portfolio in Spine and funding this area where we can very differentiated very much as in Orthopedics. So finance first, with people and now focus on execution with innovation and growth.

And on that point on execution, you actually did have a pretty solid third quarter that you just reported. Can you give us some of the highlights from the quarter. And I think one of the questions investors have had is with a quarter like that, why didn't you raise revenue guide?

Okay. So from the quarter, as you said, has been -- was very well executed in every single area, so we enjoy growth well above the market, taking -- start to take the benefit, a lot of the -- all of the choices that I mentioned before, together with the work that we are doing on optimizing our distribution network. So I was very pleased about how the organization performed. The beat in Q3 was mostly due at some timing related to some international order that came earlier than expected. So we decided to maintain the guidance for Q4 as it was just because of the timing of these specific orders. So nothing as shattering, but again, I was very, very pleased about the quarter.

Great. Let's talk about the spine business. So it sounds like you are very excited about the upcoming Virata. Am I saying that correctly, Virata, launch in spine. Can you talk about what differentiates the platform? And what can we expect as it relates to the launch, the ramp cadence?

We are very excited because in -- if you see the portfolio of all our competitors, thoracolumbar fixation is one of the highest, if not the highest, revenue generator and within the portfolio that we found in Orthofix, this area was the area that need -- that still need some innovation coming. So great work of our engineer on developing a record time Virata, which pretty much encompass year-on-year of history spine around this type of product.

So just to give you a couple of examples, during the alpha launch, we targeted just surgeons that didn't have any relationship with Orthofix. And because we start to see, okay, what are the system out there and we start to bring -- they start to bring and improve the philosophies that we already utilize a very easy transfer between us and between them and us on the product side.

Also, during the merger, we inherited -- the company narrated a pretty strong patent for a specific feature from Orthofix, which is the ability to pop the head of the screw in the shank. And what it does, it creates a lot of opportunity, opportunity for the surgeon to -- during the operation decide which kind of screw to use. Just speaking, let's say, this specific feature; and b, we are creating a very big operational efficiency for us. because the amount of inventory that you need to send in order to perform the case is much lower.

So a lot of excitement for 3 reasons, the ability to now fully compete in the largest market in spine; b, more operational efficiencies for us; and three, the ability to, over time, to keep addressing different area of the fixation space because right now, Virata just -- this launch of Virata is just for the open platform. We're going to have the MIS coming; and third, deformity. So a multiyear journey on this product.

Okay. Got you. In the third quarter, your top 30 U.S. distributor partners grew sales -- net sales, 25% year-over-year, 33% trailing 12 months following targeted transitions. What further transitions remain there and what near-term disruption or uplift could we expect into fiscal '26?

Yes. We're going to -- this -- we're always going to -- of the company and us especially, we're going to look we're going to be very critics about the quality of the partners we have and the ability of the partners that we have to scale. So we are just kind of the middle of the road of our journey. How strategically we go about this -- our, let's say, the commercial strategy is in some area, we consolidate -- so we bring -- we eliminate some smaller shop to consolidate to a bigger partner where we see, let's say, a little bit more time to uplift because you need to start to -- there is some transition period that needs to be managed. But in many, there are a lot of new revenue coming because there is many areas of the country where we're not present. And we are taking advantage of some of the dislocation that you see with our competitor taking advantage of larger distributors that are available for us.

So a twofold strategy that is not just bringing this accelerated growth for us in the top line, but also helping us to maximize the utilization of our asset. So this strategy is creating not just top line benefit, but also better cash flow utilization, EBITDA creation for us.

Sure, sure. International Spine Fixation grew 86% in the third quarter. How much was driven by new geographies, channel restructuring or nonrecurring tenders? And what is a normalized growth cadence for that business?

Yes, I think that we're going to keep growing on the foreseeable future, not at the same rate, but pretty accelerated rate. It's driven by a couple of factors. A, we are being very strategic about how we're going, especially into Europe, focusing on markets where we still can enjoy decent pricing. So -- and we are doing a very good and efficient work to reap our MDR certification for the product out there.

So a good opportunity coming from defocusing of international from some of our competitors. But also now, we are funding -- we'll start to focus on APAC and the Middle East where we can have a pretty competitive pricing in -- and with product that surgeon enjoys as much as United States. So it's been a surprising quarter, but I think that we can -- an area where we can grow still in a profitable way.

Okay. What about the sales force here? Should we expect the sales force to grow meaningfully? Or do you think you've reached critical mass to support your current growth expectations?

Just to give you -- just to level set here, in Spine and Orthopedics, we use just distributors. In Bone Growth Therapy is 50-50 between direct sales force and distributor. So on the distributor side, we are like subscale in both segment that you mentioned. So I think that there's still a lot of opportunity to grow and a lot of partners out there that are asking for a competitive technology that the competitive technology that we have.

So I think that from the growth perspective is mostly in our hands to make sure that we don't deviate by our strategy of profitable growth. And we're going to be -- we're going to keep improving our go to market. We're going to keep improving the quality of our partner in a responsible way, but a lot of it -- a lot of room to grow there.

Okay. And earlier this year, you did have a U.S. spine price decrease at a major account that should now mostly be anniversaried or annualized and you are trending towards flat ASP. How are you thinking of the balance between price and volume to protect ASPs in 2026?

Yes. We are expecting that in our long-range business plan, we expect 1% or 2% price pressure. So I think that we can overcome with a volume increase. What's happened this year was just a coincidence of a merger between 2 accounts. So kind of not really market macro -- not driven by a macro environment, which at price level, if you think since post COVID has been pretty stable in Orthopedics and Spine.

Yes, totally fair. Let's shift to orthopedics and limb reconstruction. You're the only U.S. company offering a complete suite of internal and external limb reconstruction solutions. Where are you on the adoption curve for TrueLok Elevate and FITBONE nails? And what does the ramp into 2026 look like by procedure type.

Look, we are still at the infancy. It's -- especially on the TrueLok Elevate is a market creation activities. So a lot of education, a surgeon level, lot of education and rep and distributor level around the procedure. What we have, what we call a vital fuel. So like a clear priorities that was set in the organization for '26 about developing the full go-to-market strategy for this product. So we are foreseeing to be a growth driver for '26 and beyond.

At the same time, on the internal lengthening, a lot of opportunities that are coming to us because focusing -- because the focus on this market segment from our large competitor, and I personally like what we are doing in orthopedics because we found this $2.6 billion market where we can clear be the market leader. And on top of this, we're talking -- going back to about pricing, we compete in an area that is less price-sensitive than everything else. Our patient population is very demanding, so less attention on the cost. So a great opportunity with very good margin.

Okay. And within this business, what are the key barriers to surgeon adoption of deformity correction and bone transport? And how are you scaling training programs to accelerate conversions?

Yes. So we -- in our vital field education is important. One thing that we are doing -- we are focusing before the company was very focused on podiatrist and DPA. Now we are -- start to work in a more diligent way on partnering with institution around United States is actually focusing on limb reconstruction. This one is going to give us the opportunity to start to meet fellow and residents that are about to go out in the market, they're going to go in the market in the future. So we're doing a very good strategy to create not just a strong foundation for this business, but also longevity in the business. So clinical education, clinical publication and fellow -- resident and fellow strategy is key for us to succeed.

Is it part of fellowship training program?

There are just a couple that start to focus. One, actually, in New York City being HSS.

Okay. Okay. Let's talk about Enabling Technologies and 7D flash navigation. Can you share the latest placement cadence and utilization for 7D flash, building on the record placement year you had in 2024? And what is the road map software modules, imaging integration or robotics partnerships here?

Okay. So let's start from the innovation side. which I like. We spend around 8% in average of R&D per year. And there is a lot of investment that goes into feeding 7D. We have a great group of engineers and the ability to release -- we have a very good cadence of software release on the system that keep increasing the usability of the system and keep increasing the number of devices that we can navigate on the system. So a good innovation coming there.

But at the same time, we are lesser focused on keep changing and keep innovating within the space of navigation so excited about what we can do there from -- starting from a platform that, as it is today, is very -- is highly differentiable. And all of this is translating on clear commercial success. So one of the things that we did since we started -- since we start to run Orthofix focusing on enabling tech. We changed our strategy from straight capital sales to start to leverage the earn-out program that we call Voyager.

We did this for 2 reasons: A -- for 3 reasons: a, because I believe in pull-through. So if you see all of the company that was successful in leveraging Enabling Tech, they create a real pull-through for the hardware; b, I truly believe that we had already a very highly differentiable portfolio to sell in Spine. So we needed 7D and a strong commercial organization to give this portfolio a voice and I believe on 7th -- of the quality of 7D.

So just to give you a sense of the success in aggregate, the account that they use 7D under disposable -- under disposed. they have 7D available with them. The earn-out program is 50% ahead of their volume commitment. So is -- this one is a great testament about the quality of the product and the quality of the implants that we have.

Right. So just on that point, what is the average? So that was one example. You're doing very well for that account. But what is the average implant Biologics revenue uplift per account post 7D Flash installation. And how does that influence capital allocation to enabling tech versus instrument sets.

So we haven't provided specific amount of that uplift, what Massimo just said, in terms of the aggregate, it's pretty compelling in terms of what it can do, and that's very sticky -- I would say, very sticky revenue in terms of that. So we love doing these Voyager agreements all day long.

And on the capital allocation, it's one area where we improved a lot since our tenure and mostly because what I said before -- what I said before about the type of partner that we're using. We can do biggest -- a larger amount of surgery with the same amount of capital that we invest. So very pleased about the progress we're making there.

Okay. Let's talk about Bone Growth Therapies now. So you grew 6% in Q3 with above-market performance and traction and fracture. What is the mix of growth from competitive conversions versus new surgeon adds? And what is the multiyear runway for AccelStim?

Yes, we don't give a specific statistic around that. What I can tell you is we have been very successful on creating synergies between the commercial organization into Spine with the commercial organization of Bone Growth Therapy. This is why you see that despite the clear market leadership we have, still growing 6%. And if you see how sustained was the growth since the tenure in the specific segment is a big testament about the discipline that we're bringing on the execution of the organization. On fracture is a little bit different because we can manage the growth also keep investing on direct sales force. So very pleased about how the team is performing. AccelStim per say -- we already have the same method of delivering care in our portfolio what 2.0 is going to bring it to us is going to be an uplift on our margin, given that right now, we're going to start to manufacture the product in-house that we licensed.

Okay. And maybe talk about payer policies here and what are the potential mitigation strategies should CMS revisit prior auth or HIX changes for this class?

Yes. We don't expect big changes on macro level. The [ systems ] has been very stable for BGT. And we are protecting our market leadership with our PMA. We are the only Class III device and we didn't see in the recent history -- in the recent past, any pushback or sign of the classification of the -- of our technology. So pretty pleased there.

Okay. Got you. Let's shift gears to the pipeline and R&D and how you think about the cadence of product launches. So you've got -- and specifically for 2026, what's on the docket there? You've got Virata that sounds like we'll go into full launch in 2026? And what's coming behind Virata from a product launch perspective.

Yes. So on the Virata side, it's just going to be just the open platform that is going to end to full launch in '26. So we're going to do an alpha launch on early '26 with MIS. So on the Virata side, it's a multiyear product development. So a catalyst, we're going to have different catalysts coming in the short term. So very excited about that.

We need to keep commercializing all of the latest innovation interbody. So we have our Reef technology that we use for lumber, for anterior support -- anterior column support that needs to be -- that is going to get still in the infancies of the launch piece. So a clear strategy on Spine.

On the Orthopedic side, we're going to get -- Elevate is going to be fully launched in '26. But similar to what I said to Virata, you're going to see different version on Elevate coming in the horizon year-over-year. It's a market segment that we are creating is a market segment where we want to keep winning and growing. So a great focus on that.

FITBONE is another area where we are investing a good amount of resources in order to complete and evolve the product line. So clear 7D, we talk about it.

We want to honor the continuum of care. So not just focus on what's happening in the OR. The Q1 '26 is going to give access also to preoperative planning and custom patient-specific roles that we're going to launch. And in BGT, keep leveraging our strong market position to collect data. We have award-winning Stim on Track platform that let us not just manage patient compliance, but also collect data that over time you can feed into the system. So you go segment by segment, we have a pretty clear innovation agenda.

Yes. Yes. Sounds like it. Let's talk about the long-term targets that you guys have provided. So to level set everyone, 6.5% to 7.5% net sales CAGR through over '25 to '27, mid-teens adjusted EBITDA by 2027, sustained positive free cash flow. As we look forward, what are the catalysts that support you achieving this goal? Where do you see the biggest risks.

From the opportunities, I think that is clear. We are working -- keep working on how we go to market. We keep working on our product -- on our very deliberate product launch cadence. So a lot of excitement of what is going to happen late this year -- late of 2026 with Virata and full -- we are expecting to enjoy the full year of launch of Elevate. From the risk perspective, I think that the market is pretty healthy at a macro level.

I think that we're going to have -- we already talked about the tariff effect that we're going to have in our P&L, which for us is highly manageable given that we have just a little exposure in Europe with Orthopedics. So I think that Orthofix story now is a study of relentless execution and keep improving on improving on what we discussed on the commercial side. I'm very pleased about the discipline that the company has. We beat -- we were growing EBITDA constantly quarter-over-quarter together with all of the other metrics. So excited about what we can do.

Yes. And I think something that's top of mind for investors as well is what's happening in the competitive landscape with -- so J&J is now spinning, selling their orthopedics business, Stryker sold their spinal implants business. What are you seeing out there? How is the competitive landscape changing? And is it impacting your go-to-market strategy at all?

For us, it's just opportunity.

Disruption.

It's a clear sign that the market is demanding companies that are focused on -- that the surgeon -- that they are focused on surgeon needs from the technology perspective, from the service perspective, I think that the surgeon and distributor like to partner with nimble company that have 1 mission in mind.

It is interesting. If you go back a few years ago, all of this big competitor had this idea to invest in multiple -- this desperate market, the different type of market in order to try to own specific accounts at multiple level, but also -- but you start to realize today that surgeon preference is still more important, sometimes the contractual obligation. So when you start to learn that I think at the macro level, there may be not interested to participate in market like Spine and Orthopedics, which is a great opportunity for us and a great opportunity that we're going to take advantage of.

At the same time, the fact that we own this neighboring technology platform like 7D is created differentiation in spine from all the smaller competitor. So you then start to see consolidation or dislocation at a macro level, but also for sub-$100 million company. So good opportunity for us.

And let's maybe talk about capital allocation. What are your priorities when it comes to capital allocation?

So we are investing R&D innovation is important for us. We -- in our 8%, I think that we can -- it depends on our priorities. We are very disciplined on how we invest capital. 7D is important. It is a differentiated platform. So a lot of focus there. And within the market where we compete, this is why I said that one of the work that we did is really focus on areas where we believe that we can win. The limb -- before Orthopedics, the Orthofix were participating in different segment of trauma in order to optimize capital allocation area where we can win, we decided to win there. In spine, there are 2, 3 areas where we can be highly differentiated, like cervical now, Virata with thoracolumbar interbody. So somebody asked me a few weeks ago during a podcast, like how can -- how well despite our size that you can win in innovation. I think that you can win just to prioritizing and be able to say, no instead to say yes to everybody. And this is what we did. We discontinued more than 40 product lines.

We discontinued a large product line that was a headwind for us. We are consolidating this all of this just to create the discipline that let us invest and win a specific area of innovation.

Okay. And in the last minute here, I'd like to wrap up by asking, where do you think there's dislocation between how -- and what investors are either focused on or how they perceive Orthofix versus what you think Orthofix is delivering and can't deliver?

Yes. I think that there is a disconnection between -- I think the people needs to -- an investor need to step back one second and see what is the history of Orthofix. When we are in the continuum of our growth strategy, we -- sometimes we are compared with companies that are 10, 12 years ahead of us on the execution side, we are just in 2 years in our journey. And if you see just the amount of progress that we made since the beginning of our tenure, it is astonishing the difference between the company that we inherited with the company that we are now. And I don't think that we get enough credit of innovative -- of innovating and growing -- creating profitability still being subscale in many markets where we compete. So I think that it's going to be a great story from now on.

Well with that, we're out of time. So great timing. Thank you, guys.

Perfect. Thank you.

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Orthofix Third Quarter 2021 Earnings Conference Call. [Operator Instructions] I'd now like to turn the conference over to Julie Dewey. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to Orthofix's Third Quarter 2025 Earnings Call. We appreciate you joining us. I'm Julie Dewey, Orthofix's Chief IR and Communications Officer. Joining me on the call today are President and Chief Executive Officer, Massimo Calafiore; and Chief Financial Officer, Julie Andrews.

Before we get started, please note that our earnings release and the supplemental presentation accompanying this call are available on the Events and Presentations page of the Investors section of our corporate website at orthofix.com. Also, this call is being broadcast live over the Internet to all interested parties, and an archived copy of this webcast will be available in the Investors section of our corporate website shortly after the conclusion of this call.

During this call, we'll be making forward-looking statements that involve risks and uncertainties. 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. 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.

In addition, on today's call, we will refer to various non-GAAP financial measures. Please refer to today's news release announcing our third quarter 2025 results for information regarding our non-GAAP results, including our reconciliations of these non-GAAP financial measures to our U.S. GAAP results.

Additionally, and unless otherwise stated, all net sales percentage changes discussed will be on a pro forma constant currency year-over-year basis, excluding the impact from the discontinuation of the M6 artificial disc product lines. And all results of operations that we will refer to will be on a non-GAAP as adjusted basis.

We have posted a pro forma P&L, excluding M6 on our website to assist you with updating your models, We will update it on a quarterly basis for the remainder of 2025.

Moving to today's agenda, Massimo will open with comments on our performance and business updates, Julie Andrews will then review the specifics of our third quarter results and our 2025 financial guidance before we open it up for questions.

With that, I'll now turn the call over to Massimo.

Thank you, Julie. Good morning, everyone, and thank you for joining us today. Orthofix delivered another strong quarter, reinforcing our track record of consistent execution and financial discipline. We achieved solid year-over-year and sequential revenue growth, led by strong performance in our U.S.A., Spine and Orthopedics businesses. This marks our seventh consecutive quarter our adjusted EBITDA margin expansion and sustained positive free cash flow generation, clear evidence of our disciplined approach to operational efficiency and cost management.

In our U.S. Spine Fixation segment, net sales increased 8%, with procedural volume up 10%, both ahead of Q2 and the prior year. This above-market growth was fueled by the continued adoption of our 7D Flash navigation system and strong momentum across our Spine portfolios.

Lateral grew 24%, while Posera Cervical and Antero Lumber, both grew 17%, and MIS lumber grew 18%. We are seeing encouraging momentum from recent distributor transitions, which are expanding our commercial reach. Our top 30 U.S. distributor partners grew net sales 25% year-over-year in Q3 and 33% on a trailing 12-month basis, a clear validation of our go-to-market strategy and its ability to unlock accelerated growth.

As we continue to optimize our channel, we are confident this trajectory will drive further market share gains and long-term value creation. 7D unit placements in the U.S. are up year-to-date compared to prior year, and our Voyager and out program continues to outperform, with customers surpassing the purchase commitments by over 50% on average.

The 7D technology remains a key differentiator, enhancing surgical precision and workflow efficiency and is central to our ability to win share in a competitive market.

Now let's turn to one of the most exciting development in our Spine portfolio. The limited market release of our new VIRATA spinal fixation system. Every aspect of VIRATA from our proprietary Pelico screw design to intuitive instrumentation that integrates seamlessly with 7D Flash navigation is engineered to optimize the surgical workflow, boost surgeon confidence and accelerate procedural adoption; all key differentiator that we fully intend to capitalize on to capture market share.

To put this into perspective, the U.S. pedicle screw market valued approximately $2 billion 2025 is projected to grow at a steady 4 to 5 CAGR through 2030, fueled by an aging population and increasing spinal disorders.

Like our successful North Star procedure cervical system, we believe VIRATA we set a new standard in Pedicoscrufixation. Driven by its integration with 7D, we expect VIRATA will become a meaningful growth driver following it is fully launched in the second half or next year.

And beyond VIRATA, we are advancing our data-driven deformity strategy with access to preoperative planning and patient-specific routes beginning in Q1 of next year, further strengthening our competitive edge.

Our Orthopedics business also had a standout quarter with U.S. orthopedics growing 19%, marking the fifth consecutive quarter of double-digit growth. This performance was driven by the successful global launch of TRUELOK Elevate and supported by new product introductions, including the Feed board on transport and the Fitbontrocanteric entering nails.

We are proud to be the only company in the U.S. offering a complete suite of internal and external limb reconstruction solutions. And our dedicated focus on this $2.6 billion market is yielding strong results.

Our Bone Growth Therapies, BGT, teams continues to excel delivering above market growth of 6% by leveraging cross-selling opportunities and multiple access points to reinforce our market leadership position.

Looking ahead, we remain focused on 3 strategic priorities: sharpening commercial execution to drive deeper market penetration and adoption of our 7D Flash navigation system; improving gross margin through targeted operational initiatives and maintaining disciplined capital allocation with a continued focus on adjusted EBITDA expansion and free cash flow generation.

As we look towards 2026, I believe we are well positioned for our next phase of profitable growth. With a streamlined differentiated product portfolio, optimized spine commercial channel and unique enabling technologies, we are ready to deliver transformative innovation that benefits both surgeons and patients.

With a healthy commercial pipeline, well defined and transformative innovation road map and strong execution, we believe we have a clear path to sustained growth that outperforms the market, driving margin expansion, free cash flow generation and positive shareholder returns.

Thank you for your time and continued support. With that, I'll now turn the call over to Julie Andrews, to review our third quarter financial results and our 2025 guidance.

Thank you, Massimo, and good morning, everyone. Before we dive into the numbers, a quick reminder. All net sales growth rates I'll reference today are on a pro forma constant currency basis, excluding the impact of net sales related to the discontinuation of the M6 artificial cervical and lumbar discs.

These are non-GAAP financial measures, as outlined earlier in the call. I encourage you to review the reconciliations in our press release and the supplemental materials posted on our website, which include pro forma results through Q3 to support your modeling.

In Q3, we remained focused on distributor transitions in spine and biologics and surgeon-driven innovation. Through disciplined resource allocation, we're prioritizing high-return opportunities to support share capture in U.S. Spine and Orthopaedics, margin improvement and free cash flow generation, positioning us for sustainable, profitable growth.

Total global net sales reached $203.4 million, a 6% increase over the prior year, driven by strong performance in our U.S. Spine and Orthopedic segment. Our Spine Fixation business saw a meaningful step-up from Q2, continuing to outperform the market. Orthopedics saw strong results from Fitbone products and the TRUELOK Elevate launch.

I will now take you through the net sales results by product segment. Global spinal implants, biologics and enabling technologies delivered $108.6 million in pro forma net sales, up 6% year-over-year. Growth was supported by targeted distributor transitions in key geographies, which is positively impacting both our U.S. Spine and Biologics businesses.

U.S. Spine Fixation saw increased procedure volume of 10%, partially offset by a price decrease at a major account, as previously disclosed. Propelled by expansion into new markets and deeper penetration with an established region, international Spine Fixation net sales grew by 86% year-over-year.

Bone Growth Therapies achieved $61.2 million in net sales, reflecting 6% growth outperforming the market. We expect BGT growth to remain above-market rates of 2% to 3%, driven by new surgeon additions and competitive conversions, especially in the fracture channel.

Global Orthopaedics grew 6% to $33.6 million in the third quarter, led by 19% growth in the U.S. as a result of the market release of TRUELOK Elevate and the Fitbone transport nail. International Orthopaedics grew 1%, consistent with expectations, given variability in stocking distributor in tender order timing that can occur from quarter-to-quarter.

Moving down the P&L. pro forma non-GAAP adjusted gross margin reached 72.1%, up 80 basis points from Q3 2024, driven by the discontinuation of M6 and productivity improvements, partially offset by unfavorable geography mix due to increased net sales in international spinal implants, biologics and enabling technologies.

Pro forma non-GAAP adjusted EBITDA was $24.6 million or 12.1% of net sales with year-over-year margin expansion of 230 basis points led by the discontinuation of M6. As Massimo noted, this marks our seventh consecutive quarter of EBITDA margin expansion, underscoring the scalability of our model and operational discipline.

We generated positive free cash flow of $2.5 million, ending the quarter with $65.9 million in total cash, including restricted cash, supporting continued innovation and financial flexibility.

Moving on to 2025 full-year guidance, we are narrowing our full year pro forma net sales guidance range to $810 million to $814 million with a midpoint of $812 million, unchanged from prior guidance of $808 million to $816 million. This guidance range excludes revenue from the discontinued M6 product lines and implies fourth quarter pro forma net sales will be approximately $219 million.

These projections are based on current foreign currency exchange rates and do not account for any further changes to exchange rates for the remainder of the year.

We are raising the bottom end of our full year 2025 pro forma non-GAAP adjusted EBITDA guidance range to $84 million with an updated range of $84 million to $86 million and a midpoint of $85 million, representing 200 basis points of adjusted EBITDA margin expansion at the midpoint versus 2024.

We continue to expect to generate positive free cash flow for the full year, excluding the impact of restructuring charges related to the discontinuation of the M6 product lines.

Now for some specifics on P&L line items for 2025. We expect gross margins to be approximately 72% for the second half of the year. We continue to expect operating expenses to improve by approximately 200 basis points this year versus 2024.

We now expect stock-based compensation expense of approximately $28 million to $29 million and adjusted depreciation and amortization of approximately $38 million for the full year and interest and other expenses of approximately $5 million per quarter.

In keeping with our standard practice, we anticipate providing formal 2026 guidance on our Q4 call in February. Delivering long-term shareholder value will continue to be paramount in 2026 and beyond, driven by our heightened focus on disciplined, profitable growth, positive free cash flow generation and strategic capital deployment.

Momentum in the Spine, BGT and Orthopaedics businesses is projected to continue, supported by a robust innovation pipeline, consistent commercial execution and ongoing margin expansion efforts.

We remain confident in our ability to deliver strong operational and financial performance through the remainder of 2025 and believe our strategic positioning, disciplined execution and resilient business model,provides a solid foundation for sustained value creation in the years ahead.

With that, I'll turn it back to Massimo for closing comments before we open the line for questions. Massimo?

Thanks, Julie. I want to thank our Orthofix team and our committed commercial partners for their contribution in Q3. This was a strong and successful quarter. And I am incredibly proud of our team's disciplined execution and the way we are strategically positioning Orthofix for continued success in 2025 and beyond.

Our Spine, Bone Growth Therapies and Orthopedics businesses, are demonstrating sustained momentum, reinforcing our confidence in a successful close to 2025 and positioning us well for 2026. With operational rigor, a solid financial foundation and a clear path for innovation-led growth, Orthofix is well positioned to deliver long-term value for our shareholders and advance our strategic priorities.

Operator, let's now open the line for questions.

[Operator Instructions] Our first question will come from the line of Tom Stephan with Stifel.

Great. I want to start, I guess, two questions, 1 kind of near-term revenue 1 long term. kicking things off with near term, just on 2025 revenue guidance, beat 3Q on pro forma by about $3 million. But the midpoint of guidance was unchanged. And I think 4Q revenue implies a slight decel to about 4% growth from 6% in 3Q.

So Julie or Massimo, maybe if you can talk about some of the moving parts with the implied 4Q '25 revenue figure and maybe what held back sort of a flush-through of the 3Q top line beat.

Yes. Tom, thanks for the question. We set our guidance where we feel it's appropriate for the year. I think we had a very strong Q4 last year, and so we [ repaint ] a little bit of comparability. And so we feel like we said it appropriately within the range of what we expect for the fourth quarter.

Got it. Makes perfect sense. And then one bit more long term, I guess. So as we think about the 2027 financial targets on revenue, Julie, maybe to stick with you, can you just help us a bit with sort of the path to the 6.5% to 7.5% CAGR? Do we think about both 2026 and 2027 within that band to get there? Or is growth maybe more weighted to either '26 or '27?

And then maybe if you can talk about kind of key puts and takes for 2026 on the top line, that be great.

Sure. Thanks, Tom. We're not providing 2026 guidance today. But in speaking about our long-range plan, I think it will be -- it will be a little bit more weighted towards 2027. Primary drivers of that, we will have a full launch of VIRATA in 2027. So we're launching that we talked about launching that midyear next year. So that will be a full launch.

In addition, we've talked a lot about the TRUELOK Elevate launch, which we are now in full launch of, but that is a market development type of launch. And so we will see continued acceleration of that and deeper acceleration of that into 2027.

Yes, Tom, let me add some other some more color. And you see, the momentum that we're getting with the addition of our new distributors, and this is ongoing, it's very successful, and we're going to still going to get the benefit in '26 and '27.

So I think that the foundation of the company is much stronger since we started 2 years ago. The pipeline is very strong. So I'm very optimistic about what we can achieve in the later year of our long-range business plan.

Our next question will come from the line of Mike Petusky with Barrington Research.

So I guess I wanted to try to drill down on the strength in U.S. Spine. Can you sort of talk about what you think are the most key drivers in that strong result? I mean, is it 7D pull-through? Is it the distributor transition? Can you just talk about what driving sort of above-average market growth in U.S. Spine?

Thank you, Mike. Look, I think that there are three key points for us. One, we are seeing encouraging momentum from this recent distributor transition. If you think about -- if you drill down, the top 30 of our U.S. distributor partners grew net sales 25% year-over-year in Q3 and 33% on a trailing 12-month basis.

And this is a clear validation that that tough decision that we took starting our tenure has started to paying off. And all of this is bringing more capital-efficient commercial partners that can help us to drive the profitable growth that we want to achieve.

At the same point, we want to be a company that leads with innovation. The -- our pipeline from the product standpoint is very exciting. There is a lot of support from what we are doing for -- with VIRATA, a very successful alpha launch so far and of course, our pinnacle, our strategy 7D, which keeps driving positive momentum,

Our placements are up year-over-year. Our Voyager earnout program is being -- still being a very great success. Just remember that, on average, our customers are surpassing 50% -- or 50% of our customers are passing their commitment on usage of our implants. So a great foundation to build up our Spine business.

Okay. Great. And then just a quick one for Julie. I would certainly expect, I guess, Q4 free cash flow to be strong relative to each of the first 3 quarters. I'm just curious, though, you had a very strong free cash flow quarter last year's Q4. Would -- is there any chance that you could exceed that figure this Q4? Or should we model more conservatively?

Yes. I mean I think what we've guided is that we'll be free cash flow positive for the second half of 2025. We haven't specifically given a number for the quarters or specifically said what that number is. What I would say is, I think I wouldn't expect it to probably be at the same level as last year. I think we're forward placing some inventory to get a good start to next year. .

So I expect a little bit more in capital usage and inventory from a working capital standpoint. But I would expect -- again, it will be free cash flow positive for the second half of the year.

[Operator Instructions] our next question will come from the line of Jeff Cohen with Ladenburg Thalmann.

I have one and a follow-up. Firstly, could you talk about distributor increases in transition, particularly domestically? Have you transitioned from existing ones to current ones? Or have the current ones expanded?

I think it is a combination. So we start to consolidate our distribution distributor partner in some areas. So instead of having multiple agents, distributor in serving same account, we start to consolidate to the one that we believe can scale in the future.

And of course, we look geography-by-geography in areas where we want to win. And then we can add new distributors to start to attack specific region of the country where we saw we didn't have a good [ presence ]. So I would say it is a combination of the two. Expansion and...

Got it. And then as a follow-up, could you talk about this PBT with TRUELOK Elevate as far as the d1 study that was published on increased peripheral vascularization, would you expect there to be more studies and publications that are currently being done or in the future?

Yes. We believe in clinical validation of our product. So is in the pipeline for us to participate. But at the same time, we see a lot of interest in the surgeon community around the procedure. So I will not be surprised if other centers are going to start to study the specific surgical technique.

So very excited about the opportunities. There is a specific focus of our organization and validate what we do with Elevate, and we are ready to build a great story around that.

And that will conclude our question-and-answer session. I'll turn the call back over to Julie for any closing comments.

Thank you, everyone, for joining us today. We sincerely appreciate your time and interest in Orthofix. If you have any questions, as usual, please reach out. We look forward to continuing the conversation next quarter. This concludes today's call.

This concludes our call. Thanks for joining. You may now disconnect.