Orthofix Medical Inc. Annual Report 2018

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FY2018 Annual Report · Orthofix Medical Inc.

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a n n ua l
report 2018

ORTHOFIX MEDICAL INC.

OUR VISION

CORPORATE HEADQUARTERS - U.S. SALES,

Orthofix S.A.

MANUFACTURING & DISTRIBUTION

21-37 Rue de Stalingrad, 24/28 Villa Baudran

To be a highly respected global
orthopedic and spine company
that delivers exceptional value
to our patients, customers,
team members, partners
and shareholders.

(Manufacturing & Distribution for the

INTERNATIONAL SALES, MANUFACTURING

& DISTRIBUTION SUBSIDIARIES

(International Distribution Center)

Orthofix Medical Inc.

3451 Plano Parkway

Lewisville, TX 75056

USA

Tel: 214.937.2000

Orthofix Medical Inc.

M6 artificial discs)

501 Mercury Drive

Sunnyvale, CA 94085

USA

Tel: 408.636.2500

Orthofix S.r.l.

Via delle Nazioni 9

37012 Bussolengo

Verona, Italy

Tel: +39.045.6719000

Orthofix S.r.l.

Via della Filanda 7/9

37060 Lugagnano di Sona

Verona, Italy

Tel: +39.045.6719000

Orthofix do Brasil Ltda.

Rua Alves Guimarães, 1216

Pinheiros 05410-002

São Paulo – SP

Brazil

Tel: +55.11.30872260

Siemensstraße 5

85521 Ottobrunn

Munich/Germany

Tel: +49.89.35499990

Spinal Kinetics Gmbh

an Orthofix Company

Gottlieb-Daimler-Str. 43

89150 Laichingen, Germany

Tel: +49.7333.925.9986

Orthofix GmbH / Orthofix Spine GmbH

94110 Arcueil

France

Tel: +33.1.41983333

Spinal Kinetics France SARL

an Orthofix Company

259 Rue Saint-Honr’e

75001 Paris, France

Orthofix Australia Pty. Ltd.

c/o Baker McKenzie

Level 46, Tower One

International Towers Sydney

100 Barangaroo Avenue

Barangaroo NSW 2000

Australia

Tel: +61.2.9493.4448

Orthofix Ltd.

6 Waltham Park

Waltham Road

White Waltham

Maidenhead, Berkshire

SL6 3TN

United Kingdom

Tel: +44.1628.594500

COMMON STOCK

Traded on the NASDAQ

Symbol: OFIX

TRANSFER AGENT

Computershare Investor Services

P.O. BOX 30170

1.877.205.0957

College Station, TX 77842-3170

www.computershare.com/investor

INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

Ernst & Young LLP

Dallas, TX

Approximately 361 shareholders of record.

We are proud to now bring this life-changing
technology to the U.S. market to help patients like
Randy, who is spotlighted on our cover. Randy is a
veteran firefighter and his decision to participate in
the M6-C artificial cervical disc clinical study enabled
him to receive this game-changing technology prior
to the FDA approval. As a result of the successful
M6-C artificial disc replacement procedure, Randy
is now back doing what he loves best — serving
his community as an active duty firefighter.

We are proud and excited that patients throughout
the U.S. will have access to this next-generation
technology thanks to Randy and many other
study participants whose willingness to be in a
clinical trial provided the needed data to secure
the FDA approval. These participants now join
more than 45,000 patients in Europe who have
received the M6-C artificial cervical disc to manage
their degenerative cervical disc disease.

2018 In Review
Overall, 2018 was a year of success and
productivity with the launch of a number of products.

For the full year 2018, our reported sales were
$453 million dollars, an increase of 4.4% and
a 3.9% increase in constant currency growth
over the prior year. Notably, required revenue
recognition accounting standards changed at
the beginning of 2018, which impacted the year-
over-year comparison of sales. When recasting
Q4 2017 to the new accounting standard, net
sales would have increased by 9.5% in Q4 and
5.0% for the full year in constant currency.

Orthofix Spine
Orthofix Spine — which includes our Bone
Growth Therapies, Spinal Implants, Biologics and
Spinal Kinetics product categories — generated
$93.8 million in sales in the fourth quarter alone,
which represents a 6.9% increase over prior
year. Orthofix Spine produced $346.6 million in
reported sales for the full year, a 4.8% increase
over prior year. Let’s look at the highlights.

Bone Growth Therapies:

•

The Bone Growth Therapies segment
continued its multi-year run of outstanding
performance by delivering a net sales increase
of 6.1% in the fourth quarter versus prior year.
Despite our market-leading share, we continue
to significantly outgrow the spinal fusion
procedure growth rates, primarily through
the continued adoption of our therapy by
both existing and new customer physicians.

Dear Shareholder,

At Orthofix, our vision is to be a highly respected
global orthopedic and spine company that delivers
exceptional value to our patients, customers, team
members, partners and shareholders. We do this
through executing on our mission of improving
patients’ lives by providing market-leading treatment
solutions to our physician customers that help
their patients achieve better health. We also deliver
value by helping our team members, partners and
shareholders through our financial performance
and disciplined stewardship of our business, while
keeping our focus firmly on the future. We are here
to create value for all our stakeholders, and today
more than ever, we are delivering on that promise.

2018 was a year dedicated to positioning Orthofix
for its next phase: accelerating growth. We
reorganized our businesses under two umbrellas
— Orthofix Spine and Orthofix Extremities — in
order to leverage our full portfolio of spine solutions
and better serve our surgeon customers. In
addition, we also completed the Company’s first
significant strategic acquisition in nearly 10 years.

“We are proud to now bring this
life-changing technology to the U.S.
market to help patients like Randy,
who is spotlighted on our cover.”

Investing in Life-Changing Technology
With the purchase of Spinal Kinetics, a leader
and innovator in the international cervical and
lumbar disc market, we’ve entered the fast-
growing motion preservation product segment
of the spine market. This acquisition and the
recent U.S. Food and Drug Administration (FDA)
approval of the M6-C™ artificial cervical disc are
evidence of our strategic approach to investing in
technologies that make a meaningful difference in
our product offerings and in the lives of patients.

•

The Bone Growth Therapies portfolio
includes the number one prescribed bone
growth stimulators. Our spinal offerings
include devices indicated as an adjunctive,
noninvasive treatment to improve fusion
success rates in the cervical and lumbar
spine. These devices utilize Orthofix’s
patented pulsed electromagnetic field
(PEMF) technology. The CervicalStim™ device
remains the only FDA-approved bone growth
stimulator indicated for use as an adjunct
to cervical spine fusion surgery in patients
at high-risk for non-fusion. In March 2018,
Orthofix announced publication of new data
that further confirms the effectiveness of the
CervicalStim device in improving fusion rates
in patients at high risk for Anterior Cervical
Discectomy and Fusion (ACDF) surgery failure.

•

In March 2018, we announced the FDA
and European CE Mark approvals for our
next-generation PhysioStim™ bone growth
stimulators. These devices provide a non-
surgical treatment option for patients who
have a nonunion fracture to an extremity
that has shown no visible signs of healing.
Together with our spinal fusion stimulators,
these devices are currently the number one
prescribed bone growth stimulators in the U.S.

Spinal Implants:

•

The Spinal Implants portfolio includes Motion
Preservation and Spine Fixation products
used in various surgical procedures of the
spine. We reported a fourth quarter net
sales increase of 17.9% compared to prior
year, which reflects an increase in sales of
1.4% in Spine Fixation for the quarter and
a $3.5 million-dollar contribution from
Spinal Kinetics (Motion Preservation).

The Company’s Spine Fixation offerings
include a wide array of implants designed
for use primarily in cervical, thoracic and
lumbar fusion surgeries, including advanced
interbody and fixation solutions that aid
surgeons in repairing spinal alignment,
improving disc height, providing nerve
decompression and correcting instabilities.
The Spine Fixation products are used globally
in a variety of spine procedures involving
deformity correction, minimally invasive
approaches, sacroiliac joints, degenerative
disc disease, trauma and tumors.

•

In recent years, the fastest-growing product
line among our Spine Fixation offerings has
been in the PTC (PEEK-Titanium Composite)
interbody portfolio. PTC products are a
unique technology proprietary to Orthofix
Spine, where 3D-printed endplates are
molded into PEEK. An article specific to
the FORZA™ PTC spacer was recently
released in The Spine Journal entitled,
“Evaluation of a Polyetheretherketone
(PEEK) Titanium Composite Interbody
Spacer in an Ovine Lumbar Interbody Fusion
Model: Biomechanical, Microcomputed
Tomographic, and Histologic Analyses,”
highlighting the Company’s PTC technology.

•

In early 2018, we announced the 510(k)
clearance and U.S. limited market launch of
the FORZA® XP Expandable Spacer System for
spinal fusion procedures in skeletally mature
patients with degenerative disc disease
(DDD) making Orthofix competitive in one
of the fastest-growing segments in spine.

Biologics:

•

For our Biologics business, reported sales
decreased by 4.8% in the fourth quarter
and for the full year compared to prior year.
The sales in this business continued to be
negatively impacted by the contractual
reduction in the marketing service fee
Orthofix receives from MTF Biologics, which
occurred in March 2018. When normalized
for this change, sales increased 1.3% for
the full year and 2.7% in the quarter.

The Biologics portfolio includes regenerative
products and tissue forms that enable
physicians to successfully treat a variety of
spinal and orthopedic conditions. 2019 marks
10 years of partnership between Orthofix
and its tissue partner MTF Biologics. The
two have been at the forefront of cellular
allograft technology since 2009, with the
launch of the Trinity Evolution™ allograft.
We collaborated to provide the Trinity ELITE™
allograft with FiberLock™ technology in
2013, introducing the first moldable cellular
allograft to the market. There have been more
than 200,000 procedures recorded to date
using Trinity Evolution and Trinity ELITE.

Orthofix Extremities
In our Orthofix Extremities business, reported and
constant currency net sales decreased 3.6% in the
fourth quarter over prior year. When recasting Q4
2017 to the new accounting standard, reported
net sales increased in the quarter by 13.2% and
16.6% in constant currency. Given this significant
quarterly variability, we believed the best way to
assess this business is to look at the constant
currency year-over-year growth for the full year
using the same accounting standard for both
years. On this basis, the Orthofix Extremities
business grew 4.7% for the full year 2018.

In 2018, we announced the FDA 510(k) clearance
for our new internal fixation system, the
G-Beam™ Fusion Beaming System. This system
is designed primarily for the treatment of Charcot
foot, a debilitating condition where the bones
in the foot weaken and collapse and can lead to
amputation if left untreated. The G-Beam Fusion
Beaming System is the next step in working
towards our objective of becoming a recognized
premium solution provider in the Charcot and
Diabetic foot market segments. We believe this
system will allow us to establish ourselves in the
internal fixation segment of Charcot treatment
options, while leveraging our existing product
lines, like the TrueLok™ Ring Fixation System
and the TL-HEX TrueLok Hexapod System™.

Non-sales Metrics:
Our 2018 results reflect continued performance
improvements in nearly every aspect of our
business. Specifically:

•

Adjusted EBITDA as a percentage of
net sales, excluding Spinal Kinetics, was
20.5% compared to 18.8% in the prior year
period, a 170 basis point improvement.

Adjusted earnings per share was $1.79
compared to $1.62 for 2017.

Excluding the dilution due to the Spinal
Kinetics acquisition, adjusted EPS increased
21.0% over prior year and free cash flow
was $34.7 million, which was a $12.6
million dollar increase over 2017.

2018 Beyond the Numbers
Looking beyond the numbers, 2018 proved to
be an important year for Orthofix. We moved our
corporate domicile from Curacao to Delaware,
simplified our corporate structure to reduce costs,
and reduced our long-term projected tax rate
from 38% in 2017 to 27% in 2019. As mentioned
above, we consolidated our four strategic business
units into two, Orthofix Spine and Orthofix
Extremities, with the goal of accelerating growth.
In our business development activities, we
acquired Spinal Kinetics and remained active, yet
disciplined, striking a balance between expanding
strategic opportunities and delivering results.

2019 and Beyond
In February 2019, we announced the FDA approval
of the M6-C artificial cervical disc for patients
suffering from cervical disc degeneration. As
part of the motion preservation products offered
by the Company, the M6-C disc is designed to
restore physiologic motion to the spine and is
indicated as an alternative to cervical fusion. The
M6-C device is the only artificial cervical disc that
mimics the anatomic structure of a natural disc by
incorporating an artificial viscoelastic nucleus and
fiber annulus into its design. Like a natural disc,
this unique construct allows for shock absorption
at the implanted level, as well as provides a
controlled range of motion when the spine
transitions in its combined complex movements.

With the addition of the M6-C disc, Orthofix now
has the industry’s most comprehensive and
differentiated portfolio of cervical spine solutions.
Our products cover a broad range of cervical
needs and include motion preservation, a full
line of anterior, posterior and interbody fusion
cervical implants, the CervicalStim bone growth
therapy device, and the Trinity ELITE allograft.

“To improve patients’ lives by
providing superior reconstructive
and regenerative musculoskeletal
solutions to physicians worldwide.”

Clinical Research
We continually shape the company, strategically
choosing the businesses in which we compete
and the areas of research in which we invest.

In early 2018, we announced that enrollment had
begun in a study to evaluate the use of pulsed
electromagnetic field (PEMF) technology for
rotator cuff repair. This study is assessing the
efficacy and safety of the Company’s RCStim™
device as an adjunctive treatment to surgical
repair of full thickness rotator cuff tears. It is
estimated that 325,000 patients get rotator
cuff surgery in the U.S. annually. The Company
is also conducting a study of PEMF for odontoid
fractures. Ultimately, if results of these studies
are positive, it could open the door to important
new applications of our PEMF technology.

In addition to the Bone Growth Therapies clinical
trials, we have numerous ongoing post-market
studies supporting our Biologics and Spine
Fixation products and therapies.

In the area of our Bone Growth Therapies, new
data was published in 2018 in Bone & Joint
Research from a study evaluating the effect
of PEMF treatment for patients who have an
increased risk for pseudoarthrosis (failure for
the vertebrae to fuse) after anterior cervical
discectomy and fusion (ACDF) procedures.
This is the first published report to show that
PEMF treatment with the Cervical-Stim™ device
significantly increased fusion rates at both six and
12 months in high-risk patients who underwent
ACDF surgery. This important data builds on the
findings of the original Orthofix PMA study that
proved the safety and effectiveness of PEMF
stimulation and should help surgeons feel even
more confident when prescribing this therapy.

The Next Chapter
In summary, 2018 was a transformative year
dedicated to purposefully positioning the
company for its next phase. When I think back
over the history of Orthofix, few milestones,
if any, were as strategically important to
the company’s future as the Spinal Kinetics
acquisition last year and the FDA approval of the
M6-C artificial cervical disc earlier this year. The
FDA approval of the M6-C disc marks the start of
a new era that I believe will be the most exciting
and rewarding since the company’s inception. We
are very motivated by the potential this product
has to drive growth and to help restore quality
of life for patients who need this technology.

Lastly, it is with mixed feelings that I recently
announced my decision to retire this year from
Orthofix. Thanks to the many years of hard work
and dedication of the talented team at Orthofix,
the company has completed a long period of
recovery and rebuilding. I am immensely proud
of what this team has accomplished. Every
cultural, financial, commercial and operational
aspect of Orthofix has been overhauled, including
new leadership, strategy, infrastructure,
controls, products and processes. With this and
the culture of integrity and patient focus that
we have ingrained, I believe that the course
has been set to create an amazing future for
Orthofix and all of our stakeholders. I believe it
is the right time for both the company and for
me to pass the baton to a new leader who will
take Orthofix through the next leg of the race
and capitalize on our enormous potential.

I will remain in my current role until a successor
is found and then as a consultant for one year
to help the new CEO and company in any way
I can. I am fully committed to continuing my
efforts on behalf of all Orthofix stakeholders
and assuring a seamless and very successful
transition. The Board and I remain completely
aligned on the future direction and strategy of
the company, and we are committed to finding
an exceptional leader to execute this strategy.

Lastly, I would like to thank you, our dedicated
shareholders, for your support over the last
six years and the trust you placed in me, even
when times were difficult. It has been my honor
and privilege to lead this great team and this
great Company. I could not be prouder of the
progress we have made in making our vision a
reality — and now with the groundwork firmly
in place, I believe the best is yet to come. I hope,
like me, you also see and feel the excitement of
the very bright future that is ahead for Orthofix.

Sincerely,

Brad Mason
President and Chief Executive Officer
Orthofix Medical Inc.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-K

⌧ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(cid:4) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018
or

For the transition period from to .
Commission File Number: 0-19961

ORTHOFIX MEDICAL INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

3451 Plano Parkway,
Lewisville, Texas
(Address of principal executive offices)

98-1340767
(I.R.S. Employer
Identification No.)

75056
(Zip Code)

(214) 937-2000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $0.10 par value
(Title of Class)

Nasdaq Global Select Market
(Name of Exchange on Which Registered)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ⌧ No (cid:4)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:4) No ⌧

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ⌧ No (cid:4)

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-
T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No (cid:4)

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. (cid:4)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of
the Exchange Act.

Large accelerated filer

⌧

Accelerated filer

Non-accelerated filer

(cid:4)

Smaller reporting company

(cid:4)

Emerging Growth Company

(cid:4)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:4)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:4) No ⌧

The aggregate market value of registrant’s common stock held by non-affiliates, based upon the closing price of the common stock on the last business day of the
fiscal quarter ended June 30, 2018, as reported by the Nasdaq Global Select Market, was approximately $1,050.4 million.

As of February 22, 2019, 19,061,192 shares of common stock were issued and outstanding.

Certain sections of the registrant’s definitive proxy statement to be filed with the Commission in connection with the Orthofix Medical Inc. 2019 Annual General
Meeting of Shareholders are incorporated by reference in Part III of this Annual Report.

DOCUMENTS INCORPORATED BY REFERENCE

Orthofix Medical Inc.

PART I

Form 10-K for the Year Ended December 31, 2018
Table of Contents

Page

Business ....................................................................................................................................................................

Item 1.
4
Item 1A. Risk Factors............................................................................................................................................................... 19
Item 1B. Unresolved Staff Comments..................................................................................................................................... 30
Properties ................................................................................................................................................................. 30
Item 2.
Legal Proceedings ..................................................................................................................................................... 31
Item 3.
Mine Safety Disclosure ............................................................................................................................................. 31
Item 4.

PART II

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Item 5.
Equity Securities ....................................................................................................................................................... 32
Item 6.
Selected Financial Data............................................................................................................................................. 33
Management’s Discussion and Analysis of Financial Condition and Results of Operations..................................... 35
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .................................................................................. 50
Financial Statements and Supplementary Data ....................................................................................................... 50
Item 8.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 50
Item 9A. Controls and Procedures .......................................................................................................................................... 50
Item 9B. Other Information .................................................................................................................................................... 54

PART III

Item 10. Directors, Executive Officers and Corporate Governance........................................................................................ 54
Item 11. Executive Compensation .......................................................................................................................................... 54
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ................ 54
Item 13. Certain Relationships and Related Transactions, and Director Independence ........................................................ 54
Item 14. Principal Accountant Fees and Services ................................................................................................................... 54

PART IV

Item 15. Exhibits, Financial Statement Schedules .................................................................................................................. 55
58
Item 16. Form 10-K Summary .................................................................................................................................................

Forward-Looking Statements

This Annual Report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934,
as amended (“the Exchange Act”), and Section 27A of the Securities Act of 1933, as amended, relating to our business and financial
outlook, which are based on our current beliefs, assumptions, expectations, estimates, forecasts and projections. In some cases, you
can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,”
“estimates,” “projects,” “intends,” “predicts,” “potential,” or “continue” or other comparable terminology. These forward-looking
statements are not guarantees of our future performance and involve risks, uncertainties, estimates and assumptions that are
difficult to predict, including the risks described in Part I, Item 1A, “Risk Factors”. Therefore, our actual outcomes and results may
differ materially from those expressed in these forward-looking statements. You should not place undue reliance on any of these
forward-looking statements. Further, any forward-looking statement speaks only as of the date hereof, unless it is specifically
otherwise stated to be made as of a different date. We undertake no obligation to further update any such statement, to reflect new
information, the occurrence of future events or circumstances or otherwise.

Solely for convenience, our trademarks and trade names in this Annual Report are referred to without the ® and ™ symbols, but such
references should not be construed as any indicator that we will not assert, to the fullest extent under applicable law, our rights
thereto.

Trademarks

Item 1.

Business

PART I

In this Annual Report, the terms “we,” “us,” “our,” “Orthofix,” “the Company” and “our Company” refer to the combined operations
of Orthofix Medical Inc. (previously Orthofix International N.V.) and its consolidated subsidiaries and affiliates, unless the context
requires otherwise.

Company Overview

We are a global medical device company focused on musculoskeletal products and therapies. Our mission is to improve patients’
lives by providing superior reconstruction and regenerative musculoskeletal solutions to physicians worldwide. Headquartered in
Lewisville, Texas, our spine and orthopedic extremities products are distributed in over seventy countries via our sales
representatives and distributors.

We have administrative and training facilities in the United States (“U.S.”), Italy, Brazil, the United Kingdom (“U.K.”), France, and
Germany, and manufacturing facilities in the U.S. and Italy. We directly distribute products in the U.S., Italy, the U.K., Germany, and
France. In several of these and other markets, we also distribute our products through independent distributors.

On July 31, 2018, the Company completed a change in its jurisdiction of organization from Curaçao to the State of Delaware in
accordance with the conversion procedures of the Curaçao Civil Code and the Domestication procedures of Delaware General
Corporation Law (the “Domestication”). In connection with the Domestication, we changed our name to “Orthofix Medical Inc.” Our
shareholders approved and authorized the Domestication at the 2018 Annual General Meeting of Shareholders held on July 17,
2018.

Information regarding shareholder tax consequences of the Domestication and potential tax elections is available on our website
under Governance at www.Orthofix.com. A detailed explanation of the tax consequences of the Domestication is available in the
2018 Proxy Statement, available under Financials & Filings on our website. For additional information, contact us at
redomicile@orthofix.com.

YOU SHOULD CONSULT YOUR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF U.S. FEDERAL TAX LAWS TO YOUR
PARTICULAR SITUATION, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S.
JURISDICTION.

The Company originally was formed in 1987 in Curaçao and is now a corporation operating under the laws of the State of Delaware.
Our executive offices are located in Lewisville, Texas.

Available Information and Orthofix Website

Our filings with the Securities and Exchange Commission (the “SEC”), including our Annual Report on Form 10-K, Quarterly Reports
on Form 10-Q, Current Reports on Form 8-K, Annual Proxy Statement on Schedule 14A, any registration statements, and
amendments to those reports, are available free of charge on our website as soon as reasonably practicable after they are filed with,
or furnished to, the SEC. Information on our website or connected to our website is not incorporated by reference into this Annual
Report. Our Internet website is located at www.orthofix.com. Our SEC filings are also available on the SEC website at www.sec.gov.

Business Segments

We manage our business by our four reporting segments: Bone Growth Therapies (formerly referred to as BioStim), Spinal Implants
(formerly referred to as Spine Fixation), Biologics, and Orthofix Extremities (formerly referred to as Extremity Fixation), which
accounted for 43%, 20%, 13%, and 24%, respectively, of our total net sales in 2018. The chart below presents net sales, which
includes product sales and marketing service fees, by reporting segment for each of the years ended December 31, 2018, 2017, and
2016.

(In 000's)

$250,000

$200,000

$150,000

$100,000

$50,000

$‐

Bone Growth Therapies

Spinal Implants

Biologics

Orthofix Extremities

2018

2017

2016

Financial information regarding our reportable business segments and certain geographic information is included in Part II, Item 7 of
this Annual Report under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and
Note 16 of the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report.

Bone Growth Therapies

The Bone Growth Therapies reporting segment manufactures, distributes, and provides support services for market-leading bone
growth stimulation devices that enhance bone fusion. These class III medical devices are indicated as an adjunctive, noninvasive
treatment to improve fusion success rates in the cervical and lumbar spine as well as a therapeutic treatment for non-spinal,
appendicular fractures that have not healed (nonunions). These devices utilize Orthofix’s patented pulsed electromagnetic field
(“PEMF”) technology, the safety and efficacy of which is supported by basic mechanism of action data in the scientific literature as
well as published data from level one randomized controlled clinical trials. The devices are compatible with the STIM onTrack mobile
application, which includes a first-to-market feature that enables physicians to remotely view and assess patient adherence to
treatment protocols. We currently have research and a clinical study underway to identify potential clinical indications for treating
rotator cuff tears. We sell this reporting segment’s products almost exclusively in the U.S. using distributors and direct sales
representatives to sell and deliver our devices to hospitals, healthcare providers, and patients.

Bone Growth Therapies Strategy

Our strategy for the Bone Growth Therapies reporting segment is to expand patient access to bone growth therapy devices that
deliver noninvasive treatment for promoting healing in fractured bones and spinal fusions. Our key strategies in this segment are:

(cid:129)

Promote competitive advantages of our recently launched products and STIM onTrack mobile app

Support adoption and reimbursement with:

o North American Spine Society’s (NASS) Coverage Policy Recommendation
o

Post-market clinical research

Continue to invest in expanding our sales force

Bring to market new PEMF products addressing unmet clinical needs

Bone Growth Therapies Products

The following table and discussion identify our principal Bone Growth Therapies products by trade name and describe their primary
applications:

Product

Primary Application

CervicalStim Spinal Fusion Therapy

PEMF non-invasive cervical spinal fusion therapy used to enhance bone growth

SpinalStim Spinal Fusion Therapy

PEMF non-invasive lumbar spinal fusion therapy used to enhance bone growth

PhysioStim Bone Healing Therapy

PEMF non-invasive appendicular skeleton healing therapy used to enhance
bone growth in nonunion fractures

Spinal Therapy

Our bone growth therapy devices used in spinal applications are designed to enhance bone growth and the success rate of certain
spinal fusions by stimulating the body’s own natural healing mechanism post-surgically. These non-invasive portable devices are
intended to be used as part of a home treatment program prescribed by a physician.

We offer two spinal fusion therapy devices: the SpinalStim and CervicalStim devices. Our stimulation products use a PEMF
technology designed to enhance the growth of bone tissue following surgery and are placed externally over the site to be healed.
Research data shows that our PEMF signal induces mineralization and results in a process that stimulates new regeneration at the
spinal fusion site. Some spine fusion patients are at greater risk of not achieving a solid fusion of new bone around the fusion site.
These patients typically have one or more risk factors such as smoking, obesity or diabetes, or their surgery involves the revision of a
failed fusion or the fusion of multiple levels of vertebrae in one procedure. For these patients, post-surgical bone growth therapy
has been shown to significantly increase the probability of fusion success.

The SpinalStim device is a non-invasive spinal fusion stimulator system that has been commercially available in the U.S. since 1990. It
is designed for the treatment of the lumbar region of the spine. The device uses proprietary technology and a wavelength to
generate a PEMF signal. The U.S. Food and Drug Administration (the “FDA”) has approved the SpinalStim system as a spinal fusion
adjunct to increase the probability of fusion success and as a non-operative treatment for salvage of failed spinal fusion at least nine
months post-operatively.

Our CervicalStim product remains the only FDA-approved bone growth stimulator on the market indicated for use as an adjunct to
cervical spine fusion surgery in patients at high-risk for non-fusion. The FDA approved this device in 2004, and it has been
commercially available in the U.S. since 2005.

In late 2016, the North American Spine Society (“NASS”) issued first-of-its-kind coverage recommendations for electrical bone
growth stimulators. These evidence-based coverage policy recommendations support the use of PEMF devices as an adjunct to
spinal fusion surgery in high-risk patients. The NASS coverage policy recommends coverage of the use of electrical stimulation for
spinal fusion healing in all regions of the spine, including cervical and lumbar regions. The validation of PEMF electrical stimulation
from this leading surgical society has and is expected to continue to further support our efforts to expand the availability and use of
the therapy to the many patients who can benefit from it.

In January 2017, we announced FDA and European Commission CE mark approval for our next-generation SpinalStim and
CervicalStim bone growth stimulators. The CervicalStim and SpinalStim systems available in the U.S. are accompanied by a new
application for mobile devices called STIM onTrack. The mobile app includes a first-to-market feature that enables physicians to
remotely view how their patients are adhering to prescribed treatment protocols. Designed for use with smartphones and other
mobile devices, the STIM onTrack tool helps patients follow their prescription with daily treatment reminders and a device usage
calendar. The app is free and available through the iTunes App Store. In addition to the app, the next-generation bone growth
stimulators include patient enhancements aimed at improving fit, comfort and ease of use.

Orthopedic Therapy

Our PhysioStim bone healing therapy products use PEMF technology similar to that used in our spine stimulators. The primary
difference is that the PhysioStim devices are designed for use on the appendicular skeleton.

A bone’s regenerative power results in most fractures healing naturally within a few months. In the presence of certain risk factors,
however, some fractures do not heal or heal slowly, resulting in “nonunions.” Traditionally, orthopedists have treated such fracture
conditions surgically, often by means of a bone graft with fracture fixation devices, such as bone plates, screws or intramedullary
rods. These are examples of “invasive” treatments. Our patented PhysioStim bone healing therapy products are designed to use a
low level of PEMF signals to noninvasively activate the body’s natural healing process. The devices are anatomically designed,
allowing ease of placement, patient mobility, and the ability to cover a large treatment area.

In March 2018, we announced the FDA and European Commission CE mark approval for our next-generation PhysioStim bone
growth stimulator. Similar to the next-generation CervicalStim and SpinalStim systems, the PhysioStim device is also accompanied by
the STIM onTrack mobile app, enabling physicians treating patients with nonunion fractures to remotely view and assess how their
patients are adhering to prescribed treatment protocols. In addition to the app, the next-generation PhysioStim devices also include
patient enhancements aimed at improving fit, comfort and ease of use.

Future Applications

We have sponsored research at the University of Pennsylvania, Cleveland Clinic, New York University, and University of California
San Francisco, where scientists conducted animal and cellular studies to identify the mechanisms of action of our PEMF signals on
bone and tendon an efficacy of healing. From these efforts, many studies have been recently published in peer-reviewed journals.
Among other insights, the studies illustrate positive effects of PEMF on callus formation and bone strength as well as proliferation
and differentiation of cells involved in regeneration and healing. Furthermore, we believe that the research work with Cleveland
Clinic and the University of Pennsylvania, allowing for characterization and visualization of the Orthofix PEMF waveform, is paving
the way for signal optimization for a variety of new applications and indications. This collection of pre-clinical data, along with
additional clinical data, could represent new clinical indication opportunities for our regenerative stimulation solutions.

Spinal Implants

The Spinal Implants reporting segment designs, develops and markets a portfolio of motion preservation and implant products used
in surgical procedures of the spine. We distribute these products globally through a network of distributors and sales
representatives to sell spine products to hospitals and healthcare providers.

Spinal Implants Strategy

Our vision for the Spinal Implants reporting segment is to become a first choice for our distributors and surgeons by demonstrating
strength in partnership. Our key strategies in this segment are:

(cid:3)

Execute controlled, limited market launch and extensive training curriculum in the U.S. for our M6-C artificial cervical disc

Continue the strong pace of new product launches

Provide exceptional training and education programs for sales representatives and surgeons

Acquire or license products, technologies and companies to further expand the spinal implants portfolio

Spinal Implants Products

The following table and discussion identify our key Spinal Implants products by trade name and describe their primary applications:

Product

M6-C Artificial Cervical Disc

M6-L Artificial Lumbar Disc

Primary Application

A next-generation artificial disc developed to replace an intervertebral disc
damaged by cervical disc degeneration; the only artificial cervical disc that
mimics the anatomic structure of a natural disc by incorporating an artificial
viscoelastic nucleus and fiber annulus into its design

A next-generation artificial disc developed to replace an intervertebral disc
damaged by lumbar disc degeneration; the only artificial lumbar disc that
mimics the anatomic structure of a natural disc by incorporating an artificial
viscoelastic nucleus and fiber annulus into its design

Product
FORZA XP Expandable Spacer System

CETRA Anterior Cervical Plate System

Primary Application

A titanium expandable spacer system for Posterior Lumbar Interbody Fusion
(“PLIF”) and Transforaminal Lumbar Interbody Fusion (“TLIF”) procedures
featuring a large graft window with the ability to pack post expansion in situ

An anterior cervical plate system offering a low profile plate with an intuitive
locking mechanism, large graft windows, a high degree of screw angulation and
simplified instrumentation

CONSTRUX Mini PEEK / Titanium Composite

(“PTC”) Spacer System

A cervical interbody with 3D printed porous titanium end plates that may
promote bone ingrowth and a Polyetheretherketones (“PEEK”) core to
maintain imaging characteristics

FORZA PTC Spacer System

PILLAR SA PTC PEEK Spacer System

A posterior lumbar interbody with 3D printed porous titanium end plates that
may promote bone ingrowth and a PEEK core to maintain imaging
characteristics

A standalone Anterior Lumbar Interbody Fusion (“ALIF”) lumbar interbody with
3D printed porous titanium end plates that may promote bone ingrowth and a
PEEK core to maintain imaging characteristics

FIREBIRD / FIREBIRD NXG Spinal Fixation System

A system of rods, crossbars and modular pedicle screws designed to be
implanted during a posterior lumbar spine fusion procedure

JANUS Midline Fixation Screw

Connector System for revisions

An addition to the Firebird Spinal Fixation System designed to achieve more
cortical bone purchase in the medial to lateral trajectory when compared to
traditional pedicle screws and provides surgeons with the option of a midline
approach

A comprehensive system to reduce the complexity of revising and extending
existing spinal constructs; this eliminates the need to remove existing
hardware while providing stability at adjacent levels

CENTURION Posterior Occipital Cervico-Thoracic

(“POCT”) System

A multiple component system comprised of a variety of non-sterile, single use
components made of titanium alloy or cobalt chrome that allow the surgeon to
build a spinal implant construct

SAMBA-SCREW System

A minimally invasive screw system that is intended for fixation of sacroiliac
joint disruptions in skeletally mature patients

FIREBIRD Deformity Correction System

An extension to the Firebird Spinal Fixation System that provides additional
instrument and implant options for complex thoracolumbar spine procedures

PHOENIX Minimally Invasive Spinal Fixation System A multi-axial extended reduction screw body used with the Firebird Spinal

LONESTAR Cervical Stand Alone (“CSA”)

SKYHAWK Lateral Interbody Fusion System &

Lateral Plate System

Fixation System designed to be implanted during a posterior thoracolumbar
spine fusion procedure

A stand-alone spacer system designed to provide the biomechanical strength
to a traditional or minimal invasive Anterior Cervical Discectomy and Fusion
(“ACDF”) procedure with less disruption of patient anatomy and to preserve
the anatomical profile

Provides a complete solution for the surgeon to perform a Lateral Lumbar
Interbody Fusion, an approach to spinal fusion in which the surgeon accesses
the intervertebral disc space using a surgical approach from the patient’s side
that disturbs fewer structures and tissues

FORZA Spacer System

PEEK interbody devices for PLIF and TLIF procedures

Motion Preservation Solutions

On April 30, 2018, we acquired Spinal Kinetics Inc., a privately held developer and manufacturer of artificial cervical and lumbar
discs, namely the M6-C Cervical and M6-L Lumbar Artificial Discs, which are used to treat patients suffering from degenerative disc
disease of the spine. The M6 discs are the only artificial discs that mimic the anatomic structure of a natural disc by incorporating an
artificial viscoelastic nucleus and fiber annulus into their design. Like a natural disc, this unique construct allows for shock absorption
at the implanted level, as well as provides a controlled range of motion when the spine transitions in its combined complex
movements. Both discs have European Commission CE mark approval and historically have been exclusively distributed outside the
U.S. On February 6, 2019, we received FDA approval of the M6-C Artificial Cervical Disc to treat patients with cervical disc
degeneration. We expect to release the M6-C Artificial Cervical Disc in 2019 in the U.S. through a controlled, limited market launch
accompanied by an extensive training and education curriculum for surgeons.

Spinal Repair Solutions

We provide a wide array of implants designed for use primarily in cervical, thoracic and lumbar fusion surgeries. These implants are
made of either metal or a thermoplastic compound called PEEK. The majority of the implants that we offer are made of titanium
metal. This includes the Cetra, 3°, Reliant and Hallmark cervical plates. Additionally, the Spinal Fixation System, the Firebird Spinal
Fixation System, the Phoenix Minimally Invasive Spinal Fixation System, the Ascent, Ascent LE, and the Centurion POCT Systems are
sets of rods, cross connectors and screws that are implanted during posterior fusion procedures. The Firebird Modular and pre-
assembled Spinal Fixation Systems are designed to be used in either open or minimally-invasive posterior lumbar fusion procedures
with our product ProView MAP System. To complement our plates, rods and screw fixation options we offer an entire portfolio of
cervical and thoracolumbar PEEK interbody devices within our Pillar and Forza product lines. This interbody portfolio includes two
stand-alone devices, Lonestar and Pillar SA, as well as the Construx Mini PTC system, a novel titanium composite spacer which offers
a superior alternative to other plasma spray coated options currently available on the market. We also offer specialty plates and
screws that are used in less common procedures, and as such, are not manufactured by many device makers.

Biologics

The Biologics reporting segment provides a portfolio of regenerative products and tissue forms that allow physicians to successfully
treat a variety of spinal and orthopedic conditions. This reporting segment specializes in the marketing of regeneration tissue forms
and distributes MTF Biologics (“MTF”) tissues to hospitals and healthcare providers, primarily in the U.S., through a network of
employed and independent sales representatives. Our partnership with MTF allows us to exclusively market the Trinity Evolution
and Trinity ELITE tissue forms for musculoskeletal defects to enhance bony fusion.

Biologics Strategy

In order to drive further adoption and use of our products, our strategy for the Biologics reporting segment is to educate physicians,
both directly and through our sales force, of the surgical and patient benefits of using our portfolio of regenerative tissues and
products to augment their surgical procedures and results. Our key strategies in this segment are:

(cid:3)

Expand sales force coverage in the spine market and continue to expand into other orthopedic procedures

Continue to leverage the surgeon-preferred Trinity ELITE characteristics and clinical evidence

Accelerate new tissue development projects with MTF

Biologics Products

The following table and discussion identify the principal Biologics products by trade name and describe their primary applications:

Product

Trinity ELITE

Trinity Evolution

AlloQuent Structural Allografts

Primary Application

A fully moldable allograft with viable cells used during surgery that is designed
to enhance the success of a spinal fusion or bone fusion procedure

An allograft with viable cells used during surgery that is designed to enhance
the success of a spinal fusion or bone fusion procedure

Interbody devices made of cortical bone (or cortical-cancellous grafts) that are
designed to restore the space that has been lost between two or more
vertebrae due to a degenerated disc during a spinal fusion procedure

Collage Synthetic Osteoconductive Scaffold

A synthetic bone void filler

VersaShield

A thin hydrophilic amniotic membrane designed to serve as a wound or tissue
covering for a variety of surgical demands

The regenerative solutions offered as part of the Biologics reporting segment’s portfolio include solutions for a variety of
musculoskeletal defects used in spinal and extremity orthopedic procedures.

Regenerative Solutions

The premier biologics tissues we market include the Trinity ELITE and Trinity Evolution tissue forms, which are cortical cancellous
allografts that contain viable cells and are used during surgery in the treatment of musculoskeletal defects for bone reconstruction
and repair. These allografts are intended to offer a viable alternative to an autograft procedure as harvesting autograft has been
shown to add risk of an additional surgical procedure and related patient discomfort in conjunction with a repair surgery.

To provide structural support and facilitate bone growth in spine fusion procedures, we offer a full line of AlloQuent allograft
structural spacers derived from human cadaveric bone. These spacers are used to restore the height lost between vertebral bodies
when discs are removed in fusion procedures and to facilitate spine fusion.

We offer the Collage product as an osteoconductive scaffold and a bone graft substitute product. The product is a combination
synthetic bone graft substitute comprised of beta tri-calcium phosphate and type 1 bovine collagen.

We also market the VersaShield tissue form, a thin hydrophilic amniotic membrane designed to serve as a wound or tissue covering
for a variety of surgical demands. Amniotic tissue forms derived from donated human placenta are used in a wide variety of
applications and are valued for their healing properties, scar reduction and anti-adhesion characteristics. The VersaShield tissue is
derived from the human placental layers amnion and chorion, thin elastic membranes that allow the tissue to conform to the
surface of the surgical site.

We receive marketing fees through our collaboration with MTF for the Trinity Evolution, Trinity ELITE, and VersaShield tissues. MTF
processes the tissues, maintains inventory, and invoices hospitals and surgery centers and other points of care for service fees,
which are submitted by customers via purchase orders. We have exclusive worldwide rights to market the Trinity Evolution and
Trinity ELITE tissue forms. We market the VersaShield tissue under a private label brand via a non-exclusive marketing agreement for
the tissue form.

To date, our Biologics products are offered primarily in the U.S. market due in part to restrictions on providing U.S. human donor
tissue in other countries.

Orthofix Extremities

The Orthofix Extremities reporting segment offers products and solutions that allow physicians to successfully treat a variety of
orthopedic conditions unrelated to the spine. This reporting segment specializes in the design, development, and marketing of the
Company’s orthopedic products used in fracture repair, deformity correction and bone reconstruction procedures. We distribute
these products through a global network of distributors and sales representatives to sell our orthopedic products to hospitals and
healthcare providers.

Orthofix Extremities Strategy

Our strategy for the Orthofix Extremities reporting segment is to continue to provide highly valued external and internal temporary
to definitive fixation devices used in fracture repair, deformity correction and bone reconstruction. Our key strategies in this
segment are:

(cid:129)

Geographic market & product focus on:

Pediatrics & deformity correction worldwide

Foot & ankle in the U.S.

Trauma in selected geographies

Promote the advantages of our JuniOrtho pediatric portfolio and support tools

Leverage the market acceptance of TL-Hex

Continue the strong pace of new product launches

Acquire or license products, technologies and companies to support these market opportunities.

Orthofix Extremities Products

The following table and discussion identify the principal Orthofix Extremities products by trade name and describe their primary
applications:

Product

External Fixator

Eight-Plate + Guided Growth System

Primary Application

External fixation and internal fixation, including the Sheffield Ring, limb-
lengthening systems, DAF, ProCallus, XCaliber and Gotfried P.C.C.P

The 2nd generation plate for treatment for bowed legs or knock knees of
children

LRS Advanced Limb Reconstruction System

External fixation for limb lengthening and corrections of deformity

TrueLok

Ring fixation system for trauma, limb lengthening, and deformity correction

TL-HEX TrueLok Hexapod System (“TL-HEX”)

Hexapod external fixation system for trauma and deformity correction with
associated software

HEX RAY

Galaxy Fixation System

An innovative software to manage pre-operation and post-operation planning
in connection with the TL-HEX system

External fixation system for temporary and definitive fracture fixation,
including anatomical specific clamps

VeroNail Trochanteric Nailing System

Trochanteric titanium nailing system for hip fractures

Centronail Titanium Nailing System

Complete range of intramedullary nails including the Humeral Nail

Ankle Hind Foot Nailing System (“AHN”)

An extension of the Centronail range of intramedullary nails

Product

Chimaera Hip Fracture System

Agile Nail

MJ FLEX

OSCAR

Primary Application

A strong, versatile hip nail that allows fixation to be adapted to the type of
fracture being treated

A small rigid intramedullary nail to treat adolescent patients

An innovative elastic nail with a unique design to be used in pediatric patients

Ultrasonic bone cement removal

Ankle Hindfoot Nail (“AHN”)

A differentiated solution for hindfoot fusions

Contours Lapidus Plating System (“LPS”)

A plate design contoured specifically for a tarsometatarsal (“TMT”) fusion

Contours VPS Volar Plating System III

The 3rd generation of plates to treat distal radius fractures

We provide internal and external fixation solutions for extremity repair and deformity correction, both for adults and children. Our
fracture repair products consist of fixation devices designed to stabilize a broken bone until it can heal. With these devices, we can
treat simple and complex fracture patterns along with achieving deformity corrections.

External Fixation

External fixation devices are used to stabilize fractures and offer an ideal treatment for complex fractures, fractures near the joints
and in patients with known risk factors or co-morbidities. The treatment method entails the use of bone screws and/or wires which
are inserted percutaneously into the bone and stabilized with an external device. The treatment is minimally invasive and allows
external manipulation of the bone to obtain and maintain final bone alignment (reduction). The bone is fixed in this way until
healing. External fixation devices may also be used temporarily in complex trauma cases to stabilize the fracture prior to treating it
definitively. In these situations, the device offers rapid fracture stabilization, which is important in life saving as well as limb salvage
procedures.

The Galaxy Fixation System is a modular external fixation system indicated for fracture treatment in the upper and lower limbs. The
system incorporates a streamlined combination of clamps, with both pin-to-bar and bar-to-bar coupling capabilities, offering a
complete range of applications, including specific anatomic units for the elbow, shoulder and wrist. It is designed both for temporary
as well as definitive fracture fixation. It is also available in sterile kits for convenience and ease of use.

The XCaliber external fixator, made of lightweight radiolucent material, offers improved X-ray visualization of the fracture and
alignment. It is available in three configurations for the treatment of long bone fractures, fractures near joints, and ankle fractures.
XCaliber fixators are supplied pre-assembled, ready to use, in sterile kits to decrease time in the operating room.

The LRS Advanced Limb Reconstruction System uses callus distraction to lengthen bone in a variety of procedures, including
monofocal lengthening and corrections of deformity. Its multifocal procedures include bone transport, simultaneous compression
and distraction at different sites, bifocal lengthening, and correction of deformities with shortening.

The TrueLok Ring Fixation System is a surgeon-designed, lightweight external fixation system for limb lengthening and deformity
correction. In essence, a ring fixation construct consists of circular rings and semi-circular external supports centered on the
patient’s limb and secured to the bone by crossed, tensioned wires and half pins. The rings are connected externally to provide
stable bone fixation. The main external connecting elements are threaded rods, linear distractors, or hinges and angular distractors,
which allow the surgeon to adjust the relative position of rings to each other. The ring positions are manipulated either acutely or
gradually in precise increments to perform the correction of the deformity, limb lengthening, or bone segment transportation as
required by the surgeon. Created with pre-assembled function blocks, the TrueLok products are a simple, stable, versatile ring
fixation system.

Building on the TrueLok brand, the TL-HEX TrueLok Hexapod System was released in 2012 in international markets and in 2015 in the
U.S. TL-HEX is a hexapod-based system designed at Texas Scottish Rite Hospital for Children as a three-dimensional bone segment
reposition module to augment the previously developed TrueLok frame. The system consists of circular and semi-circular external
supports secured to the bones by wires and half pins and interconnected by six struts. This allows multi-planar adjustment of the
external supports. The rings’ position is adjusted either rapidly or gradually in precise increments to perform bone segment
repositioning in three-dimensional space. All the basic components from the TrueLok Ring Fixation System (wire and half pin fixation
bolts, posts, threaded rods, plates as well as other assembly components and instrumentation) can be utilized with the TL-HEX
system; therefore, external supports from both systems can be connected to each other when building fixation blocks.

The new addition of HEX-Ray software to the TL-HEX platform allows a unique and realistic representation of the case using real x-
rays and providing more accurate and user-friendly management of the surgery. The software is intended to help the surgeon save
time by avoiding undesired corrections and mistakes related to software management.

Linked to the TL and TL-HEX line, we have also developed a patient app to support the patient in the TL-HEX fixator daily
management. The patient is an active part in the healing process and the app is designed to improve the communication and
connection with the hospital staff by saving time, optimizing the number of visits to the clinic, and supporting the patient with
motivational messages and an online tutorial to sort out the most common issues. Also related to the TL and TL-HEX line, but
specifically developed for younger patients, we created the Edugame, an online app to help patient learn by playing a virtual game.
It has been developed with psychologist involvement in order to deliver useful information in an effective way.

Our proprietary XCaliber bone screws are designed to be compatible with our external fixators and reduce inventory for our
customers. Some of these screws are covered with hydroxyapatite, a mineral component of bone that reduces superficial
inflammation of soft tissue and improves bone grip. Other screws in this proprietary line do not include the hydroxyapatite coating,
but offer different advantages such as patented thread designs for better adherence in hard or poor quality bone. Adding to the
XCaliber bone screw product line are our cylindrical screws, which are geared towards the trauma applications of the Galaxy Fixation
System. We believe we have a full line of bone screws to meet the demands of the market.

In 2017, we introduced JuniOrtho, a new brand identity for extremity fixation pediatric products. JuniOrtho is a range of products
and resources dedicated to pediatrics and young adults with bone fractures and deformities that brings together our expertise and
products in the pediatric space.

Internal Fixation

Internal fixation devices come in various sizes, depending on the bone that requires treatment, and consist of either long rods,
commonly referred to as nails, or plates that are attached with the use of screws. A nail is inserted into the medullary canal of a
fractured long bone of the human arm or leg (e.g., humerus, femur or tibia). Alternatively, a plate is attached by screws to an area
such as a broken wrist, hip or foot. Examples of our internal fixation devices include:

(cid:3)

The Chimaera Hip Nailing System, which is indicated for the treatment of hip fractures. The Chimaera hip nail is designed to
offer improvements over currently available nails by taking advantage of decades of knowledge in hip nailing. The result is a
strong, versatile nail that allows fixation to be adapted to the type of fracture being treated. An all-in-one dedicated
instrument tray contains a color-coded instrument set designed for increased precision during the surgical steps as well as
intuitive instrument selection.

The VeroNail Trochanteric Nailing System, which is indicated for the treatment of hip fractures. The nail design is minimally-
invasive to reduce surgical trauma and allow patients to begin walking again shortly after the operation. It uses a dual screw
configuration that we believe provides more stability than previous single screw designs.

The Centronail Titanium Nailing System, which comprises a range of titanium nails to stabilize fractures in the femur, tibia
and humerus. The system offers improved mechanical distal targeting and minimal instrumentation to optimize inventory.

The Ankle Hindfoot Nail, which is an arthrodesis nailing system designed to improve upon the stability, simplicity, and
flexibility of current hindfoot nails.

The Agile Nail, which is designed to treat femoral fractures in patients where a small rigid nail is needed. Its unique design
requires less inventory and is the smallest titanium nail currently available in the market. This provides further benefits such
as reduced invasiveness and lightness.

(cid:3)

The MJ Flex, which is an elastic nail system that innovates a technique considered to be the gold standard in the treatment
of pediatric fractures. The unique shape of the nail offers improved strength, better visibility, more rigidity, and potentially
a reduced usage of x-rays. The system is available in different sizes, both in titanium and stainless steel.

In addition to treating bone fractures, we also design, manufacture and distribute devices intended to treat congenital bone
conditions, such as angular deformities (e.g., bowed legs in children), or degenerative diseases, as well as conditions resulting from a
previous trauma. An example of a product offered in this area is the Eight-Plate Guided Growth System.

Product Development

Our primary research and development facilities are located in Verona, Italy and Lewisville, Texas. We work with leading hospital
research institutions, as well as with MTF, physicians and other consultants, on the long-term scientific planning and evolution of our
products and therapies. Several of the products that we market have been developed through these collaborations. In addition, we
periodically receive suggestions for new products and product enhancements from the scientific and medical community, some of
which result in us entering into assignment or license agreements with physicians and third parties.

In 2018, 2017 and 2016 we incurred $33.2 million, $29.7 million and $28.8 million, respectively, of research and development
expense.

Patents, Trade Secrets, Assignments and Licenses

We rely on a combination of patents, trade secrets, assignment and license agreements, and non-disclosure agreements to protect
our proprietary intellectual property. We own numerous U.S. and foreign patents, have numerous pending patent applications and
have license rights under patents held by third parties. Our primary products are patented in the major markets in which they are
sold. No assurance can be given that pending patent applications will result in issued patents, that patents issued or assigned to or
licensed by us will not be challenged or circumvented by competitors or that such patents will be found to be valid or sufficiently
broad to protect our technology or to provide us with any competitive advantage or protection. Third parties might also obtain
patents that would require assignments to or licensing by us to conduct our business. We rely on confidentiality and non-disclosure
agreements with key employees, consultants and other parties to protect, in part, trade secrets and other proprietary technology.

We obtain assignments or licenses of varying durations for certain of our products from third parties. We typically acquire rights
under such assignments or licenses in exchange for lump-sum payments or arrangements under which we pay a percentage of sales
to the licensor. However, while assignments or licenses to us generally are irrevocable, no assurance can be given that these
arrangements will continue to be made available to us on terms that are acceptable to us, or at all. The terms of our license and
assignment agreements vary in length from a specified number of years to the life of product patents or the economic life of the
product. These agreements generally provide for royalty payments and termination rights in the event of a material breach.

Compliance and Ethics Program

It is a fundamental policy of our Company to conduct business in accordance with the highest ethical and legal standards. We have a
comprehensive compliance and ethics program, which is overseen by our Chief Ethics and Compliance Officer who reports directly to
our Chief Executive Officer and the Compliance Committee of the Board of Directors. The program is intended to promote legal
compliance and ethical business practices throughout our domestic and international businesses. It is designed to prevent and
detect violations of applicable federal, state and local laws in accordance with the standards set forth in guidance issued by the U.S.
Department of Justice (“Evaluation of Corporate Compliance Programs” (February 2017)), the Office of Inspector General (HCCA-OIG
“Measuring Compliance Program Effectiveness: A Resource Guide” (March 2017)) and the U.S. Sentencing Commission (“Effective
Compliance and Ethics Programs (November 2014)). Key elements of the program include:

(cid:3) Organizational oversight by senior-level personnel responsible for the compliance function within our Company;

(cid:3) Written standards and procedures, including a Corporate Code of Conduct;

(cid:3) Methods for communicating compliance concerns, including anonymous reporting mechanisms;

(cid:3)

Investigation and remediation measures to ensure prompt response to reported matters and timely corrective action;

Compliance education and training for employees and contracted business associates;

Auditing and monitoring controls to promote compliance with applicable laws and assess program effectiveness;

(cid:3)

Disciplinary guidelines to enforce compliance and address violations;

Due diligence reviews of high risk intermediaries and exclusion lists screening of employees and contracted business
associates; and

Risk assessments to identify areas of compliance risk.

Government Regulation

Classification and Approval of Products by the FDA and other Regulatory Authorities

Our research, development and clinical programs, and our manufacturing and marketing operations, are subject to extensive
regulation in the U.S. and other countries. Most notably, all of our products sold in the U.S. are subject to the Federal Food, Drug,
and Cosmetic Act and the Public Health Services Act as implemented and enforced by the FDA. The regulations that cover our
products and facilities vary widely from country to country. The amount of time required to obtain approvals or clearances from
regulatory authorities also differs from country to country.

Unless an exemption applies, each medical device we commercially distribute in the U.S. is covered by premarket notification
(“510(k)”) clearance, letter to file, approval of a premarket approval application (“PMA”), or some other approval from the FDA. The
FDA classifies medical devices into one of three classes, which generally determine the type of FDA approval required. Devices
deemed to pose low risk are placed in class I, while devices that are considered to pose moderate risk are placed in class II, and
devices deemed to pose the greatest risks requiring more regulatory controls necessary to provide a reasonable assurance of safety
and effectiveness, or devices deemed not substantially equivalent to a device that previously received 510(k) clearance (as described
below), are placed in class III. Our Spinal Implants and Orthofix Extremities products are, for the most part, class II devices and the
instruments used in conjunction with these products are generally class I. Our Bone Growth Therapies products and the M6-C
artificial cervical disc are classified as class III by the FDA, and have been approved for commercial distribution in the U.S. through
the PMA process.

The medical devices we develop, manufacture, distribute and market are subject to rigorous regulation by the FDA and numerous
other federal, state and foreign governmental authorities. The process of obtaining FDA clearance and other regulatory approvals to
develop and market a medical device, particularly from the FDA, can be costly and time-consuming, and there can be no assurance
such approvals will be granted on a timely basis, if at all. While we believe we have obtained all necessary clearances and approvals
for the manufacture and sale of our products and that they are in material compliance with applicable FDA and other material
regulatory requirements, there can be no assurance that we will be able to continue such compliance.

To market our devices within the member states of the European Union, we are required to comply with the European Medical
Device Directives. Under the European Medical Device Directives, all medical devices must bear the CE mark. To obtain authorization
to affix the CE mark to our products, a recognized European Notified Body must assess our quality systems and the product’s
conformity to the requirements of the European Medical Device Directives. We are subject to an annual inspection by a Notified
Body for compliance with these requirements.

Our Biologics reporting segment markets tissue for bone repair and reconstruction under the brand names Trinity Evolution and
Trinity ELITE, our allogeneic bone matrices comprised of cancellous bone containing viable stem cells and a demineralized cortical
bone component. These allografts are regulated under the FDA’s Human Cell, Tissues and Cellular and Tissue-Based Products, or
HCT/P, regulatory paradigm and not as a medical device, biologic or a drug. The Biologics reporting segment also distributes certain
surgical implant products known as “allograft” products that are derived from human tissues and which are used for bone
reconstruction or repair and are surgically implanted into the human body. These tissues are regulated by the FDA as minimally-
manipulated tissue and covered by FDA’s “Good Tissues Practices” regulations, which cover all stages of allograft processing. There
can be no assurance our suppliers of the Trinity Evolution, Trinity ELITE and allograft products will continue to meet applicable
regulatory requirements or that those requirements will not be changed in ways that could adversely affect our business. Further,
there can be no assurance these products will continue to be made available to us or that applicable regulatory standards will be
met or remain unchanged. Moreover, products derived from human tissue or bones are from time to time subject to recall for
certain administrative or safety reasons and we may be affected by one or more such recalls. For a further description of some of
these risks, see Item 1A of this Annual Report under the heading “Risk Factors.”

Certain Other Product and Manufacturing Regulations

After a device is placed on the market, numerous regulatory requirements continue to apply. Those regulatory requirements
include: product listing and establishment registration; Quality System Regulation (“QSR”), which require manufacturers, including
third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures
during all aspects of the manufacturing process; labeling regulations and governmental prohibitions against the promotion of
products for uncleared, unapproved or off-label uses or indications; clearance of product modifications that could significantly affect
safety or efficacy or that would constitute a major change in intended use of one of our cleared devices; approval of product
modifications that affect the safety or effectiveness of one of our PMA approved devices; Medical Device Adverse Event Reporting
regulations, which require that manufacturers report to the FDA and other foreign governmental agencies if their device may have
caused or contributed to a death or serious injury, or has malfunctioned in a way that would likely cause or contribute to a death or
serious injury if the malfunction of the device or a similar device were to recur; post-approval restrictions or conditions, including
post-approval study commitments; post-market surveillance regulations, which apply when necessary to protect the public health or
to provide additional safety and effectiveness data for the device; the FDA’s recall authority, whereby it can ask, or under certain
conditions order, device manufacturers to recall from the market a product that is in violation of governing laws and regulations;
regulations pertaining to voluntary recalls; and notices of corrections or removals.

We and certain of our suppliers also are subject to announced and unannounced inspections by the FDA and European Notified
Bodies to determine our compliance with the FDA’s QSR and other international regulations. If the FDA were to find that we or
certain of our suppliers have failed to comply with applicable regulations, the agency could institute a wide variety of enforcement
actions, ranging from a public warning letter to more severe sanctions such as: fines and civil penalties against us, our officers, our
employees or our suppliers; unanticipated expenditures to address or defend such actions; delays in clearing or approving, or refusal
to clear or approve, our products; withdrawal or suspension of approval of our products or those of our third-party suppliers by the
FDA or other regulatory bodies; product recall or seizure; interruption of production; operating restrictions; injunctions; and criminal
prosecution. In addition to FDA inspections, all manufacturing facilities of the Company are subject to annual Notified Body
inspections.

Moreover, governmental authorities outside the U.S. have become increasingly stringent in their regulation of medical devices. Our
products may become subject to more rigorous regulation by non-U.S. governmental authorities in the future. U.S. or non-U.S.
government regulations may be imposed in the future that may have a material adverse effect on our business and operations. For a
description of some of these risks, see Item 1A of this Annual Report under the heading “Risk Factors.”

Accreditation Requirements

In addition, our subsidiary Orthofix Inc. has been accredited by the Accreditation Commission for Health Care, Inc. (“ACHC”) for
medical supply provider services with respect to durable medical equipment, prosthetics, orthotics and supplies (“DMEPOS”). ACHC,
a private, not-for-profit corporation, which is certified to ISO 9001:2000 standards, was developed by home care and community-
based providers to help companies improve business operations and quality of patient care. Although accreditation is generally a
voluntary activity where healthcare organizations submit to peer review their internal policies, processes and patient care delivery
against national standards, the Centers for Medicare and Medicaid Services (“CMS”) required DMEPOS suppliers to become
accredited. We believe that by attaining accreditation, Orthofix Inc. has demonstrated its commitment to maintain a higher level of
competency and strive for excellence in its products, services, and customer satisfaction.

Third-Party Payor Requirements

Our products may be reimbursed by third-party payors, such as government programs, including Medicare, Medicaid, and Tricare or
private insurance plans and healthcare networks. Third-party payors may deny reimbursement if they determine that a device
provided to a patient or used in a procedure does not meet applicable payment criteria or if the policyholder’s healthcare insurance
benefits are limited. Also, non-government third-party payors are increasingly challenging the medical necessity and prices paid for
our products and services. The Medicare program is expected to continue to implement a new payment mechanism for certain
DMEPOS items via the implementation of its competitive bidding program. Bone growth therapy devices are currently exempt from
this competitive bidding process.

Laws Regulating Healthcare Fraud and Abuse; State Healthcare Laws

Our sales and marketing practices are also subject to a number of U.S. laws regulating healthcare fraud and abuse such as the
federal Anti-Kickback Statute and the federal Physician Self-Referral Law (known as the “Stark Law”), the Civil False Claims Act and
the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) as well as numerous state laws regulating healthcare and
insurance. These laws are enforced by the Office of Inspector General within the U.S. Department of Health and Human Services, the
U.S. Department of Justice, and other federal, state and local agencies. Among other things, these laws and others generally:
(1) prohibit the provision of anything of value in exchange for the referral of patients for, or the purchase, order, or
recommendation of, any item or service reimbursed by a federal healthcare program, (including Medicare and Medicaid); (2) require
that claims for payment submitted to federal healthcare programs be truthful; (3) prohibit the transmission of protected healthcare
information to persons not authorized to receive that information; and (4) require the maintenance of certain government licenses
and permits.

Laws Protecting the Confidentiality of Health Information

U.S. federal and state laws protect the confidentiality of certain health information, in particular individually identifiable information
such as medical records, and restrict the use and disclosure of that protected information. At the federal level, the Department of
Health and Human Services promulgates health information privacy and security rules under HIPAA. These rules protect health
information by regulating its use and disclosure, including for research and other purposes. Failure of a HIPAA “covered entity” to
comply with HIPAA regarding such “protected health information” could constitute a violation of federal law, subject to civil and
criminal penalties. Covered entities include healthcare providers (including certain of those that sell devices or equipment) that
engage in particular electronic transactions, including, as we do, the transmission of claims to health plans. Consequently, health
information that we access, collect, analyze, and otherwise use and/or disclose includes protected health information that is subject
to HIPAA. As noted above, many state laws also pertain to the confidentiality of health information. Such laws are not necessarily
preempted by HIPAA, in particular those state laws that afford greater privacy protection to the individual than HIPAA. These state
laws typically have their own penalty provisions, which could be applied in the event of an unlawful action affecting health
information.

In Europe, the new General Data Protection Regulation may impose fines of up to four percent of our global revenue in the event of
violations. Internationally, some countries have also passed laws that require individually identifiable data on their citizens to be
maintained on local servers and that may restrict transfer or processing of that data.

Physician Payments Sunshine Provision of the Affordable Care Act

The Physician Payments Sunshine Provision of the Affordable Care Act (Section 6002) (the “Sunshine Act”), which was enacted in
2010 and became subject to final CMS rules in 2013, requires public disclosure to the United States government of payments to
physicians and teaching hospitals, including in-kind transfers of value such as gifts or meals. The Act also provides penalties for non-
compliance. The Act requires that we file an annual report on March 31st of a calendar year for the transfers of value incurred for the
prior calendar year.

In October 2018, the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and
Communities Act (the “SUPPORT Act”) was signed into law. The SUPPORT Act expands the reporting obligation under the Sunshine
Act to include payments and other transfers of value made to physician assistants, nurse practitioners, clinical nurse specialists,
certified registered nurse anesthetists, and certified nurse midwives. These expanded reporting obligations are effective for
payments reported in 2022, with payment tracking beginning in 2021. Non-compliance with the Sunshine Act or SUPPORT Act is
subject to civil monetary penalties.

In addition to the Sunshine Act, as expanded by the SUPPORT Act, we seek to comply with other international and individual state
transparency laws, like Massachusetts and Vermont.

Sales, Marketing and Distribution

General Trends

We believe that demographic trends, principally in the form of a better informed, more active and aging population in the major
healthcare markets of the U.S., Western Europe and Japan, together with opportunities in emerging markets such as the Asia-Pacific
Region and Latin America, as well as our focus on innovative products, will continue to have a positive effect on the demand for our
products.

Reporting Segments

Our revenues are generated from the sales of products in our four reporting segments: Bone Growth Therapies, Spinal Implants,
Biologics, and Orthofix Extremities. See the chart below for the distribution of sales between each of our reporting segments for
each of the years ended December 31, 2018, 2017, and 2016.

(In 000's)

500,000

450,000

400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

‐

Sales Network

$453,042

$433,823

43%

20%

13%

24%

2018

43%

19%

14%

24%

2017

$409,788

43%

18%

14%

25%

2016

Bone Growth Therapies

Spinal Implants

Biologics

Orthofix Extremities

We have a broad sales network comprised of direct sales representatives and distributors. This established sales network provides
us with a platform to introduce new products and expand sales of existing products. We distribute our products worldwide in over
70 countries.

In our largest market, the U.S., our sales network is generally comprised of four sales forces, each addressing one of our reporting
segments, however some independent distributors sell products for more than one of our segments. A hybrid distribution network
of direct sales representatives and independent distributors sells products in our Bone Growth Therapies reporting segment, while
primarily independent distributors sell products in our Spinal Implants, Biologics, and Orthofix Extremities reporting segments.

Outside the U.S., we employ direct sales representatives and contract with independent distributors. In order to provide support to
our independent sales network, we have sales and marketing specialists who regularly visit independent distributors to provide
training and product support.

Marketing and Product Education

We market and sell our products principally to physicians, hospitals, ambulatory surgery centers, integrated health delivery systems
and other purchasing organizations.

We support our sales force through specialized training workshops in which physicians and sales specialists participate. We also
produce marketing and training materials, including materials outlining surgical procedures, for our customers, sales force and
distributors in a variety of languages using printed, video and multimedia formats. We require all of our sales force, direct and
independent, to undergo extensive product, policy, and compliance training to ensure adherence to our standards, policies, and
applicable law.

To provide additional advanced training for physicians, consistent with the AdvaMed Code of Ethics (“AdvaMed Code”) and the
MedTech Europe Code of Ethical Business Practice (“MedTech Code”), we organize regular multilingual teaching seminars in multiple
locations. Those places include our facility in Verona, Italy, various locations in Latin America and in Lewisville, Texas. In recent years,
thousands of surgeons from around the world attended these product education seminars, which have included a variety of lectures
from specialists, as well as demonstrations and hands-on workshops.

Competition

Our Bone Growth Therapies reporting unit competes principally with similar products marketed by Zimmer Biomet, Inc.; DJO Global;
and Bioventus. The Biologics HCT/P and Spinal Implants products we market compete with products marketed by Medtronic, Inc.;
DePuy Synthes, a division of Johnson and Johnson; Stryker Corp.; Zimmer Biomet, Inc.; NuVasive, Inc.; Globus Medical Inc.; and
various smaller public and private companies. For Orthofix Extremities devices, our principal competitors include DePuy Synthes;
Zimmer Biomet, Inc.; Stryker Corp.; Smith & Nephew plc; and Wright Medical Group N.V.

We believe that we enhance our competitive position by focusing on product features such as ease of use, versatility, cost and
patient acceptability, together with value-added services, such as the STIM on Track mobile app and our JuniOrtho educational
products and services. We attempt to avoid competing based solely on price. Overall cost and medical effectiveness, innovation,
reliability, value-added service, and training are the most prevalent methods of competition in the markets for our products, and we
believe we compete effectively.

Manufacturing and Sources of Supply

We generally design, develop, assemble, test and package our stimulation, orthopedic, and spinal implant products, and subcontract
the manufacture of a substantial portion of the component parts and instruments. We design and develop our AlloQuent Allograft
HCT/Ps and subcontract its manufacturing. Through subcontracting a portion of our manufacturing, we attempt to maintain
operating flexibility in meeting demand while focusing our resources on product development, education and marketing as well as
quality assurance standards. Although certain of our key raw materials are obtained from a single source, we believe alternate
sources for these materials are available. Further, we believe an adequate inventory supply is maintained to avoid product flow
interruptions. Historically, we have not experienced difficulty in obtaining the materials necessary to meet our production schedules.

The Trinity Evolution and Trinity ELITE HCT/Ps, for which we have exclusive marketing rights, are allograft tissue forms that are
supplied to customers by MTF in accordance with orders received directly from us. MTF sources, processes and packages the tissue
forms and is the sole supplier of the Trinity Evolution and Trinity ELITE HCT/Ps to our customers.

Our products are currently manufactured and assembled in the U.S. and Italy. We believe our plants comply in all material respects
with the requirements of the FDA and all relevant regulatory authorities outside the U.S. For a description of the laws to which we
are subject, see Item 1, “Business”, under the subheadings “Corporate Compliance and Ethics Program” and “Government
Regulation.” We actively monitor each of our subcontractors in order to maintain manufacturing and quality standards and product
specification conformity.

Employees

At December 31, 2018, we had 954 employees worldwide. Of these, 686 were employed in the U.S. and 268 were employed at other
non-U.S. locations. Our relations with our Italian employees, who numbered 187 at December 31, 2018, are governed by the
provisions of a National Collective Labor Agreement setting forth mandatory minimum standards for labor relations in the metal
mechanic workers industry. We are not a party to any other collective bargaining agreement. We believe we have good relations
with our employees.

Item 1A.

Risk Factors

In addition to the other information contained in this Annual Report and the exhibits hereto, you should carefully consider the risks
described below. These risks are not the only ones that we may face. Additional risks not presently known to us or that we currently
consider immaterial may also impair our business operations. This Annual Report also contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements
as a result of certain factors, including the risks faced by us described below or elsewhere in this Annual Report.

Risks Related to our Legal and Regulatory Environment

If we fail to maintain an effective system of internal controls or discover material weaknesses in our internal control over financial
reporting, we may not be able to report our financial results accurately or detect fraud, which could harm our business and the
trading price of our Common Stock.

Effective internal controls are necessary for us to produce reliable financial reports and are important in our effort to prevent
financial fraud. We are required to periodically evaluate the effectiveness of the design and operation of our internal controls. As
has occurred in several years prior, these evaluations may result in the conclusion that enhancements, modifications or changes to
our internal controls are necessary or desirable. While management evaluates the effectiveness of our internal controls on a regular
basis, these controls may not always be effective. There are inherent limitations on the effectiveness of internal controls, including
collusion, management override, and failure of human judgment. Because of this, control procedures are designed to reduce rather
than eliminate business risks. If we fail to maintain an effective system of internal controls or if management or our independent
registered public accounting firm were to discover material weaknesses in our internal controls, we may be unable to produce
reliable financial reports or prevent fraud, which could harm our financial condition and operating results, and could result in a loss
of investor confidence and a decline in our stock price.

We have previously settled violations of the Foreign Corrupt Practices Act and any future violations could further subject us to
adverse consequences.

In 2013, we self-reported to the U.S. Department of Justice (the “DOJ”) and the SEC an internal investigation of improper payments
by our Brazilian subsidiary, Orthofix do Brasil Ltda., regarding non-compliance by such subsidiary with the Foreign Corrupt Practices
Act (the “FCPA”). This followed a prior matter that we self-reported to the DOJ and SEC in 2011, and settled in 2012, involving FCPA-
related non-compliance by our then Mexican subsidiary, Promeca S.A. de C.V. In January 2017 we consented to a cease-and-desist
order with the SEC to settle the Brazil-related violations, pursuant to which we agreed to pay approximately $6.1 million in
disgorgement and penalties, and agreed to retain an independent compliance consultant for one year to review and test our FCPA
compliance program. Our engagement of the independent compliance consultant concluded on March 16, 2018.

The FCPA and similar anti-bribery laws in non-U.S. jurisdictions generally prohibit companies and their intermediaries from making
improper payments to foreign government officials for the purpose of obtaining or retaining business. The FCPA also imposes
accounting standards and requirements on U.S. publicly traded entities and their foreign affiliates, which are intended to prevent
the diversion of corporate funds to the payment of bribes and other improper payments. Because of the predominance of
government-sponsored healthcare systems around the world, many of our customer relationships outside of the United States are
with governmental entities and are therefore subject to such anti-bribery laws.

In connection with our self-reported FCPA violations, we instituted extensive remediation measures, including terminating
employees, as well as relationships with third-party representatives and distributors, conducting a global review of our anti-
corruption and anti-bribery program, implementing regular audits of our third-party distributors and sales agents and developing
and implementing new global accounting policies to provide further structure and guidance to foreign subsidiaries, establishing an
internal audit function, improving the quality of personnel in our Compliance department, and implementing enhanced anti-
corruption compliance training for employees and certain third parties. However, notwithstanding these efforts to make FCPA-
related compliance a priority, our compliance policies and procedures may not always protect us from reckless or criminal acts
committed by our employees, distributors or agents.

Any failure to comply with applicable legal and regulatory obligations in the United States or abroad could adversely affect us in a
variety of ways that include, but are not limited to, significant criminal, civil and administrative penalties, including imprisonment of
individuals, fines and penalties, denial of export privileges, seizure of shipments and restrictions on certain business activities,
disgorgement and other remedial measures, disruptions of our operations, and significant management distraction. Also, the failure
to comply with applicable legal and regulatory obligations could result in the disruption of our distribution and sales activities. Any
reduction in international sales, or our failure to further develop our international markets, could have a material adverse effect on
our business, results of operations and financial condition.

We are subject to federal and state healthcare fraud, abuse and anti-self-referral laws, and could face substantial penalties if we are
determined not to have fully complied with such laws.

Healthcare fraud and abuse regulations by federal and state governments impact our business. Healthcare fraud and abuse laws
potentially applicable to our operations include:

(cid:3)

the federal Anti-Kickback Statute, which prohibits knowingly and willfully soliciting, receiving, offering or paying
remuneration, directly or indirectly, in exchange for or to induce the purchase or recommendation of an item or service
reimbursable under a federal healthcare program (such as the Medicare or Medicaid programs);

the federal Stark law, which prohibits physician self-referral, specifically a referral by a physician of a Medicare or Medicaid
patient to an entity providing designated health services if the physician or an immediate family member has a financial
relationship with that entity;

federal false claims laws, which prohibit, among other things, knowingly presenting, or causing to be presented, claims for
payment from Medicare, Medicaid, or other federal government payors that are false or fraudulent; and

state and non-U.S. laws analogous to each of the above federal laws, such as anti-kickback and false claims laws that may
apply to items or services reimbursed by non-governmental or non-U.S. governmental third-party payors, including
commercial insurers.

Due to the breadth of some of these laws, there can be no assurance that we will not be found to be in violation of any such laws,
and as a result we may be subject to penalties, including civil and criminal penalties, damages, fines, the curtailment or restructuring
of our operations or the exclusion from participation in federal, non-U.S. or state healthcare programs. Any penalties could
adversely affect our ability to operate our business and our financial results. Any action against us for violation of these laws, even if
we successfully defend against them, could cause us to incur significant legal expenses and divert our management’s attention from
the operation of our business.

Reimbursement policies of third parties, cost containment measures and healthcare reform could adversely affect the demand for our
products and limit our ability to sell our products.

Our products are sold either directly by us or by independent sales representatives to customers or to our independent distributors
and purchased by hospitals, healthcare providers, and patients. These products may be reimbursed by third-party payors, such as
government programs, including Medicare, Medicaid and Tricare, or private insurance plans and healthcare networks. Major third-
party payors for medical services in the U.S. and internationally continue to work to contain health care costs and are increasingly
challenging the policies and the prices charged for medical products and services. Any medical policy developments that eliminate,
reduce or materially modify coverage of our reimbursement rates for our products could have an impact on our ability to sell our
products. In addition, third-party payors may deny reimbursement if they determine that a device or product provided to a patient
or used in a procedure does not meet applicable payment criteria or if the policyholder’s healthcare insurance benefits are limited.
These policies and criteria may be revised from time-to-time.

Limits put on reimbursement could make it more difficult to buy our products and substantially reduce, or possibly eliminate,
patient access to our products. In addition, should governmental authorities continue to enact legislation or adopt regulations that
affect third-party coverage and reimbursement, access to our products and coverage by private or public insurers may be reduced
with a consequential material adverse effect on our sales and profitability.

CMS, in its ongoing implementation of the Medicare program, periodically reviews medical study literature to determine how the
literature addresses certain procedures and therapies in the Medicare population. The impact that this information could have on
Medicare coverage policy for our products is currently unknown, but we cannot provide assurances that the resulting actions will
not restrict Medicare coverage for our products. There can be no assurance that we or our distributors will not experience
significant reimbursement problems in the future related to these or other proceedings. Globally, our products are sold in many
countries, such as the U.K., Germany, France, and Italy, which have publicly funded healthcare systems. The ability of hospitals
supported by such systems to purchase our products is dependent, in part, upon public budgetary constraints. Any increase in such
constraints may have a material adverse effect on our sales and collection of accounts receivable from such sales.

As required by law, CMS has continued efforts to implement a competitive bidding program for selected durable medical
equipment, prosthetic, orthotic supplies (“DMEPOS”) items paid for by the Medicare program. In this program, Medicare rates are
based on bid amounts for certain products in designated geographic areas, rather than the Medicare fee schedule amount. Bone
growth stimulation products are currently exempt from this competitive bidding process. We cannot predict which products from
any of our businesses may ultimately be affected or whether or when the competitive bidding process may be extended to our
businesses. There can be no assurance that the implementation of the competitive bidding program will not have an adverse impact
on the sales of some of our products.

We and certain of our suppliers may be subject to extensive government regulation that increases our costs and could limit our ability
to market or sell our products.

The medical devices we manufacture and market are subject to rigorous regulation by the FDA and numerous other federal, state and
foreign governmental authorities. These authorities regulate the development, approval, classification, testing, manufacturing, labeling,
marketing and sale of medical devices. Likewise, our use and disclosure of certain categories of health information may be subject to
federal and state laws, implemented and enforced by governmental authorities that protect health information privacy and security.
For a description of these regulations, see Item 1, “Business,” under the subheading “Government Regulation.”

The approval or clearance by governmental authorities, including the FDA in the U.S., is generally required before any medical
devices may be marketed in the U.S. or other countries. We cannot predict whether, in the future, the U.S. or foreign governments
may impose regulations that have a material adverse effect on our business, financial condition, results of operations or cash flows.
The process of obtaining FDA clearance and approvals to develop and market a medical device can be costly, time-consuming and
subject to the risk that such clearances or approvals will not be granted on a timely basis, if at all. The regulatory process may delay
or prohibit the marketing of new products and impose substantial additional costs if the FDA lengthens review times for new
devices. The FDA has the ability to change the regulatory classification of a cleared or approved device from a higher to a lower
regulatory classification, or to reclassify an HCT/P, either of which could materially adversely impact our ability to market or sell our
devices. For example, the FDA included Class III bone growth stimulator products in its 2015 strategic priority work plan, as part of a
list of 21 product categories it would review for possible down classification. Shortly after the issuance of the work plan, we and
other manufacturers of bone growth stimulator products submitted a public comment letter opposing the possible down
classification. The FDA did not respond to the comment letter and has not taken any action with respect to the bone growth
stimulator product category since publication of the 2015 work plan. If a down classification were to occur and new entrants to the
market were able to create technologies with comparable efficacy to our devices, our Bone Growth Therapies products could face
additional competition, which could negatively affect our future sales.

In addition, we may be subject to compliance actions, penalties or injunctions if we are determined to be promoting the use of our
products for unapproved or off-label uses, or if the FDA challenges one or more of our determinations that a product modification
did not require new approval or clearance by the FDA. Device manufacturers are permitted to promote products solely for the uses
and indications set forth in the approved product labeling. A number of enforcement actions have been taken against manufacturers
that promote products for “off-label” uses, including actions alleging that federal health care program reimbursement of products
promoted for “off-label” uses are false and fraudulent claims to the government. The failure to comply with “off-label” promotion
restrictions can result in significant administrative obligations and costs, and potential penalties from, and/or agreements with, the
federal government.

We and certain of our suppliers also are subject to announced and unannounced inspections by the FDA to determine our
compliance with FDA’s QSR and other regulations. If the FDA were to find that we or certain of our suppliers have failed to comply
with applicable regulations, the agency could institute a wide variety of enforcement actions, ranging from a public warning letter to
more severe sanctions such as: fines and civil penalties against us, our officers, our employees or our suppliers; unanticipated
expenditures to address or defend such actions; delays in clearing or approving, or refusal to clear or approve, our products;
withdrawal or suspension of approval of our products or those of our third-party suppliers by the FDA or other regulatory bodies;
product recall or seizure; interruption of production; operating restrictions; injunctions; and criminal prosecution. The FDA also has
the authority to request repair, replacement or refund of the cost of any medical device manufactured or distributed by us. Any of
the foregoing actions could have a material adverse effect on our development of new laboratory tests, business strategy, financial
condition, results of operations or cash flows.

Moreover, governmental authorities outside the U.S. have become increasingly stringent in their regulation of medical devices, and
our products may become subject to more rigorous regulation by non-U.S. governmental authorities in the future. U.S. or non-U.S.
government regulations may be imposed in the future that may have a material adverse effect on our business and operations. The
European Commission (“EC”) has harmonized national regulations for the control of medical devices through European Medical
Device Directives with which manufacturers must comply. Under these new regulations, manufacturing plants must have received a
full Quality Assurance Certification from a “Notified Body” in order to be able to sell products within the member states of the
European Union. This Certification allows manufacturers to stamp the products of certified plants with a “CE” mark. Products
covered by the EC regulations that do not bear the CE mark cannot be sold or distributed within the European Union. We have
received certification for all currently existing manufacturing facilities.

The impact of the Affordable Care Act and other United States healthcare reform legislation on us remains uncertain.

In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or
collectively the ACA, was enacted, which made a number of substantial changes in the way healthcare is financed by both
governmental and private insurers. The ACA is far-reaching and is intended to expand access to health insurance coverage, improve
quality and reduce costs over time. Among other things, the ACA:

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requires certain medical device manufacturers to pay an excise tax equal to 2.3% of the price for which such manufacturer
sells its medical devices; this excise tax was previously suspended until December 31, 2017. On January 22, 2018, the
President signed the Extension of Continuing Appropriations Act, 2018, which extended the moratorium on the tax until
December 31, 2019.

establishes a new Patient-Centered Outcomes Research Institute to oversee and identify priorities in comparative clinical
effectiveness research in an effort to coordinate and develop such research; and

implements payment system reforms including a national pilot program on payment bundling to encourage hospitals,
physicians and other providers to improve the coordination, quality and efficiency of certain healthcare services through
bundled payment models.

Certain legislative changes to and regulatory changes under the ACA have occurred in the 115th United States Congress. For
example, the Tax Cuts and Jobs Act enacted on December 22, 2017, eliminated the shared responsibility payment for individuals
who fail to maintain minimum essential coverage under section 5000A of the Internal Revenue Code of 1986, commonly referred to
as the individual mandate, beginning in 2019. Additional legislative changes to the ACA and changes resulting from current litigation
challenging certain aspects of the ACA remains possible. Any such future changes, depending on their nature, could have an adverse
effect on our ability to maintain or increase sales of any of our products and achieve profitability.

We are subject to differing customs and import/export rules in several jurisdictions in which we operate.

We import and export our products to and from a number of different countries around the world. These product movements
involve subsidiaries and third parties operating in jurisdictions with different customs and import/export rules and regulations.
Customs authorities in such jurisdictions may challenge our treatment of customs and import/export rules relating to product
shipments under aspects of their respective customs laws and treaties. If we are unsuccessful in defending our treatment of customs
and import/export classifications, we may be subject to additional customs duties, fines or penalties that could adversely affect our
profitability.

Risks Related to our Business and Industry

Our business may be adversely affected if consolidation in the healthcare industry leads to demand for price concessions or if a group
purchasing organization or similar entity excludes us from being a supplier.

Because healthcare costs have risen significantly over the past decade, numerous initiatives and reforms have been launched by
legislators, regulators and third-party payors to curb these costs. As a result, there has been a consolidation trend in the healthcare
industry to create larger companies, including medical device companies and hospitals, each with greater market power. As the
healthcare industry consolidates, competition to provide products and services to industry participants has become and may
continue to become more intense. This has resulted and may continue to result in greater pricing pressures and the exclusion of
certain suppliers from important markets as group purchasing organizations (“GPOs”), independent delivery networks and large
single accounts continue to use their market power to consolidate purchasing decisions and as larger manufacturers use their broad
offerings to secure exclusive arrangements. If a GPO were to exclude us from their supplier list, our net sales could be adversely
impacted. We expect that market demand, government regulation, third-party reimbursement policies and societal pressures will
continue to change the worldwide healthcare industry, which may exert further downward pressure on the prices of our products.

The industry in which we operate is highly competitive. New developments by others could make our products or technologies non-
competitive or obsolete.

The medical devices industry is highly competitive. We compete with a large number of companies, many of which have significantly
greater financial, manufacturing, marketing, distribution and technical resources than we do. Many of our competitors may be able
to develop products and processes competitive with, or superior to, our own. Furthermore, we may not be able to successfully
develop or introduce new products that are less costly or offer better performance than those of our competitors, or offer
purchasers of our products payment and other commercial terms as favorable as those offered by our competitors. For more
information regarding our competitors, see Item 1, “Business,” under the subheading “Competition.”

In addition, the orthopedic medical device industry in which we compete is undergoing, and is characterized by, rapid and significant
technological change. We expect competition to intensify as technological advances are made. New technologies and products
developed by other companies are regularly introduced into the market, which may render our products or technologies non-
competitive or obsolete.

Our ability to market products successfully depends, in part, upon the acceptance of the products not only by consumers, but also by
independent third parties.

Our ability to market our Bone Growth Therapies, Spinal Implants, Biologics, and Orthofix Extremities products successfully depends,
in part, on the acceptance of the products by independent third parties (including hospitals, physicians, other healthcare providers
and third-party payors) as well as patients. Unanticipated side effects or unfavorable publicity concerning any of our products could
have an adverse effect on our ability to maintain hospital approvals or achieve acceptance by prescribing physicians, managed care
providers and other retailers, customers and patients.

Our allograft and mesenchymal stem cell allografts could expose us to certain risks that could disrupt our business.

Our Biologics business markets allograft tissues that are derived from human cadaveric donors, and our ability to market the tissues
depends on our supplier continuing to have access to donated human cadaveric tissue, as well as the maintenance of high standards
by the supplier in its processing methodology. The supply of such donors is inherently unpredictable and can fluctuate over time.
The allograft tissues are regulated under the FDA’s HCT/P regulatory paradigm and not as a medical device or as a biologic or drug.
There can be no assurance that the FDA will not at some future date re-classify the allograft tissues, and the reclassification of this
product from a human tissue to a medical device could have adverse consequences for us or for the supplier of this product and
make it more difficult or expensive for us to conduct this business by requiring premarket clearance or approval as well as
compliance with additional post-market regulatory requirements.

We may not be able to successfully introduce new products to the market, and market opportunities that we expect to develop for
our products may not be as large as we expect.

During 2018, we continued to make improvements in revenues related to several new products we introduced to the market over
the past several years, including the TL-HEX TrueLok Hexapod System, Galaxy Fixation System, Chimaera Hip Fracture System, Ankle
Hind Foot Nailing System, Firebird NXG Spinal Fixation System, FORZA XP Spacer System, SKYHAWK Lateral Interbody Fusion System
& Lateral Plate System, CENTURION POCT System, PILLAR SA PTC PEEK Spacer System, JANUS Midline Fixation Screw, and the Cetra
Anterior Cervical Plate, among others. In 2019, we will be launching the M6-C artificial certivical disc in the U.S. market. Despite our
planning, the process of developing and introducing new products (including product enhancements) is inherently complex and
uncertain and involves risks, including the ability of such new products to satisfy customer needs, gain broad market acceptance
(including by physicians) and obtain regulatory approvals, which can depend, among other things, on the product achieving broad
clinical acceptance, the level of third-party reimbursement and the introduction of competing technologies. If the market
opportunities that we expect to develop for our products, including new products, are not as large as we expect, it could adversely
affect our ability to grow our business.

Growing our business requires that we properly educate and train physicians regarding the distinctive characteristics, benefits,
safety, clinical efficacy and cost-effectiveness of our products.

Acceptance of our products depends in part on our ability to (i) educate the medical community as to the distinctive characteristics,
benefits, safety, clinical efficacy and cost-effectiveness of our products compared to alternative products, procedures and therapies,
and (ii) train physicians in the proper use and implementation of our products. We support our sales force and distributors through
specialized training workshops in which surgeons and sales specialists participate. We also produce marketing materials, including
materials outlining surgical procedures, for our sales force and distributors in a variety of languages using printed, video and
multimedia formats. To provide additional advanced training for surgeons, consistent with the AdvaMed Code and the MedTech
Code, we organize regular multilingual teaching seminars in multiple locations. However, we may not be successful in our efforts to
educate the medical community and properly train physicians. If physicians are not properly trained, they may misuse or
ineffectively use our products, which may result in unsatisfactory patient outcomes, patient injury, negative publicity or lawsuits
against us. In addition, a failure to educate the medical community regarding our products may impair our ability to achieve market
acceptance of our products.

We may be adversely affected by any disruption in our information technology systems, which could adversely affect our cash flows,
operating results and financial condition.

Our operations are dependent upon our information technology systems, which encompass all of our major business functions. We
rely upon such information technology systems to manage and replenish inventory, to fill and ship customer orders on a timely
basis, to coordinate our sales activities across all of our products and services and to coordinate our administrative activities. A
substantial disruption in our information technology systems for any prolonged time period (arising from, for example, system
capacity limits from unexpected increases in our volume of business, outages or delays in our service) could result in delays in
receiving inventory and supplies or filling customer orders and adversely affect our customer service and relationships. Our systems
might be damaged or interrupted by natural or man-made events or by computer viruses, physical or electronic break-ins and similar
disruptions affecting the global Internet. There can be no assurance that such delays, problems, or costs will not have a material
adverse effect on our cash flows, operating results and financial condition.

As our operations grow in both size and scope, we will continuously need to improve and upgrade our systems and infrastructure
while maintaining the reliability and integrity of our systems and infrastructure. An expansion of our systems and infrastructure may
require us to commit substantial financial, operational and technical resources before the volume of our business increases, with no
assurance that the volume of business will increase. In particular, we recently upgraded our financial reporting system and other
information technology systems as part of our infrastructure initiative, Project Bluecore. These and any other upgrades to our
systems and information technology, or new technology, now and in the future, require that our management and resources be
diverted from our core business to assist in compliance with those requirements. There can be no assurance that the time and
resources our management will need to devote to these upgrades, service outages or delays due to the installation of any new or
upgraded technology (and customer issues therewith), or the impact on the reliability of our data from any new or upgraded
technology will not have a material adverse effect on our cash flows, operating results and financial condition.

A significant portion of our operations run on a single Enterprise Resource Planning (“ERP”) platform. To manage our international
operations efficiently and effectively, we rely heavily on our ERP system, internal electronic information and communications
systems and on systems or support services from third parties. Any of these systems are subject to electrical or telecommunications
outages, computer hacking or other general system failure. It is also possible that future acquisitions will operate on different ERP
systems and that we could face difficulties in integrating operational and accounting functions of new acquisitions. Difficulties in
upgrading or expanding our ERP system or system-wide or local failures that affect our information processing could adversely affect
our cash flows, operating results and financial condition.

We may be adversely affected by a failure or compromise from a cyberattack or data breach, which could have an adverse effect on
our business

We rely on information technology (IT) systems to perform our business operations, including processing, transmitting and storing
electronic information, and interacting with customers, suppliers, healthcare payors, and other third parties. Like other medical
device companies, the size and complexity of our information technology systems makes them vulnerable to a cyber-attack,
malicious intrusion, breakdown, destruction, loss of data privacy, or other significant disruption. Our information systems require an
ongoing commitment of significant resources to maintain, protect, and enhance existing systems and develop new systems to keep
pace with continuing changes in information processing technology, evolving systems and regulatory standards, the increasing need
to protect financial or personal information related to patients and customers, and changing customer patterns.

For example, third parties may attempt to hack into our products to obtain data relating to patients or disrupt performance of our
products or to access our proprietary information. Any failure by us to maintain or protect our information technology systems and
data integrity, including from cyber-attacks, intrusions or other breaches, could result in the unauthorized access to patient data and
personally identifiable information, theft of intellectual property or other misappropriation of assets, or otherwise compromise our
confidential or proprietary information and disrupt our operations. In the U.S., Federal and State privacy and security laws require
certain of our operations to protect the confidentiality of personal information including patient medical records and other health
information. In Europe, the Data Protection Directive requires us to manage individually identifiable information in the EU and, the
new General Data Protection Regulation may impose fines of up to four percent of our global revenue in the event of violations.
Internationally, some countries have also passed laws that require individually identifiable data on their citizens to be maintained on
local servers and that may restrict transfer or processing of that data. We believe that we meet the expectations of applicable
regulations and that the ongoing costs of compliance with such rules are not material to our business. However, there is no
guarantee that we will be able to comply with these regulations, or otherwise avoid the negative reputational and other affects that
might ensue from a significant data breach or failure to comply with applicable data privacy regulations, each of which could have
significant adverse effects on our business, financial condition or results of operations.

In recent years, companies around the world are seeing a surge in wire transfer “phishing” attacks that attempt to trick employees
into wiring money from company bank accounts to criminals’ bank accounts. In some cases, companies have lost millions of dollars
to such relatively simple attacks, and these funds often are not recovered. While we take efforts to train employees to be cognizant
of these types of attacks and take appropriate precautions, the level of technological sophistication being used by attackers has
increased in recent years, and a successful attack against us could lead to the loss of significant funds.

We are dependent on third-party manufacturers for many of our products.

We contract with third-party manufacturers to produce many of our products, like many other companies in the medical device
industry. If we or any such manufacturer fail to meet production and delivery schedules, it can have an adverse impact on our ability
to sell such products. Further, whether we directly manufacture a product or utilize a third-party manufacturer, shortages and
spoilage of materials, labor stoppages, product recalls, manufacturing defects and other similar events can delay production and
inhibit our ability to bring a new product to market in timely fashion. For example, the supply of the Trinity Evolution and Trinity
ELITE allografts are derived from human cadaveric donors, and our ability to market the tissues depends on MTF continuing to have
access to donated human cadaveric tissue, as well as, the maintenance of high standards by MTF in its processing methodology.

Termination of our existing relationships with our independent sales representatives or distributors could have an adverse effect on
our business.

We sell our products in many countries through independent distributors. Generally, our independent sales representatives and our
distributors have the exclusive right to sell our products in their respective territories. The terms of these agreements vary in length,
generally from one to ten years. Under the terms of our distribution agreements, each party has the right to terminate in the event
of a material breach by the other party and we generally have the right to terminate if the distributor does not meet agreed sales
targets or fails to make payments on time. Any termination of our existing relationships with independent sales representatives or
distributors could have an adverse effect on our business unless and until commercially acceptable alternative distribution
arrangements are put in place. In addition, we operate in areas of the world that have been or may be disproportionately affected
by recessions and we bear risk that existing or future accounts receivable may be uncollected if these distributors or hospitals
experience disruptions to their business that cause them to discontinue paying ongoing accounts payable or become insolvent.

We depend on our senior management team.

Our success depends upon the skill, experience and performance of members of our senior management team, who have been
critical to the management of our operations and the implementation of our business strategy. We do not have key man insurance
on our senior management team, and the loss of one or more key executive officers could have a material adverse effect on our
operations and development.

In order to compete, we must attract, retain and motivate key employees, and our failure to do so could have an adverse effect on
our results of operations.

In order to compete, we must attract, retain and motivate executives and other key employees, including those in managerial,
technical, sales, marketing, research, development, finance and support positions. Hiring and retaining qualified executives,
engineers, technical staff and sales representatives are critical to our business, and competition for experienced employees in the
medical device industry can be intense. To attract, retain and motivate qualified executives and key employees, we utilize stock-
based incentive awards such as employee stock options, restricted stock and stock units. If the value of such stock awards does not
appreciate as measured by the performance of the price of our common stock and ceases to be viewed as a valuable benefit, our
ability to attract, retain and motivate our employees could be adversely impacted, which could negatively affect our results of
operations and/or require us to increase the amount we expend on cash and other forms of compensation.

Our business is subject to economic, political, regulatory and other risks associated with international sales and operations.

Because we sell our products in many different countries, our business is subject to risks associated with conducting business
internationally. We anticipate that net sales from international operations will continue to represent a substantial portion of our
total net sales. In addition, a number of our manufacturing facilities and suppliers are located outside the U.S. Accordingly, our
future results could be harmed by a variety of factors, including:

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changes in a specific country’s or region’s political or economic conditions;

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trade protection measures and import or export licensing requirements or other restrictive actions by foreign governments;

consequences from changes in tax or customs laws;

difficulty in staffing and managing widespread operations;

differing labor regulations;

differing protection of intellectual property;

unexpected changes in regulatory requirements; and

violation by our independent agents of the FCPA or other anti-bribery or anti-corruption laws.

Risks Related to our Intellectual Property

We depend on our ability to protect our intellectual property and proprietary rights, but we may not be able to maintain the
confidentiality, or assure the protection, of these assets.

Our success depends, in large part, on our ability to protect our current and future technologies and products and to defend our
intellectual property rights. If we fail to protect our intellectual property adequately, competitors may manufacture and market
products similar to, or that compete directly with, ours. Numerous patents covering our technologies have been issued to us, and we
have filed, and expect to continue to file, patent applications seeking to protect newly developed technologies and products in
various countries, including the U.S. Some patent applications in the U.S. are maintained in secrecy until the patent is issued.
Because the publication of discoveries tends to follow their actual discovery by several months, we may not be the first to invent, or
file patent applications on any of our discoveries. Patents may not be issued with respect to any of our patent applications and
existing or future patents issued to, or licensed by, us and may not provide adequate protection or competitive advantages for our
products. Patents that are issued may be challenged, invalidated or circumvented by our competitors. Furthermore, our patent
rights may not prevent our competitors from developing, using or commercializing products that are similar or functionally
equivalent to our products.

We also rely on trade secrets, unpatented proprietary expertise and continuing technological innovation that we protect, in part, by
entering into confidentiality agreements with assignors, licensees, suppliers, employees and consultants. These agreements may be
breached and there may not be adequate remedies in the event of a breach. Disputes may arise concerning the ownership of
intellectual property or the applicability or enforceability of confidentiality agreements. Moreover, our trade secrets and proprietary
technology may otherwise become known or be independently developed by our competitors. If patents are not issued with respect
to our products arising from research, we may not be able to maintain the confidentiality of information relating to these products.
In addition, if a patent relating to any of our products lapses or is invalidated, we may experience greater competition arising from
new market entrants.

Third parties may claim that we infringe on their proprietary rights and may prevent us from manufacturing and selling certain of our
products.

There has been substantial litigation in the medical device industry with respect to the manufacture, use and sale of new products. These
lawsuits relate to the validity and infringement of patents or proprietary rights of third parties. We may be required to defend against
allegations relating to the infringement of patent or proprietary rights of third parties. Any such litigation could, among other things:

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require us to incur substantial expense, even if we are successful in the litigation;

require us to divert significant time and effort of our technical and management personnel;

result in the loss of our rights to develop or make certain products; and

require us to pay substantial monetary damages or royalties in order to license proprietary rights from third parties or to
satisfy judgments or to settle actual or threatened litigation.

Although patent and intellectual property disputes within the orthopedic medical devices industry have often been settled through
assignments, licensing or similar arrangements, costs associated with these arrangements may be substantial and could include the
long-term payment of royalties. Furthermore, the required assignments or licenses may not be made available to us on acceptable
terms. Accordingly, an adverse determination in a judicial or administrative proceeding or a failure to obtain necessary assignments
or licenses could prevent us from manufacturing and selling some products or increase our costs to market these products.

Risks Related to Litigation and Product Liability Matters

We may be subject to product and other liability claims that may not be covered by insurance and could require us to pay substantial
sums. Moreover, fluctuations in insurance expense could adversely affect our profitability.

We are subject to an inherent risk of, and adverse publicity associated with, product liability and other liability claims, whether or
not such claims are valid. We maintain product liability insurance coverage in amounts and scope that we believe are reasonable and
adequate. There can be no assurance, however, that product liability or other claims will not exceed our insurance coverage limits or
that such insurance will continue to be available on reasonable, commercially acceptable terms, or at all. A successful product
liability claim that exceeds our insurance coverage limits could require us to pay substantial sums and could have a material adverse
effect on our financial condition.

In addition to product liability insurance coverage, we hold a number of other insurance policies, including directors’ and officers’
liability insurance, property insurance and workers’ compensation insurance. If the costs of maintaining adequate insurance
coverage should increase significantly in the future, our operating results could be materially adversely impacted.

Risks Related to Potential Acquisitions and Divestitures

Our efforts to identify, pursue and implement new business opportunities (including acquisitions) may be unsuccessful and may have
an adverse effect on our business.

Our growth depends, in large part, on our ability to identify, pursue and implement new business opportunities that expand our
product offerings, capabilities and geographic presence, and we compete with other medical device companies for these
opportunities. Our efforts to identify such opportunities focus primarily on potential acquisitions of new businesses, products or
technologies, licensing arrangements, commercialization arrangements and other transactions with third parties. We may not be
able to identify business opportunities that meet our strategic criteria or are acceptable to us or our shareholders. Even if we are
able to identify acceptable business opportunities, we may not be able to pursue or implement such business opportunities (or, in
the case of acquisitions or other transactions, complete such acquisitions or other transactions) in a timely manner or on a cost-
effective basis (or at all), and we may not realize the expected benefits of such business opportunities. If we are not able to identify,
pursue and implement new business opportunities, it will adversely affect our ability to grow our business.

In addition, pursuing and implementing new business opportunities (particularly acquisitions) may involve significant costs and entail
risks, uncertainties and disruptions to our business, especially where we have limited experience as a company developing or
marketing a particular product or technology or operating in a particular geographic region. We may be unable to integrate a new
business, product or technology effectively, or we may incur significant charges related to an acquisition or other business
opportunity (for example, amortization of acquired assets or asset impairment charges), which may adversely affect our business,
financial condition and results of operations. Newly acquired technology or products may require additional development efforts
prior to commercial sale, including clinical testing and approval by the FDA and applicable foreign regulatory authorities; such
additional development efforts may involve significant expense and ultimately be unsuccessful. Any cross-border acquisitions or
transactions may involve unique risks in addition to those mentioned above, including those related to integration of operations
across different cultures and languages, currency risks and the particular economic, political and regulatory risks associated with
specific countries. To the extent we issue additional equity in connection with acquisitions, this may dilute our existing
shareholders.

We may incur significant costs or retain liabilities associated with disposition activity.

We may from time to time sell, license, assign or otherwise dispose of or divest assets, the stock of subsidiaries or individual
products, product lines or technologies, which we determine are no longer desirable for us to own, some of which may be material.
Any such activity could result in our incurring costs and expenses from these efforts, some of which could be significant, as well as
retaining liabilities related to the assets or properties disposed of even though, for instance, the income-generating assets have been
disposed of. These costs and expenses may be incurred at any time and may have a material impact on our results of operations.

Risks Related to Our Financial Results and Need for Financing

Our quarterly operating results may fluctuate.

Our quarterly operating results have fluctuated significantly in the past. Our future quarterly operating results may fluctuate
significantly, and we may experience losses depending on a number of factors, including the extent to which our products continue
to gain or maintain market acceptance, the rate and size of expenditures incurred as we expand our domestic and establish our
international sales and distribution networks, the timing and level of reimbursement for our products by third-party payors, the
extent to which we are subject to government regulation or enforcement and other factors, many of which are outside our control.

We have loaned $15 million to an early stage company and may not be able to recoup our investment.

On March 4, 2015, we entered into an option agreement with eNeura, Inc. (“eNeura”), a privately held medical technology company
that is developing devices for the treatment of migraines. The option agreement provided us with an exclusive option until
September 2016 to acquire eNeura, which we ultimately did not exercise. In consideration for the option, (i) we paid a non-
refundable $0.3 million fee to eNeura, and (ii) we loaned eNeura $15 million pursuant to a convertible, secured promissory note that
was issued to us, which note matures on March 4, 2019.

eNeura is using the proceeds of our loan to fund product development work related to its business and to fund its ongoing
operations and no assurance can be made that eNeura’s business will ultimately be successful. Although the promissory note is
secured by many of eNeura’s assets (including its intellectual property assets), no assurance can be made that eNeura will be able to
repay the promissory note when due in the event that the promissory note does not convert to equity. In such an event, we could
lose all or a substantial portion of our $15 million loan investment. In addition, if a change in control of eNeura (generally defined as a
third-party acquisition of fifty percent or more of eNeura’s voting equity or all or substantially all of eNeura’s assets) occurs prior to
the maturity date on March 4, 2019, the eNeura Note will automatically convert into preferred stock of eNeura, and the value of such
preferred stock could be less than the principal amount of the note.

Currently, we do not expect to collect the complete principal and interest on March 4, 2019 and are in negotiations with eNeura to
possibly extend and/or modify other terms of the eNeura Note. Any significant changes to the term of the eNeura Note, including
extending the due date, could have a material impact on the fair value of the security.

We face risks related to foreign currency exchange rates.

Because some of our revenue, operating expenses, assets and liabilities are denominated in foreign currencies, we are subject to
foreign exchange risks that could adversely affect our operations and reported results. To the extent that we incur expenses or earn
revenue in currencies other than the U.S. Dollar, any change in the values of those foreign currencies relative to the U.S. Dollar could
cause our profits to decrease or our products to be less competitive against those of our competitors. To the extent that our current
assets denominated in foreign currency are greater or less than our current liabilities denominated in foreign currencies, we have
potential foreign exchange exposure. The fluctuations of foreign exchange rates during 2018 have had a favorable impact of $2.3
million on net sales outside of the U.S. Although we seek to manage our foreign currency exposure by matching non-dollar revenues
and expenses, exchange rate fluctuations could have a material adverse effect on our results of operations in the future. To
minimize such exposures, we may enter into currency hedges from time to time.

Our global operations may expose us to tax risks

We are subject to taxes in the U.S. and numerous foreign jurisdictions. Significant judgment and interpretation of tax laws are
required to estimate our tax liabilities. Tax laws and rates in various jurisdictions may be subject to significant change as a result of
political and economic conditions. Our effective income tax rate could be adversely affected by changes in those tax laws; changes in
the mix of earnings among tax jurisdictions; changes in the valuation of our deferred tax assets and liabilities; and the resolution of
matters arising from tax audits.

Certain of our subsidiaries sell products directly to other Orthofix subsidiaries or provide marketing and support services to other
Orthofix subsidiaries. These intercompany sales and support services involve subsidiaries operating in jurisdictions with differing tax
rates, and we must determine the appropriate allocation of income to each jurisdiction based on current interpretations of complex
income tax regulations. Tax authorities in these jurisdictions may challenge our treatment of such intercompany transactions. If we
are unsuccessful in defending our treatment of intercompany transactions, we may be subject to additional tax liability or penalty,
which could adversely affect our profitability.

Our subsidiaries, Orthofix Holdings, Inc., Victory Medical Limited, and Orthofix International B.V. maintain a $125 million secured
revolving credit facility secured by a pledge of substantially all of our property.

On August 31, 2015, the Company, through its subsidiaries, Orthofix Holdings, Inc. and Victory Medical Limited (collectively the
“Borrowers”), entered into a credit agreement (the “Credit Agreement”) providing for a five-year secured revolving credit facility of
$125 million. On December 8, 2017, the Company amended the Credit Agreement and the primary provision of the Credit
Agreement to be amended, among other things, was to add the Company’s subsidiary, Orthofix International B.V. as a Borrower,
Guarantor, and a loan party. On July 31, 2018, the Company amended and restated the Credit Agreement in connection with the
Domestication of the Company from a Curaçao company to a Delaware corporation. No amounts have been drawn on the credit
facility as of the date hereof, but the Company may draw on this facility in the future.

The Company and certain of its existing and future U.S., U.K., and Netherlands domiciled subsidiaries (collectively, the “Guarantors”)
are required to guarantee the repayment of the Borrowers’ obligations under the Credit Agreement. The obligations of the
Borrowers and each of the Guarantors with respect to the Credit Agreement are secured by a pledge of substantially all of the
tangible and intangible personal property of the Borrowers and each of the Guarantors, including accounts receivable, deposit
accounts, intellectual property, investment property, inventory, equipment and equity interests in their subsidiaries.

The Credit Agreement contains customary affirmative and negative covenants, including limitations on our ability to incur additional
debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, pay
dividends and distributions, repay subordinated indebtedness and enter into affiliate transactions. In addition, the Credit
Agreement contains financial covenants requiring us on a consolidated basis to maintain, as of the last day of any fiscal quarter, a
total leverage ratio of not more than 3.0 to 1.0 and an interest coverage ratio of at least 3.0 to 1.0. The Credit Agreement also
includes events of default customary for facilities of this type, and upon the occurrence of such events of default, subject to
customary cure rights, all outstanding loans under the facility may be accelerated and/or the lenders’ commitments terminated.

We believe that we are in compliance with the negative covenants, and there were no events of default, at December 31, 2018 (and in
prior periods). However, there can be no assurance that the Company would be able to meet such financial covenants in future fiscal
quarters. The failure to do so could result in an event of default under such agreement, which could have a material adverse effect on
our financial position in the event that we have significant amounts drawn under the facility at such time.

Item 1B.

Unresolved Staff Comments

None.

Item 2.

Properties

Our principal facilities as of December 31, 2018 are as follows:

Location

Lewisville, TX

Facility
Manufacturing, warehousing, distribution, research and development, and
administrative facility for Corporate and all reporting segments
Manufacturing, warehousing, distribution, research and development, and
administrative facility for Spinal Kinetics
Research and development, component manufacturing, quality control and
training facility for fixation products and sales management, distribution
and administrative facility for Italy
International distribution center for Orthofix products
Mechanical workshop for Orthofix products
Sales management, distribution and administrative facility for United Kingdom Maidenhead, England
Sales management, distribution and administrative facility for Brazil
Sales management, distribution and administrative facility for France
Sales management, distribution and administrative facility for Germany

São Paulo, Brazil
Arcueil, France
Ottobrunn, Germany

Verona, Italy
Verona, Italy
Verona, Italy

Sunnyvale, CA

Approx.
Square
Feet

Ownership

140,000

Leased

25,000

Leased

38,000
18,000
9,000
8,100
22,000
8,500
18,300

Owned
Leased
Leased
Leased
Leased
Leased
Leased

Item 3.

Legal Proceedings

For a description of our material pending legal proceedings, refer to Note 13 of the Notes to the Consolidated Financial Statements in
Item 8 of this Annual Report.

Item 4.

Mine Safety Disclosures

Not applicable.

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market for Our Common Stock

Our common stock is traded on the Nasdaq Global Select Market under the symbol “OFIX.” As of February 22, 2019, we had 361
holders of record of our common stock. The closing price of our common stock on February 22, 2019 was $65.51. The following table
shows the high and low sales prices for our common stock for each of the two most recent fiscal years.

2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2018
First Quarter
Second Quarter
Third Quarter
Fourth Quarter

High

Low

40.37 $
46.86
50.40
56.53

61.00 $
61.86
61.98
63.57

33.51
36.10
42.68
47.27

51.01
51.38
50.41
48.00

Dividends

We have not paid dividends to holders of our common stock in the past and have no present intention to pay dividends in the
foreseeable future. Additionally, we have restrictions on the ability to pay dividends in certain circumstances pursuant to our
Amended Credit Agreement. We currently intend to retain all of our consolidated earnings to finance the continued growth of our
business.

In the event that we decide to pay a dividend to holders of our common stock in the future with dividends received from our
subsidiaries, we may, based on prevailing rates of taxation, be required to pay additional withholding and income tax on such
amounts.

Recent Sales of Unregistered Securities

We did not sell any unregistered securities during the fourth quarter of 2018.

Performance Graph

The following performance graph is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A
or 14C or to the liabilities of Section 18 of the Exchange Act. This information will not be deemed to be incorporated by reference
into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent we specifically incorporate this information
by reference.

The graph below compares the five-year total shareholder return on Orthofix common stock with the returns of two indexes: the
Nasdaq Stock Market and Nasdaq stocks for surgical, medical, and dental instruments and supplies. The graph assumes that you
invested $100 in Orthofix Common Stock and in each of the indexes on December 31, 2013. Points on the graph represent the
performance as of the last business day of each of the years indicated.

$300

$250

$200

$150

$100

$50

2013

2014

2015

2016

2017

2018

Orthofix Medical Inc.

NASDAQ Stock Market (US and Foreign Companies)

NASDAQ Stocks (SIC 3840-3849 US & Foreign) Surgical, Medical, and Dental Instruments and Supplies

Item 6.

Selected Financial Data

The following selected financial data has been derived from our audited consolidated financial statements.

(U.S. Dollars, in thousands, except margin and per share data)
Consolidated operating results
Net sales
Gross profit
Gross margin
Operating income (1)
Net income (loss) from continuing operations
Net loss from discontinued operations
Net income (loss) (2)
Net income (loss) per common share – basic

Net income (loss) from continuing operations
Net loss from discontinued operations
Net income (loss)

Net income (loss) per common share – diluted

Net income (loss) from continuing operations
Net loss from discontinued operations
Net income (loss)

(1)

Includes the following:

2018

2017

Year ended December 31,
2016

2015

2014

$ 453,042
356,414

$ 433,823
340,786

$ 409,788
321,935

$ 396,489
309,964

79%

40,811
7,291
(1,068)
$
6,223

79%

21,067
3,497
(441)
$
3,056

$ 402,277
303,365
75%
17,136
(3,744)
(4,793)
(8,537)

78%

9,225
(2,342)
(467)
(2,809) $

0.40
$
(0.06)
$
0.34

0.39
$
(0.05)
$
0.34

0.19
$
(0.02)
$
0.17

(0.12) $
(0.03)
(0.15) $

(0.20)
(0.26)
(0.46)

79%

30,094
13,811
—
13,811

0.73
—
0.73

0.72
—
0.72

(cid:129)

Legal, accounting, and other professional fees incurred in 2018, 2017, 2016, 2015, and 2014 of $1.1 million, $3.4
million, $2.0 million and $9.1 million, and $15.6 million, respectively, in connection with the accounting review and
restatements through March 2015 and legal fees associated with the SEC Investigation, Securities Class Action
Complaint and Brazil subsidiary compliance review. In addition, the Company received an insurance settlement related
to these matters of approximately $6.1 million in 2017

Charges related to U.S. Government resolutions in 2016 of $14.4 million

(2) Dividends have not been paid in any of the years presented

(U.S. Dollars, in thousands)
Consolidated financial position
Total assets
Long-term debt
Shareholders’ equity

2018

2017

As of December 31,
2016

2015

2014

$ 466,641 $ 405,354 $ 372,103 $ 400,222 $
—
290,311

—
263,477

—
335,397

—
296,608

392,956
—
299,627

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and result of operations should be read in conjunction with
“Forward-Looking Statements” and our consolidated financial statements and notes thereto appearing elsewhere in this Annual
Report.

Executive Summary

We are a global medical device company focused on musculoskeletal products and therapies. Headquartered in Lewisville, Texas, we
have four reporting segments: Bone Growth Therapies (formerly referred to as BioStim), Spinal Implants (formerly referred to as
Spine Fixation), Biologics, and Orthofix Extremities (formerly referred to as Extremity Fixation). Our products are distributed by our
sales representatives and distributors in over 70 countries.

Notable highlights and accomplishments in 2018 include the following:

(cid:129)

Net sales were $453.0 million, an increase of 4.4% on a reported basis and 3.9% on a constant currency basis.

Net income from continuing operations was $13.8 million, an increase of 89.4% from the prior year.

Non-GAAP net margin, an internal metric that we define as gross profit less sales and marketing expense, was $150.9
million, an increase of 5.9% from the prior year.

Results of Operations

The following table presents certain items in our consolidated statements of income as a percent of net sales:

Net sales
Cost of sales
Gross profit

Sales and marketing

Non-GAAP net margin

General and administrative
Research and development
Changes in fair value of contingent consideration
Charges related to U.S. Government resolutions

Operating income
Net income from continuing operations
Net loss from discontinued operations
Net income

Net Sales by Reporting Segment

2018
(%)

Year ended December 31,
2017
(%)

2016
(%)

100.0
21.3
78.7
45.4
33.3
18.7
7.3
0.7
—
6.6
3.0
—
3.0

100.0
21.4
78.6
45.7
32.8
16.6
6.9
—
—
9.4
1.7
(0.3)
1.4

100.0
21.4
78.6
44.2
34.3
18.7
7.0
—
3.6
5.1
0.9
(0.2)
0.7

The following table presents net sales, which includes product sales and marketing service fees, by reporting segment:

(U.S. Dollars, in thousands)
Bone Growth Therapies
Spinal Implants
Biologics
Orthofix Extremities
Net sales

2016

2018

2017
$ 195,252 $ 185,900 $ 176,561
72,632
57,912
106,448 103,242 102,683
$ 453,042 $ 433,823 $ 409,788

91,658
59,684

81,957
62,724

2018/2017

Reported

Percentage Change

2018/2017
Constant
Currency

2017/2016

Reported

2017/2016
Constant
Currency

5.0%
11.8%
-4.8%
3.1%
4.4%

5.0%
11.9%
-4.8%
0.9%
3.9%

5.3%
12.8%
8.3%
0.5%
5.9%

5.3%
12.7%
8.3%
-0.9%
5.5%

Bone Growth Therapies

Bone Growth Therapies manufactures, distributes, and provides support services of market leading devices that enhance bone
fusion. Bone Growth Therapies uses distributors and sales representatives to sell its devices to hospitals, healthcare providers, and
patients.

2018 Compared to 2017

Net sales increased $9.4 million or 5.0%

(cid:129)

Increase primarily driven by the execution of our commercial strategies and the continued leverage of our recently
launched next generation products supported by our STIM On Track mobile application

2017 Compared to 2016

Net sales increased $9.3 million or 5.3%

(cid:129)

Increased as we continue to leverage the engagement of our expansive sales force, the positive North American Spine
Society (“NASS”) coverage recommendation and the launch of our next generation products and Stim on Track

Spinal Implants

Spinal Implants designs, develops and markets a broad portfolio of implant products used in surgical procedures of the spine. Spinal
Implants distributes its products globally through a network of distributors and sales representatives to sell spine products to
hospitals and healthcare providers.

2018 Compared to 2017

Net sales increased $9.7 million or 11.8%

(cid:129)

Increase of $8.7 million driven by international sales of M6 Artificial Discs subsequent to our acquisition of Spinal Kinetics,
which closed during the second quarter of 2018

Increase of 3.4% in U.S. sales due to the annualized sales of new distributor partners added during 2017 and from the
uptake of recent product introductions

Decrease in legacy international sales, primarily as a result of disruption to our distribution in our Australian and German
subsidiaries

2017 Compared to 2016

Net sales increased $9.3 million or 12.8%

Increase of 20.6% in U.S. sales due to the addition of new distributor partners in the last several quarters; the uptake of
recent product introductions, including our PTC family product lines and Cetra; and improved legacy distributor
engagement

Despite strong performance in certain locations, such as Australia, year-over-year international sales decreased largely due
to a decrease in order volumes from international stocking distributors

(cid:129)

Biologics

Biologics provides a portfolio of regenerative products and tissue forms that allow physicians to successfully treat a variety of spinal
and orthopedic conditions. Biologics markets its tissues to hospitals and healthcare providers, primarily in the U.S., through a
network of employed and independent sales representatives.

2018 Compared to 2017

Net sales decreased $3.0 million or 4.8%

(cid:129)

Decrease of 6.1% primarily driven by the contractual reduction during the first quarter of 2018 in the amount we receive for
marketing service fees for Trinity tissues from MTF Biologics (“MTF”)

Volume for Trinity tissues increased by 3.3%, partially offset by low single-digit pricing pressure in the market

2017 Compared to 2016

Net sales increased $4.8 million or 8.3%

(cid:129)

Increase in volume for our Trinity products primarily driven by the addition of new distributors over the prior year

Benefit from improving performance from our national distribution partner and the reactivation of a national hospital
contract

Orthofix Extremities

Orthofix Extremities offers products and solutions that allow physicians to successfully treat a variety of orthopedic conditions
unrelated to the spine. Orthofix Extremities distributes its products globally through a network of distributors and sales
representatives to sell orthopedic products to hospitals and healthcare providers.

2018 Compared to 2017

Net sales increased $3.2 million or 3.1%

(cid:129)

Increase largely due to the change in foreign currency exchange rates, which had a positive impact on net sales of $2.3
million

Increase of $1.4 million within the U.S. due to continued distribution expansion and adoption of our TrueLok products

Increase in international sales of $2.8 million, excluding the impact of changes in foreign currency exchange rates, due to
continued expansion of our distributors and growth in European subsidiaries

Partially offset by an expected decrease of $3.3 million in Brazil as a result of our Orthofix Extremities restructuring during
2017

2017 Compared to 2016

Net sales increased $0.6 million or 0.5%

(cid:129)

Growth in the U.S. and the U.K., largely due to the continued adoption of our TL-HEX product line

Increase of $1.5 million attributable to a favorable impact from foreign currency translation

Partially offset by a decrease of $3.6 million related to our Orthofix Extremities restructuring, which consisted of the
divestiture of a non-core business in the U.K. and a reduction in sales in Brazil and Puerto Rico as we converted from a
direct sales model to the use of stocking distributors

And additionally offset by a decrease in cash collections from specific international stocking distributors whose revenue is
recognized upon cash receipt

Gross Profit and Non-GAAP Net Margin

(U.S. Dollars, in thousands)
Gross profit
Sales and marketing
Non-GAAP net margin

Gross margin
Non-GAAP net margin

2018
356,414
205,527
150,887

2017
340,786
198,370
142,416

2016
321,935
181,287
140,648

78.6%
32.8%

78.6%
34.3%

78.7%
33.3%

Percentage Change

2018/2017

2017/2016

4.6%
3.6%
5.9%

0.1%
0.5%

5.9%
9.4%
1.3%

0.0%
-1.5%

2018 Compared to 2017

Non-GAAP net margin, an internal metric that we define as gross profit less sales and marketing expense, increased $8.5 million

(cid:129)

Gross profit increased $15.6 million

Primarily due to the growth in net sales with gross margin improving slightly from 78.6% in 2017 to 78.7% in 2018

Partially offset by the addition of Spinal Kinetics acquisition-related inventory fair market value adjustments of
$1.4 million within the Spinal Implants reporting segment

Sales and marketing expense increased $7.2 million

Primarily due to the increase in net sales, with sales and marketing expenses as a percentage of net sales
improving slightly to 45.4% of net sales in 2018 compared to 45.7% in 2017

2017 Compared to 2016

Non-GAAP net margin increased $1.8 million

(cid:129)

Gross profit increased $18.9 million

Largely driven by the increase in net sales for each of our reporting segments, as gross margin remained relatively
flat

Partially offset by an increase of $0.2 million in expense relating to our Orthofix Extremities and U.S. restructurings

Sales and marketing expense increased $17.1 million

Primarily relating to higher commission expenses in 2017, relating to geographic mix in Orthofix Extremities and
higher commission rates from new distributors for Biologics and Spinal Implants, and an increase in other
compensation costs as a result of the increase in net sales

The following table presents non-GAAP net margin by reporting segment. The reasons for the changes in non-GAAP net margin by
reporting segment are generally consistent with the information provided above for gross profit and sales and marketing expense.

(U.S. Dollars, in thousands)
Bone Growth Therapies
Spinal Implants
Biologics
Orthofix Extremities
Corporate
Non-GAAP net margin

General and Administrative Expense

(U.S. Dollars, in thousands)
General and administrative
As a percentage of net sales

2018 Compared to 2017

Percentage Change

2018

2017

2016

2018/2017

2017/2016

86,252 $
7,628
26,298
31,391
(682)
150,887 $

77,369 $
8,730
25,692
31,071
(446)
142,416 $

75,469
8,650
26,891
30,526
(888)
140,648

11.5%
-12.6%
2.4%
1.0%
52.9%
5.9%

2.5%
0.9%
-4.5%
1.8%
-49.8%
1.3%

2018

2017

2016

2018/2017

2017/2016

84,506

71,905

76,409

18.7%

16.6%

18.7%

17.5%
2.1%

-5.9%
-2.1%

Percentage Change

General and administrative expense increased $12.6 million

(cid:129)

Increase of $6.3 million in expenses associated with strategic investments, such as our due diligence and integration efforts
in connection with the Spinal Kinetics acquisition and expenditures related to the Domestication

(cid:129)

Increase in share-based compensation expense of $5.5 million, largely related to increases in expense attributable to our
performance-based and market-based awards and a change in the timing of our annual grants to executives and key
personnel

Increase of $1.8 million associated with legal judgments and settlements, including previous SEC and FCPA matters, largely
as a result of the receipt of a favorable insurance settlement in 2017 of approximately $6.1 million associated with prior
costs incurred

Increase of $0.9 million relating to the amortization of acquired intangibles associated with the Spinal Kinetics acquisition

Partially offset by decreases in certain compensation-related costs, including bonus incentives and benefits

2017 Compared to 2016

General and administrative expense decreased $4.5 million

(cid:129) We received a favorable insurance settlement in 2017 of approximately $6.1 million associated with prior costs incurred

related to SEC and FCPA matters

(cid:129)

Decrease of $3.6 million from a reduction in Project Bluecore expenses, as the project was completed in 2016

Decrease in share-based compensation expense of $3.5 million, largely driven by a net decrease in expense attributable to
performance-based and market-based awards

Core expense reductions through savings in other professional fees of $2.0 million

Partially offset by an increase in spending of $5.7 million for evaluation of strategic investments

Further offset by an unfavorable change related to legal settlements of $3.5 million, largely as a result of a favorable
commercial litigation settlement received in 2016 of $3.0 million

Pursuant to our settlement of the SEC Investigation and FCPA matters in Brazil, we agreed to retain an independent
compliance consultant for one year to review and test the Company’s FCPA compliance program, which began in March
2017 and resulted in an increase in expense of $1.8 million

Research and Development Expense

(U.S. Dollars, in thousands)
Research and development
As a percentage of net sales

2018 Compared to 2017

2018

2017

2016

2018/2017

2017/2016

33,218

29,700

28,803

7.3%

6.9%

7.0%

11.8%
0.4%

3.1%
-0.1%

Percentage Change

Research and development expense increased $3.5 million

(cid:129)

Increase in research and development costs largely attributable to the Spinal Kinetics acquisition and the regulatory efforts
associated with the U.S. Food and Drug Administration (“FDA”) premarket approval of the M6 Artificial Cervical Disc

2017 Compared to 2016

Research and development expense increased $0.9 million

(cid:129)

Increase in costs associated with clinical trials of $0.7 million, primarily due to invested resources to identify potential new
indications for our PEMF technology, such as for osteoarthritis of the knee or as an adjunct to rotator cuff repair

Increase in costs largely attributable to the initiation of the Company’s U.S. restructuring plan in 2017, which primarily
affected our corporate shared services, and resulted in an increase in expense of $0.5 million

Changes in Fair Value of Contingent Consideration

(U.S. Dollars, in thousands)
Changes in fair value of contingent consideration
As a percentage of net sales

2018

2017

2016

3,069

0.7%

—
0.0%

Percentage Change

—
0.0%

2018/2017
—
0.7%

2017/2016
—
0.0%

2018 Compared to 2017

The fair value of contingent consideration increased $3.1 million

(cid:129)

Changes relate to the fair value of the potential future milestone payments of up to $60.0 million in cash associated with
the Spinal Kinetics acquisition. For additional information, see Note 3 of the Notes to the Consolidated Financial Statements.

Charges Related to U.S. Government Resolutions

(U.S. Dollars, in thousands)
Charges related to U.S. Government resolutions
As a percentage of net sales

2018

2017

—
0.0%

2016

14,369

3.6%

2018/2017
—
0.0%

2017/2016

-100.0%
-3.6%

Percentage Change

2017 Compared to 2016

We recorded $14.4 million in 2016 for our settlements with the Division of Enforcement of the SEC related to the SEC’s investigation
of (1) our prior accounting review and restatements of financial statements and (2) allegations of improper payments in Brazil. For
additional information, see Note 13 of the Notes to the Consolidated Financial Statements.

Non-operating Income (Expense)

(U.S. Dollars, in thousands)
Interest income (expense), net
Other expense, net

2018

2017

2016

2018/2017

2017/2016

(828) $

(416) $

(6,381)

(4,004)

763
(2,806)

99.0%
59.4%

-154.5%
42.7%

Percentage Change

Non-operating income and expense largely consists of interest income and expense, transaction gains and losses from changes in
foreign currency exchange rates, changes in fair value related to our equity holdings in Bone Biologics, Inc. (“Bone Biologics”), and
other-than-temporary impairments on the eNeura debt security. Interest income in 2016 was primarily from our eNeura debt
security; however, we discontinued recognizing interest income on the debt security in 2017. Foreign exchange gains and losses are
primarily a result of several of our foreign subsidiaries holding trade and intercompany payables or receivables in currencies (most
notably the U.S. Dollar) other than their functional currency.

2018 Compared to 2017

Other income (expense), net, decreased $2.4 million

(cid:129)

Decrease of $5.3 million associated with changes in foreign currency rates, as we recorded a non-cash remeasurement loss
of $3.3 million in 2018 compared to a gain of $1.9 million in 2017

Decrease of $3.1 million from impairments and changes in fair value relating to our equity holdings and warrants in Bone
Biologics common stock

Partially offset by an increase of $5.6 million associated with an other-than-temporary impairment on the eNeura debt
security in 2017 that did not recur in 2018

2017 Compared to 2016

Other income (expense), net, decreased $1.2 million

(cid:129)

Decrease of $2.9 million associated with other-than-temporary impairments on the eNeura debt security, as we recorded
impairments of $5.6 million and $2.7 million before taxes in 2017 and 2016, respectively

(cid:129)

Partially offset by an increase of $2.0 million associated with changes in foreign currency rates, as we recorded a non-cash
remeasurement gain of $1.9 million in 2017 compared to a loss of less than $0.1 million in 2016

Income Taxes

(U.S. Dollars, in thousands)
Income tax expense
Effective tax rate

2018 Effective Tax Rate

2018

2017

2016

2018/2017

2017/2016

9,074

29,100

15,527

39.7%

80.0%

81.6%

-68.8%
-40.3%

87.4%
-1.6%

Percentage Change

The decrease in the effective tax rate during the year was primarily a result of the decrease in income before income taxes, the
reduction of the US statutory tax rate from 35% to 21%, and the 2017 charge from recording the impact of the Tax Cuts and Jobs Act
(the “Tax Act”) that did not recur in 2018. The primary factors affecting our effective tax rate for 2018 are as follows:

(cid:129)

Current period losses in jurisdictions where we do not currently receive a tax benefit

State taxes and foreign income taxed at differing rates

Benefits of deductible equity compensation in excess of financial statement impact

On December 22, 2017, the Tax Act was signed into law, making significant changes to the Internal Revenue Code. Changes include,
but are not limited to, a corporate rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the
transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the
mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. We calculated our best estimate of the
impact of the Tax Act in our 2017 year end income tax provision in accordance with our understanding of the Tax Act and guidance
available as of the date of that filing. As a result, we recorded $8.3 million of additional income tax expense in the fourth quarter of
2017, the period in which the legislation was enacted. This provisional amount related to remeasurement of certain deferred tax
assets and liabilities, based on the rates at which they are expected to reverse in the future was $8.6 million. The provisional amount
related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings was zero. We also recorded a
benefit of $0.3 million related to an income tax liability recorded in 2016 related to repatriation of earnings from our subsidiary in
Puerto Rico. We have finalized the accounting for the Tax Act, which resulted in an additional benefit of $0.6 million in the first
quarter of 2018 and minimal adjustments in the fourth quarter.

2017 Effective Tax Rate

The decrease in the effective tax rate during the year was primarily a result of the increase in income before income taxes, partially
offset by the charge related to recording the impact of the Tax Act. The primary factors affecting our effective tax rate for 2017 are
as follows:

(cid:129)

The charge related to recognizing the impact of the Tax Act

Increases in unrecognized tax benefits

Current period losses in jurisdictons where we do not currently receive a tax benefit

Liquidity and Capital Resources

Cash, cash equivalents, and restricted cash at December 31, 2018 was $72.2 million compared to $81.2 million at December 31, 2017.

(U.S. Dollars, in thousands)
Net cash from operating activities
Net cash from investing activities
Net cash from financing activities
Effect of exchange rate changes on cash and restricted cash
Net change in cash, cash equivalents, and restricted cash

Year Ended December 31,

2018

2017

Change

49,918
(60,998)
2,993
(881)
(8,968)

38,972
(16,474)
3,538
1,180
27,216

10,946
(44,524)
(545)
(2,061)
(36,184)

The following table presents free cash flow, a non-GAAP financial measure, which is calculated by subtracting capital expenditures
from net cash from operating activities.

(U.S. Dollars, in thousands)
Net cash from operating activities
Capital expenditures
Free cash flow

Operating Activities

Year Ended December 31,

2018

2017

Change

49,918
(15,256)
34,662

38,972
(16,948)
22,024

10,946
1,692
12,638

Cash flows from operating activities increased $10.9 million

(cid:129)

Increase in net income of $7.6 million

Net decrease of $21.2 million for non-cash gains and losses, primarily related to deferred income taxes, share-based
compensation expense, an other-than-temporary impairment incurred relating to the eNeura debt security in 2017, and
loss on the valuation of our investments in Bone Biologics in 2018

Net increase of $24.6 million relating to changes in working capital, primarily attributable to changes in inventories, as a
result of improved inventory management initiatives put into place in 2017 and 2018

Two of our primary working capital accounts are trade accounts receivable and inventory. Day’s sales in receivables were 63 days at
December 31, 2018 compared to 53 days at December 31, 2017, with the increase largely attributable to our adoption of Accounting
Standards Update (“ASU”) 2014-09 in 2018. Inventory turns were 1.3 times as of December 31, 2018 compared to 1.1 times at
December 31, 2017, primarily resulting from improved inventory management initiatives put into place in 2017 and 2018.

Adoption of ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash

In November 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-18, which reduces diversity in classification
and presentation of restricted cash, including transfers between cash and restricted cash, on the statement of cash flows. We
adopted this standard as of January 1, 2018 using a retrospective transition approach. Adoption of this ASU resulted in an increase in
net cash from operating activities of $2.5 million for the year ended December 31, 2018 and a decrease in net cash from operating
activities of $14.4 million for the year ended December 31, 2017.

Investing Activities

Cash flows from investing activities decreased $44.5 million

(cid:129)

Decrease of $44.3 million associated with cash paid in relation to the Spinal Kinetics acquisition, net of cash acquired, which
closed on April 30, 2018

Decrease of $0.9 million associated with the acquisition of certain intangible assets in transactions with former distributors
in 2018

Decrease of $0.5 million due to our additional investment in Bone Biologics during 2018

Decrease of $0.5 million due to proceeds received in 2017 upon the maturity of certain time-based deposits

Partially offset by a reduction in capital expenditures of $1.7 million

Financing Activities

Cash flows from financing activities decreased $0.5 million

(cid:129)

Decrease in net proceeds of $0.3 million from the issuance of common shares

Decrease of $0.2 million related to the payment of debt issuance costs and other financing activities

Credit Facilities

On August 31, 2015, we entered into a Credit Agreement with JPMorgan Chase Bank, N.A. (“JPMorgan”), the Administrative Agent,
and certain lenders party thereto, which provided a five year $125 million secured revolving credit facility.

On December 8, 2017, we amended the Credit Agreement with JPMorgan. The primary provision of the amendment, among other
things, was to add our subsidiary, Orthofix International B.V., as a Borrower, Guarantor, and a loan party. In addition, two of our
subsidiaries, Orthofix Limited and Orthofix II B.V. were also added as Guarantors and loan parties.

On July 31, 2018, we amended and restated the Credit Agreement with JPMorgan and the lenders party thereto pursuant to a First
Amended and Restated Credit Agreement (“Amended Credit Agreement”). The Amended Credit Agreement is substantially the
same as the previous Credit Agreement, except for certain amendments to, among other things, (i) effectuate the Domestication of
the Company from a Curaçao company to a Delaware corporation, (ii) limit the pledge by the Company and each domestic subsidiary
of the Company of equity interests in their respective first tier foreign subsidiaries to 65% of the voting interests in such foreign
subsidiaries, (iii) limit the guarantee and joint and several obligations of each subsidiary guarantor that is a foreign subsidiary so that
such foreign subsidiary guarantors are only providing guarantees, or are jointly and severally obligated, for obligations of other
foreign subsidiaries, and (iv) limit the secured obligations that are secured by collateral provided by subsidiary guarantors that are
foreign subsidiaries to secured obligations of foreign subsidiaries.

Borrowings under the Amended Credit Agreement may be used for, among other things, working capital and other general
corporate purposes (including share repurchases, permitted acquisitions and permitted payments of dividends and other
distributions). As of December 31, 2018, we have not made any borrowings under the credit facility. For additional information
regarding the credit facility, see Note 10 of the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report.

We had no borrowings and an unused available line of credit of €5.8 million ($6.7 million and $7.0 million) at December 31, 2018
and 2017, respectively, on our Italian line of credit. This unsecured line of credit provides us the option to borrow amounts in Italy at
rates which are determined at the time of borrowing.

Other

For information regarding Contingencies, see Note 13 of the Notes to the Consolidated Financial Statements in Item 8 of this Annual
Report.

Spinal Kinetics Acquisition and Contingent Consideration

As consideration for the Spinal Kinetics acquisition, we agreed to pay an aggregate of $45.0 million in cash, subject to certain
adjustments, upon closing plus milestone payments in the future of up to $60.0 million in cash. We closed on the acquisition on April
30, 2018 and paid the $45.0 million of cash, adjusted for certain items, due at close with cash on hand. The milestone payments
include (i) up to $15.0 million if the FDA grants approval of Spinal Kinetics’ M6-C artificial cervical disc (the “FDA Milestone”) and (ii)
revenue-based milestone payments of up to $45.0 million in connection with future sales of the M6-C artificial cervical disc and the
M6-L artificial lumbar disc. The fair value of the contingent consideration arrangement as of December 31, 2018 was $28.6 million;
however, the actual amount ultimately paid could be higher or lower than the fair value of the contingent consideration.
Approximately $13.6 million of this liability is included within other current liabilities and $15.0 million is included within other long-
term liabilities. For additional discussion of this matter, see Note 3 of the Notes to the Consolidated Financial Statements.

On February 6, 2019, we obtained FDA approval of the M6-C artificial cervical disc for patients suffering from cervical disease
degeneration. This approval triggered our payment obligation of $15.0 million of contingent consideration attributable to the Spinal
Kinetics purchase price. We had accrued a liability of $13.6 million within other current liabilities as of December 31, 2018 related to
this milestone payment and paid the $15.0 million FDA Milestone payment on February 14, 2019 from cash on hand.

Debt Security

In 2015, we loaned $15.0 million to eNeura, a privately held medical technology company that is developing devices for the
treatment of migraines, pursuant to a Convertible Promissory Note (the “eNeura Note”). The eNeura Note accrues interest at 8.0%
and will mature on March 4, 2019, with interest due when the eNeura Note matures. The security is collateralized by eNeura’s
intellectual property in the event of default or nonpayment.

Unremitted Foreign Earnings

Prior to the Domestication, as an entity incorporated in Curaçao, “foreign earnings” referred to both U.S. and non-U.S. earnings. As
a result of the Domestication, only income sourced outside of the U.S. is considered unremitted foreign earnings. Unremitted
foreign earnings decreased from $335.7 million at December 31, 2017 to $50.4 million at December 31, 2018. The substantial
decrease is due to the elimination of US accumulated earnings and other impacts as a result of the Domestication. As a result of the
2017 Tax Act, current year earnings have been deemed to be repatriated. Our investment in foreign subsidiaries continues to be
indefinite in nature, however, we may periodically repatriate a portion of these earnings to the extent that we do not incur
additional tax liability.

Contractual Obligations

The following table sets forth our contractual obligations as of December 31, 2018:

(U.S. Dollars, in thousands)
Operating leases
Inventory purchase commitments (1)
Total (2)(3)

Payments Due by Period

Total
24,922 $
66
24,988 $

2019

2020 - 2022

2023

2024 and
thereafter

3,330 $
66
3,396 $

8,493 $
—
8,493 $

1,727 $
—
1,727 $

11,372
—
11,372

(1) We have inventory purchase commitments with third-party manufacturers. Due to the uncertainty of our future purchasing
requirements, obligations under these agreements are included in the preceding table at the amount committed through
December 31, 2018, all of which are due in 2019.

(2) As a result of obtaining FDA approval for the M6-C artificial cervical disc on February 6, 2019, we are required to make a $15.0
million payment in 2019 related to the achievement of the FDA milestone, which we paid on February 14, 2019. In addition, we
may be required to make additional revenue-based milestone payments of up to $45.0 million in connection with future sales of
the M6-C artificial cervical disc and the M6-L artificial lumbar disc; however, we are unable to reliably estimate the timing of
cash settlement, if any, related to the revenue-based milestone payments.

(3) We may be required to make payments related to our uncertain tax positions. However, we are unable to reliably estimate the
timing of cash settlement, if any, with the respective taxing authorities. Accordingly, unrecognized tax benefits, including
interest and penalties, of $28.1 million as of December 31, 2018 have been excluded from the contractual obligations table
above. For further information, see Note 19 of the Notes to the Consolidated Financial Statements in Item 8 of this Annual
Report.

Off-balance Sheet Arrangements

As of December 31, 2018, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current
or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, cash flows,
liquidity, capital expenditures or capital resources that are material to investors. In addition, we do not consider the backlog of firm
orders to be material.

Critical Accounting Estimates

Our discussion of operating results is based upon the consolidated financial statements and accompanying notes. The preparation of
these statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and
expenses during the reporting period. On an ongoing basis, we evaluate these estimates, which are based on historical experience
and various other assumptions that management believe to be reasonable under the circumstances at that point in time. Actual
results may differ, significantly at times, from these estimates.

We believe the estimates described below are the most critical in preparing our consolidated financial statements. We have
reviewed these critical accounting estimates with the Audit Committee of the Board of Directors.

Revenue Recognition

The process for recognizing revenue involves significant assumptions and judgments for certain of our revenue streams. Revenue
recognition policies are “critical accounting estimates” because changes in the assumptions used to develop the estimates could
materially affect key financial measures, including net sales, gross margin, non-GAAP net margin, operating income, and net income.

Bone Growth Therapies revenue is largely attributable to the U.S. and is comprised of third-party payor transactions and wholesale
revenue.

For revenue derived from third-party payors, including commercial insurance carriers, health maintenance organizations, preferred
provider organizations and governmental payors, such as Medicare, in connection with the sale of our stimulation products, we
recognize revenue when the stimulation product is fitted to and accepted by the patient and all applicable documents that are required
by the third-party payor have been obtained. Amounts paid by these third-party payors are generally based on fixed or allowable
reimbursement rates. These revenues are recorded at the expected or preauthorized reimbursement rates, net of any contractual
allowances or adjustments. Certain billings are subject to review by the third-party payors and may be subject to adjustment.

Wholesale revenue is related to the sale of our bone growth stimulators directly to physicians and other healthcare providers.
Wholesale revenues are recognized upon shipment and receipt of a confirming purchase order, which is when the customer obtains
control of the promised goods.

Biologics revenue is largely attributable to the U.S. and is primarily related to a collaborative arrangement with MTF. We have
exclusive global marketing rights and receive marketing fees from MTF based on products distributed by MTF. MTF is considered the
principal in these arrangements; therefore, we recognize these marketing service fees on a net basis upon shipment of the product
to the customer.

Orthofix Extremities and Spinal Implants products are distributed world-wide, with U.S. sales largely comprised of commercial
revenue and international sales derived from commercial sales and through stocking distributor arrangements.

Commercial revenue is largely related to the sale of our Spinal Implants and Orthofix Extremities products to hospital customers.
Commercial revenues are recognized when these products have been utilized and a confirming purchase order has been received
from the hospital.

Stocking distributors purchase our products and then re-sell them directly to customers, such as hospitals. For revenue derived from
stocking distributor agreements, prior to the adoption of ASU 2014-09, Revenue from Contracts with Customers (“Topic 606”), i.e. for
all periods presented prior to January 1, 2018, we recognized revenue once the product was delivered to the end customer (the
“sell-through method”). Because we did not have reliable information about when our distributors sold the product through to end
customers, we used cash collection from distributors as a basis for revenue recognition under the sell-through method. Additionally,
when we sold to these distributors, we considered whether to match the related cost of sales expense with revenue or to recognize
expense upon shipment. In making this assessment, we considered the financial viability of our distributors based on their
creditworthiness to determine if collectability of amounts sufficient to realize the costs of the products shipped was reasonably
assured at the time of shipment to these distributors. In instances where the distributor was determined to be financially viable, we
deferred the costs of sales until the revenue was recognized.

Subsequent to the adoption of Topic 606, effective January 1, 2018, for revenue derived from stocking distributor arrangements, we
recognize revenue upon shipment and receipt of a confirming purchase order, which is when the distributor obtains control of the
promised goods. The transaction price is estimated based upon our historical collection experience with the stocking distributor. To
derive this estimate, we analyze twelve months of historical invoices by stocking distributor and the subsequent collections on those
invoices, for a period of up to 24 months subsequent to the invoice date. This percentage, which is specific to each stocking
distributor, is then used to calculate the transaction price. Cost of sales is also recorded upon transfer of control of the product to
the customer, which is when the Company’s performance obligation has been satisfied.

Allowance for Doubtful Accounts and Contractual Allowances

The process for estimating the ultimate collection of accounts receivable involves significant assumptions and judgments. Historical
collections, write-offs, and payor reimbursement experience are integral parts of the estimation process related to reserves for
doubtful accounts and the establishment of contractual allowances. Accounts receivable are analyzed on a quarterly basis to assess
the adequacy of both reserves for doubtful accounts and contractual allowances. Revisions in allowances for doubtful accounts
estimates are recorded as an adjustment to bad debt expense within sales and marketing expenses. Revisions to contractual
allowances are recorded as an adjustment to net sales. Our estimates are periodically tested against actual collection experience.
We believe our allowance for doubtful accounts is sufficient to cover customer credit risks; however, a 10% change in our allowance

for doubtful accounts as of December 31, 2018 would result in an increase or decrease to sales and marketing expense of $0.7
million. Additionally, we believe our estimate to establish contractual allowances is sufficient to cover customer credit risks;
however, a 10% change in our reserve for contractual allowances as of December 31, 2018 would result in an increase or decrease
to net sales of $0.6 million. Our allowance for doubtful accounts and estimation of contractual allowances are “critical accounting
estimates” because changes in the assumptions used to develop the estimates could materially affect key financial measures,
including net sales, gross margin, non-GAAP net margin, operating income, net income, and trade accounts receivable.

Inventory Allowances

Reserves for excess, slow moving, and obsolete inventory are calculated as the difference between the cost of inventory and market
value, and are based on assumptions and judgments about new product launch periods, overall product life cycles, forecasted
demand, and market conditions. In the event of a decrease in demand for our products, or a higher incidence of inventory
obsolescence, we could be required to increase our inventory reserves, which would increase cost of sales and decrease gross profit.
Our inventory allowance is a “critical accounting estimate” because changes in the assumptions used to develop the estimate could
materially affect key financial measures, including gross profit, non-GAAP net margin, operating income, net income, and inventory.
We regularly evaluate our exposure for inventory write-downs. If conditions or assumptions used in determining the market value
change, additional inventory adjustments in the future may be necessary.

Valuation of Intangible Assets

Our intangible assets are comprised primarily of patents, acquired or developed technology, licensing arrangements, trademarks,
and in-process research and development (“IPR&D”). We make significant judgments in relation to the valuation of intangible assets
resulting from business combinations or asset acquisitions. Intangible assets acquired in a business combination that are used for
IPR&D activities are considered to have indefinite lives until the completion or abandonment of the associated project. Upon
reaching the end of the relevant project, we will either amortize the acquired IPR&D over its estimated useful life or expense the
acquired IPR&D should the project be unsuccessful with no future alternative use.

Significant judgment is required related to the forecasting of future operating results within our discounted cash flow valuation
models to determine the valuation of intangible assets. Key assumptions include the anticipated useful lives of acquired intangibles,
the projected cash flows associated with each intangible asset, the estimated probability of success for acquired IPR&D projects, and
projected growth rates and discount rates. It is possible that significant changes in plans or assumptions may affect the
recoverability of these assets and could potentially result in impairment.

Goodwill

Our goodwill represents the excess of cost over fair value of net assets acquired from business combinations. The determination of
the value of goodwill and intangible assets arising from business combinations requires extensive use of accounting estimates and
judgments to allocate the purchase price to the fair value of the net tangible and intangible assets acquired.

We test goodwill at least annually for impairment, and between annual tests if indicators of potential impairment exist. These
indicators include, among others, declines in sales, earnings or cash flows, or the development of a material adverse change in the
business climate. Assessing goodwill impairment involves a high degree of judgment due to the estimates and assumptions used. We
believe the estimates and assumptions involved in the impairment assessment to be critical because significant changes in such
estimates and assumptions could materially affect key financial measures, including net income.

In the fourth quarters of 2018 and 2017, we performed a qualitative assessments for our annual goodwill impairment analysis, which
did not result in any impairment charge. This qualitative analysis considered all relevant factors specific to the reporting units,
including macroeconomic conditions, industry and market considerations, overall financial performance and relevant entity-specific
events. In the fourth quarter of 2016, we performed a quantitative impairment analysis that did not result in an impairment charge.

Fair Value Measurements

Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
The two most significant items that are recorded at fair value are our eNeura debt security and contingent consideration
attributable to the Spinal Kinetics acquisition.

The fair value of the eNeura debt security is based upon significant unobservable inputs, including the use of a discounted cash flows
model, requiring us to develop our own assumptions. Some of the more significant unobservable inputs used in the fair value

measurement of the eNeura debt security are the estimated likelihood of conversion to equity and the discount rate. Holding other
inputs constant, a decrease in our assumption for the likelihood of conversion to equity of 10% would result in an increase in fair value
of the debt security of $1.9 million.

Further, we are required to determine whether any decline in the fair value below the cost basis of the eNeura debt security is other
than temporary. In making this determination, we consider our intentions to hold or sell the security, whether it more likely than not
that we will be required to sell the security before the recovery of its amortized cost basis, and our best estimate of the amount that
we ultimately expect to collect from the security. The estimated amount we expect to collect is based upon significant unobservable
inputs, requiring us to develop our own assumptions, including the probability of holding the security to maturity or converting the
security to equity.

The contingent consideration consists of potential future milestone payments of up to $60.0 million in cash associated with the
Spinal Kinetics acquisition, which must be achieved within five years of the acquisition date to be paid. The milestone payments
include (i) up to $15.0 million for meeting the FDA Milestone and (ii) revenue-based milestone payments of up to $45.0 million in
connection with future sales of the M6-C artificial cervical disc and the M6-L artificial lumbar disc.

We estimate the fair value of the contingent consideration attributable to the FDA Milestone using a probability-weighted
discounted cash flow model. This fair value is based on significant inputs not observable in the market with key assumptions
including our estimation of the probability and timing of obtaining FDA approval for the M6-C artificial cervical disc and the discount
rate applied. Significant changes in these assumptions could result in a significantly higher or lower fair value. Holding other inputs
constant, an increase in our estimate for probability of FDA approval as of December 31, 2018 by 5% would have resulted in an
increase in the fair value of the contingent consideration of $0.7 million, whereas a decrease in our estimate of probability of FDA
approval by 5% would have resulted in a decrease in the fair value of the contingent consideration of $0.7 million. On February 6,
2019, we obtained FDA approval, triggering our payment obligation of $15.0 million of contingent consideration attributable to the
Spinal Kinetics purchase price.

The Company estimated the fair value of the potential future revenue-based milestone payments using a Monte Carlo simulation.
This fair value measurement is based on significant inputs that are unobservable in the market, with key assumptions including the
our forecasted future revenues for Spinal Kinetics, the discount rate applied, and assumptions for potential volatility of the
forecasted revenue. Significant changes in these assumptions could result in a significantly higher or lower fair value. Holding other
inputs constant, an increase in our forecasted future revenues by 5% would have resulted in an increase in the fair value of the
contingent consideration of $1.8 million, whereas a decrease in our forecasted future revenues by 5% would have resulted in a
decrease in the fair value of the contingent consideration by $1.7 million.

Our fair value measurements are a “critical accounting estimate” because changes in the assumptions used to develop the estimate
could materially affect key financial measures.

Litigation and Contingent Liabilities

From time to time, we are parties to or targets of lawsuits, investigations and proceedings, including product liability, personal
injury, patent and intellectual property, health and safety and employment and healthcare regulatory matters, which are handled
and defended in the ordinary course of business. These lawsuits, investigations or proceedings could involve a substantial number of
claims and could also have an adverse impact on our reputation and customer base. Although we maintain various liability insurance
programs for liabilities that could result from such lawsuits, investigations or proceedings, we are self-insured for a significant
portion of such liabilities.

We accrue for such claims when it is probable that a liability has been incurred and the amount can be reasonably estimated. The
assessments of whether a loss is probable or a reasonable possibility, and whether the loss or range of loss is reasonably estimable,
often involve a series of complex judgments about future events. Among the factors that we consider in this assessment are the
nature of existing legal proceedings, investigations and claims, the asserted or possible damages or loss contingency (if reasonably
estimable), the progress of the matter, existing law and precedent, the opinions or views of legal counsel and other advisers, the
involvement of the U.S. Government and its agencies in such proceedings, our experience in similar matters and the experience of
other companies, the facts available to us at the time of assessment, and how we intend to respond, or have responded, to the
proceeding, investigation or claim. Our assessment of these factors may change over time as individual proceedings, investigations
or claims progress. For matters where we are not currently able to reasonably estimate the range of reasonably possible loss, the
factors that have contributed to this determination include the following: (i) the damages sought are indeterminate, or an

investigation has not manifested itself in a filed civil or criminal complaint, (ii) the matters are in the early stages, (iii) the matters
involve novel or unsettled legal theories or a large or uncertain number of actual or potential cases or parties, and/or (iv) discussions
with the government or other parties in matters that may be expected ultimately to be resolved through negotiation and settlement
have not reached the point where we believe a reasonable estimate of loss, or range of loss, can be made. In such instances, we
believe that there is considerable uncertainty regarding the timing or ultimate resolution of such matters, including a possible
eventual loss, fine, penalty or business impact, if any.

Changes in the facts and circumstances associated with a claim could have a material impact on our results of operations and cash flows
in the period that reserve estimates are recorded or revised. We believe our insurance coverage and reserves are sufficient to cover
currently estimated exposures, but we cannot give any assurance that we will not incur liabilities in excess of recorded reserves or our
present insurance coverage. Litigation and contingent liabilities are “critical accounting estimates” because changes in the assumptions
used to develop the estimates could materially affect key financial measures, including operating income and net income.

Tax Matters

We and each of our subsidiaries are taxed at the rates applicable within each of their respective jurisdictions. Our income tax
expense, effective tax rate, deferred tax assets and deferred tax liabilities will vary according to the jurisdiction in which profits arise.
Further, certain of our subsidiaries sell products directly to our other subsidiaries or provide administrative, marketing and support
services to our other subsidiaries. These intercompany sales and support services involve subsidiaries operating in jurisdictions with
differing tax rates. The tax authorities in such jurisdictions may challenge our treatments under residency criteria, transfer pricing
provisions, or other aspects of their respective tax laws, which could affect our composite tax rate and provisions.

We sometimes engage in transactions in which tax consequences may be subject to uncertainty. We account for these uncertain tax
positions in accordance with applicable accounting guidance, which requires significant judgment in assessing the estimated tax
consequences of a transaction. We evaluate the tax position taken or expected to be taken in a tax return by determining if the
weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position
will be sustained on audit, including resolution of any related appeals or litigation processes. We measure the tax benefit as the
largest amount that is more than 50% likely to be realized upon ultimate settlement. We re-evaluate our income tax positions
periodically to consider factors such as changes in facts or circumstances, changes in or interpretations of tax law, effectively settled
issues under audit and new audit activity. Such a change in recognition or measurement would result in recognition of a tax benefit
or an additional charge to the tax provision.

We establish a valuation allowance when measuring deferred tax assets if it is more likely than not that certain deferred tax assets
will not be realized in the foreseeable future. This process requires significant judgment as we must project the current tax liability
and estimate the deferred tax assets and liabilities into future periods, including net operating loss and tax credit carry forwards. In
assessing the need for a valuation allowance, we consider recent operating results, availability of taxable income in carryback years,
future reversals of taxable temporary differences, future taxable income projections (exclusive of reversing temporary differences)
and all prudent and feasible tax planning strategies.

On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of U.S. GAAP in
situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in
reasonable detail to complete the accounting for certain income tax effects of the Tax Act. In accordance with SAB 118, we recorded
$8.6 million of deferred tax expense in connection with the remeasurement of certain deferred tax assets and liabilities and the zero
transition tax on the mandatory deemed repatriation of foreign earnings as a provisional amount and a reasonable estimate at
December 31, 2017. Additional work was performed during 2018, including a more detailed analysis of our deferred tax assets and
liabilities and our historical foreign earnings as well as potential correlative adjustments. As a result, we recorded $0.6 million of tax
benefit in the first quarter of 2018. The U.S. Treasury continues to promulgate proposed, temporary, and final regulations regarding
the application the Tax Act. Any future adjustments that result in the application of these tax law changes will be reflected in the
quarter the guidance is issued.

Tax matters are “critical accounting estimates” because changes in the assumptions used to develop the estimates could materially
affect key financial measures, including net income.

Share-based compensation

Determining the appropriate fair value model and calculating the fair value of employee stock awards requires estimates and
judgments. Our share-based compensation is a “critical accounting estimate” because changes in the assumptions used to develop

estimates of fair value or the requisite service period could materially affect key financial measures, including gross profit, non-GAAP
net margin, operating income, and net income.

We use the Black-Scholes valuation model to calculate the fair value of service-based stock options. The value is recognized as
expense over the service period net of actual forfeitures. The expected term of options granted is estimated based on a number of
factors, including the vesting and expiration terms of the award, historical employee exercise behavior for both options that are
currently outstanding and options that have been exercised or are expired, the historical volatility of our common stock and an
employee’s average length of service. The risk-free interest rate is determined based upon a constant U.S. Treasury security rate
with a contractual life that approximates the expected term of the option award. We estimate expected volatility based on the
historical volatility of our stock.

We use the Monte Carlo valuation methodology to calculate the fair value of market-based stock options and stock units. The value
is recognized as expense over the requisite service period and adjusted for forfeitures as they occur. The Monte Carlo methodology
that we use to estimate the fair value of market-based options incorporates the possibility that the market condition may not be
satisfied.

The fair value of performance-based restricted stock awards and stock units is calculated based upon the closing stock price at the
date of grant. The value is recognized as expense over the derived requisite service period beginning in the period in which they are
deemed probable to vest. Vesting probability is assessed based upon forecasted earnings and financial results and requires
significant judgment.

Non-GAAP Financial Measures

We believe that providing non-GAAP financial measures that exclude certain items provides investors with greater transparency to
the information used by senior management in its financial and operational decision-making. We believe it is important to provide
investors with the same non-GAAP metrics that senior management uses to supplement information regarding the performance and
underlying trends of our business operations in order to facilitate comparisons to historical operating results and internally evaluate
the effectiveness of our operating strategies. Disclosure of these non-GAAP financial measures also facilitates comparisons
of our underlying operating performance with other companies in the industry that also supplement their GAAP results with non-
GAAP financial measures.

The non-GAAP financial measures used in this Annual Report may have limitations as analytical tools and should not be considered
in isolation or as a replacement for GAAP financial measures. Some of the limitations associated with the use of these non-GAAP
financial measures are that they exclude items that reflect an economic cost that can have a material effect on cash flows. Similarly,
certain non-cash expenses, such as equity compensation expense, do not directly impact cash flows, but are part of total
compensation costs accounted for under GAAP.

Constant Currency

Constant currency is a non-GAAP measure, which is calculated by using foreign currency rates from the comparable, prior-year
period, to present net sales at comparable rates. Constant currency can be presented for numerous GAAP measures, but is most
commonly used by management to analyze net sales without the impact of changes in foreign currency rates.

Non-GAAP Net Margin

Non-GAAP net margin is an internal metric that we define as gross profit less sales and marketing expense. Non-GAAP net margin is
the primary metric used by our Chief Operating Decision Maker in managing the business.

Free Cash Flow

Free cash flow is a non-GAAP financial measure, which is calculated by subtracting capital expenditures from net cash from operating
activities. Free cash flow is an important indicator of how much cash is generated or used by our normal business operations, including
capital expenditures. Management uses free cash flow as a measure of progress on its capital efficiency and cash flow initiatives.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to certain market risks as part of our ongoing business operations. Primary exposures include changes in interest rates
and foreign currency fluctuations. These exposures can impact sales, cost of sales, costs of operations and the cost of financing and
yields on cash and short-term investments. We may use derivative financial instruments, where appropriate, to manage these risks.
However, our risk management policy does not allow us to hedge positions we do not hold nor do we enter into derivative or other
financial investments for trading or speculative purposes.

We are exposed to interest rate risk in connection with our Revolving Credit Facility, which bears interest at floating rates based on
LIBOR plus an applicable borrowing margin or at a base rate (as defined in the Amended Credit Agreement) plus an applicable
borrowing margin. Therefore, interest rate changes generally do not affect the fair market value of the debt, but do impact future
earnings and cash flows, assuming other factors are held constant. As we do not have any balance outstanding associated with the
Amended Credit Agreement as of December 31, 2018, this risk is currently minimal.

We believe that a concentration of credit risk related to our trade accounts receivable is limited because our customers are
geographically dispersed and the end users are diversified across several industries. It is reasonably possible that changes in global
economic conditions and/or local operating and economic conditions in the regions these customers operate, or other factors, could
affect the future realization of these accounts receivable balances.

Our foreign currency exposure results from fluctuating currency exchange rates, primarily the U.S. Dollar against the Euro, Brazilian
Real, or British Pound. We are subject to cost of sales currency exposure when we produce products in foreign currencies such as the
Euro, Brazilian Real, or British Pound and sell those products in U.S. Dollars. We are subject to transactional currency exposures when
our subsidiaries (or the Company itself) enter into transactions denominated in a currency other than their functional currency. For the
year ended December 31, 2018, we recorded a foreign currency loss of $3.3 million on the statement of income and comprehensive
income resulting from gains and losses in foreign currency transactions.

We also are subject to currency exposure from translating the results of our global operations into the U.S. Dollar at exchange rates
that fluctuate during the period. The U.S. Dollar equivalent of international sales denominated in foreign currencies was favorably
impacted during the years ended December 31, 2018 and 2017 by monthly foreign currency exchange rate fluctuations of the U.S.
dollar against all of the foreign functional currencies for our international operations. As we continue to distribute and manufacture
our products in selected foreign countries, we expect that future sales and costs associated with our activities in these markets will
continue to be denominated in the applicable foreign currencies, which could cause currency fluctuations to materially impact our
operating results. An analysis was performed to determine the sensitivity of our current year net sales and operating income to
changes in foreign currency exchange rates. We determined that if the U.S. Dollar decreased in value by 10% relative to all foreign
currencies of our international operations it would result in an increase in net sales of $8.6 million and an increase in operating
income of $0.4 million. If the U.S. Dollar increased in value by 10% relative to all foreign currencies of our international operations it
would result in a decrease in net sales of $8.6 million and a decrease in operating income of $0.4 million.

Item 8.

Financial Statements and Supplementary Data

See “Index to Consolidated Financial Statements” on page F-1 of this Annual Report.

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

At the end of the period covered by this Annual Report, under the supervision and with the participation of our management,
including our President and Chief Executive Officer and our Chief Financial Officer, we performed an evaluation of the effectiveness
of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our President and Chief
Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Annual Report, our
disclosure controls and procedures were effective.

Management’s Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as
such term is defined in the Exchange Act Rule 13a-15(f)). The Company’s internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide
reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s
assets that could have a material effect on the financial statements.

Internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and board of
directors regarding the preparation of reliable financial statements for external purposes in accordance with U.S. GAAP. Because of
the inherent limitations in any internal control, no matter how well designed, misstatements may occur and not be prevented or
detected. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to
financial statement preparation. Further, the evaluation of the effectiveness of internal control over financial reporting was made as
of a specific date, and continued effectiveness in future periods is subject to the risks that controls may become inadequate because
of changes in conditions or that the degree of compliance with the policies and procedures may decline.

In connection with the preparation and filing of this Annual Report, the Company’s management, including our President and Chief
Executive Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial
reporting as of December 31, 2018 based on the framework set forth in “Internal Control—Integrated Framework (2013)” issued by
the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Based on its evaluation, the
Company’s management concluded that, as of December 31, 2018, the Company’s internal control over financial reporting is
effective based on the specified criteria. As permitted by the rules of the SEC, the Company’s management excluded Spinal Kinetics
from its annual assessment of the effectiveness of internal control over financial reporting for the year ended December 31, 2018,
the year of acquisition. As of December 31, 2018, Spinal Kinetics’ financial statements constituted approximately 17% and 21% of
our total assets and net assets, respectively, approximately 2% of our revenues and a net loss of $5.8 million for the year ended
December 31, 2018.

Ernst & Young has issued an audit report on the effectiveness of our internal control over financial reporting, which follows this
report.

Changes in Internal Control over Financial Reporting

There have not been any changes in our internal control over financial reporting during the fourth quarter of 2018 that have
materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Orthofix Medical Inc.

Opinion on Internal Control over Financial Reporting

We have audited Orthofix Medical Inc.’s internal control over financial reporting as of December 31, 2018, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). In our opinion, Orthofix Medical Inc. (formerly Orthofix International N.V.)
(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,
based on the COSO criteria.

As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s
assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal
controls of Spinal Kinetics, Inc., which is included in the 2018 consolidated financial statements of the Company and constituted
approximately 17% and 21% of total and net assets, respectively, as of December 31, 2018 and 2% of revenues and a net loss of
$5.8 million for the year then ended. Our audit of internal control over financial reporting of the Company also did not include
an evaluation of the internal control over financial reporting of Spinal Kinetics, Inc.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2018 and 2017, the related consolidated
statements of income and comprehensive income, changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 2018, and the related notes and our report dated February 25, 2019 expressed an unqualified
opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Dallas, Texas
February 25, 2019

Item 9B.

Other Information

Not applicable.

PART III

Information required by Items 10, 11, 12, 13 and 14 of Form 10-K is omitted from this Annual Report and will be filed in a definitive
proxy statement or by an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this
Annual Report.

Item 10.

Directors, Executive Officers and Corporate Governance

We will provide information that is responsive to this Item 10 regarding executive compensation in our definitive proxy statement or
in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report, in
either case under the caption “Information About Directors,” “Section 16 (a) Beneficial Ownership Reporting Compliance” and
others possibly elsewhere therein. That information is incorporated in this Item 10 by reference.

Item 11.

Executive Compensation

We will provide information that is responsive to this Item 11 regarding executive compensation in our definitive proxy statement or
in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report, in
either case under the caption “Executive Compensation,” and possibly elsewhere therein. That information is incorporated in this
Item 11 by reference.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

We will provide information that is responsive to this Item 12 regarding ownership of our securities by certain beneficial owners and
our directors and executive officers, as well as information with respect to our equity compensation plans, in our definitive proxy
statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual
Report, in either case under the captions “Security Ownership of Certain Beneficial Owners and Management and Related
Stockholders” and “Equity Compensation Plan Information,” and possibly elsewhere therein. That information is incorporated in this
Item 12 by reference.

Item 13.

Certain Relationships and Related Transactions, and Director Independence

We will provide information that is responsive to this Item 13 regarding transactions with related parties and director independence
in our definitive proxy statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year
covered by this Annual Report, in either case under the caption “Certain Relationships and Related Transactions,” and “Director
Independence” and possibly elsewhere therein. That information is incorporated in this Item 13 by reference.

Item 14.

Principal Accountant Fees and Services

We will provide information that is responsive to this Item 14 regarding principal accountant fees and services in our definitive proxy
statement or in an amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual
Report, in either case under the caption “Principal Accountant Fees and Services,” and possibly elsewhere therein. That information
is incorporated in this Item 14 by reference.

PART IV

Item 15.

Exhibits, Financial Statement Schedules

(a)

Documents filed as part of report on Form 10-K

The following documents are filed as part of this Annual Report on Form 10-K:

Financial Statements

See “Index to Consolidated Financial Statements” on page F-1 of this Form 10-K.

Financial Statement Schedules

No schedules are required because either the required information is not present or is not present in amounts sufficient
to require submission of the schedule, or because the information required is included in the consolidated financial
statements or the notes thereto.

Exhibits

Exhibit
Number

2.1

3.1

3.2

4.1

10.1

10.2

10.3

10.4

Description

Agreement and Plan of Merger, entered into March 15, 2018, by and among Blackstone Medical, Inc., Summit
Development, Inc., and Spinal Kinetics, Inc. (filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2018 and incorporated herein by reference).

Orthofix Medical Inc. Certificate of Incorporation (filed as an exhibit to the Company’s Current Report on Form 8-K dated
August 1, 2018 and incorporated herein by reference).

Orthofix Medical Inc. Bylaws (filed as an exhibit to the Company’s Current Report on Form 8-K dated August 1, 2018 and
incorporated herein by reference).

Form of Stock Certificate (filed as an exhibit to the Company’s Current Report on Form 8-K dated August 1, 2018 and
incorporated herein by reference).

Credit Agreement, dated as of August 31, 2015, among Orthofix Holdings, Inc. and Victory Medical Limited as borrowers,
Orthofix International N.V. and certain subsidiaries of Orthofix International N.V. party thereto as guarantors, the several
banks and other financial institutions as may from time to time become parties thereunder as lenders, and JPMorgan
Chase, N.A., as administrative agent (filed as an exhibit to the Company’s Current Report on Form 8-K filed September 1,
2015 and incorporated herein by reference).

First Amendment to Credit Agreement dated as of March 7, 2016 but effective as of February 29, 2016, among Orthofix
Holdings, Inc. and Victory Medical Limited as borrowers, Orthofix International N.V. and certain subsidiaries of Orthofix
International N.V. party thereto as guarantors, the several banks and other financial institutions as may from time to time
become parties thereunder as lenders, and JPMorgan Chase, N.A., as administrative agent (filed as an exhibit to the
Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 and incorporated herein by reference).

Second Amendment to Credit Agreement dated as of December 8, 2017, among Orthofix Holdings, Inc., Victory Medical
Limited, and Orthofix International B.V. as borrowers, Orthofix International N.V. and certain subsidiaries of Orthofix
International N.V. party thereto as guarantors, the several banks and other financial institutions as may from time to time
become parties thereunder as lenders, and JPMorgan Chase, N.A., as administrative agent (filed as an exhibit to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2018 and incorporated herein by reference).

First Amended and Restated Credit Agreement, dated as of July 31, 2018, among Orthofix Holdings, Inc., Victory Medical
Limited, Orthofix International B.V., Orthofix Medical Inc. and certain subsidiaries of Orthofix Medical Inc. as guarantors,
the several banks and other financial institutions as may from time to time become parties thereunder as lenders, and
JPMorgan Chase, N.A., as administrative agent (filed as an exhibit to the Company’s Current Report on Form 8-K filed
August 6, 2018 and incorporated herein by reference).

10.5† Matrix Commercialization Collaboration Agreement, entered into July 24, 2008, by and between Orthofix Holdings, Inc. and
Musculoskeletal Transplant Foundation (filed as an exhibit to the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2009 and incorporated herein by reference).

Exhibit
Number

10.6

10.7†

10.8†

10.9

Description

Amendment No. 1 to Matrix Commercialization Collaboration Agreement, dated as of December 15, 2010, by and between
Musculoskeletal Transplant Foundation, Inc. and Orthofix Holdings, Inc. (filed as an exhibit to the Company’s Annual Report
on Form 10-K for the fiscal year ended December 31, 2010 and incorporated herein by reference).

Amendment No. 2 to Matrix Commercialization Collaboration Agreement, dated as of January 9, 2012, by and between
Musculoskeletal Transplant Foundation, Inc. and Orthofix Holdings, Inc. (filed as an exhibit to amendment no. 1 to the
Company’s Annual Report on Form 10-K/A for the year ended December 31, 2011 and incorporated herein by reference).

Amendment No. 3 to Matrix Commercialization Collaboration Agreement, entered into on July 1, 2013 and effective as of
June 25, 2013, by and between Musculoskeletal Transplant Foundation, Inc. and Orthofix Holdings, Inc. (filed as an exhibit
to the Company’s Current Report on Form 8-K filed July 8, 2013 and incorporated herein by reference).

Amendment No. 4 to Matrix Commercialization Collaboration Agreement, entered into on April 1, 2014, by and between
Musculoskeletal Transplant Foundation, Inc. and Orthofix Holdings, Inc. (filed as an exhibit to the Company’s Current
Report on Form 8-K filed April 7, 2014 and incorporated herein by reference).

10.10† Amendment No. 5 to Matrix Commercialization Collaboration Agreement, entered into on March 10, 2016, by and

between Musculoskeletal Transplant Foundation, Inc. and Orthofix Holdings, Inc. (filed as an exhibit to the Company’s
Current Report on Form 8-K filed March 14, 2016 and incorporated herein by reference).

10.11† Amendment No. 6 to Matrix Commercialization Collaboration Agreement, entered into on December 29, 2017, by and
between Musculoskeletal Transplant Foundation, Inc. and Orthofix Holdings, Inc. (filed as an exhibit to the Company’s
Annual report on Form 10-K filed February 26, 2018 and incorporated herein by reference).

10.12* Orthofix Medical Inc. Second Amended and Restated Stock Purchase Plan, as Amended.

10.13* Orthofix Medical Inc. Amended and Restated 2012 Long-Term Incentive Plan.

10.14

10.15

10.16

10.17

10.18

10.19

10.20

10.21

Form of Non-Employee Director Restricted Stock Unit Agreement under the Orthofix International N.V. 2012 Long-Term
Incentive Plan (filed as an exhibit to the Company’s Form 10-Q filed on August 7, 2017 and incorporated herein by
reference).

Form of Time-Based Vesting Employee Restricted Stock Grant Agreement under the Orthofix International N.V. 2012 Long-
Term Incentive Plan (filed as an exhibit to the Company’s Current Report on Form 8-K filed July 8, 2016 and incorporated
here by reference).

Form of Time-Based Vesting Employee Non-Qualified Stock Option Agreement under the Orthofix International N.V. 2012
Long-Term Incentive Plan (filed as an exhibit to the Company’s Current Report on Form 8-K filed July 8, 2016 and
incorporated here by reference).

Form of Time-Based Vesting Non-Employee Director Non-Qualified Stock Option Agreement under the Orthofix
International N.V. 2012 Long-Term Incentive Plan (initial grant) (filed as an exhibit to the Company’s Current Report on
Form 8-K filed July 8, 2016 and incorporated here by reference).

Form of 2016 Employee Performance Stock Unit Agreement under the Orthofix International N.V. 2012 Long-Term
Incentive Plan (filed as an exhibit to the Company’s Current Report on Form 8-K filed July 8, 2016 and incorporated here by
reference).

Form of Employee Performance Vesting Restricted Stock and Performance Share Unit Grant Agreement under the Orthofix
International N.V. 2012 Long-Term Incentive Plan – June 2015 Grants (filed as an exhibit to the Company’s Form 10-Q filed
on August 4, 2015 and incorporated herein by reference).

Form of Employee Non-Qualified Stock Option Agreement under the Orthofix International N.V. 2012 Long-Term Incentive
Plan – July 2014-June 2016 (Time-Based Vesting) (filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2014 and incorporated herein by reference).

Form of Employee Restricted Stock Grant Agreement under the Orthofix International N.V. 2012 Long-Term Incentive Plan
– July 2014-June 2016 (Time-Based Vesting) (filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2014 and incorporated herein by reference).

Exhibit
Number

10.22

10.23

10.24

10.25

10.26

10.27

10.28

10.29

10.30

10.31

10.32

10.33

10.34

10.35

10.36

10.37

Description

Form of Employee Non-Qualified Stock Option Agreement under the Orthofix International N.V. 2012 Long-Term Incentive
Plan (pre-2014 grants) (filed as an exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2012 and incorporated herein by reference).

Form of Non-Employee Director Non-Qualified Stock Option Agreement under the Orthofix International N.V. 2012 Long
Term Incentive Plan. (filed as an exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended December
31, 2012 and incorporated herein by reference).

Employee Inducement Restricted Stock Unit Agreement for Beth Stevenson (filed as an exhibit to the Company’s Form S-8
filed on February 2, 2019 and incorporated herein by reference).

Inducement Plan for Spinal Kinetics Employees (filed as an exhibit to the Company’s Form S-8 filed on April 30, 2018 and
incorporated herein by reference).

Form of Inducement Grant Non-Qualified Stock Option Agreement (filed as an exhibit to the Company’s Form S-8 filed on
April 30, 2018 and incorporated herein by reference).

Form of Inducement Grant Restricted Stock Agreement (filed as an exhibit to the Company’s Form S-8 filed on April 30,
2018 and incorporated herein by reference).

Inducement Grant Non-Qualified Stock Option Agreement, dated March 13, 2013, between Orthofix International N.V. and
Bradley R. Mason (filed as an exhibit to the Company’s Current Report on Form 8-K filed March 13, 2013 and incorporated
herein by reference).

Amended and Restated 2004 Long Term Incentive Plan (filed as an exhibit to the Company’s quarterly report on Form 10-Q
for the quarter ended June 30, 2009 and incorporated herein by reference).

Form of Employee Non-Qualified Stock Option Agreement under the Orthofix International N.V. Amended and Restated
2004 Long-Term Incentive Plan (post-2008 grants made under the 2004 Long Term Incentive Plan prior to the adoption of
the 2012 Long Term Incentive Plan) (filed as an exhibit to the Company’s Current Report on Form 8-K filed July 7, 2009 and
incorporated herein by reference).

Form of Indemnification Agreement between Orthofix Medical Inc. and its directors and officers (incorporated by reference
to Exhibit 10.1 to the Company’s Registration Statement on Form S-4 (Registration No. 333-224407) filed April 23, 2018).

Amended Change in Control and Severance Agreement, dated November 1, 2016, between Orthofix International N.V. and
Bradley R. Mason (filed as an exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2016 and incorporated herein by reference).

Amended Change in Control and Severance Agreement, dated November 1, 2016, between Orthofix International N.V. and
Doug Rice (filed as an exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016
and incorporated herein by reference).

Amended Change in Control and Severance Agreement, dated November 1, 2016, between Orthofix International N.V. and
Michael M. Finegan (filed as an exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended December
31, 2016 and incorporated herein by reference).

Change in Control and Severance Agreement, dated September 7, 2016, between Orthofix International N.V. and Davide
Bianchi (filed as an exhibit to the Company’s Current Report on Form 8-K filed September 9, 2016 and incorporated herein
by reference).

Amended and Restated Employment Contract, dated July 31, 2018 between Orthofix AG and Davide Bianchi (filed as an
exhibit to the Company’s Current Report on Form 8-K filed August 6, 2018 and incorporated herein by reference).

Amended Change in Control and Severance Agreement, dated November 1, 2016, between Orthofix International N.V. and
Bradley V. Niemann (filed as an exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended December
31, 2016 and incorporated herein by reference).

Exhibit
Number

10.38

Change in Control and Severance Agreement, dated November 1, 2016, between Orthofix International N.V. and Kimberley
Elting (filed as an exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and
incorporated herein by reference).

Description

10.39*

Transition and Retirement Agreement, dated February 25, 2019, between Bradley R. Mason and Orthofix Medical Inc.

21.1*

List of Subsidiaries.

23.1*

Consent of Independent Registered Public Accounting Firm.

31.1*

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.

31.2*

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.

32.1*

Section 1350 Certification of Chief Executive Officer and Certification of Chief Financial Officer.

101

The following financial statements from Orthofix Medical Inc. on Form 10-K for the year ended December 31, 2018 filed on
February 25, 2019, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income and
Comprehensive Income, (iii) Consolidated Statements of Changes in Shareholders’ Equity, (iv) Consolidated Statements of
Cash Flows, and (v) the Notes to the Consolidated Financial Statements.

*
†

Filed with this Form 10-K.
Certain confidential portions of this exhibit were omitted by means of redacting a portion of the text. This exhibit has been
filed separately with the Secretary of the Commission without redactions pursuant to our Application Requesting Confidential
Treatment under the Securities Exchange Act of 1934.

Item 16.

Form 10-K Summary

None

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

Dated: February 25, 2019

ORTHOFIX MEDICAL INC.

By:
Name:
Title:

/s/ BRADLEY R. MASON
Bradley R. Mason
President and Chief Executive Officer, Director

/s/ DOUG RICE
Doug Rice
Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.

Name

Title

Date

/s/ BRADLEY R. MASON
Bradley R. Mason

President and Chief Executive Officer, Director
(Principal Executive Officer)

February 25, 2019

/s/ DOUG RICE
Doug Rice

Chief Financial Officer
(Principal Financial and Accounting Officer)

February 25, 2019

/s/ RONALD A. MATRICARIA
Ronald A. Matricaria

/s/ LUKE FAULSTICK
Luke Faulstick

/s/ JAMES HINRICHS
James Hinrichs

/s/ ALEXIS V. LUKIANOV
Alexis V. Lukianov

/s/ LILLY MARKS
Lilly Marks

/s/ MICHAEL E. PAOLUCCI
Michael E. Paolucci

/s/ MARIA SAINZ
Maria Sainz

/s/ JOHN SICARD
John Sicard

Chairman of the Board of Directors

February 25, 2019

Director

ORTHOFIX MEDICAL INC.
Statement of Management’s Responsibility for Financial Statements

To the Shareholders of Orthofix Medical Inc.:

Management is responsible for the preparation of the consolidated financial statements and related information that are presented
in this Annual Report. The consolidated financial statements, which include amounts based on management’s estimates and
judgments, have been prepared in conformity with accounting principles generally accepted in the United States. Other financial
information in the report to shareholders is consistent with that in the consolidated financial statements.

The Company maintains accounting and internal control systems to provide reasonable assurance at a reasonable cost that assets
are safeguarded against loss from unauthorized use or disposition, and that the financial records are reliable for preparing financial
statements and maintaining accountability for assets. These systems are augmented by written policies, an organizational structure
providing division of responsibilities and careful selection and training of qualified personnel.

The Company engaged Ernst & Young LLP, independent registered public accountants, to audit and render an opinion on the
consolidated financial statements in accordance with auditing standards of the Public Company Accounting Oversight Board (United
States). These standards include an assessment of the systems of internal controls and test of transactions to the extent considered
necessary by them to support their opinion.

The Board of Directors, through its Audit Committee consisting solely of outside directors of the Company, meets periodically with
management and our independent registered public accountants to ensure that each is meeting its responsibilities and to discuss
matters concerning internal controls and financial reporting. Ernst & Young LLP has full and free access to the Audit Committee.

James F. Hinrichs
Chairman of the Audit Committee

Bradley R. Mason
President and Chief Executive Officer, Director

Doug Rice
Chief Financial Officer

ORTHOFIX MEDICAL INC.

Index to Consolidated Financial Statements

Index to Consolidated Financial Statements ..................................................................................................................................
Report of Independent Registered Public Accounting Firm ..........................................................................................................
Consolidated Balance Sheets as of December 31, 2018 and 2017 ................................................................................................
Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2018, 2017 and 2016 .....
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2018, 2017 and 2016 ...........
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016 .............................................
Notes to the Consolidated Financial Statements ..........................................................................................................................

Page

F-1
F-2
F-3
F-4
F-5
F-6
F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Orthofix Medical Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Orthofix Medical Inc. (formerly Orthofix International N.V.) (the
Company) as of December 31, 2018 and 2017, the related consolidated statements of income and comprehensive income, changes
in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2018, and the related notes
(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generally
accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),
the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and
our report dated February 25, 2019 expressed an unqualified opinion thereon.

Adoption of New Accounting Standards

As discussed in Notes 2 and 15 to the consolidated financial statements, the Company changed its methods of accounting for 1)
recognition of revenue from contracts with customers in 2018 due to the adoption of ASU No. 2014-09, Revenue from Contracts with
Customers, 2) measurement of equity investments at fair value and the recognition of any changes in fair value in 2018 due to the
adoption of ASU No. 2016-01, Financial Instruments and ASU 2018-03, Technical Connections and Improvements to Financial
Instruments, 3) intra-entity transfers of assets in 2018 and 2017 due to the adoption of ASU No. 2016-16, Income Taxes: Intra-Entity
Transfers of Assets Other Than Inventory, and 4) classification and presentation of restricted cash, including transfers between cash
and restricted cash, on the statement of cash flows in 2018 and 2017 due to the adoption of ASU No. 2016-18, Statement of Cash
Flows: Restricted Cash.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2002.

Dallas, Texas
February 25, 2019

F-2

ORTHOFIX MEDICAL INC.

Consolidated Balance Sheets as of December 31, 2018 and 2017

(U.S. Dollars, in thousands except share and per share data)
Assets
Current assets

Cash and cash equivalents
Restricted cash
Trade accounts receivable, less allowances of $7,463 and $8,405 at
December 31, 2018 and 2017, respectively
Inventories
Prepaid expenses and other current assets

Total current assets
Property, plant and equipment, net
Patents and other intangible assets, net
Goodwill
Deferred income taxes
Other long-term assets
Total assets
Liabilities and shareholders’ equity
Current liabilities

Trade accounts payable
Other current liabilities

Total current liabilities
Other long-term liabilities
Total liabilities
Contingencies (Note 13)
Shareholders’ equity

Common shares $0.10 par value; 50,000,000 shares authorized;
18,579,688 and 18,278,833 issued and outstanding as of December 31,
2018 and 2017, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income

Total shareholders’ equity
Total liabilities and shareholders’ equity

2018

2017

69,623 $
2,566

77,747
76,847
17,856
244,639
42,835
51,897
72,401
33,228
21,641
466,641 $

17,989 $
67,919
85,908
45,336
131,244

1,858
243,165
87,078
3,296
335,397
466,641 $

81,157
—

63,437
81,330
25,877
251,801
45,139
10,461
53,565
23,315
21,073
405,354

18,111
61,295
79,406
29,340
108,746

1,828
220,591
70,402
3,787
296,608
405,354

The accompanying notes form an integral part of these consolidated financial statements.

F-3

ORTHOFIX MEDICAL INC.

Consolidated Statements of Income and Comprehensive Income
For the years ended December 31, 2018, 2017 and 2016

(U.S. Dollars, in thousands, except share and per share data)
Net sales
Cost of sales
Gross profit

Sales and marketing
General and administrative
Research and development
Changes in fair value of contingent consideration
Charges related to U.S. Government resolutions (Note 13)

Operating income

Interest income (expense), net
Other expense, net

Income before income taxes
Income tax expense
Net income from continuing operations
Discontinued operations (Note 13)

Loss from discontinued operations
Income tax benefit

Net loss from discontinued operations
Net income
Net income per common share—basic

Net income from continuing operations
Net loss from discontinued operations

Net income per common share—basic
Net income per common share—diluted

Net income from continuing operations
Net loss from discontinued operations
Net income per common share—diluted
Weighted average number of common shares:

Basic
Diluted

2018

2017

2016

453,042 $
96,628
356,414
205,527
84,506
33,218
3,069
—
30,094
(828)
(6,381)
22,885
(9,074)
13,811

—
—
—
13,811 $

0.73 $
—
0.73 $

0.72 $
—
0.72 $

433,823 $
93,037
340,786
198,370
71,905
29,700
—
—
40,811
(416)
(4,004)
36,391
(29,100)
7,291

(1,759)
691
(1,068)
6,223 $

0.40 $
(0.06)
0.34 $

0.39 $
(0.05)
0.34 $

409,788
87,853
321,935
181,287
76,409
28,803
—
14,369
21,067
763
(2,806)
19,024
(15,527)
3,497

(638)
197
(441)
3,056

0.19
(0.02)
0.17

18,494,002
18,911,610

18,117,405
18,498,745

18,144,019
18,463,161

Other comprehensive income (loss), before tax

Unrealized gain (loss) on derivative instrument
Unrealized gain (loss) on debt security
Reclassification adjustment for loss on debt security in net income
Currency translation adjustment

Other comprehensive income (loss) before tax

Income tax expense related to items of other comprehensive
income (loss)

Other comprehensive income (loss), net of tax
Comprehensive income

—
1,770
—
(1,823)
(53)

—
3,830
5,585
4,552
13,967

(438)
(491)
13,320 $

(3,600)
10,367
16,590 $

(360)
(1,744)
2,727
(726)
(103)

(245)
(348)
2,708

The accompanying notes form an integral part of these consolidated financial statements.

F-4

ORTHOFIX MEDICAL INC.

Consolidated Statements of Changes in Shareholders’ Equity
For the years ended December 31, 2018, 2017 and 2016

(U.S. Dollars, in thousands, except share data)
At December 31, 2015
Cumulative effect adjustment from adoption
of ASU 2016-09
Net income
Other comprehensive loss, net of tax
Share-based compensation
Common shares issued
Retirement of repurchased common stock
At December 31, 2016
Net income
Other comprehensive income, net of tax
Share-based compensation
Common shares issued
At December 31, 2017
Cumulative effect adjustment from adoption
of ASU 2014-09
Cumulative effect adjustment from adoption
of ASU 2016-16
Net income
Other comprehensive loss, net of tax
Share-based compensation
Common shares issued
At December 31, 2018

Number of
Common
Shares

Outstanding
18,659,696 $

—
—
—
—
713,140
(1,544,681)
17,828,155 $
—
—
—
450,678
18,278,833 $

Common
Shares

Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Total
Shareholders’
Equity

1,866 $ 232,126 $ 62,551 $

(6,232) $ 290,311

2,032
—
—
15,966
17,242
(63,271)

(1,428)
—
3,056
—
—
—
—
—
—
71
(154)
—
1,783 $ 204,095 $ 64,179 $
6,223
—
—
—
—
12,557
—
3,939
1,828 $ 220,591 $ 70,402 $

—
—
—
45

—
—
(348)
—
—
—

604
3,056
(348)
15,966
17,313
(63,425)
(6,580) $ 263,477
6,223
10,367
12,557
3,984
3,787 $ 296,608

—
10,367
—
—

—

4,761

—

4,761

—
—
—
—
300,855
18,579,688 $

—
—
—
—
30

—
(1,896)
—
13,811
—
—
18,930
—
—
3,644
1,858 $ 243,165 $ 87,078 $

—
—
(491)
—
—

(1,896)
13,811
(491)
18,930
3,674
3,296 $ 335,397

The accompanying notes form an integral part of these consolidated financial statements.

F-5

ORTHOFIX MEDICAL INC.

Consolidated Statements of Cash Flows
For the years ended December 31, 2018, 2017 and 2016

(U.S. Dollars, in thousands)
Cash flows from operating activities

Net income

2018

2017

2016

13,811 $

6,223 $

3,056

Adjustments to reconcile net income to net cash from operating activities

Depreciation and amortization
Amortization of debt costs and other assets
Provision for doubtful accounts
Deferred income taxes
Share-based compensation
Other-than-temporary impairment on debt securities
Loss on valuation of equity securities
Change in fair value of contingent consideration
Other

Changes in operating assets and liabilities, net of effects of acquisitions

Trade accounts receivable
Inventories
Prepaid expenses and other current assets
Trade accounts payable
Other current liabilities
Other long-term assets and liabilities

Net cash from operating activities
Cash flows from investing activities

Acquisition of business, net of cash acquired
Capital expenditures for property, plant and equipment
Capital expenditures for intangible assets
Asset acquisitions and other investments
Other investing activities
Net cash from investing activities
Cash flows from financing activities

Proceeds from issuance of common shares
Payments related to withholdings for share-based compensation
Payment of debt issuance costs and other financing activities
Repurchase and retirement of common shares

Net cash from financing activities
Effect of exchange rate changes on cash and restricted cash
Net change in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash at the beginning of the year
Cash, cash equivalents, and restricted cash at the end of the year

Components of cash, cash equivalents, and restricted cash at the end of the year
Cash and cash equivalents
Restricted cash
Cash, cash equivalents, and restricted cash at the end of the year

18,659
1,024
(599)
(2,661)
18,930
—
3,050
3,069
1,633

(3,706)
9,698
(1,127)
(170)
(7,563)
(4,130)
49,918

(44,294)
(13,592)
(1,664)
(1,448)
—
(60,998)

7,100
(3,425)
(682)
—
2,993
(881)
(8,968)
81,157
72,189 $

69,623 $
2,566
72,189 $

20,124
1,712
1,639
21,286
12,557
5,585
—
—
1,398

(6,562)
(15,645)
(6,352)
2,324
(11,412)
6,095
38,972

—
(14,665)
(2,283)
—
474
(16,474)

7,783
(3,800)
(445)
—
3,538
1,180
27,216
53,941
81,157 $

81,157 $
—
81,157 $

20,841
1,569
1,117
10,460
15,966
2,727
—
—
1,061

392
(5,284)
701
(1,771)
6,537
1,704
59,076

—
(16,432)
(1,902)
—
(3,613)
(21,947)

19,720
(2,407)
—
(63,425)
(46,112)
(739)
(9,722)
63,663
53,941

39,572
14,369
53,941

Supplemental disclosure of cash flow information:
Noncash investing activities:

Purchase of intangible assets
Contingent consideration recognized at acquisition date

2,015 $

25,491

— $
—

—
—

The accompanying notes form an integral part of these consolidated financial statements

F-6

ORTHOFIX MEDICAL INC.

Notes to the Consolidated Financial Statements

Business and basis of consolidation

Orthofix Medical Inc. (previously Orthofix International N.V.) and its subsidiaries (the “Company”) is a global medical device
company focused on musculoskeletal products and therapies. The Company’s mission is to improve patients’ lives by providing
superior reconstruction and regenerative musculoskeletal solutions to physicians worldwide. Headquartered in Lewisville, Texas, the
Company has four reporting segments: Bone Growth Therapies (formerly referred to as BioStim), Spinal Implants (formerly referred
to as Spine Fixation), Biologics, and Orthofix Extremities (formerly referred to as Extremity Fixation). Orthofix products are widely
distributed via the Company's sales representatives and distributors.

On July 31, 2018, the Company completed a change in its jurisdiction of organization from Curaçao to the State of Delaware (the
“Domestication”) in accordance with the conversion procedures of Articles 304 and 305 of Book 2 of the Curaçao Civil Code and the
domestication procedures of Section 388 of Delaware General Corporation Law. The Company’s shareholders approved and
authorized the Domestication at the Company’s 2018 Annual General Meeting of Shareholders held on July 17, 2018 (the “Annual
General Meeting”) by the affirmative vote of shareholders representing an absolute majority of the outstanding common shares of
the Company as of the record date for the Annual General Meeting.

Upon the effectiveness of the Domestication, each common share of Orthofix International N.V. was automatically converted into
one share of common stock of Orthofix Medical Inc. This transaction was accounted for as a transfer of assets and liabilities between
entities under common control similar to a pooling of interest. As a result, the assets and liabilities were carried forward at their
historical carrying amounts. The Company’s common stock continues to be traded on the Nasdaq Global Select Market under the
symbol “OFIX.”

The consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries. All
intercompany accounts and transactions are eliminated in consolidation.

Significant accounting policies

The preparation of financial statements in conformity with United States generally accepted accounting principles (“U.S. GAAP”)
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an ongoing basis, we evaluate these estimates, including those related to contractual allowances,
doubtful accounts, inventories, goodwill, fair value measurements, litigation and contingent liabilities, income taxes, and share-
based compensation. We base our estimates on historical experience, future expectations and other relevant assumptions that are
believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

F-7

Information on our accounting policies and methods used in the preparation of our consolidated financial statements are included,
where applicable, in their respective footnotes that follow.

Significant Accounting Policy

Recently adopted accounting standards and recently issued accounting pronouncements
Acquisition of Spinal Kinetics, Inc.
Inventories
Property, plant and equipment
Patents and other intangible assets
Goodwill
Investments
Long-term debt
Fair value measurements
Commitments
Contingencies
Shareholders' equity
Revenue recognition and accounts receivable
Business segment information
Share-based compensation
Defined contribution plans and deferred compensation
Income taxes
Earnings per share

Footnote
Reference
2
3
4
5
6
7
8
10
11
12
13
14
15
16
17
18
19
20

The following is a discussion of accounting policies and methods used in our consolidated financial statements that are not
presented within other footnotes.

Prior period reclassifications

Amounts previously reported in the consolidated statements of income and comprehensive income as SEC / FCPA matters and
related costs have been reclassified to general and administrative expenses to conform with current period presentation, resulting in
a decrease of general and administrative expense of $2.5 million for the year ended December 31, 2017 and an increase in general
and administrative expense of $2.0 million for the year ended December 31, 2016.

Market risk

In the ordinary course of business, the Company is exposed to the impact of changes in interest rates and foreign currency fluctuations.
The Company’s objective is to limit the impact of such movements on earnings and cash flows. In order to achieve this objective, the
Company seeks to balance its non-U.S. Dollar denominated income and expenditures.

The financial statements for operations outside the United States are generally maintained in their local currency. All foreign
currency denominated balance sheet accounts, except shareholders’ equity, are translated to U.S. Dollars at year end exchange
rates and revenue and expense items are translated at weighted average rates of exchange prevailing during the year. Gains and
losses resulting from the translation of foreign currency are recorded in the accumulated other comprehensive income component
of shareholders’ equity. Transactional foreign currency gains and losses, including those generated from intercompany operations,
are included in other expense, net and were a loss of $3.3 million, gain of $1.9 million, and loss of less than $0.1 million for the years
ended December 31, 2018, 2017 and 2016, respectively.

Financial instruments and concentration of credit risk

Financial instruments that could subject the Company to a concentration of credit risk consist primarily of cash, cash equivalents,
restricted cash, and accounts receivable. Generally, cash is held at large financial institutions and cash equivalents consist of highly
liquid money market funds. The Company performs ongoing credit evaluations of customers, generally does not require collateral, and

F-8

maintains a reserve for potential credit losses. The Company believes that a concentration of credit risk related to the accounts
receivable is limited because customers are geographically dispersed and end users are diversified across several industries.

Net sales to our customers based in Europe were approximately $69 million in 2018, which results in a substantial portion of our
trade accounts receivable balance as of December 31, 2018. It is at least reasonably possible that changes in global economic
conditions and/or local operating and economic conditions in the regions these distributors operate, or other factors, could affect
the future realization of these accounts receivable balances.

Cash, cash equivalents and restricted cash

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

In 2018, restricted cash related to a court order affecting the Company’s local bank accounts for its office in São Paulo, Brazil, as part
of an investigation of more than 30 companies, which resulted in the freezing of approximately $2.6 million of the Company’s cash.
As such, the Company reclassified this cash balance to restricted cash. Refer to Note 13 for further discussion of this matter.

Research and development costs, including in-process research and development (“IPR&D”) costs

Expenditures related to the collaborative arrangement with MTF Biologics (“MTF”) are expensed based on the terms of the related
agreement. No expenditures were incurred for the year ended December 31, 2018 under the collaborative arrangement with MTF
and expenditures totaled $0.9 million and $1.3 million for the years ended December 31, 2017 and 2016, respectively. Expenditures
for research and development are expensed as incurred.

As part of the Spinal Kinetics Inc. acquisition in 2018, the Company recognized $26.8 million of IPR&D costs within patents and other
intangible assets, net and recorded additional costs to further develop this acquired IPR&D . See Note 3 for further details.

Acquired IPR&D represents the fair value assigned to acquired research and development assets that have not reached technological
feasibility. The value assigned to acquired IPR&D is determined by estimating the costs to develop the acquired technology into
commercially viable products, estimating the resulting revenues from the projects and discounting the net cash flows to present
value. The revenues and costs projections used to value acquired IPR&D are, as applicable, reduced based on the probability of
success of developing the asset. Additionally, the estimated revenues consider the relevant market sizes and growth factors,
expected trends in technology and the nature and expected timing of new product introductions by the Company and its
competitors. The rates utilized to discount the net cash flows to their present value are commensurate with the stage of
development of the project and uncertainties in the economic estimates used in the projections. Any future costs to further develop
the IPR&D subsequent to acquisition are recorded to research and development expense as incurred. See Note 6 for additional
policy discussion related to amortization and impairment testing for IPR&D.

Recently adopted accounting standards and recently issued accounting pronouncements

Adoption of Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606)

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09. Topic 606 supersedes the revenue recognition
requirements in Topic 605, Revenue Recognition, and requires entities to recognize revenue when control of the promised goods or
services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. The Company adopted Accounting Standards Codification (“ASC”) 606 as of January 1, 2018
using the modified retrospective transition method. Results for prior period amounts were not adjusted and continue to be reported
in accordance with the Company’s historic accounting under the previous revenue recognition standard, Topic 605. See Note 15 for
further details.

Adoption of ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10), and ASU 2018-03, Technical Corrections and
Improvements to Financial Instruments – Overall (Subtopic 825-10)

In January 2016, the FASB issued ASU 2016-01, which was then further clarified in ASU 2018-03, in February 2018. This guidance
requires entities to generally measure equity investments at fair value and recognize any changes in fair value in net income.
However, for certain equity investments that do not have readily determinable fair values, the new guidance allows companies to
measure these investments using a new measurement alternative, which values the investments at cost, less any impairments, plus
or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same
issuer. The Company prospectively adopted both ASU 2016-01 and ASU 2018-03 during the first quarter of 2018 now uses the new

F-9

measurement alternative for the Company’s equity investments in Bone Biologics, Inc. (“Bone Biologics”), which have historically
been held at cost. This resulted in an increase in the previously recorded value of the Company’s equity investments in Bone
Biologics, which was recorded within other current assets or other long-term assets and other income, of $1.6 million, or $0.09 per
share before taxes, during the three months ended March 31, 2018. During the three months ended September 30, 2018, Bone
Biologics completed a series of equity financing activities, which provided a new observable price change in an orderly transaction.
As a result, the Company determined its investment to be impaired and recorded a charge of $4.4 million in other expense, net,
during the third quarter of 2018. See Note 11 for further details.

Adoption of ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory

In October 2016, the FASB issued ASU 2016-16, which reduces diversity in practice of accounting for intra-entity transfers of assets,
particularly for intra-entity transfers of intellectual property. The new standard states an entity should recognize the income tax
consequences of an intra-entity transfer when the transfer occurs, as opposed to historical U.S. GAAP guidance which prohibited the
recognition of current and deferred income taxes for an intra-entity asset transfer until the asset had been sold to an outside party.
During the third and fourth quarters of 2017, the Company executed two intra-entity asset transfers that resulted in prepaid income
taxes of $8.6 million. The Company adopted this new standard using a modified retrospective approach as of January 1, 2018, which
resulted in a reduction of prepaid income taxes of $8.6 million and an increase in deferred tax assets of $6.7 million, with these
changes offset by an adjustment to the Company's retained earnings of $1.9 million. Adoption of this guidance did not have a
material impact to the Company’s consolidated statements of income and comprehensive income or to its consolidated statements
of cash flows.

Adoption of ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash

In November 2016, the FASB issued ASU 2016-18, which reduces diversity in classification and presentation of restricted cash,
including transfers between cash and restricted cash, on the statement of cash flows. The Company adopted this standard as of
January 1, 2018 using a retrospective transition approach. Adoption of this ASU resulted in an increase in net cash from operating
activities of $2.5 million for the year ended December 31, 2018, a decrease in net cash from operating activities of $14.4 million for
the year ended December 31, 2017, and an increase in net cash from operating activities of $14.4 million for the year ended
December 31, 2016.

Adoption of ASU 2017-01, Business Combinations (Topic 805)

In January 2017, the FASB issued ASU 2017-01, which clarifies the definition of a business. This amendment states that when
substantially all of the fair value of gross assets acquired is concentrated in a single identifiable asset or a group of similar
identifiable assets, that the set of assets acquired is not a business, which will likely result in more acquisitions being accounted for
as asset acquisitions rather than business combinations. Based upon this guidance, which the Company adopted as of January 1,
2018, the Company accounted for certain transactions during 2018 totaling $3.4 million as asset acquisitions, recognized within
patents and other intangible assets, net, rather than business combinations, as the sets of assets acquired did not meet the
definition of a business.

F-10

Effective Date
January 1, 2019

Recently issued accounting standards

Topic

Leases
(ASU 2016-02 and
other related
updates)

Description of Guidance
Requires a lessee to recognize lease assets
and lease liabilities for leases classified as
operating leases. Applied using a modified
retrospective approach. An entity can
choose to apply the provisions at the
beginning of the earliest comparative
period presented in the financial
statements or at the beginning of the
period of adoption. The Company expects
to apply the provisions at the beginning of
the period of adoption, January 1, 2019.

Status of Company's Evaluation

The Company established a cross-functional
implementation team to analyze the impact of
the standard on the Company's population of
leases and to evaluate the Company's current
accounting policies relating to leases. The
Company has evaluated the impact of this ASU,
which will result in current operating leases
being reflected on the consolidated balance
sheet. The Company expects to recognize lease
assets and lease liabilities of approximately $20
million as of January 1, 2019. The Company
does not expect material impacts to its
consolidated statements of income and
comprehensive income or to the consolidated
statements of cash flows. Additionally, this
guidance will materially change the Company's
disclosures, requiring the Company to provide
users more quantitative and qualitative
information about the Company's leases, any
significant judgments required in applying the
ASU, and amounts recognized within the
consolidated financial statements related to the
Company's leases.

The Company is currently evaluating the impact
this ASU may have on its consolidated financial
statements. However, the Company does not
expect this ASU to have a significant impact on
its financial statements or disclosures.

January 1, 2020

Goodwill
(ASU 2017-04)

Comprehensive
income
(ASU 2018-02)

Fair value
measurement (ASU
2018-13)

Eliminates Step 2 of the current goodwill
impairment test, which requires a
hypothetical purchase price allocation to
measure goodwill impairment. A goodwill
impairment loss will instead be measured
at the amount by which a reporting unit's
carrying value exceeds its fair value, not to
exceed the recorded amount of goodwill.
Applied on a prospective basis, with early
adoption permitted.
Allows entities to reclassify from
accumulated other comprehensive income
to retained earnings stranded tax effects
resulting from the Tax Cuts and Jobs Act
(the "Tax Act"). Applied either in the
period of adoption or retrospectively to
each period (or periods) in which the
effect of the change in the U.S. federal
corporate income tax rate in the Tax Act is
recognized.
Eliminates certain disclosures, such as the
amount of and reasons for transfers
between Level 1 and Level 2 of the fair
value hierarchy and adds new disclosure
requirements for Level 3 measurements.
Certain of the provisions are to be applied
retrospectively with other provisions
applied prospectively.

January 1, 2019

The Company anticipates adopting this ASU on
January 1, 2019. The adoption will result in an
increase to accumulated other comprehensive
income and a decrease in retained earnings of
$0.9 million.

January 1, 2020

The Company is currently evaluating the impact
this ASU may have on its consolidated financial
statements.

F-11

January 1, 2020

The Company is currently evaluating the impact
this ASU may have on its consolidated financial
statements.

Implementation
costs in a cloud
computing
arrangement that
is a service
contract (ASU
2018-15)

Aligns the requirements for capitalizing
implementation costs incurred in a hosting
arrangement that is a service contract with
the requirements for capitalizing
implementation costs incurred to develop
or obtain internal-use software. The
accounting for the service element of a
hosting arrangement that is a service
contract is not affected by the
amendments in this update. Applied either
retrospectively or prospectively to all
implementation costs incurred after the
date of adoption.

Acquisition of Spinal Kinetics, Inc.

On March 15, 2018, the Company entered into a definitive merger agreement (the “Merger Agreement”) to acquire 100% of the
outstanding stock of Spinal Kinetics Inc. (“Spinal Kinetics”), a privately held developer and manufacturer of artificial cervical and
lumbar discs, to strengthen the Company’s product portfolio and fill a strategic gap in the Spinal Implants business. On April 30, 2018
(the “Acquisition Date”), the Company completed the acquisition and all outstanding shares of Spinal Kinetics’ capital stock were
converted into the right to receive at the closing an aggregate of $45.0 million in net cash, subject to certain adjustments, plus
potential milestone payments of up to $60.0 million in cash. The Company made the closing payments from cash on hand on April
30, 2018.

The fair value of the consideration transferred was $76.6 million, which consisted of the following:

(U.S. Dollars, in thousands)
Fair value of consideration transferred

Cash paid
Contingent consideration

Total fair value of consideration transferred

As of
April 30,
2018

Adjustments

As of
December 31,
2018

50,564 $
25,491
76,055 $

545 $
—
545 $

51,109
25,491
76,600

The contingent consideration consists of potential future milestone payments of up to $60.0 million in cash. The milestone
payments include (i) up to $15.0 million if the U.S. Food and Drug Administration (the “FDA”) grants approval of Spinal Kinetics’ M6-
C artificial cervical disc (the “FDA Milestone”) and (ii) revenue-based milestone payments of up to $45.0 million in connection with
future sales of the M6-C artificial cervical disc and the M6-L artificial lumbar disc. Milestones must be achieved within five years of
the Acquisition Date to trigger applicable payments. The fair value of the contingent consideration arrangement at the Acquisition
Date was $25.5 million and increased to $28.6 million as of December 31, 2018; however, the actual amount ultimately paid could
be higher or lower than the fair value of the contingent consideration. The increase in fair value of $3.1 million was recorded in
changes in fair value of contingent consideration. For additional discussion regarding the valuation of the contingent consideration,
see Note 11.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed. A final
determination of the allocation of the purchase price to assets acquired and liabilities assumed has not been made and the following
should be considered preliminary. The final determination is subject to completion of the Company’s valuation of the acquired
deferred income taxes and tax attributes, including net operating loss carryforwards, which is expected to be completed within one
year from the Acquisition Date.

F-12

(U.S. Dollars, in thousands)
Assets acquired

Cash and cash equivalents
Restricted cash
Accounts receivable
Inventories
Prepaid expenses and other current assets
Property, plant and equipment
Other long-term assets
Developed technology
In-process research and development ("IPR&D")
Tradename
Deferred income taxes

Total identifiable assets acquired

Liabilities assumed

Accounts payable
Other current liabilities
Other long-term liabilities

Total liabilities assumed
Goodwill
Total fair value of consideration transferred

As of
April 30,
2018

Adjustments

As of
December 31,
2018

Assigned Useful
Life

6,785
30
1,705
8,175
315
2,285
320
12,400
26,800
100
3,483
62,398

351
2,873
301
3,525
17,182
76,055

—
—
—
—
—
—
—
—
—
—
(1,109)
(1,109)

—
—
—
—
1,654
545

6,785
30
1,705
8,175
315
2,285
320
12,400
26,800
100
2,374
61,289

351
2,873
301
3,525
18,836
76,600

10 years
Indefinite
2 years

The purchase price exceeded the fair value of the net tangible and identifiable intangible assets acquired from Spinal Kinetics. As a
result, the Company recorded goodwill in connection with the acquisition. Specifically, the goodwill includes the assembled
workforce and synergies associated with the combined entity and is not expected to be deductible for tax purposes. The $18.8
million of goodwill recognized was assigned to the Spinal Implants reporting segment.

The IPR&D intangible asset is considered an indefinite-lived asset until the completion or abandonment of the associated research
and development efforts. Accordingly, during the development period after the acquisition, this asset is not amortized but, instead,
is subject to impairment review and testing provisions. Upon completion of the IPR&D project, which occurred on February 6, 2019,
the Company began to amortize this intangible.

The Company recognized $3.3 million and $0.8 million of acquisition related costs that were expensed during the years ended
December 31, 2018 and 2017, respectively. These costs are included in the consolidated statements of income and comprehensive
income within general and administrative expenses. The results of operations for Spinal Kinetics have been included in the
Company’s financial results since the Acquisition Date and included $8.7 million of revenue and a net loss of $5.8 million for the year
ended December 31, 2018 in the consolidated statement of income and comprehensive income.

The following table presents the unaudited pro forma results for the years ended December 31, 2018 and 2017, which combines the
historical results of operations of the Company and Spinal Kinetics as though the companies had been combined as of January 1,
2017. The unaudited pro forma information is presented for informational purposes only and is not indicative of the results of
operations that would have been achieved if the acquisition had taken place at such time.

(U.S. Dollars, in thousands)

Net sales
Net income (loss) from continuing operations

2018
(unaudited)

2017
(unaudited)

457,960 $
16,157

448,277
(1,492)

F-13

Inventories

Inventories are valued at the lower of cost or estimated net realizable value, after provision for excess, obsolete or impaired items,
which is reviewed and updated on a periodic basis by management. For inventory procured or produced, whether internally or through
contract manufacturing arrangements, at our manufacturing facility in Italy, cost is determined on a weighted-average basis, which
approximates the first-in, first-out (“FIFO”) method. For inventory procured or produced, whether internally or through contract
manufacturing arrangements, at our manufacturing facility in Texas, standard costs, which approximates actual cost on the FIFO
method, is used to value inventory. Standard costs are reviewed annually by management, or more often in the event circumstances
indicate a change in cost has occurred.

Work-in-process, finished products, field inventory and consignment inventory include material, labor and production overhead
costs. Field inventory represents immediately saleable finished products inventory that is in the possession of the Company’s
independent sales representatives or located at third party customers, such as distributors and hospitals.

Prior to the adoption of ASU 2014-09, or for all periods presented prior to January 1, 2018, deferred cost of sales resulted from
certain transactions where the Company had shipped product or performed services for which all revenue recognition criteria had
not yet been met. Once all revenue recognition criteria had been met, the revenue and associated cost of sales were recognized.
Subsequent to the adoption of ASU 2014-09, the Company no longer has transactions which result in the recognition of deferred
cost of sales. See Notes 2 and 15 for further discussion of the Company’s adoption of ASU 2014-09.

(U.S. Dollars, in thousands)
Raw materials
Work-in-process
Finished products
Field / consignment inventory
Deferred cost of sales
Inventories

December 31,

2018

2017

8,463 $

13,478
18,244
36,662
—
76,847 $

6,067
12,487
11,244
49,197
2,335
81,330

The Company adjusts the value of its inventory to the extent management determines that the cost cannot be recovered due to
obsolescence or other factors. In order to make these determinations, management uses estimates of future demand and sales
prices for each product to determine the appropriate inventory reserves and to make corresponding adjustments to the carrying
value of these inventories to reflect the lower of cost or market value.

Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation, or when acquired as part of a business combination,
at estimated fair value. Costs include all expenditures necessary to place the asset in service, generally including freight and sales
and use taxes. Property, plant and equipment includes instrumentation held by customers, which is generally used to facilitate the
implantation of the Company’s products. The useful lives of these assets are as follows:

Buildings
Plant and equipment
Instrumentation
Computer software
Furniture and fixtures

Years

25 to 33
1 to 10
3 to 4
3 to 7
4 to 8

The Company evaluates the useful lives of these assets on an annual basis. Depreciation is computed on a straight-line basis over the
useful lives of the assets. Depreciation of leasehold improvements is computed over the shorter of the lease term or the useful life
of the asset. Total depreciation expense was $15.9 million, $18.3 million and $19.0 million for the years ended December 31, 2018,
2017 and 2016, respectively.

F-14

Expenditures for maintenance and repairs and minor renewals and improvements, which do not extend the lives of the respective
assets, are expensed as incurred. All other expenditures for renewals and improvements are capitalized. The assets and related
accumulated depreciation are adjusted for property retirements and disposals, with the resulting gain or loss included in earnings.
Fully depreciated assets remain in the accounts until retired from service.

(U.S. Dollars, in thousands)
Cost
Buildings
Plant and equipment
Instrumentation
Computer software
Furniture and fixtures
Construction in progress

Accumulated depreciation
Property, plant and equipment, net

December 31,

2018

2017

3,746 $

45,744
75,542
47,322
6,599
2,909
181,862
(139,027)

42,835 $

3,725
47,588
75,818
48,604
7,605
769
184,109
(138,970)
45,139

The Company capitalizes system development costs related to its internal use software during the application development stage.
Costs related to preliminary project activities and post implementation activities are expensed as incurred. Internal-use software is
amortized on a straight-line basis over its estimated useful life, generally three to seven years.

Long-lived assets are evaluated for impairment whenever events or changes in circumstances have occurred that would indicate
impairment. For purposes of the evaluation, the Company groups its long-lived assets with other assets and liabilities at the lowest
level of identifiable cash flows if the asset does not generate cash flows independent of other assets and liabilities. If the carrying
value of the asset or asset group exceeds the undiscounted cash flows expected to result from the use and eventual disposition of
the asset group, the Company will write the carrying value down to the fair value in the period identified.

The Company generally determines fair value of long-lived assets as the present value of estimated future cash flows. In determining
the estimated future cash flows associated with the assets, the Company uses estimates and assumptions about future revenue
contributions, cost structures and remaining useful lives of the asset group. The use of alternative assumptions, including estimated
cash flows, discount rates, and alternative estimated remaining useful lives could result in different calculations of impairment.

F-15

Patents and other intangible assets

Patents and other intangible assets are recorded at cost, or when acquired as a part of a business combination, at estimated fair
value. These assets are amortized on a straight-line basis over the useful lives of the assets.

(U.S. Dollars, in thousands)
Cost

Patents
Developed technology
IPR&D
License and other
Trademarks—finite lived

Accumulated amortization

Patents
Developed technology
IPR&D
License and other
Trademarks—finite lived

Patents and other intangible assets, net

Weighted Average
Amortization Period

2018

2017

December 31,

10 years
10 years
Indefinite
7 years
9 years
9 years

39,085 $
12,400
26,800
14,654
840
93,779

(35,016) $
(827)
—
(5,744)
(295)
(41,882)
51,897 $

38,621
—
—
10,276
533
49,430

(34,151)
—
—
(4,625)
(193)
(38,969)
10,461

Intangible assets related to IPR&D projects are considered to be indefinite-lived until the completion or abandonment of the
associated research and development efforts. During the period the assets are considered indefinite-lived, they will not be
amortized but will be tested for impairment. Impairment testing is performed at least annually or when a triggering event occurs
that could indicate a potential impairment. If and when development is complete, which generally occurs when regulatory approval
to market a product is obtained, the associated assets are deemed finite-lived and are amortized over a period that best reflects the
economic benefits provided by these assets.

In February 2019, the Company obtained FDA approval of the M6-C artificial cervical disc. As such, amortization of the IPR&D
intangible asset attributable to these research and development activities will commence starting in February 2019, for which the
Company expects to use a 10 year amortization period.

Amortization expense for intangible assets was $2.7 million, $1.8 million and $1.8 million for the years ended December 31, 2018,
2017 and 2016, respectively. Future amortization expense for intangible assets, including IPR&D, is estimated as follows:

(U.S. Dollars, in thousands)
2019
2020
2021
2022
2023
Thereafter
Total

Amortization

6,604
6,205
6,146
6,138
5,495
21,309
51,897

Goodwill

The Company tests goodwill at least annually for impairment. The Company tests more frequently if indicators are present or
changes in circumstances suggest that impairment may exist. These indicators include, among others, declines in sales, earnings or
cash flows, or the development of a material adverse change in the business climate. The Company assesses goodwill for
impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment.

F-16

At the beginning of the fourth quarters of 2018 and 2017, the Company performed a qualitative assessment for its annual goodwill
impairment analysis, which did not result in impairment. This qualitative analysis considers all relevant factors specific to the
reporting units, including macroeconomic conditions, industry and market considerations, overall financial performance, and
relevant entity-specific events.

The following table presents the net carrying value of goodwill, and a rollforward of such balances from December 31, 2017, by
reportable segment:

(U.S. Dollars, in thousands)
Bone Growth Therapies
Spinal Implants
Biologics
Orthofix Extremities
Goodwill

Investments

Debt security

December 31,
2017

Spinal Kinetics
Acquisition

December 31,
2018

42,678 $
—
10,887
—
53,565 $

— $

18,836
—
—
18,836 $

42,678
18,836
10,887
—
72,401

On March 4, 2015, the Company entered into an Option Agreement (the “Option Agreement”) with eNeura, Inc. (“eNeura”), a
privately held medical technology company that is developing devices for the treatment of migraines. The Option Agreement provided
the Company with an exclusive option to acquire eNeura (the “Option”) during the 18-month period following the grant of the Option,
which expired in September 2016 without the Company exercising the option. In consideration for the Option, (i) the Company paid a
non-refundable $0.3 million fee to eNeura, and (ii) the Company loaned eNeura $15.0 million pursuant to a Convertible Promissory
Note (the “eNeura Note”) that was issued to the Company. The principal amount of the eNeura Note is $15.0 million and interest
accrues at 8.0%. The eNeura Note will mature on March 4, 2019 and interest is due when the eNeura Note matures, provided that if a
change in control of eNeura (generally defined as a third party acquisition of fifty percent or more of eNeura’s voting equity or all or
substantially all of eNeura’s assets) occurs prior to the maturity date, the eNeura Note will automatically convert into preferred
stock of eNeura at a fixed price equal to $7.30 per share. The investment is recorded in other long-term assets as an available for sale
debt security at fair value and interest is recorded in interest income; however, the Company discontinued recognition of interest
income on the eNeura Note in the first quarter of 2017. The eNeura Note is collateralized by eNeura’s intellectual property in the
event of default or nonpayment. In the event the Company were to obtain eNeura’s intellectual property, the Company believes the
value of such intellectual property equals or exceeds the value of the eNeura Note. Refer to Note 11 for additional discussion regarding
the valuation of this debt security.

Currently, the Company does not expect to collect the complete principal and interest on March 4, 2019 and is in negotiations with
eNeura to possibly extend and/or modify other terms of the eNeura Note. Any significant changes to the term of the eNeura Note,
including extending the due date, could have a material impact on the fair value of the security.

Equity investment and warrants

As of December 31, 2018, the Company holds common stock of Bone Biologics and warrants to purchase approximately 13 thousand
shares at a weighted average exercise price of $14.32 per share (after adjusting the shares and exercise price for a reverse stock split
executed by Bone Biologics in 2018). Under the terms of the warrant purchase agreements, the warrants to purchase common stock
in Bone Biologics are exercisable over a seven year period, which expires in 2020, and are transferable by the holder to other parties.
These instruments are recorded within other long-term assets.

Prior to 2018, these instruments were accounted for at cost as the fair value of these instruments was not readily determinable.
Effective January 1, 2018, the Company is required to measure these equity investments at fair value and recognize any changes in
fair value in net income as a result of adopting ASU 2016-01 (see Note 2). Under this guidance, the Company has elected to account
for these investments using a new measurement alternative, which values the investments at cost, less any impairments, plus or
minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same
issuer. During the first quarter of 2018, the Company purchased an additional 25,000 shares of Bone Biologics common stock, after

F-17

giving effect to a reverse stock split by Bone Biologics subsequent to the purchase, for $0.5 million. During the three months ended
September 30, 2018, Bone Biologics executed a series of equity financing activities which significantly diluted the Company’s
ownership interest in the outstanding stock. After considering the new observable prices in these equity financing activities, and
after giving consideration to other matters disclosed by Bone Biologics, the Company determined this investment was impaired and
recorded an impairment charge of $4.4 million relating to its investments in Bone Biologics. These changes are included in other
expense, net. Refer to Note 11 for additional discussion regarding the valuation of this investment.

Other current liabilities

(U.S. Dollars, in thousands)
Accrued expenses
Salaries, bonuses, commissions and related taxes payable
Accrued distributor commissions
Accrued legal and settlement expenses
Contingent consideration liability
Non-income taxes payable
Other payables
Other current liabilities

Orthofix Extremities restructuring plan

December 31,

2018

2017

6,206 $

21,608
10,073
4,196
13,600
3,638
8,598

67,919 $

6,984
24,635
9,192
7,673
—
3,180
9,631
61,295

In December 2016, the Company approved and initiated a planned restructuring, which primarily affects the Orthofix Extremities
reporting segment, to streamline costs, improve operational performance, and wind down a non-core business. The Orthofix
Extremities restructuring plan consisted of primarily severance charges, professional fees and the write-down of certain assets. The
Company incurred total pre-tax expense of approximately $3.2 million in connection with this restructuring activity, largely within
cost of sales and operating expenses. In 2016, the Company incurred expenses of $2.0 million, including $0.4 million of inventory
write-down charges, and made payments of $0.1 million, resulting in an accrual of $1.5 million as of December 31, 2016. In 2017, the
Company incurred costs of $1.3 million and made payments of $2.1 million, resulting in an accrual of $0.7 million as of December 31,
2017. In 2018, the Company made adjustments of $0.1 million to decrease the accrual and payments of $0.5 million, resulting in a
remaining accrual of $0.1 million as of December 31, 2018 within other current liabilities.

U.S. restructuring plan

In September 2017, the Company approved and executed an additional restructuring plan, which primarily affected the entity’s
corporate shared services in the U.S. to streamline costs and to improve operational performance. The U.S. restructuring plan
consisted primarily of severance charges. The Company incurred total pre-tax expense of approximately $1.7 million in connection
with this restructuring activity, all of which was recognized in 2017, within cost of sales and operating expenses. Payments were
made in 2017 of $0.6 million, resulting in an accrual of $1.1 million as of December 31, 2017 in other current liabilities related to the
planned restructuring and made further payments of $1.1 million in 2018 to complete the U.S. restructuring plan.

10.

Long-term debt

On August 31, 2015, the Company, through its subsidiaries Orthofix Holdings, Inc. and Victory Medical Limited (collectively the
“Borrowers”), entered into a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase, N.A., as Administrative Agent, and
certain lenders party thereto. The Credit Agreement provides for a five year $125 million secured revolving credit facility (the
“Facility”). The Credit Agreement has a maturity date of August 31, 2020. As of December 31, 2018, the Company has no borrowings
outstanding under the Credit Agreement.

F-18

Borrowings under the Credit Agreement may be used for, among other things, working capital and other general corporate purposes
(including share repurchases, permitted acquisitions and permitted payments of dividends and other distributions) of the Company
and certain of its subsidiaries. The Facility is generally available in U.S. Dollars with up to $50 million of the Facility also available to
be borrowed in Euros and British Pounds (together with U.S. Dollars, the “Agreed Currencies”). The Credit Agreement further
permits up to $25 million of the Facility to be utilized for the issuance of letters of credit in the Agreed Currencies. The Borrowers
have the ability to increase the amount of the Facility by an aggregate amount of up to $50 million (which increase may take the
form of one or more increases to the revolving credit commitments and/or the issuance of one or more new Term A loans) upon
satisfaction of certain conditions precedent and receipt of additional commitments by one or more existing or new lenders.

Borrowings under the Facility bear interest at a floating rate, which is, at the Borrowers’ option, either LIBOR plus an applicable
margin ranging from 1.75% to 2.5% or a base rate plus an applicable margin ranging from 0.75% to 1.5% (in each case subject to
adjustment based on the Company’s total leverage ratio). An unused commitment fee ranging from 0.25% to 0.4% (subject to
adjustment based on the Company’s total leverage ratio) is payable quarterly in arrears based on the daily amount of the undrawn
portion of each lender’s revolving credit commitment under the Facility. Fees are payable on outstanding letters of credit at a rate
equal to the applicable margin for LIBOR loans, plus certain customary fees payable solely to the issuer of the letter of credit.

The Company and certain of its subsidiaries (collectively, the “Guarantors”) are required to guarantee the repayment of the
Borrowers’ obligations under the Credit Agreement. The obligations of the Borrowers and each of the Guarantors with respect to
the Credit Agreement are secured by a pledge of substantially all of the tangible and intangible personal property of the Borrowers
and each of the Guarantors, including accounts receivable, deposit accounts, intellectual property, investment property, inventory,
equipment and equity interests in their subsidiaries. The Credit Agreement contains customary affirmative and negative covenants,
including limitations on the Company’s and its subsidiaries’ ability to incur additional debt, grant or permit additional liens, make
investments and acquisitions, merge or consolidate with others, dispose of assets, pay dividends and distributions, repay
subordinated indebtedness and enter into affiliate transactions.

In addition, the Credit Agreement contains financial covenants requiring the Company on a consolidated basis to maintain, as of the
last day of any fiscal quarter, a total leverage ratio of not more than 3.0 to 1.0 and an interest coverage ratio of at least 3.0 to 1.0.
The Company is in compliance with all required financial covenants as of December 31, 2018. The Credit Agreement also includes
events of default customary for facilities of this type, and upon the occurrence of such events of default, subject to customary cure
rights, all outstanding loans under the Facility may be accelerated and/or the lenders’ commitments terminated.

In conjunction with obtaining the Facility, the Company incurred debt issuance costs of $1.8 million which are being amortized over
the life of the Facility. The debt issuance costs are included in other long-term assets, net of accumulated amortization. As of
December 31, 2018 and 2017, debt issuance costs, net of accumulated amortization, were $0.6 million and $1.0 million, respectively.
Debt issuance costs amortized or expensed related to the Facility and the Amendment totaled $0.4 million, $1.0 million, and $0.4
million for the years ended December 31, 2018, 2017, and 2016, respectively.

On December 8, 2017, the Company amended the Credit Agreement to add the Company’s subsidiary, Orthofix International B.V., as
a Borrower, Guarantor, and a loan party. In addition, two of the Company’s subsidiaries, Orthofix Limited and Orthofix II B.V. were
also added as Guarantors and loan parties.

On July 31, 2018, the Company amended and restated the Credit Agreement pursuant to a First Amended and Restated Credit
Agreement (“Amended Credit Agreement”). The Amended Credit Agreement is substantially the same as the previous Credit
Agreement, except for certain amendments to, among other things, (i) effectuate the Domestication of the Company from a Curaçao
company to a Delaware corporation, (ii) limit the pledge by the Company and each domestic subsidiary of the Company of equity
interests in their respective first tier foreign subsidiaries to 65% of the voting interests in such foreign subsidiaries, (iii) limit the
guarantee and joint and several obligations of each subsidiary guarantor that is a foreign subsidiary so that such foreign subsidiary
guarantors are only providing guarantees, or are jointly and severally obligated, for obligations of other foreign subsidiaries, and (iv)
limit the secured obligations that are secured by collateral provided by subsidiary guarantors that are foreign subsidiaries to secured
obligations of foreign subsidiaries.

The Company has an unused available line of credit of €5.8 million ($6.7 million and $7.0 million) at December 31, 2018 and 2017,
respectively, in its Italian line of credit. This unsecured line of credit provides the Company the option to borrow amounts in Italy at
interest rates determined at the time of borrowing.

F-19

The Company paid cash related to interest of $0.8 million, $0.8 million, and $0.7 million for the years ended December 31, 2018,
2017, and 2016, respectively.

11.

Fair value measurements

Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
Non-financial assets and liabilities of the Company measured at fair value include any long-lived assets that are impaired in a
currently reported period or equity securities measured at observable prices in orderly transactions. The authoritative guidance also
describes three levels of inputs that may be used to measure fair value:

Level 1: quoted prices in active markets for identical assets and liabilities

Level 2: observable inputs other than quoted prices in active markets for identical assets and liabilities

Level 3: unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its

own assumptions

The Company’s financial instruments include cash equivalents, restricted cash, collective trust funds, treasury securities, trade
accounts receivable, accounts payable, long-term secured debt, equity warrants, equity securities, available for sale debt securities,
contingent consideration and deferred compensation plan liabilities. The carrying value of cash equivalents, restricted cash, trade
accounts receivable and accounts payable approximate fair value due to the short-term maturities of these instruments. The
Company’s credit facilities carry a floating rate of interest, and therefore, the carrying value of long-term debt is considered to
approximate the fair value.

The Company’s collective trust funds, treasury securities, equity warrants, equity securities, debt security, contingent consideration, and
deferred compensation plan liabilities are the only financial instruments recorded at fair value on a recurring basis as follows:

(U.S. Dollars, in thousands)
Assets

Treasury securities
Equity warrants
Equity securities
Debt security

Total
Liabilities

Contingent consideration
Deferred compensation plan

Total

(U.S. Dollars, in thousands)
Assets

Collective trust funds
Treasury securities
Debt security

Total
Liabilities

Deferred compensation plan

Total

Balance
December 31,
2018

490
—
219
17,820
18,529

(28,560) $
(1,275)
(29,835) $

Balance
December 31,
2017

Level 1

Level 2

Level 3

490
—
—
—
490

—
—
—

—
—
219
—
219

—
—
—
17,820
17,820

$
—
(1,275)
(1,275) $

(28,560)
—
(28,560)

Level 1

Level 2

Level 3

100
556
16,050
16,706 $

(1,379) $
(1,379) $

—
556
—
556 $

100
—
—
100 $

—
$
— $

(1,379) $
(1,379) $

—
—
16,050
16,050

—
—

$
$

F-20

The fair value of treasury securities are determined based on quoted prices in active markets for identical assets, therefore, the
Company has categorized these instruments as Level 1 financial instruments.

The fair value of the Company’s collective trust funds, equity warrants, equity securities, and deferred compensation plan liabilities are
determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted
markets; therefore, the Company has categorized these instruments as Level 2 financial instruments.

Equity Warrants and Securities

The Company holds investments in common stock and warrants to purchase shares of common stock of Bone Biologics. The
Company’s common stock investments are recorded within other long-term assets while the warrants’ value was reduced to zero in
2018. Prior to this reduction in value, the warrants were recorded within other current assets or other long-term assets, dependent
upon the expiration date. Prior to 2018, these instruments were accounted for at cost as the fair value of these instruments was not
readily determinable.

Effective January 1, 2018, the Company is required to measure these equity investments at fair value and recognize any changes in
fair value in net income as a result of adopting ASU 2016-01. However, for certain equity investments that do not have readily
determinable fair values, the new guidance allows entities to choose to measure these investments using a new measurement
alternative, which values the investments at cost, less any impairments, plus or minus changes resulting from observable price
changes in orderly transactions for identical or similar investments of the same issuer. The changes in valuation of these securities
for the years ended December 31, 2018 and 2017 are shown below:

(U.S. Dollars, in thousands)
Equity securities and warrants at January 1

Impact of adoption of ASU 2016-01 recognized in other income
Purchase of additional common stock
Fair value adjustments, expirations, and impairments recognized in
other expense

Equity securities and warrants at December 31

2018

2017

2016

2,768
1,629
500

(4,678)
219

2,768
—
—

—
2,768

2,768
—
—

—
2,768

Debt Security

The Company holds a debt security of eNeura, Inc., a privately held medical technology company that is developing devices for the
treatment of migraines. The debt security matures on March 4, 2019. The fair value of the debt security, including accrued interest, is
based upon significant unobservable inputs, including the use of a discounted cash flows model, requiring the Company to develop its
own assumptions; therefore, the Company has categorized this asset as a Level 3 financial asset. Some of the more significant
unobservable inputs used in the fair value measurement of the debt security are the estimated likelihood of conversion to equity and
the discount rate. Holding other inputs constant, changes in these assumptions could result in a significant change in the fair value of
the debt security. As of December 31, 2018, the Company reassessed its estimate of fair value based on current financial information
and other assumptions, resulting in a fair value of $17.8 million, a net increase of $1.8 million during 2018, which the Company
recorded in other comprehensive income as an unrealized gain on debt securities. This compares to an amortized cost basis of $9.0
million.

The Company evaluates any declines in fair value, if any, each quarter to determine if impairments are other-than-temporary. Based
upon the Company’s best estimate of the amount it expected to recover at the time, the Company recorded an other-than-temporary
impairments of $5.6 million in 2017 and $2.7 million in 2016. These other-than-temporary impairments were reclassified from
accumulated other comprehensive loss and included within other expense, net.

F-21

The following table provides a reconciliation of the beginning and ending balances for debt securities measured at fair value using
significant unobservable inputs (Level 3):

(U.S. Dollars, in thousands)
Balance at January 1

Accrued interest income
Gains (losses) recorded for the period

Recognized in net income
Recognized in other comprehensive income

Balance at December 31

2018

2017

16,050
—

—
1,770
17,820

12,220
—

(5,585)
9,415
16,050

Contingent Consideration

The contingent consideration consists of potential future milestone payments of up to $60.0 million in cash associated with the
Spinal Kinetics acquisition. The milestone payments include (i) up to $15.0 million if the FDA grants approval of Spinal Kinetics’ M6-C
artificial cervical disc (the “FDA Milestone”) and (ii) revenue-based milestone payments of up to $45.0 million in connection with
future sales of the M6-C artificial cervical disc and the M6-L artificial lumbar disc. Milestones must be achieved within five years of
April 30, 2018 to trigger applicable payments. Approximately $13.6 million of this liability is included within other current liabilities
and $15.0 million is included within other long-term liabilities.

The Company estimated the fair value of the contingent consideration attributable to the FDA Milestone using a probability-
weighted discounted cash flow model. This fair value is based on significant inputs not observable in the market and thus represents
a Level 3 measurement. The key assumptions in applying the probability-weighted discounted cash flow model include the
Company’s estimation of the probability and timing of obtaining FDA approval for the M6-C artificial cervical disc. The Company’s
expectation as of December 31, 2018, was to obtain approval from the FDA mid-2019. Significant changes in these assumptions
could result in a significantly higher or lower fair value.

The Company estimated the fair value of the potential future revenue-based milestone payments using a Monte Carlo simulation.
This fair value measurement is based on significant inputs that are unobservable in the market, and thus represents a Level 3
measurement. The key assumptions in applying the Monte Carlo valuation model include the Company’s forecasted future revenues
for Spinal Kinetics products, discount rate applied, and assumptions for potential volatility of the Company’s forecasted revenue.
Significant changes in these assumptions could result in a significantly higher or lower fair value.

The following table provides a reconciliation of the beginning and ending balances for the contingent consideration measured at fair
value using significant unobservable inputs (Level 3):

(U.S. Dollars, in thousands)
Contingent consideration at January 1

Acquisition date fair value
Increase in fair value recognized in operating expenses

Contingent consideration at December 31

2018

—
25,491
3,069
28,560

On February 6, 2019, the Company obtained FDA approval of the M6-C artificial cervical disc for patients suffering from cervical
disease degeneration. This approval triggered the Company’s payment obligation of $15.0 million of contingent consideration. The
Company has accrued a liability of $13.6 million within other current liabilities as of December 31, 2018, and paid the $15.0 million
FDA Milestone payment on February 14, 2019. The difference of $1.4 million between the payment and the accrued liability as of
December 31, 2018, will be recognized as an operating expense during the first quarter of 2019.

F-22

12.

Commitments

Leases

The Company has entered into operating leases for facilities and equipment. These leases are non-cancellable and typically do not
contain renewal options, except for certain facility leases. Certain leases contain rent escalation clauses for which the Company
recognizes the expense on a straight-line basis. Rent expense under the Company’s operating leases for the years ended
December 31, 2018, 2017 and 2016 was approximately $3.5 million, $3.1 million and $3.0 million, respectively.

Future minimum lease payments under operating leases as of December 31, 2018 are as follows:

(U.S. Dollars, in thousands)
2019
2020
2021
2022
2023
Thereafter
Total

3,330
2,729
2,946
2,818
1,727
11,372
24,922

In January 2019, subsequent to the adoption of ASU 2016-02, the Company entered into an amendment for its corporate
headquarters lease. As a result of this amendment, the classification of the lease changed from an operating lease to a finance lease
resulting in an increase in both the lease liability and lease asset of approximately $8 million during the first quarter of 2019.

Inventory purchase commitments

The Company had inventory purchase commitments with third-party manufacturers for $0.1 million and $1.9 million as of
December 31, 2018, and 2017, respectively.

13.

Contingencies

The Company records accruals for certain outstanding legal proceedings, investigations or claims when it is probable that a liability
has been incurred and the amount of the loss can be reasonably estimated. The Company evaluates, on a quarterly basis,
developments in legal proceedings, investigations and claims that could affect the amount of any accrual, as well as any
developments that would make a loss contingency both probable and reasonably estimable. When a loss contingency is not both
probable and reasonably estimable, the Company does not accrue the loss. However, if the loss (or an additional loss in excess of the
accrual) is at least a reasonable possibility and material, then the Company discloses a reasonable estimate of the possible loss or
range of loss, if such reasonable estimate can be made. If the Company cannot make a reasonable estimate of the possible loss, or
range of loss, then that is disclosed. In addition, legal fees and other directly related costs are expensed as incurred.

In addition to the matters described in the paragraphs below, in the normal course of its business, the Company is involved in
various lawsuits from time to time and may be subject to certain other contingencies. The Company believes any losses related to
these matters are individually and collectively immaterial as to a possible loss and range of loss.

January 2017 SEC Settlements

In January 2017, the U.S. Securities and Exchange Commission (the “SEC”) approved the Company’s offers of settlement in
connection with the SEC’s investigations of accounting matters leading to the Company’s prior restatement of financial statements
and the Company’s review of improper payments with respect to its subsidiary in Brazil. Both investigations were initiated in 2013
and involved matters self-reported to the SEC by the Company. The settlements approved by the SEC resolved these two matters,
and included payments totaling $14.4 million by the Company to the SEC of amounts previously accrued and funded into escrow by
the Company during 2016. In connection with the Brazil-related settlement, the Company agreed to retain an independent
compliance consultant for one year to review and test the Company’s compliance program related to the U.S. Foreign Corrupt
Practices Act. The Company’s engagement with its independent compliance consultant began in the first quarter of 2017 and
concluded in the first quarter of 2018. In addition, in the fourth quarter of 2017 the Company received a favorable insurance

F-23

settlement of approximately $6 million associated with prior costs incurred related to these matters, which the Company has
recognized within general and administrative expenses.

Discontinued Operations – Matters Related to Breg and Possible Indemnification Obligations

On May 24, 2012, the Company sold Breg, Inc. (“Breg”), a former subsidiary of the Company, to an affiliate of Water Street Healthcare
Partners II, L.P. (“Water Street”). Under the terms of the agreement, the Company indemnified Water Street and Breg with respect to
certain specified matters.

At the time of its divestiture by the Company, Breg was engaged in the manufacturing and sales of motorized cold therapy units used to
reduce pain and swelling. Several domestic product liability cases were filed, mostly in California state court. In September 2014, the
Company entered into a master settlement agreement resolving then pending pre-close cold therapy claims. In May 2018, Breg settled
and resolved a post-close cold therapy claim in California state court. Pursuant to the Company’s indemnification obligations to Breg,
the Company was obligated to make a final payment to its insurer in the amount of $1.7 million, which was the remaining balance on
the Company’s self-insured retention in its liability insurance policy, to help fund the Breg settlement.

Charges incurred as a result of this indemnification are reflected as discontinued operations in our consolidated statements of income
and comprehensive income. Following the May 2018 settlement, the Company does not expect any additional charges related to this
discontinued operation.

Italian Medical Device Payback (“IMDP”)

In 2015, the Italian Parliament introduced rules for entities that supply goods and services to the Italian National Healthcare System.
The healthcare law is expected to impact the business and financial reporting of companies operating in the medical technology
sector that sell medical devices in Italy. A key provision of the law is a ‘payback’ measure, requiring companies selling medical
devices in Italy to make payments to the Italian government if medical device expenditures exceed regional maximum ceilings.
Companies are required to make payments equal to a percentage of expenditures exceeding maximum regional caps. There is
considerable uncertainty about how the law will operate and what the exact timeline is for finalization. The Company’s current
assessment of the IMDP involves significant judgment regarding the expected scope and actual implementation terms of the
measure as the latter have not been clarified to date by Italian authorities. The Company accounts for the estimated cost of the
IMDP as sales and marketing expense and recorded expense of €0.9 million ($1.0 million), €0.8 million ($0.9 million), and €0.8
million ($0.9 million) for the years ended December 31, 2018, 2017, and 2016, respectively. As of December 31, 2018, the Company
has accrued €3.2 million ($3.7 million) related to the IMDP, which it has classified within other long-term liabilities; however, the
actual liability could be higher or lower than the amount accrued once the law has been clarified by the Italian authorities.

Brazil

In July 2018, the Federal Prosecution Service in Rio de Janeiro and representatives from the Brazilian antitrust authority inspected
the offices of more than 30 companies, including the Company’s office in São Paulo, as part of an investigation into tender
irregularities in the medical device industry. Before doing so, the authorities obtained a court order affecting the Company’s (and
other companies’) local bank accounts resulting in the freezing of approximately $2.6 million of the Company’s cash, which the
Company reclassified to restricted cash. The Company contests the underlying basis for the order. Based on information known to
date, the Company does not believe that the Brazilian authorities’ investigation will result in a material loss to the Company.

14.

Shareholders’ equity

Dividends

The Company has not paid dividends to holders of its common stock in the past. Certain subsidiaries of the Company have
restrictions on their ability to pay dividends in certain circumstances pursuant to the Amended Credit Agreement. In the event that
the Company decides to pay a dividend to holders of its common stock in the future with dividends received from its subsidiaries,
the Company may, based on prevailing rates of taxation, be required to pay additional withholding and income tax on such amounts
received from its subsidiaries.

F-24

Share Repurchase Plan

In August 2015, the Company’s Board of Directors authorized a share repurchase plan, authorizing the purchase of up to $75 million
of the Company’s common stock. The Company completed the share repurchase plan in 2016. Under the program, common shares
repurchased consisted of open market transactions at prevailing market prices in accordance with the guidelines specified under
Rule 10b-18 of the Exchange Act, as amended. Repurchases were made from cash on hand and cash generated from operations. For
the year ended December 31, 2016, the Company repurchased 1,544,681 shares of common stock for $63.4 million with an average
price per share of $41.06, which were all retired upon repurchase.

Accumulated Other Comprehensive Income

Accumulated other comprehensive income is comprised of foreign currency translation adjustments and the unrealized gains
(losses) on the Company’s debt security. The components of and changes in accumulated other comprehensive income are as
follows:

(U.S. Dollars, in thousands)
Balance at December 31, 2016
Other comprehensive income
Income taxes
Reclassification adjustments to:

Other expense, net
Income taxes

Balance at December 31, 2017
Other comprehensive income (loss)
Income taxes
Balance at December 31, 2018

Currency
Translation
Adjustments

Debt Security

Accumulated Other
Comprehensive
Income (Loss)

(5,115) $
4,552
—

—
—
(563) $

(1,823)
—
(2,386) $

(1,465) $
3,830
(1,475)

5,585
(2,125)
4,350 $
1,770
(438)
5,682 $

(6,580)
8,382
(1,475)

5,585
(2,125)
3,787
(53)
(438)
3,296

15.

Revenue recognition and accounts receivable

Adoption of ASU 2014-09, “Revenue from Contracts with Customers”

Effective January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) using the
modified retrospective transition method, which was applied to all contracts. Results for the year ended December 31, 2018 are
presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the
Company’s historic accounting under the previous revenue recognition standard, Topic 605.

F-25

The Company recorded a net increase to opening retained earnings of $4.8 million as of January 1, 2018 due to the cumulative
impact of adopting Topic 606 as presented in the table below.

(U.S. Dollars, in thousands)
Assets
Current assets

Cash and cash equivalents
Accounts receivable, net
Inventories
Prepaid expenses and other current assets

Total current assets
Deferred income taxes
Other long-term assets
Total assets
Liabilities and shareholders' equity
Total liabilities
Shareholders' equity
Common shares
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income

Total shareholders' equity
Total liabilities and shareholders' equity

December 31,
2017

Impact
of Adoption
of Topic 606

January 1,
2018

81,157 $
63,437
81,330
25,877
251,801
23,315
130,238
405,354 $

— $

8,648
(2,338)
—
6,310
(1,549)
—
4,761 $

81,157
72,085
78,992
25,877
258,111
21,766
130,238
410,115

108,746 $

— $

108,746

1,828
220,591
70,402
3,787
296,608
405,354 $

—
—
4,761

4,761
4,761 $

1,828
220,591
75,163
3,787
301,369
410,115

The impact primarily related to an increase in trade accounts receivable, net, from the Company’s stocking distributors, for which
revenue was historically recognized when cash payment was received, and the recognition of previously deferred cost of sales for
certain stocking distributor transactions, which were historically included within inventory. Adoption of Topic 606 had no impact on
the consolidated statement of cash flows.

The table below presents the impact to the Company’s consolidated statement of income for the year ended December 31, 2018 as
a result of the adoption of Topic 606.

(U.S. Dollars, in thousands)
Net sales
Cost of sales
Gross profit
Sales and marketing
Other operating expenses
Operating income
Income tax expense
Net income from continuing operations
Net income from continuing operations per common share—basic
Net income from continuing operations per common share—diluted

Year Ended December 31, 2018

Based on historical
accounting under
Topic 605

Impact of
adoption

As reported under
Topic 606

$
$
$

445,343 $
95,145
350,198
205,538
120,793

23,867 $
(7,656)
9,002 $
0.48 $
0.47 $

7,699 $
1,483
6,216
(11)
—
6,227 $
(1,418)
4,809 $
0.25 $
0.25 $

453,042
96,628
356,414
205,527
120,793
30,094
(9,074)
13,811
0.73
0.72

F-26

Revenue Recognition Under Topic 606

The Company accounts for a contract when there is approval and commitment from both parties, the rights of the parties are
identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable. The
Company’s contracts may contain one or more performance obligations. If a contract contains more than one performance
obligation, the Company allocates the total transaction price to each of the performance obligations based upon the observable
standalone selling price of the promised goods or services underlying each performance obligation. The Company recognizes
revenue when control of the promised goods or services is transferred to the customer, which typically occurs at a point in time
upon shipment, delivery, or utilization, in an amount that reflects the consideration which the Company expects to be entitled in
exchange for the promised goods or services. The amount the Company expects to be entitled to in exchange for the goods or
services reflects any fixed amount stated per the contract and estimates for any variable consideration, such as discounts, to the
extent that is it probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated
with the variable consideration is resolved.

Bone Growth Therapies

Bone Growth Therapies revenue is largely attributable to the U.S. and is comprised of third-party payor transactions and wholesale
revenue.

The largest portion of Bone Growth Therapies revenue is derived from third-party payors. This includes commercial insurance
carriers, health maintenance organizations, preferred provider organizations and governmental payors such as Medicare, in
connection with the sale of the Company’s stimulation products. Revenue is recognized when the stimulation product is fitted to
and accepted by the patient and all applicable documents that are required by the third-party payor have been obtained. Amounts
paid by these third-party payors are generally based on fixed or allowable reimbursement rates. These revenues are recorded at the
expected or preauthorized reimbursement rates, net of any contractual allowances or adjustments. Certain billings are subject to
review by the third-party payors and may be subject to adjustment. Adoption of Topic 606 had an immaterial impact to the Bone
Growth Therapies reporting segment.

Wholesale revenue is related to the sale of the Company’s bone growth stimulators directly to durable medical equipment suppliers.
Wholesale revenues are typically recognized upon shipment and receipt of a confirming purchase order, which is when the customer
obtains control of the promised goods.

Biologics

Biologics revenue is largely attributable to the U.S. and is primarily related to a collaborative arrangement with MTF, which extends
through July 28, 2027, through which the Company markets tissue for bone repair and reconstruction under the brand names Trinity
Evolution and Trinity ELITE. Under the terms of the agreement, MTF sources the tissue, processes it to create the bone growth
matrix, packages and delivers it to the customer in accordance with orders received from the Company. The Company has exclusive
global marketing rights for the Trinity Evolution and Trinity ELITE tissues as well as non-exclusive marketing rights for other products,
and receives marketing fees from MTF based on total sales. MTF is considered the primary obligor in these arrangements and
therefore the Company recognizes these marketing service fees on a net basis within net sales upon shipment of the product to the
customer. Adoption of Topic 606 had an immaterial impact to the Biologics reporting segment.

Spinal Implants and Orthofix Extremities

Orthofix Extremities and Spinal Implants products are distributed world-wide, with U.S. sales largely comprised of commercial sales
and international sales derived from commercial sales and through stocking distributor arrangements.

Commercial revenue is largely related to the sale of the Company’s Spinal Implants and Orthofix Extremities products to hospital
customers. The customer obtains control and revenues are recognized when these products have been utilized and a confirming
purchase order has been received from the hospital.

Certain revenues within the Spinal Implants and Orthofix Extremities reporting segments are derived from stocking distributors, who
purchase the Company’s products and then re-sell them directly to customers, such as hospitals. For revenue from stocking
distributor arrangements, subsequent to the adoption of Topic 606 effective January 1, 2018, the Company recognizes revenue upon
shipment and receipt of a confirming purchase order, which is when the distributor obtains control of the promised goods. The
transaction price with stocking distributors is estimated based upon the Company’s historical collection experience with the stocking
distributor. To derive this estimate, the Company analyzes twelve months of historical invoices by stocking distributor and the
subsequent collections on those invoices, for a period of up to 24 months subsequent to the invoice date. This percentage, which is
specific to each stocking distributor, is then used to calculate the transaction price. Cost of sales is also recorded upon transfer of
control of the product to the customer.

Prior to the adoption of Topic 606, or for all periods presented prior to January 1, 2018, the Company recognized revenue from
stocking distributor arrangements once the product was delivered to the end customer (the “sell-through method”). Because the

F-27

Company did not have reliable information about when its distributors sold the product through to end customers, the Company
used cash collection from distributors as a basis for revenue recognition under the sell-through method. Although in many cases the
Company was legally entitled to the accounts receivable at the time of shipment, the Company did not recognize accounts
receivables or any corresponding deferred revenues at the time of shipment associated with stocking distributor transactions for
which revenue was recognized on the sell-through method. The Company also considered whether to match the related cost of sales
with revenue or to recognize cost of sales upon shipment. In making this assessment, the Company considered the financial viability
of its stocking distributors based on their creditworthiness to determine if collectability of amounts sufficient to realize the costs of
the products shipped was reasonably assured at the time of shipment to these stocking distributors. In instances where the stocking
distributor was determined to be financially viable, the Company deferred the costs of sales until the revenue was recognized.

Product Sales and Marketing Service Fees

The table below presents net sales, which includes product sales and marketing service fees, for each of the years ended
December 31, 2018, 2017, and 2016.

(U.S. Dollars, in thousands)
Product sales
Marketing service fees
Net sales

For the year ended December 31,
2017

2018

2016

395,589 $
57,453
453,042 $

373,538 $
60,285
433,823 $

355,652
54,136
409,788

Product sales primarily consist of bone growth stimulation devices and internal and external fixation products. Marketing service
fees are received from MTF based on total sales of biologics tissues and relates solely to the Biologics reporting segment. Marketing
service fees received from MTF were $57.5 million, or approximately 96% of total Biologics revenues, for the year ended December
31, 2018. As MTF is the Company’s single supplier for the Trinity Evolution and Trinity EITE tissue forms, which are derived from
human cadaveric donors, any event or circumstance that would impact MTF’s continued access to donated human cadaveric tissue
or the Company’s ability to market these tissues may adversely impact the Company’s financial results.

Revenues exclude any value added or other local taxes, intercompany sales and trade discounts. Shipping and handling costs for
products shipped to customers are included in cost of sales, and were $2.7 million, $3.0 million and $2.0 million for the years ended
December 31, 2018, 2017 and 2016, respectively.

Trade Accounts Receivable and Allowances

Payment terms vary by the type and location of the Company’s customers and the products or services offered. The term between
invoicing and when payment is due is not significant. Accounts receivable are analyzed on a quarterly basis to assess the adequacy of
both reserves for doubtful accounts and contractual allowances. Revisions in allowances for doubtful accounts estimates are
recorded as an adjustment to bad debt expense within sales and marketing expenses. Revisions to contractual allowances are
recorded as an adjustment to net sales. The Company’s estimates are periodically tested against actual collection experience.

The Company will generally sell receivables from certain Italian hospitals each year. During 2018, 2017, and 2016 the Company sold
€9.8 million, €9.8 million, and €10.0 million ($11.5 million, $11.2 million, and $11.1 million) of receivables, respectively. The
estimated related fee for 2018, 2017, and 2016 was $0.3 million, $0.3 million and $0.4 million, respectively, which is recorded as
interest expense. Trade accounts receivables sold without recourse are removed from the balance sheet at the time of sale.

Other Contract Assets

The Company’s contract assets, excluding trade accounts receivable (“other contract assets”), largely consist of payments made to
certain distributors to obtain contracts, gain access to customers in certain territories, and to provide the benefit of the exclusive
distribution of the Company’s products. Other contract assets are included in other long-term assets and were $1.9 million and
$1.0 million as of December 31, 2018 and 2017, respectively.

Other contract assets are amortized on a straight-line basis over the term of the related contract. There were no changes to such
treatment as a result of adoption of Topic 606. No impairments were incurred for other contract assets in 2018 or 2017. Further, the
Company has applied the practical expedient allowed within the guidance to expense sales commissions when incurred as the
amortization period would be for one year or less.

F-28

16.

Business segment information

We manage our business by our four reporting segments: Bone Growth Therapies, Spinal Implants, Biologics, and Orthofix
Extremities. These reporting segments represent the operating segments for which our Chief Executive Officer, who is also Chief
Operating Decision Maker (the “CODM”), reviews financial information and makes resource allocation decisions among businesses.
The primary metric used by the CODM in managing the Company is non-GAAP net margin, an internal metric that the Company
defines as gross profit less sales and marketing expense. The Company neither discretely allocates assets, other than goodwill, to its
operating segments nor evaluates the operating segments using discrete asset information. Accordingly, our reporting segment
information has been prepared based on our four reporting segments.

Bone Growth Therapies

The Bone Growth Therapies reporting segment manufactures, distributes, and provides support services of market leading bone
growth stimulator devices that enhance bone fusion. These Class III medical devices are indicated as an adjunctive, noninvasive
treatment to improve fusion success rates in cervical and lumbar spine as well as a therapeutic treatment for non-spine fractures
that have not healed (non-unions). This reporting segment uses distributors and sales representatives to sell its devices to hospitals,
healthcare providers, and patients, primarily in the U.S.

Spinal Implants

The Spinal Implants reporting segment designs, develops and markets a broad portfolio of motion preservation and implant
products used in surgical procedures of the spine. Spinal Implants distributes its products through a network of distributors and sales
representatives to sell spine products to hospitals and healthcare providers, globally.

Biologics

The Biologics reporting segment provides a portfolio of regenerative products and tissue forms that allow physicians to successfully
treat a variety of spinal and orthopedic conditions. This reporting segment specializes in the marketing of the Company’s exclusive
regeneration tissue forms and distributes its tissues to hospitals and healthcare providers, primarily in the U.S., through a network of
employed and independent sales representatives. Our partnership with MTF allows us to exclusively market the Trinity Evolution
and Trinity ELITE tissue forms for musculoskeletal defects to enhance bony fusion.

Orthofix Extremities

The Orthofix Extremities reporting segment offers products and solutions that allow physicians to successfully treat a variety of
orthopedic conditions unrelated to the spine. This reporting segment specializes in the design, development, and marketing of the
Company’s orthopedic products used in fracture repair, deformity correction and bone reconstruction procedures. Orthofix
Extremities distributes its products through a network of distributors and sales representatives to sell orthopedic products to
hospitals, and healthcare providers, globally.

Corporate

Corporate activities are comprised of the operating expenses and activities of the Company not necessarily identifiable within the
four reporting segments.

F-29

The table below presents net sales by reporting segment:

(U.S. Dollars, in thousands)
Bone Growth Therapies
Spinal Implants
Biologics
Orthofix Extremities
Net sales

2018

Net Sales
$ 195,252
91,658
59,684
106,448
$ 453,042

Year Ended December 31,
2017

Percent of
Total Net
Sales

Net Sales

Percent of
Total Net
Sales

2016

Percent of
Total Net
Sales

Net Sales

43.1% $ 185,900
81,957
20.2%
13.2%
62,724
23.5% 103,242
100.0% $ 433,823

42.9% $ 176,561
72,632
18.9%
14.4%
57,912
23.8% 102,683
100.0% $ 409,788

43.1%
17.7%
14.1%
25.1%
100.0%

The following table presents Non-GAAP net margin, and internal metric that the Company defines as gross profit less sales and
marketing expense, by reporting segment:

(U.S. Dollars, in thousands)

Bone Growth Therapies
Spinal Implants
Biologics
Orthofix Extremities
Corporate

Non-GAAP net margin
General and administrative
Research and development
Changes in fair value of contingent consideration
Charges related to U.S. Government resolutions
Operating income
Interest income (expense), net
Other expense, net
Income before income taxes

2018

Year Ended December 31,
2017

2016

86,252 $
7,628
26,298
31,391
(682)
150,887 $
84,506
33,218
3,069
—
30,094 $
(828)
(6,381)
22,885 $

77,369 $
8,730
25,692
31,071
(446)
142,416 $
71,905
29,700
—
—
40,811 $
(416)
(4,004)
36,391 $

75,469
8,650
26,891
30,526
(888)
140,648
76,409
28,803
—
14,369
21,067
763
(2,806)
19,024

The following table presents depreciation and amortization by reporting segment:

(U.S. Dollars, in thousands)
Bone Growth Therapies
Spinal Implants
Biologics
Orthofix Extremities
Corporate
Total

2018

Year Ended December 31,
2017

2016

1,770 $
7,294
448
5,342
3,805
18,659 $

2,133 $
6,949
752
6,040
4,250
20,124 $

2,754
8,118
1,011
5,742
3,216
20,841

F-30

Geographical information

The following data includes net sales by geographic destination:

(U.S. Dollars, in thousands)
U.S.
Italy
Germany
United Kingdom
Brazil
Others
Net sales

2018

2017

2016

355,353 $
19,331
11,606
8,731
7,120
50,901
453,042 $

345,145 $
17,059
7,063
8,725
10,356
45,475
433,823 $

316,873
16,664
6,448
10,362
11,334
48,107
409,788

The table below presents net sales by geographic destination for each reporting segment and for the consolidated Company:

(U.S. Dollars, in thousands)
Bone Growth Therapies
U.S.
International
Total Bone Growth Therapies

Spinal Implants
U.S.
International
Total Spinal Implants

Biologics
U.S.
International
Total Biologics

Orthofix Extremities
U.S.
International
Total Orthofix Extremities

Consolidated
U.S.
International
Net sales

2018

2017

2016

195,189
63
195,252

185,853
47
185,900

176,510
51
176,561

72,137
19,521
91,658

59,668
16
59,684

69,704
12,253
81,957

62,670
54
62,724

57,772
14,860
72,632

57,574
338
57,912

28,359
78,089
106,448

26,918
76,324
103,242

25,017
77,666
102,683

355,353
97,689
453,042

345,145
88,678
433,823

316,873
92,915
409,788

The following data includes property, plant and equipment by geographic area:

(U.S. Dollars, in thousands)
U.S.
Italy
Germany
United Kingdom
Brazil
Others
Total

2018

2017

31,344 $
7,732
861
896
191
1,811
42,835 $

34,008
7,658
933
382
475
1,683
45,139

F-31

17.

Share-based compensation

At December 31, 2018, and 2017, the Company had stock option and award plans, and a stock purchase plan.

2012 Long Term Incentive Plan

The Board of Directors adopted the Amended and Restated 2012 Long-Term Incentive Plan (the “2012 LTIP”) on April 13, 2012, subject
to shareholder approval, which was subsequently provided by shareholder ratification. The 2012 LTIP provides for the grant of options
to purchase shares of the Company’s common stock, stock awards (including restricted stock, unrestricted stock, and stock units), stock
appreciation rights, performance-based awards and other equity-based awards. All of the Company’s employees and the employees of
the Company’s subsidiaries and affiliates are eligible and may receive awards under the 2012 LTIP. In addition, the Company’s non-
employee directors and consultants and advisors who perform services for the Company and the Company’s subsidiaries and affiliates
may receive awards under the 2012 LTIP. Incentive share options; however, are only available to the Company’s employees. Awards
granted under the 2012 LTIP expire no later than ten years after the date of grant. At December 31, 2018, the Company reserves a total
of 4,750,000 shares of common stock for issuance pursuant to the 2012 LTIP, subject to certain adjustments set forth in the 2012
LTIP. At December 31, 2018, there were 971,763 options outstanding under the 2012 LTIP, of which 520,748 were exercisable. In
addition, there were 339,452 shares of unvested restricted stock outstanding, some of which contain performance-based vesting
conditions, and 371,676 restricted stock units outstanding, some of which contain performance-based or market-based vesting
conditions, under the 2012 LTIP as of December 31, 2018.

2004 Long Term Incentive Plan

The 2004 Long Term Incentive Plan (the “2004 LTIP”) reserved 3.1 million shares for issuance, subject to certain adjustments set
forth in the 2004 LTIP. At December 31, 2018, there were 25,500 options outstanding under the 2004 LTIP, all of which were
exercisable; in addition, there were no shares of unvested restricted stock outstanding.

Inducement Plan for Spinal Kinetics Employees

The Inducement Plan for Spinal Kinetics Employees (the “Spinal Kinetics Inducement Plan”) reserved 51,705 shares for issuance to
employees of Spinal Kinetics as an inducement material to the individual’s entering into and continuing employment with the
Company. At December 31, 2018, there were 28,624 options outstanding under the Spinal Kinetics Inducement Plan, none of which
were exercisable; in addition, there were 19,914 shares of unvested restricted stock outstanding.

Stock Purchase Plan

The Second Amended and Restated Stock Purchase Plan, as Amended (the “Stock Purchase Plan”) provides for the issuance of shares
of the Company’s common stock to eligible employees and directors of the Company and its subsidiaries that elect to participate in
the plan and acquire shares of common stock through payroll deductions (including executive officers).

During each purchase period, eligible employees may designate between 1% and 25% of their compensation to be deducted for the
purchase of common stock under the plan (or such other percentage in order to comply with regulations applicable to Employees
domiciled in or resident of a member state of the European Union). For eligible directors, the designated percentage will be applied
to an amount equal to his or her annual or other director compensation paid in cash for the current plan year. The purchase price of
the shares under the plan is equal to 85% of the fair market value on the first day of the plan year (which is a calendar year, running
from January 1 to December 31) or, if lower, on the last day of the plan year.

Due to the compensatory nature of such plan, the Company records the related share-based compensation in the consolidated
statement of income. As of December 31, 2018, the aggregate number of shares reserved for issuance under the Stock Purchase
Plan is 2,350,000. As of December 31, 2018, 1,628,045 shares had been issued.

F-32

Share-Based Compensation Expense

Share-based compensation expense is recorded in the same line of the consolidated statements of income as the employee’s cash
compensation. The following tables present the detail of share-based compensation by line item in the consolidated statements of
income as well as by award type, for the years ended December 31, 2018, 2017 and 2016:

(U.S. Dollars, in thousands)
Cost of sales
Sales and marketing
General and administrative
Research and development
Total

(U.S. Dollars, in thousands)
Stock options
Time-based restricted stock awards and stock units
Performance-based restricted stock awards and stock
units
Market-based restricted stock units
Stock purchase plan
Total

2018

Year Ended December 31,
2017

2016

522 $

1,802
15,197
1,409
18,930 $

486 $

1,471
9,671
929
12,557 $

2018

Year Ended December 31,
2017

2016

3,061 $
7,265

1,998
5,256
1,350
18,930 $

2,388 $
5,540

462
2,904
1,263
12,557 $

553
1,230
13,132
1,051
15,966

2,021
6,016

5,716
948
1,265
15,966

The income tax benefit related to this expense was $3.8 million, $3.4 million, and $4.3 million for the years ended December 31,
2018, 2017, and 2016, respectively.

Stock Options

The fair value of time-based stock options is determined using the Black-Scholes valuation model, with such value recognized as
expense over the service period, which is typically four years, net of actual forfeitures. The fair value of market-based stock options
is determined at the date of the grant using the Monte Carlo valuation methodology, with such value recognized as expense over
the requisite service period adjusted for forfeitures as they occur. The Monte Carlo methodology incorporates into the valuation the
possibility that the market condition may not be satisfied.

A summary of the Company’s assumptions used in determining the fair value of the stock options granted during the year is shown
in the following table.

Assumptions:

Expected term (in years)
Expected volatility
Risk free interest rate
Dividend yield

Weighted average grant date fair value

Year Ended December 31,

2018

2017

2016

4.5
28.7% – 30.1%
2.55% – 2.79%
—
16.28 $

4.5
31.2%
1.93%
—
13.32

4.5
30.6% – 32.3%
1.07% – 1.92%
—
11.79

The expected term of the options granted is estimated based on a number of factors, including the vesting and expiration terms of
the award, historical employee exercise behavior for both options that are currently outstanding and options that have been
exercised or are expired, and an employee’s average length of service. Expected volatility is based on the historical volatility of the
Company’s common stock. The risk-free interest rate is determined based upon a constant U.S. Treasury security rate with a
contractual life that approximates the expected term of the option award. Expected volatility is estimated based on the historical
volatility of the Company’s stock.

F-33

Summaries of the status of the Company’s stock option plans as of December 31, 2018 and 2017 and changes during the year ended
December 31, 2018 are presented below:

Outstanding at December 31, 2017
Granted
Exercised
Forfeited
Outstanding at December 31, 2018
Vested and expected to vest at December 31, 2018
Exercisable at December 31, 2018

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Term

37.47
57.66
27.80
48.80
41.87
41.87
36.67

6.61
6.61
5.36

Options
1,086,822 $
231,548 $
(100,821) $
(41,662) $
1,175,887 $
1,175,887 $
696,248 $

As of December 31, 2018, the unamortized compensation expense relating to options granted and expected to be recognized was
$3.0 million. This amount is expected to be recognized through April 2022 or over a weighted average period of approximately 1.4
years. The total intrinsic value of options exercised was $3.2 million, $2.2 million and $4.3 million for the years ended December 31,
2018, 2017 and 2016, respectively. For the year ended December 31, 2018 we received $2.8 million in cash from stock option
exercises, with the tax benefit realized for the tax deductions from these exercises of $0.8 million. The aggregate intrinsic value of
options outstanding and options exercisable as of December 31, 2018 is calculated as the difference between the exercise price of
the underlying options and the market price of the Company’s common stock for the shares that had exercise prices that were lower
than the $52.49 closing price of the Company’s stock on December 31, 2018. The aggregate intrinsic value of options outstanding
was $13.6 million, $18.7 million and $3.3 million for the years ended December 31, 2018, 2017, and 2016, respectively. The
aggregate intrinsic value of options exercisable was $11.0 million, $12.4 million and $2.2 million for the years ended December 31,
2018, 2017 and 2016, respectively.

Time-based Restricted Stock Awards and Stock Units

During the year ended December 31, 2018, the Company granted to employees and non-employee directors 172,108 shares of time-
based restricted stock awards or stock units, which vest at various dates through December 2022. The compensation expense, which
represents the fair value of the stock measured at the market price at the date of grant, is recognized on a straight-line basis over
the vesting period, which is typically four years, net of actual forfeitures.

Since 2017, the annual grant to non-employee directors has been made in the form of one-year vesting restricted stock units with
deferred delivery (“DSUs”), whereby shares are not settled until after the director ceases service as a director. As at December 31,
2018 there are 27,982 DSUs outstanding that are vested but not settled.

The aggregate fair value of time-based restricted stock awards and stock units that vested during the years ended December 31,
2018, 2017 and 2016 was $8.0 million, $7.3 million and $7.2 million, respectively. Unamortized compensation expense related to
time-based restricted stock awards and stock units amounted to $12.2 million at December 31, 2018, and is expected to be
recognized over a weighted average period of approximately 2.4 years. The aggregate intrinsic value of time-based restricted stock
awards and stock units outstanding was $18.8 million, $17.8 million and $13.0 million for the years ended December 31, 2018, 2017
and 2016, respectively.

Performance-based Restricted Stock Awards and Stock Units

The Company’s performance-based restricted stock awards and stock units contain performance-based vesting conditions.

The fair value of performance-based restricted stock awards and stock units is calculated based upon the closing stock price at the
date of grant. Such value is recognized as expense over the derived requisite service period beginning in the period in which they are
deemed probable to vest, net of actual forfeitures. Vesting probability is assessed based upon forecasted earnings and financial
results. During the years ended December 31, 2018, 2017, or 2016, the Company did not grant any performance-based restricted
stock awards or stock units to employees.

F-34

During the year ended December 31, 2015, the Company granted to employees 110,660 shares of performance-based restricted
stock awards, which vest based upon the achievement of certain earnings or return on invested capital targets as of and for any of
the years ended December 31, 2016, 2017, or 2018. Approximately $0.4 million, $0.5 million and $5.7 million of compensation
expense has been recorded for the years ended December 31, 2018, 2017 and 2016, respectively, associated with these
performance-based restricted stock awards. The fair value of performance-based restricted stock awards that vested during the year
ended December 31, 2017, was $4.9 million. No performance-based restricted stock awards vested during the years ended
December 31, 2018 or 2016. No unamortized compensation expense related to performance-based restricted stock awards remains
as of December 31, 2018. The aggregate intrinsic value of performance-based restricted stock awards outstanding was $2.9 million,
$3.0 million and $7.0 million for the years ended December 31, 2018, 2017, and 2016, respectively.

During the year ended December 31, 2015, the Company also granted 55,330 shares of performance-based restricted stock units to
employees, which vest based upon the achievement of certain earnings or return on invested capital targets for the year ended
December 31, 2018. Approximately $1.6 million of compensation expense has been recognized for the year ended December 31,
2018, associated with these 2015 performance-based restricted stock units. The Company did not record any compensation expense
for the years ended December 31, 2017 or 2016 related to these 2015 performance-based restricted stock units as the requisite
service period had not yet begun. No unamortized compensation expense related to these 2015 performance-based restricted stock
units remains as of December 31, 2018. The aggregate intrinsic value of performance-based restricted stock units outstanding was
$2.5 million, $3.0 million, and $2.0 million for the years ended December 31, 2018, 2017, and 2016, respectively.

Market-based Restricted Stock Units

The Company’s market-based restricted stock units contain market-based vesting conditions.

The fair value of market-based restricted stock units is determined at the date of the grant using the Monte Carlo valuation
methodology, with any discounts for post-vesting restrictions estimated using the Chaffe Model. The Monte Carlo methodology
incorporates into the valuation the possibility that the market condition may not be satisfied. Such value is recognized on a straight-
line basis over the vesting period, net of actual forfeitures. During the years ended December 31, 2018, 2017 and 2016, the
Company granted 97,420, 94,902 and 96,245 shares, respectively, of market-based restricted stock units to executive officers and
certain employees. The awards, if the market conditions are achieved, will be settled in shares of common stock, with one share of
common stock issued per restricted stock unit if targets are achieved at the 100% level. Awards may be achieved at a minimum level
of 50% and a maximum of 200%. The market conditions for the 2018, 2017, and 2016 awards are based on the Company’s stock
achieving certain total shareholder return targets relative to specified index companies during a 3-year performance period
beginning in April 2018, July 2017, and July 2016, respectively. The Company recorded $5.3 million $2.9 million, and $0.9 million in
compensation expense for the years ended December 31, 2018, 2017, and 2016, respectively, related to market-based restricted
stock units. Unamortized compensation expense for market-based restricted stock units amounted to $6.5 million at December 31,
2018, and is expected to be recognized over a weighted average period of approximately 1.4 years. The aggregate intrinsic value of
market-based restricted stock units outstanding was $14.2 million, $10.2 million, and $3.5 million for the years ended December 31,
2018, 2017, and 2016, respectively.

A summary of the status of our time-based, performance-based and market-based restricted stock awards and stock units as of
December 31, 2018 and 2017 and changes during the year ended December 31, 2018 are presented below:

Outstanding at December 31, 2017
Granted
Vested and settled
Cancelled
Outstanding at December 31, 2018

Time-based Restricted Stock
Awards and Stock Units
Weighted
Average
Grant
Date Fair
Value

Performance-based
Restricted Stock
Awards and Stock Units
Weighted
Average
Grant
Date Fair
Value

Market-based
Restricted Stock Units

Weighted
Average
Grant
Date Fair
Value

325,874 $
172,108 $
(112,249) $
(28,141) $
357,592 $

42.44 109,880 $
— $
57.18
40.08
— $
(7,725) $
48.84
49.77 102,155 $

33.12 187,314 $
—
97,420 $
—
— $
(13,439) $
33.12
33.12 271,295 $

51.99
68.38
—
60.83
57.44

F-35

18. Defined contribution plans and deferred compensation

Defined Contribution Plans

Orthofix Inc. sponsors a defined contribution plan (the “401(k) Plan”) covering substantially all full time U.S. employees. The
401(k) Plan allows participants to contribute up to 80% of their pre-tax compensation, subject to certain limitations, with the
Company matching 100% of the first 2% of the employee’s base compensation and 50% of the next 4% of the employee’s base
compensation if contributed to the 401(k) Plan. During the years ended December 31, 2018, 2017 and 2016, expenses incurred
relating to the 401(k) Plan, including matching contributions, were approximately $2.3 million, $2.0 million and $1.9 million,
respectively.

The Company also operates defined contribution pension plans for its international employees meeting minimum service
requirements. The Company’s expenses for such pension contributions during each of the years ended December 31, 2018, 2017
and 2016 were $1.1 million, $1.1 million and $1.0 million, respectively.

Deferred Compensation Plans

Under Italian Law, our Italian subsidiary accrues, on behalf of its employees, deferred compensation, which is paid on termination of
employment. The accrual for deferred compensation is based on a percentage of the employee’s current annual remuneration plus
an annual charge. Deferred compensation is also accrued for the leaving indemnity payable to agents in case of dismissal, which is
regulated by a national contract and is equal to approximately 3.5% of total commissions earned from the Company. The Company’s
relations with its Italian employees, who represent 19.6% of total employees at December 31, 2018, are governed by the provisions
of a National Collective Labor Agreement setting forth mandatory minimum standards for labor relations in the metal mechanic
workers industry. The Company is not a party to any other collective bargaining agreement.

There were $0.1 million in deferred compensation payments made in 2018, $0.2 million in 2017, and $0.1 million in 2016. The balance
in other long-term liabilities as of December 31, 2018 and 2017 was $1.3 million and $1.4 million, respectively, and represents the
amount which would be payable if all the employees and agents had terminated employment at that date.

19.

Income taxes

Income (loss) from continuing operations before provision for income taxes consisted of the following:

(U.S. Dollars, in thousands)

U.S.
Non-U.S.

Income before income taxes

2018

Year Ended December 31,
2017

2016

28,642 $
(5,757)
22,885 $

27,774 $
8,617
36,391 $

23,006
(3,982)
19,024

The provision for income taxes on continuing operations consists of the following:

(U.S. Dollars, in thousands)
U.S.

Current
Deferred

Non-U.S.

Current
Deferred

Income tax expense

2018

Year Ended December 31,
2017

2016

9,480 $
(3,430)
6,050

2,255
769
3,024
9,074 $

3,620 $

20,222
23,842

4,062
1,196
5,258
29,100 $

558
9,296
9,854

4,509
1,164
5,673
15,527

F-36

The differences between the income tax provision at the U.S. federal statutory tax rate and the Company’s effective tax rate for the
years ended December 31, 2018, 2017, and 2016 consist of the following:

(U.S. Dollars, in thousands, except percentages)
Statutory U.S. federal income tax rate
State taxes, net of U.S. federal benefit
Foreign rate differential, including withholding
taxes
Charges related to U.S. Government resolutions
Valuation allowances, net
Change in estimate on compensation expenses
Italian subsidiary intangible asset
Change of intention for foreign earnings
Domestic manufacturing deduction
Unrecognized tax benefits, net of settlements
Impact of the Tax Act
Equity compensation
Contingent consideration
Other, net
Income tax expense/effective rate

2018

Amount

4,806
1,038

784
—
4,116
—
(230)
—
—
81
(560)
(1,646)
528
157
9,074

20171

20161

Percent

Amount
21.0% $ 12,737
1,598

4.5

Percent

Amount

Percent

35.0% $

4.4

6,658
395

35.0%
2.1

3.4
—
18.0
—
(1.0)
—
—
0.4
(2.4)
(7.2)
2.3
0.7

(3,849)
—
3,548
—
(381)
—
(818)
6,002
8,347
272
—
1,644
39.7% $ 29,100

(10.6)
—
9.7
—
(1.0)
—
(2.2)
16.5
22.9
0.7
—
4.5

(805)
2,050
6,149
(2,151)
(1,477)
1,300
—
3,049
—
334
—
25
80.0% $ 15,527

(4.2)
10.8
32.3
(11.3)
(7.8)
6.8
—
16.0
—
1.8
—
0.1
81.6%

1 The rate reconciliations for 2017 and 2016 are based on the U.S. federal income tax rate, rather than the Company’s country of domicile rate. The Company
believes, given the large proportion of taxable income earned in the U.S., this presentation is more meaningful.

On December 22, 2017, the Tax Act was signed into law making significant changes to the Internal Revenue Code. Changes include,
but are not limited to, a U.S. corporate rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017,
the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the
mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. The Company calculated its best estimate
of the impact of the Tax Act in the 2017 income tax provision in accordance with its understanding of the Tax Act and guidance
available as of the date of this filing. As a result, the Company recorded $8.3 million of additional income tax expense in the fourth
quarter of 2017, the period in which the legislation was enacted. The provisional amount related to the remeasurement of certain
deferred tax assets and liabilities, based on the rates at which they are expected to reverse in the future was $8.6 million. The
provisional amount related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings was zero. The
Company also recorded a benefit of $0.3 million related to an income tax liability recorded in 2016 related to repatriation of
earnings from our subsidiary in Puerto Rico.

On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of U.S. GAAP in
situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in
reasonable detail to complete the accounting for certain income tax effects of the Tax Act. In accordance with SAB 118, we
determined that the $8.6 million of the deferred tax expense recorded in connection with the remeasurement of certain deferred
tax assets and liabilities and the zero transition tax on the mandatory deemed repatriation of foreign earnings was a provisional
amount and a reasonable estimate at December 31, 2017. A more detailed analysis of the Company’s deferred tax assets and
liabilities and its historical foreign earnings as well as potential correlative adjustments was completed in 2018, which resulted in an
additional benefit of $0.6 million in the first quarter of 2018 and minimal adjustments in the fourth quarter of 2018. As of December
31, 2018, the Company has completed its accounting for the tax effects of enactment of the Tax Act.

In January 2018, the FASB released guidance on the accounting for tax on the global intangible low taxed income (“GILTI”) provisions
of the Tax Act. The GILTI provisions impose a tax on foreign income in excess of deemed return on tangible assets of foreign
corporations. The guidance indicated that either accounting for deferred taxes related to GILTI inclusion or to treat any taxes on
GILTI inclusion as a period cost are both acceptable methods subject to an accounting policy election. The Company has made a
policy election to treat any taxes on GILTI inclusion as a period cost.

The Company paid cash relating to taxes totaling $15.6 million, $3.3 million, and $4.4 million for the years ended December 31,
2018, 2017, and 2016, respectively.

F-37

During 2016, the Company revised its estimate relating to the deductibility of certain compensation expenses. This change in
estimate reduced income tax expense and increased net income from continuing operations by $2.4 million and increased earnings
per share by $0.13 for the year ended December 31, 2016.

The Company’s deferred tax assets and liabilities are as follows:

(U.S. Dollars, in thousands)
Intangible assets and goodwill
Inventories and related reserves
Deferred revenue and cost of goods sold
Other accruals and reserves
Accrued compensation
Allowance for doubtful accounts
Net operating loss and tax credit carryforwards
Other, net

Valuation allowance
Deferred tax asset
Withholding taxes
Property, plant and equipment
Deferred tax liability
Net deferred tax assets

December 31,

2018

2017

1,682 $

12,151
4,652
2,799
8,317
2,346
52,664
2,200
86,811
(49,014)
37,797 $
—
(4,569)
(4,569)
33,228 $

2,271
11,298
6,816
2,336
4,054
2,617
43,296
1,748
74,436
(46,271)
28,165
(381)
(4,469)
(4,850)
23,315

The Company accounts for income taxes using the asset and liability method, under which deferred tax assets and liabilities are
recognized for the expected future tax consequences of temporary differences between the financial reporting and income tax basis
of assets and liabilities, and for operating losses and credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the years in which those items are expected to be realized. Tax law and rate changes are recorded in
the period such changes are enacted. The Company establishes a valuation allowance when it is more likely than not that certain
deferred tax assets will not be realized in the foreseeable future.

The valuation allowance is primarily attributable to net operating loss carryforwards and temporary differences in certain foreign
jurisdictions. The net increase in the valuation allowance of $2.7 million during the year principally relates to the increase of
valuation allowances on net operating loss carryforwards in foreign jurisdictions.

The Company has federal net operating loss carryforwards of $24.4 million and research and development credits of $1.6 million as
a result of the acquisition of Spinal Kinetics. These carryforwards are subject to limitation under the provisions of Section 382 and
will begin to expire in 2026. The Company has state net operating loss carryforwards of approximately $49.0 million, of which $35.2
million relates to Spinal Kinetics and begins to expire in 2019. Additionally, the Company has net operating loss carryforwards in
various foreign jurisdictions of approximately $159.5 million that begin to expire in 2019, the majority of which relate to the
Company’s Netherlands and Brazil operations.

During 2016, the Company changed its intention related to unremitted foreign earnings in its Puerto Rico subsidiary and certain
United Kingdom subsidiaries. As a result of the change in intention, the Company recorded $1.3 million of income tax expense for
the remitted and unremitted earnings in each of these subsidiaries. During the first quarter of 2017, the Company changed its
intention related to unremitted foreign earnings in its Seychelles subsidiary. The tax impact was minimal.

Prior to the Domestication, as an entity incorporated in Curaçao, “foreign earnings” referred to both U.S. and non-U.S. earnings. As
a result of the Domestication, only income sourced outside of the U.S. is considered unremitted foreign earnings. Unremitted
foreign earnings decreased from $335.7 million at December 31, 2017 to $50.4 million at December 31, 2018. The substantial
decrease is due to the elimination of US accumulated earnings and other impacts as a result of the Domestication. As a result of the
2017 Tax Act, current year earnings have been deemed to be repatriated. The Company’s investment in foreign subsidiaries
continues to be indefinite in nature; however, the Company may periodically repatriate a portion of these earnings to the extent
that it does not incur additional tax liability.

F-38

The Company records a benefit for uncertain tax positions when the weight of available evidence indicates that it is more likely than
not, based on an evaluation of the technical merits, that the tax position will be sustained on audit. The tax benefit is measured as
the largest amount that is more than 50% likely to be realized upon settlement. The Company re-evaluates income tax positions
periodically to consider changes in facts or circumstances such as changes in or interpretations of tax law, effectively settled issues
under audit, and new audit activity. The Company includes interest and any applicable penalties related to income tax issues as part
of income tax expense in its consolidated financial statements.

The Company’s unrecognized tax benefit was $21.4 million and $22.5 million for the years ended December 31, 2018 and 2017,
respectively. The Company recorded net interest and penalties on unrecognized tax benefits of $1.4 million, $2.3 million, and $2.1
million for the years ended December 31, 2018, 2017, and 2016, respectively, and had approximately $6.7 million and $5.3 million
accrued for payment of interest and penalties as of December 31, 2018 and 2017, respectively. The entire amount of unrecognized
tax benefits, including interest, would favorably impact the Company’s effective tax rate if recognized. The Company believes it is
reasonably possible that, in the next 12 months, the amount of unrecognized tax benefits related to the resolution of federal, state
and foreign matters could be reduced by $3.3 million to $3.8 million as audits close and statutes expire.

A reconciliation of the gross unrecognized tax benefits (excluding interest and penalties) for the years ended December 31, 2018,
2017, and 2016 follows:

(U.S. Dollars, in thousands)
Balance as of January 1,
Additions for current year tax positions
Increases for prior year tax positions
Settlements of prior year tax positions
Expiration of statutes
Balance as of December 31,

2018

2017

23,676 $
170
1,653
(1,499)
(2,649)
21,351 $

19,400
787
3,498
—
(9)
23,676

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and in certain state and foreign jurisdictions,
including Italy and the United Kingdom. The statute of limitations with respect to federal and state tax filings is closed for years prior
to 2014. The statute of limitations with respect to the major foreign tax filing jurisdictions is closed for years prior to 2014.

During the third quarter of 2015, the Internal Revenue Service commenced an examination of the Company’s federal income tax
return for 2012. The Company concluded this examination in the first quarter of 2018 with no material impact to the financial
statements. In October 2016, the Company was notified of an examination of its federal income tax return for 2013 and in
December 2017, the examination for 2013 was concluded with no change. In November 2017, the Company was notified of an
examination of its federal income tax return for 2015. In February 2019, the Company reached an agreement and concluded this
examination. As a result, the Company expects to recognize a benefit of approximately $2.0 million during 2019. The Company
cannot reasonably determine if any state and local tax or foreign examinations, will have a material impact on its financial
statements and cannot predict the timing regarding resolution of these tax examinations.

20.

Earnings per share (EPS)

The Company uses the two-class method of computing basic EPS due to the existence of non-vested restricted stock awards with
nonforfeitable rights to dividends or dividend equivalents (referred to as participating securities). Basic EPS is computed using the
weighted average number of common shares outstanding during each of the respective years. Diluted EPS is computed using the
weighted average number of common and common equivalent shares outstanding during each of the respective years using the
more dilutive of either the treasury stock method or two-class method. The difference between basic and diluted shares, if any,
largely results from common equivalent shares, which represents the dilutive effect of the assumed exercise of certain outstanding
share options, the assumed vesting of restricted stock granted to employees and directors, or the satisfaction of certain necessary
conditions for contingently issuable shares (see Note 17).

F-39

For each of the three years ended December 31, 2018, no significant adjustments were made to net income for purposes of
calculating basic and diluted EPS. The following is a reconciliation of the weighted average shares used in the diluted EPS
computations.

Weighted average common shares-basic
Effect of diluted securities:

Unexercised stock options and employee stock purchase plan
Unvested time-based restricted stock awards
Unvested performance-based restricted stock awards

Weighted average common shares-diluted

2018

Year Ended December 31,
2017

2016

18,494,002

18,117,405

18,144,019

313,648
—
103,960
18,911,610

209,691
123,592
48,057
18,498,745

161,092
138,291
19,759
18,463,161

There were 349,930, 418,859 and 542,555 weighted average outstanding options, restricted stock, and performance-based or
market-based equity awards not included in the diluted earnings per share computation for the years ended December 31, 2018,
2017 and 2016, respectively, because inclusion of these awards was anti-dilutive or, for performance-based and market-based
awards, all necessary conditions have not been satisfied by the end of the respective period.

21. Quarterly financial data (unaudited)

(U.S. Dollars, in thousands, except per share data)
Net sales
Cost of sales
Gross profit
Operating expense1, 2
Operating income1, 2
Net income (loss) from continuing operations2
Net income (loss)
Net income (loss) per common share — basic:

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

2018

$ 108,709 $ 111,547 $ 111,708 $ 121,078 $
25,626
95,452
83,050
12,402
8,871
8,871 $

24,020
87,688
83,781
3,907
(1,211)
(1,211) $

22,835
88,712
82,797
5,915
925
925 $

24,147
84,562
76,692
7,870
5,226
5,226 $

Net income (loss) from continuing operations
Net income (loss)

Net income (loss) per common share — diluted:

Net income (loss) from continuing operations
Net income (loss)

$
$

0.28 $
0.28 $

0.27 $
0.27 $

0.05 $
0.05 $

(0.07) $
(0.07) $

0.05 $
0.05 $

(0.07) $
(0.07) $

0.47 $
0.47 $

0.46 $
0.46 $

Year
453,042
96,628
356,414
326,320
30,094
13,811
13,811

0.73
0.73

0.72
0.72

1 The Company reclassified $1.1 million of previously reported expense during the second quarter of 2018 related to changes in fair
value of contingent consideration in the table above to conform to current period presentation.

F-40

2 The Company reclassified less than $10 thousand of previously reported net income (loss) from discontinued operations during the
first, second, and third quarters of 2018 to continuing operations to conform to current period presentation.

(U.S. Dollars, in thousands, except per share data)
Net sales
Cost of sales
Gross profit
Operating expense
Operating income
Net income (loss) from continuing operations
Net income (loss)
Net income (loss) per common share — basic:

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

2017

$ 102,738 $ 108,942 $ 105,247 $ 116,896 $
23,562
93,334
75,474
17,860
1,516
1,568 $

23,717
81,530
72,496
9,034
3,348
3,456 $

22,581
80,157
74,238
5,919
(2,308)
(2,654) $

23,177
85,765
77,767
7,998
4,735
3,853 $

Net income (loss) from continuing operations
Net income (loss)

Net income (loss) per common share — diluted:

Net income (loss) from continuing operations
Net income (loss)

$
$

(0.13) $
(0.15) $

0.26 $
0.21 $

0.18 $
0.19 $

0.08 $
0.09 $

0.08 $
0.08 $

Year
433,823
93,037
340,786
299,975
40,811
7,291
6,223

0.40
0.34

0.39
0.34

22. Subsequent events

Options Medical, LLC Acquisition

On January 31, 2019, the Company acquired certain assets of Options Medical, LLC, (“Options Medical”) a medical device distributor
based in Florida. Under the terms of the acquisition, the parties agreed to terminate the exclusive sales representative agreement,
employees of Options Medical became employees of the Company and the Company acquired all customer lists and customer
information related to the sale of the Company’s products. As consideration for the assets acquired, the Company paid $6.4 million
and, as an inducement to enter into employment with the Company, the Company provided 25,478 restricted stock units, with a fair
value of $1.4 million, to the Options Medical founder, which will vest in one-third annual increments beginning on the first
anniversary of the grant date and are contingent upon continued employment.

FDA Approval of M6-C Artificial Cervical Disc

On February 6, 2019, the Company obtained FDA approval of the M6-C artificial cervical disc for patients suffering from cervical
disease degeneration. The M6-C artificial disc was developed by Spinal Kinetics, a company acquired by the Company in April 2018.
This approval triggered the Company’s payment obligation of $15.0 million of contingent consideration attributable to the Spinal
Kinetics purchase price. The Company has accrued a liability of $13.6 million within other current liabilities as of December 31, 2018,
and paid the $15.0 million FDA Milestone payment on February 14, 2019 from cash on hand. The difference of $1.4 million between
the payment and the liability as of December 31, 2018, will be recognized as an operating expense during the first quarter of 2019.

Retirement of the Company’s President and Chief Executive Officer

On February 25, 2019, the Company entered into a Transition and Retirement Agreement (the “Retirement Agreement”) with the
Company’s President and Chief Executive Officer, Brad Mason. Under the Retirement Agreement, the parties have agreed that Mr.
Mason will continue to serve in his current role until his successor is appointed by the Board and commences employment (the
“Retirement Date”). The parties have agreed that Mr. Mason will provide ongoing transition assistance to the Company pursuant to
a consulting arrangement during the 12 months following the Retirement Date, and that Mr. Mason will be paid $40,000 per month
for such transition consulting services.

Under the Retirement Agreement, Mr. Mason will be eligible on the Retirement Date to receive full vesting acceleration of his
unvested time-based equity awards, and he will continue to receive service credit under his performance based equity awards
during the term of his consulting arrangement. For fiscal year 2019, in lieu of Mr. Mason’s normal annual incentive awards under the
2012 LTIP, and in recognition of the ongoing transition assistance that he has agreed to provide, the parties have agreed that he will
be granted an award of restricted stock units with a grant date fair market value of $2,000,000 that will vest one year following the
date of grant, subject to him continuing to provide transition consulting services through his Retirement Date.

F-41

(cid:3)

CORPORATE HEADQUARTERS - U.S. SALES,
MANUFACTURING & DISTRIBUTION

Orthofix Medical Inc.

3451 Plano Parkway
Lewisville, TX 75056
USA

Tel: 214.937.2000

Orthofix Medical Inc.
(Manufacturing & Distribution for the
M6 artificial discs)

501 Mercury Drive
Sunnyvale, CA 94085
USA

Tel: 408.636.2500

INTERNATIONAL SALES, MANUFACTURING
& DISTRIBUTION SUBSIDIARIES

Orthofix S.r.l.

Via delle Nazioni 9
37012 Bussolengo
Verona, Italy

Tel: +39.045.6719000

Orthofix S.r.l.
(International Distribution Center)

Via della Filanda 7/9
37060 Lugagnano di Sona
Verona, Italy

Tel: +39.045.6719000

Orthofix do Brasil Ltda.

Rua Alves Guimarães, 1216
Pinheiros 05410-002
São Paulo – SP
Brazil

Tel: +55.11.30872260

Orthofix GmbH / Orthofix Spine GmbH

Siemensstraße 5
85521 Ottobrunn
Munich/Germany

Tel: +49.89.35499990

Spinal Kinetics Gmbh
an Orthofix Company

Gottlieb-Daimler-Str. 43
89150 Laichingen, Germany

Tel: +49.7333.925.9986

Orthofix S.A.

21-37 Rue de Stalingrad, 24/28 Villa Baudran
94110 Arcueil
France

Tel: +33.1.41983333

Spinal Kinetics France SARL
an Orthofix Company

259 Rue Saint-Honr’e
75001 Paris, France

Orthofix Australia Pty. Ltd.
c/o Baker McKenzie
Level 46, Tower One
International Towers Sydney
100 Barangaroo Avenue
Barangaroo NSW 2000
Australia

Tel: +61.2.9493.4448

Orthofix Ltd.

6 Waltham Park
Waltham Road
White Waltham
Maidenhead, Berkshire
SL6 3TN
United Kingdom

Tel: +44.1628.594500

COMMON STOCK

Approximately 361 shareholders of record.
Traded on the NASDAQ
Symbol: OFIX

TRANSFER AGENT

Computershare Investor Services
P.O. BOX 30170
College Station, TX 77842-3170
1.877.205.0957

www.computershare.com/investor

INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

Ernst & Young LLP
Dallas, TX

orthofix.com