ARLINGTON, Tenn.--(BUSINESS WIRE)--Wright Medical Group, Inc. (NASDAQ: WMGI), a global orthopaedic medical device company and a leading provider of surgical solutions for the foot and ankle market, today reported financial results for its fourth quarter ended December 31, 2010.
Net sales totaled $138.3 million during the fourth quarter ended December 31, 2010, representing a 6% increase over net sales of $129.9 million during the fourth quarter of 2009. Excluding the impact of foreign currency, net sales increased 7% during the fourth quarter.
Net income for the fourth quarter of 2010 totaled $8.9 million or $0.22 per diluted share, compared to net income of $2.2 million or $0.06 per diluted share in the fourth quarter of 2009.
Net income for the fourth quarter of 2010 included the after-tax effects of approximately $3.0 million of non-cash stock-based compensation expense and $1.3 million of expenses associated with our deferred prosecution agreement (DPA). Net income for the fourth quarter of 2009 included the after-tax effects of approximately $5.6 million of charges to write down a significant international receivable, $3.0 million of non-cash stock-based compensation expense, $2.6 million of non-cash charges to write-off cumulative translation adjustment (CTA) balances associated with the substantially complete liquidation of certain foreign subsidiaries, and $2.6 million of restructuring charges.
Fourth quarter net income, as adjusted, totaled $11.8 million, or $0.29 per diluted share, in 2010 compared to net income, as adjusted, of $10.8 million, or $0.27 per diluted share for the fourth quarter of 2009. A reconciliation of U.S. GAAP to “as adjusted” results is included in the attached financial tables.
Gary D. Henley, President and Chief Executive Officer commented, “We are pleased with our ability to deliver fourth quarter revenue and earnings results above our communicated guidance ranges. Our U.S. business benefited from an accelerating extremities growth rate and favorable early results from the launch of our EVOLUTION™ Medial-Pivot knee system, and our international business continued to deliver the strong revenue results that we have seen throughout 2010. In addition to the better than expected revenue and earnings results, we also finished the year strong from a cash flow perspective, resulting in full year 2010 free cash flow of $24 million.”
Mr. Henley continued, “2010 was a challenging year for the orthopaedic industry. Despite the industry wide challenges, we were able to deliver revenue and earnings results in line with our original guidance for the year and produce free cash flow in excess of our original expectations. This 2010 performance highlights the flexibility of our business model and the advantages of our business profile, which is unique within the orthopaedic industry.”
Outlook
The Company’s earnings target, as communicated in the guidance range stated below, excludes the effect of the new Senior Credit facility and tender offer for the Company’s convertible notes that were announced today, possible future acquisitions, other material future business developments, non-cash stock-based compensation expense, and costs associated with the Company’s DPA (including the associated independent monitor).
The Company anticipates full year 2011 net sales to be in the range of $517 million to $535 million. As previously announced, our license agreement with KCI has a negative impact of approximately 1% to 2% to our 2011 revenue growth rate. Excluding this negative impact, our annualized growth expectations are approximately 1% to 5%. The Company anticipates full year 2011 as-adjusted earnings per share to be in the range of $0.88 to $0.95 per diluted share, which represents annualized growth expectations of -2% to 6%.
As noted above, the Company’s earnings target excludes the impact of non-cash stock-based compensation charges. While the amount of the non-cash stock-based compensation charges will vary depending upon a number of factors, the Company currently estimates that the after-tax impact of those expenses will be approximately $0.19 per diluted share for the full year 2011. Therefore, the Company anticipates full year 2011 as-adjusted earnings per share including stock-based compensation to be in the range of $0.69 to $0.76 per diluted share, which represents annualized growth expectations of -1% to 9%.
The Company’s anticipated ranges for net sales, adjusted earnings per share, and non-cash stock-based compensation charges are forward-looking statements. They are subject to various risks and uncertainties that could cause the Company’s actual results to differ materially from the anticipated targets. The anticipated targets are not predictions of the Company’s actual performance. See the cautionary information about forward-looking statements in the “Safe-Harbor Statement” section of this press release.
Conference Call
As previously announced, the Company will host a conference call starting at 3:30 p.m. (Central Time) today. The live dial-in number for the call is 866-383-8008 (domestic) or 617-597-5341 (international). The participant passcode for the call is “wright.” To access a simultaneous webcast of the conference call via the internet, go to the “Corporate – Investor Info” section of the Company’s website located at www.wmt.com. A replay of the conference call by telephone will be available starting at 6:30 p.m. (Central Time) today and continuing until February 17, 2011. To hear this replay, dial 888-286-8010 (domestic) or 617-801-6888 (international) and enter the passcode 12255148. A replay of the conference call will also be available via the internet starting today and continuing for at least 12 months. To access a replay of the conference call via the internet, go to the “Corporate – Investor Info – Audio Archives” section of the Company’s website located at www.wmt.com.
The conference call may include a discussion of non-GAAP financial measures. Reference is made to the most directly comparable GAAP financial measures, the reconciliation of the differences between the two financial measures, and the other information included in this press release, our Form 8-K filed with the SEC today, or otherwise available in the “Corporate – Investor Info – Supplemental Financial Information” section of the Company's website located at www.wmt.com.
The conference call may include forward-looking statements. See the cautionary information about forward-looking statements in the “Safe-Harbor Statement” section of this press release.
Non-GAAP Financial Measures
The Company uses non-GAAP financial measures, such as net sales, excluding the impact of foreign currency, operating income, as adjusted, net income, as adjusted, net income, as adjusted, per diluted share, effective tax rate, as adjusted, and free cash flow. The Company’s management believes that the presentation of these measures provides useful information to investors. These measures may assist investors in evaluating the Company’s operations, period over period. The measures exclude such items as business development activities, including purchased in-process research and development, the financial impact of significant litigation, costs related to the U.S. governmental inquiries and DPA, restructuring charges and non-cash stock-based expense, all of which may be highly variable, difficult to predict and of a size that could have substantial impact on the Company’s reported results of operations for a period. Management uses these measures internally for evaluation of the performance of the business, including the allocation of resources and the evaluation of results relative to employee performance compensation targets. Investors should consider these non-GAAP measures only as a supplement to, not as a substitute for or as superior to, measures of financial performance prepared in accordance with GAAP.
Safe-Harbor Statement
This press release contains “forward-looking statements” as defined under U.S. federal securities laws. These statements reflect management’s current knowledge, assumptions, beliefs, estimates, and expectations and express management’s current views of future performance, results, and trends and may be identified by their use of terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” and other similar terms. Forward-looking statements are subject to a number of risks and uncertainties that could cause our actual results to materially differ from those described in the forward-looking statements. Risks and uncertainties that could cause our actual results to materially differ from those described in forward-looking statements include those discussed in our filings with the Securities and Exchange Commission (including those described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2010 to be filed with the SEC today, under the heading “Risk Factors” ), and the following: the impact of our settlement of the federal investigation into our consulting arrangements with orthopaedic surgeons relating to our hip and knee products in the United States, including our compliance with the Deferred Prosecution Agreement through September 2011 and the Corporate Integrity Agreement through September 2015; demand for and market acceptance of our new and existing products; recently enacted healthcare reform legislation and its future implementation, possible additional legislation, regulation and other governmental pressures in the United States or globally, which may affect pricing, reimbursement, taxation and rebate policies of government agencies and private payers or other elements of our business; tax reform measures, tax authority examinations and associated tax risks and potential obligations; our ability to identify business development and growth opportunities for existing or future products; product quality or patient safety issues, leading to product recalls, withdrawals, launch delays, sanctions, seizures, litigation, or declining sales; individual, group or class action alleging products liability claims, including an increase in the number of claims during any period; future actions of the FDA or any other regulatory body or government authority that could delay, limit or suspend product development, manufacturing or sale or result in seizures, injunctions, monetary sanctions or criminal or civil liabilities; our ability to enforce our patent rights or patents of third parties preventing or restricting the manufacture, sale or use of affected products or technology; the impact of geographic and product mix on our sales; retention of our sales representatives and independent distributors; inventory reductions or fluctuations in buying patterns by wholesalers or distributors; and any impact of the commercial and credit environment on us and our customers and suppliers. Readers should not place undue reliance on forward-looking statements. Such statements are made as of the date of this press release, and we undertake no obligation to update such statements after this date.
Wright Medical Group, Inc. is a global orthopaedic medical device company and a leading provider of surgical solutions for the foot and ankle market. The Company specializes in the design, manufacture and marketing of devices and biologic products for extremity, hip and knee repair and reconstruction. The Company has been in business for more than 60 years and markets its products in over 60 countries worldwide. For more information about Wright Medical, visit the Company’s website at www.wmt.com.
--Tables Follow--
|
Wright Medical Group, Inc. Condensed Consolidated Statements of Operations (in thousands, except per share data--unaudited) |
||||||||||||||
| Three Months Ended | Twelve Months Ended | |||||||||||||
|
December 31, |
December 31, |
December 31, |
December 31, |
|||||||||||
| Net sales | $ | 138,287 | $ | 129,928 | $ | 518,973 | $ | 487,508 | ||||||
| Cost of sales | 40,392 | 38,069 | 158,456 | 148,715 | ||||||||||
| Gross profit | 97,895 | 91,859 | 360,517 | 338,793 | ||||||||||
| Operating expenses: | ||||||||||||||
| Selling, general and administrative | 73,324 | 74,323 | 282,413 | 270,456 | ||||||||||
| Research and development | 8,902 | 9,231 | 37,300 | 35,691 | ||||||||||
| Amortization of intangible assets | 720 | 1,252 | 2,711 | 5,151 | ||||||||||
| Restructuring charges | (220 | ) | 2,553 | 919 | 3,544 | |||||||||
| Total operating expenses | 82,726 | 87,359 | 323,343 | 314,842 | ||||||||||
| Operating income | 15,169 | 4,500 | 37,174 | 23,951 | ||||||||||
| Interest expense, net | 1,573 | 1,492 | 6,123 | 5,466 | ||||||||||
| Other (income) expense, net | (140 | ) | 3,231 | 130 | 2,873 | |||||||||
| Income before income taxes | 13,736 | (223 | ) | 30,921 | 15,612 | |||||||||
| Provision for income taxes | 4,867 | (2,458 | ) | 13,080 | 3,481 | |||||||||
| Net income | $ | 8,869 | $ | 2,235 | $ | 17,841 | $ | 12,131 | ||||||
| Net income per share, basic | $ | 0.23 | $ | 0.06 | $ | 0.47 | $ | 0.32 | ||||||
| Net income per share, diluted | $ | 0.22 | $ | 0.06 | $ | 0.47 | $ | 0.32 | ||||||
| Weighted-average number of common shares outstanding, basic | 37,962 | 37,470 | 37,802 | 37,366 | ||||||||||
| Weighted-average number of common shares outstanding, diluted | 44,235 | 37,718 | 37,961 | 37,443 | ||||||||||
|
Wright Medical Group, Inc. Consolidated Sales Analysis (dollars in thousands--unaudited) |
||||||||||||||||||
| Three Months Ended | Twelve Months Ended | |||||||||||||||||
|
December 31, |
December 31, |
%
change |
December 31, |
December 31, |
%
change |
|||||||||||||
| Geographic | ||||||||||||||||||
| Domestic | $ | 81,180 | $ | 78,307 | 3.7 | % | $ | 309,983 | $ | 299,587 | 3.5 | % | ||||||
| International | 57,107 | 51,621 | 10.6 | % | 208,990 | 187,921 | 11.2 | % | ||||||||||
| Total net sales | $ | 138,287 | $ | 129,928 | 6.4 | % | $ | 518,973 | $ | 487,508 | 6.5 | % | ||||||
| Product Line | ||||||||||||||||||
| Hip products | $ | 46,269 | $ | 44,839 | 3.2 | % | $ | 176,687 | $ | 167,869 | 5.3 | % | ||||||
| Knee products | 35,112 | 31,451 | 11.6 | % | 128,854 | 122,178 | 5.5 | % | ||||||||||
| Extremity products | 34,752 | 30,259 | 14.8 | % | 124,490 | 107,375 | 15.9 | % | ||||||||||
| Biologics products | 19,935 | 20,448 | (2.5 | %) | 79,231 | 79,120 | 0.1 | % | ||||||||||
| Other | 2,219 | 2,931 | (24.3 | %) | 9,711 | 10,966 | (11.4 | %) | ||||||||||
| Total net sales | $ | 138,287 | $ | 129,928 | 6.4 | % | $ | 518,973 | $ | 487,508 | 6.5 | % | ||||||
|
Wright Medical Group, Inc. Supplemental Sales Information (unaudited) |
||||||||||
| Fourth Quarter 2010 Sales Growth | ||||||||||
|
Domestic As Reported |
Int'l Constant Currency |
Int'l As Reported |
Total Constant Currency |
Total
As Reported |
||||||
| Hips | (9%) | 12% | 12% | 3% | 3% | |||||
| Knees | 6% | 20% | 19% | 12% | 12% | |||||
| Extremities | 14% | 18% | 16% | 15% | 15% | |||||
| Biologics | (1%) | (10%) | (10%) | (3%) | (3%) | |||||
| Total | 4% | 11% | 11% | 7% | 6% | |||||
| 2010 Sales Growth | ||||||||||
|
Domestic As Reported |
Int'l Constant Currency |
Int'l As Reported |
Total Constant Currency |
Total
As Reported |
||||||
| Hips | (3%) | 11% | 12% | 5% | 5% | |||||
| Knees | 2% | 10% | 10% | 5% | 5% | |||||
| Extremities | 14% | 26% | 27% | 16% | 16% | |||||
| Biologics | 0% | 1% | 3% | 0% | 0% | |||||
| Total | 3% | 10% | 11% | 6% | 6% | |||||
| Sales as a % of Total Sales | ||||||||||||
|
Three Months Ended
December 31, 2010 |
Twelve Months Ended
December 31, 2010 |
|||||||||||
| Domestic | International | Total | Domestic | International | Total | |||||||
| Hips | 12% | 21% | 33% | 14% | 20% | 34% | ||||||
| Knees | 14% | 12% | 25% | 13% | 11% | 25% | ||||||
| Extremities | 20% | 5% | 25% | 19% | 5% | 24% | ||||||
| Biologics | 12% | 2% | 14% | 13% | 3% | 15% | ||||||
| Total | 59% | 41% | 100% | 60% | 40% | 100% | ||||||
|
Wright Medical Group, Inc. Reconciliation of Net Sales to Net Sales Excluding the Impact of Foreign Currency (dollars in thousands--unaudited) |
||||||||||||||
| Three Months Ended | Twelve Months Ended | |||||||||||||
| December 31, 2010 | December 31, 2010 | |||||||||||||
|
International |
Total
Net Sales |
International |
Total
Net Sales |
|||||||||||
| Net sales, as reported | $ | 57,107 | $ | 138,287 | $ | 208,990 | $ | 518,973 | ||||||
| Currency impact as compared to prior period | 344 | 344 | (1,496 | ) | (1,496 | ) | ||||||||
|
Net sales, excluding the impact of foreign currency |
$ | 57,451 | $ | 138,631 | $ | 207,494 | $ | 517,477 | ||||||
|
Wright Medical Group, Inc. Reconciliation of As Reported Results to Non-GAAP Financial Measures (in thousands, except per share data--unaudited) |
||||||||||||||||||
| Three Months Ended | Twelve Months Ended | |||||||||||||||||
|
December 31, |
December 31, |
December 31, |
December 31, |
|||||||||||||||
| Operating Income | ||||||||||||||||||
| Operating income, as reported | $ | 15,169 | $ | 4,500 | $ | 37,174 |
$ |
23,951 |
||||||||||
| Reconciling items impacting Gross Profit: | ||||||||||||||||||
| Inventory step-up amortization | - | - | - | 70 | ||||||||||||||
| Non-cash, stock-based compensation | 321 | 347 | 1,301 | 1,285 | ||||||||||||||
| Total | 321 | 347 | 1,301 | 1,355 | ||||||||||||||
| Reconciling items impacting Selling, General and Administrative expenses: | ||||||||||||||||||
| Non-cash, stock-based compensation | 2,224 | 2,255 | 9,924 | 10,077 | ||||||||||||||
| U.S. governmental inquiries/DPA related | 1,283 | 186 | 10,902 | 7,845 | ||||||||||||||
| Write-down of international receivable | - | 5,579 | - | 5,579 | ||||||||||||||
| Total | 3,507 | 8,020 | 20,826 | 23,501 | ||||||||||||||
| Reconciling items impacting Research and Development expenses: | ||||||||||||||||||
| Non-cash, stock-based compensation | 452 | 389 | 1,952 | 1,829 | ||||||||||||||
| Other Reconciling Items: | ||||||||||||||||||
| Restructuring charges | (220 | ) | 2,553 | 919 | 3,544 | |||||||||||||
| Operating income, as adjusted | $ | 19,229 | $ | 15,809 | $ | 62,172 |
$ |
54,180 |
||||||||||
|
Operating income, as adjusted, as a percentage of net sales |
13.9 |
% |
12.2 | % |
12.0 |
% |
11.1 | % | ||||||||||
| Three Months Ended | Twelve Months Ended | |||||||||||||||||
|
December 31, |
December 31, |
December 31, |
December 31, |
|||||||||||||||
| Net Income | ||||||||||||||||||
| Income before taxes, as reported | $ | 13,736 | $ | (223 | ) | $ | 30,921 | $ | 15,612 | |||||||||
| Pre-tax impact of reconciling items: | ||||||||||||||||||
| Non-cash, stock-based compensation | 2,997 | 2,991 | 13,177 | 13,191 | ||||||||||||||
| Restructuring charges | (220 | ) | 2,553 | 919 | 3,544 | |||||||||||||
| Inventory step-up amortization | - | - | - | 70 | ||||||||||||||
| U.S. governmental inquiries/DPA related | 1,283 | 186 | 10,902 | 7,845 | ||||||||||||||
| Write-down of international receivable | - | 5,579 | - | 5,579 | ||||||||||||||
| CTA write-off | - | 2,643 | - | 2,643 | ||||||||||||||
| Income before taxes, as adjusted | 17,796 | 13,729 | 55,919 | 48,484 | ||||||||||||||
| Provision for income taxes, as reported | 4,867 | (2,458 | ) | 13,080 | 3,481 | |||||||||||||
| Non-cash, stock-based compensation | 1,144 | 896 | 4,410 | 3,901 | ||||||||||||||
| Restructuring charges | (67 | ) | 2,882 | 376 | 3,269 | |||||||||||||
| Inventory step-up amortization | - | - | - | 27 | ||||||||||||||
| U.S. governmental inquiries/DPA related | 81 | (208 | ) | 2,266 | 2,789 | |||||||||||||
| Write-down of international receivable | - | 1,817 | - | 1,817 | ||||||||||||||
| Provision for income taxes, as adjusted | 6,025 | 2,929 | 20,132 | 15,284 | ||||||||||||||
| Effective tax rate, as adjusted | 33.9 | % | 21.3 | % | 36.0 | % | 31.5 | % | ||||||||||
| Net income, as adjusted | $ | 11,771 | $ | 10,800 | $ | 35,787 | $ | 33,200 | ||||||||||
|
Wright Medical Group, Inc. Reconciliation of As Reported Results to Non-GAAP Financial Measures (continued) |
|||||||||||||||
| Three Months Ended | Three Months Ended | ||||||||||||||
| December 31, 2010 | December 31, 2009 | ||||||||||||||
| As Reported | As Adjusted | As Reported | As Adjusted | ||||||||||||
| Basic net income | $ | 8,869 | $ | 11,771 | $ | 2,235 | $ | 10,800 | |||||||
| Interest expense on convertible notes | 935 | 935 | N/A | 935 | |||||||||||
| Diluted net income | $ | 9,804 | $ | 12,706 | $ | 2,235 | $ | 11,735 | |||||||
| Basic shares | 37,962 | 37,962 | 37,470 | 37,470 | |||||||||||
|
Dilutive effect of stock options and
restricted shares |
147 |
147 |
248 |
248 |
|||||||||||
| Dilutive effect of convertible notes | 6,126 | 6,126 | N/A | 6,126 | |||||||||||
| Diluted shares | 44,235 | 44,235 | 37,718 | 43,844 | |||||||||||
| Net income per share, diluted | $ | 0.22 | $ | 0.29 | $ | 0.06 | $ | 0.27 | |||||||
| Twelve Months Ended | Twelve Months Ended | ||||||||||||||
| December 31, 2010 | December 31, 2009 | ||||||||||||||
| As Reported | As Adjusted | As Reported | As Adjusted | ||||||||||||
| Basic net income | $ | 17,841 | $ | 35,787 | $ | 12,131 | $ | 33,200 | |||||||
| Interest expense on convertible notes | N/A | 3,740 | N/A | 3,740 | |||||||||||
| Diluted net income | $ | 17,841 | $ | 39,527 | $ | 12,131 | $ | 36,940 | |||||||
| Basic shares | 37,802 | 37,802 | 37,366 | 37,366 | |||||||||||
|
Dilutive effect of stock options and
restricted shares |
159 |
159 |
77 |
77 |
|||||||||||
| Dilutive effect of convertible notes | N/A | 6,126 | N/A | 6,126 | |||||||||||
| Diluted shares | 37,961 | 44,087 | 37,443 | 43,569 | |||||||||||
| Net income per share, diluted | $ | 0.47 | $ | 0.90 | $ | 0.32 | $ | 0.85 | |||||||
| Three Months Ended | Twelve Months Ended | ||||||||||||||
|
December 31,
2010 |
December 31,
2009 |
December 31,
2010 |
December 31,
2009 |
||||||||||||
| Net Income per Diluted Share | |||||||||||||||
|
Net income, as reported, per diluted share |
$ |
0.22 |
$ | 0.06 | $ | 0.47 | $ | 0.32 | |||||||
| Interest expense on convertible notes | N/A | 0.02 | 0.08 | 0.09 | |||||||||||
| Dilutive effect of convertible notes | N/A | (0.01 | ) | (0.07 | ) | (0.05 | ) | ||||||||
| Non-cash, stock-based compensation | 0.04 | 0.05 | 0.20 | 0.21 | |||||||||||
| Restructuring charges | 0.00 | (0.01 | ) | 0.01 | 0.01 | ||||||||||
| Inventory step-up amortization | - | - | - | 0.00 | |||||||||||
| U.S. governmental inquiries/DPA related | 0.03 | 0.01 | 0.20 | 0.12 | |||||||||||
| Write-down of international receivable | - | 0.09 | - | 0.09 | |||||||||||
| CTA write-off | - | 0.06 | - | 0.06 | |||||||||||
|
Net income, as adjusted, per diluted share |
$ | 0.29 | $ | 0.27 | $ | 0.90 | $ | 0.85 | |||||||
|
Wright Medical Group, Inc. Condensed Consolidated Balance Sheets (dollars in thousands--unaudited) |
||||||
|
December 31, |
December 31, |
|||||
| Assets | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | 153,261 | $ | 84,409 | ||
| Marketable securities | 19,152 | 86,819 | ||||
| Accounts receivable, net | 105,336 | 101,720 | ||||
| Inventories | 166,339 | 163,535 | ||||
| Prepaid expenses and other current assets | 53,502 | 54,121 | ||||
| Total current assets | 497,590 | 490,604 | ||||
| Property, plant and equipment, net | 158,247 | 139,708 | ||||
| Goodwill and intangible assets, net | 70,673 | 71,587 | ||||
| Marketable securities | 17,193 | - | ||||
| Other assets | 11,536 | 12,385 | ||||
| Total assets | $ | 755,239 | $ | 714,284 | ||
| Liabilities and stockholders’ equity | ||||||
| Current liabilities: | ||||||
| Accounts payable | $ | 15,862 | $ | 13,978 | ||
| Accrued expenses and other current liabilities | 54,409 | 54,643 | ||||
| Current portion of long-term obligations | 1,033 | 336 | ||||
| Total current liabilities | 71,304 | 68,957 | ||||
| Long-term obligations | 201,766 | 200,326 | ||||
| Other liabilities | 11,197 | 4,593 | ||||
| Total liabilities | 284,267 | 273,876 | ||||
| Stockholders’ equity | 470,972 | 440,408 | ||||
| Total liabilities and stockholders’ equity | $ | 755,239 | $ | 714,284 | ||