Full Press Release Details
Orthofix International Announces
3rd Quarter 2012 Results
Lewisville, TX, October 24, 2012 Orthofix International N.V. (NASDAQ:OFIX) (the Company) today announced its results for the third quarter
ended September 30, 2012. Net sales of $114.8 million represent a decrease of 2% over the third quarter of last year. Net sales grew 1% on a constant currency basis.
Net income from continuing operations was $13.1 million, or $0.67 per diluted share compared to net income from continuing operations of $13.0 million, or $0.69 per diluted share, in the prior year.
Adjusted net income was up 13% to $14.8 million, or $0.76 per diluted share compared to $13.2 million, or $0.70 per diluted share, in the prior year.
We again demonstrated our ability to achieve operating margin leverage while navigating through a challenging environment, said President and Chief Executive Officer Robert Vaters.
Finishing the quarter with a net cash balance and continued strong adjusted earnings, we are well positioned to make product portfolio and distribution investments that will drive long-term growth.
Net sales were $114.8
million in the third quarter of 2012, down 2% on a reported basis, and up 1% on a constant currency basis, from $117.3 million in the third quarter of the prior year. Foreign currency negatively impacted third quarter net sales by approximately $3.8
million, or 3% of net sales.
External net sales by global business unit
| Three Months Ended September 30, | ||||||||||||||||
| (USD in millions) | 2012 | 2011 | Reported Growth | Constant Currency Growth | ||||||||||||
| Spine | ||||||||||||||||
| Spine Repair Implants and Regenerative Biologics | $ | 36.6 | $ | 36.8 | 0 | % | 0 | % | ||||||||
| Spine Regenerative Stimulation | 42.8 | 39.7 | 8 | % | 8 | % | ||||||||||
| Total Spine | 79.4 | 76.5 | 4 | % | 4 | % | ||||||||||
| Orthopedics | 35.4 | 40.8 | -13 | % | -4 | % | ||||||||||
| Total net sales | $ | 114.8 | $ | 117.3 | -2 | % | 1 | % |
Note: Some calculations may be impacted by rounding.
Third quarter net sales for the Company s Spine global business unit were up 4% to $79.4 million, which was driven by an 8%
increase in Regenerative Stimulation products used in spine applications. Revenue from Repair Implants and Regenerative Biologics was flat over prior year, due to challenging economic conditions in certain international markets, which was offset
primarily by continued adoption of Trinity Evolution in spine applications.
For the Company s Orthopedic global business unit, third quarter net sales were $35.4 million, decreasing 13% on a reported basis, or 4% on a
constant currency basis, compared to the prior year. Foreign currency negatively impacted reported net sales by $3.8 million or 11% of net orthopedic sales. Constant currency sales decline was driven mostly by weaker Physio-Stim sales and challenges
in Brazil, which has been impacted by increased competition and product delays due to the strike at the country s regulatory agency.
Earnings Performance
income from continuing operations for the third quarter of 2012 was $13.1 million and net income from continuing operations per diluted share was $0.67. Excluding certain items summarized in the table below, adjusted net income in the third quarter
of 2012 was $14.8 million, or $0.76 per diluted share, increasing 13% and 9%, respectively from the third quarter of the prior year.
following table reconciles reported net income and net income per diluted share to adjusted net income and adjusted net income per diluted share for each of the quarters ended September 30, 2012 and 2011:
Third Quarter Adjusted Net Income from Continuing Operations
| Q3 2012 | Q3 2011 | % Change | ||||||||||||||||||||||
| ($000 s) | EPS | ($000 s) | EPS | ($000 s) | EPS | |||||||||||||||||||
| Reported GAAP net income from continuing operations | $ | 13,118 | $ | 0.67 | $ | 12,951 | $ | 0.69 | 1 | % | -2 | % | ||||||||||||
| Specified Items: | ||||||||||||||||||||||||
| Strategic Investment MTF | 1,260 | |||||||||||||||||||||||
| Charges related to U.S.Government resolutions | 205 | |||||||||||||||||||||||
| Foreign exchange gain/loss | 260 | 215 | ||||||||||||||||||||||
| Adjusted Net Income from continuing operations | $ | 14,844 | $ | 0.76 | $ | 13,166 | $ | 0.70 | 13 | % | 9 | % | ||||||||||||
| Shares used to calculate EPS (in thousands) | 19,533 | 18,851 |
The following table reconciles operating income to adjusted operating income for each of the
quarters ended September 30, 2012 and 2011:
Third Quarter Adjusted Operating Income
| Q3 2012 | Q3 2011 | |||||||||||||||
| ($000 s) | % of Sales | ($000 s) | % of Sales | |||||||||||||
| Reported GAAP operating income | $ | 21,533 | 18.8 | % | $ | 23,599 | 20.1 | % | ||||||||
| Specified Items: | ||||||||||||||||
| Strategic Investment MTF | 2,000 | |||||||||||||||
| Charges related to U.S. Government resolutions | 326 | |||||||||||||||
| Adjusted operating income | $ | 23,859 | 20.8 | % | $ | 23,599 | 20.1 | % |
After adjusting for a $0.3 million charges for prejudgment interest related to U.S. Government
resolutions and $2.0 million dollar strategic investment in MTF, the third quarter 2012 adjusted operating margin increased 70 basis points to 20.8% over the same period of the prior year. This increase was partially driven by the gross margin
improvement in the quarter.
The Company expects net sales from continuing operations to be between $472 million to $475 million, up 1% on a reported basis, or 3% on a constant currency basis for the full year 2012. The Company
expects GAAP earnings per share from continuing operations to be approximately $2.84 to $2.89 per diluted share, and adjusted earnings from continuing operations to be approximately $3.03 to $3.08 per diluted share.
The following table reconciles the 2012 full year guidance for GAAP earnings per share from continuing operations to adjusted earnings per share from
continuing operations.
Reported and Adjusted EPS from Continuing Operations Full Year 2012
| Reported GAAP EPS from Continuing Operations Range | $ 2.84 - $2.89 | |||
| Specified Items: | ||||
| Strategic Investment MTF | $ 0.10 | |||
| Arbitration Resolution of Co-Development Agreement | $ 0.10 | |||
| Charges related to U.S. Government resolutions | $ 0.06 | |||
| Change in Estimate of Tax Deduction | ($ 0.07) | |||
| Adjusted EPS from Continuing Operations Range | $ 3.03 - $ 3.08 |
Orthofix will host a conference call today at 4:30 PM Eastern time to discuss the Company s financial results for the third quarter of 2012. Interested parties may access the conference call by
dialing (888) 267-2845 in the U.S. and (973) 413-6102 outside the U.S., and entering the conference ID 38220. A replay of the call will be available for two weeks by dialing (800) 332-6854 in the U.S. and (973) 528-0005 outside
the U.S., and entering the conference ID 38220. A webcast of the conference call may be accessed by going to the Company s website at www.orthofix.com, clicking on the Investors link and then the Events and Presentations page.
Orthofix International N.V. is a diversified, global medical device company focused on developing and delivering innovative repair and regenerative solutions to the spine and orthopedic markets.
Orthofix s products are widely distributed around the world to orthopedic surgeons and patients via Orthofix s sales representatives and its subsidiaries, and via collaborations with other leading orthopedic product companies. In addition,
Orthofix is collaborating on R&D activities with leading research and clinical organizations such as the Musculoskeletal Transplant Foundation, the Orthopedic Research and Education Foundation, and Texas Scottish Rite Hospital for Children. For
more information about Orthofix, please visit www.orthofix.com.
Forward-Looking Statements:
This communication contains certain forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking
statements, which may include, but are not limited to, statements concerning the projections, financial condition, results of operations and businesses of Orthofix and its subsidiaries and are based on management s current expectations and
estimates and involve risks and uncertainties that could cause actual results or outcomes to differ materially from those contemplated by the forward-looking statements.
The forward-looking statements in this release do not constitute guarantees or promises of future performance. Factors that could cause or contribute to such differences may include, but are not limited
to, risks relating to the expected sales of our products, including recently launched products, unanticipated expenditures, the resolution of pending litigation matters (including the government investigations and False Claims Act matters relating
to our spinal implant business, court review and approvals of our pending settlements in certain government litigation matters, as well as our indemnification obligations with respect to certain retained product liability claims against, and the
government investigation of, our former Sports Medicine global business unit) and our ongoing compliance obligations under a corporate integrity agreement with the Office of Inspector General of the Department of Health and Human Services and a
deferred prosecution agreement with the U.S. Department of Justice, changing relationships with customers, suppliers, strategic partners and lenders, changes to and the interpretation of governmental regulations, risks relating to the protection of
intellectual property, changes to the reimbursement policies of third parties, the impact of competitive products, changes to the competitive environment, the acceptance of new products in the market, conditions of the orthopedic industry, credit
markets and the economy, corporate development and market development activities, including acquisitions or divestitures, unexpected costs or operating unit performance related to recent acquisitions, and other factors described in our annual report
on Form 10-K, quarterly reports on Form 10-Q, and other periodic reports filed by the Company with the Securities and Exchange Commission (SEC). Existing and prospective investors are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to update or revise the information contained in this press release (which contains information current as of the date hereof, whether as a result of new information,
future events or circumstances, or otherwise.
The Company cannot predict the timing or outcome of ongoing litigation matters and governmental
investigations of our businesses which could result in civil or criminal liability or findings of violations of law (as further described in the Legal Proceedings sections of our annual report on Form 10-K and quarterly reports on
Form 10-Q), that could materially impact our financial position and/or liquidity.
Financial tables follow
ORTHOFIX INTERNATIONAL N.V.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, U.S. Dollars, in thousands,
except per share and share data)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Net sales | $ | 114,752 | $ | 117,306 | $ | 350,286 | $ | 347,036 | ||||||||
| Cost of sales | 22,373 | 23,854 | 67,989 | 69,380 | ||||||||||||
| Gross profit | 92,379 | 93,452 | 282,297 | 277,656 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Sales and marketing | 49,298 | 49,358 | 148,629 | 146,757 | ||||||||||||
| General and administrative | 13,849 | 13,976 | 42,715 | 50,105 | ||||||||||||
| Research and development | 6,858 | 5,982 | 23,160 | 17,655 | ||||||||||||
| Amortization of intangible assets | 515 | 537 | 1,575 | 1,641 | ||||||||||||
| Charges related to U.S. Government resolutions | 326 | 1,689 | 46,000 | |||||||||||||
| 70,846 | 69,853 | 217,768 | 262,158 | |||||||||||||
| Operating income | 21,533 | 23,599 | 64,529 | 15,498 | ||||||||||||
| Other income and expense | ||||||||||||||||
| Interest expense, net | (465 | ) | (2,267 | ) | (3,950 | ) | (6,880 | ) | ||||||||
| Other expense | (1,020 | ) | (399 | ) | (992 | ) | (1,850 | ) | ||||||||
| Income before income taxes | 20,048 | 20,933 | 59,587 | 6,768 | ||||||||||||
| Income tax expense | (6,930 | ) | (7,982 | ) | (20,286 | ) | (20,038 | ) | ||||||||
| Net income (loss) from continuing operations, net of tax | 13,118 | 12,951 | 39,301 | (13,270 | ) | |||||||||||
| Discontinued operations | ||||||||||||||||
| Gain on sale of Breg, Inc. net of tax | 221 | 1,261 | ||||||||||||||
| Income (loss) from discontinued operations | (9,046 | ) | (553 | ) | (15,398 | ) | 123 | |||||||||
| Income tax (expense) benefit | 3,267 | (20 | ) | 5,617 | (318 | ) | ||||||||||
| Net income (loss) from discontinued operations, net of tax | (5,558 | ) | (573 | ) | (8,520 | ) | (195 | ) | ||||||||
| Net income (loss) | $ | 7,560 | $ | 12,378 | $ | 30,781 | ($ | 13,465 | ) | |||||||
| Net income (loss) per common share - basic | ||||||||||||||||
| Net income (loss) from continuing operations, net of tax | $ | 0.69 | $ | 0.70 | $ | 2.08 | ($ | 0.73 | ) | |||||||
| Net income (loss) from discontinued operations, net of tax | ($ | 0.29 | ) | ($ | 0.03 | ) | ($ | 0.45 | ) | ($ | 0.01 | ) | ||||
| Net income (loss) per common share - basic | $ | 0.40 | $ | 0.67 | $ | 1.63 | ($ | 0.74 | ) | |||||||
| Net income (loss) per common share - diluted | ||||||||||||||||
| Net income (loss) from continuing operations, net of tax | $ | 0.67 | $ | 0.69 | $ | 2.04 | ($ | 0.73 | ) | |||||||
| Net income (loss) from discontinued operations, net of tax | ($ | 0.28 | ) | ($ | 0.03 | ) | ($ | 0.45 | ) | ($ | 0.01 | ) | ||||
| Net income (loss) per common share - diluted | $ | 0.39 | $ | 0.66 | $ | 1.59 | ($ | 0.74 | ) | |||||||
| Weighted average number of common shares outstanding - basic | 19,078,590 | 18,384,451 | 18,861,374 | 18,146,076 | ||||||||||||
| Weighted average number of common shares outstanding - diluted | 19,533,021 | 18,850,625 | 19,300,263 | 18,146,076 | ||||||||||||
| Comprehensive Income (Loss) | $ | 9,067 | $ | 5,664 | $ | 30,615 | ($ | 15,254 | ) |
Note: Some calculations may be impacted by rounding
ORTHOFIX INTERNATIONAL N.V.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, U.S. Dollars, in thousands)
| September 30, | December 31, | |||||||
| 2012 | 2011 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 53,572 | $ | 33,207 | ||||
| Restricted cash | 67,319 | 45,476 | ||||||
| Trade accounts receivable, net | 155,978 | 132,828 | ||||||
| Inventories, net | 80,822 | 82,969 | ||||||
| Deferred income taxes | 19,059 | 16,349 | ||||||
| Escrow receivable | 41,537 | |||||||
| Prepaid expenses and other current assets | 28,122 | 26,069 | ||||||
| Assets held for sale | 171,185 | |||||||
| Total current assets | 404,872 | 549,620 | ||||||
| Property, plant and equipment, net | 46,550 | 43,368 | ||||||
| Patents and other intangible assets, net | 7,000 | 8,236 | ||||||
| Goodwill | 73,952 | 73,094 | ||||||
| Deferred income taxes | 19,158 | 18,584 | ||||||
| Other long-term assets | 13,541 | 11,570 | ||||||
| Total assets | $ | 565,073 | $ | 704,472 | ||||
| Liabilities and shareholders equity | ||||||||
| Current liabilities: | ||||||||
| Bank borrowings | $ | 282 | $ | 1,318 | ||||
| Current portion of long-term debt | 17,500 | |||||||
| Trade accounts payable | 18,089 | 16,488 | ||||||
| Accrued charges related to U.S. Government resolutions | 76,743 | 82,500 | ||||||
| Other current liabilities | 57,349 | 45,327 | ||||||
| Liabilities held for sale | 22,676 | |||||||
| Total current liabilities | 152,463 | 185,809 | ||||||
| Long-term debt | 20,000 | 191,195 | ||||||
| Deferred income taxes | 9,779 | 9,778 | ||||||
| Other long-term liabilities | 5,221 | 2,519 | ||||||
| Total liabilities | 187,463 | 389,301 | ||||||
| Shareholders equity: | ||||||||
| Common shares | 1,928 | 1,846 | ||||||
| Additional paid-in capital | 246,052 | 214,310 | ||||||
| Retained earnings | 128,035 | 97,254 | ||||||
| Accumulated other comprehensive income | 1,595 | 1,761 | ||||||
| Total shareholders equity | 377,610 | 315,171 | ||||||
| Total liabilities and shareholders equity | $ | 565,073 | $ | 704,472 |
ORTHOFIX INTERNATIONAL N.V.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, U.S. Dollars, in thousands)
| Nine Months Ended September 30, | ||||||||
| 2012 | 2011 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | 30,781 | ($ | 13,465 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 15,465 | 17,276 | ||||||
| Other non-cash adjustments | 6,768 | 14,242 | ||||||
| Change in operating assets and liabilities: | ||||||||
| Escrow receivable | 41,537 | (586 | ) | |||||
| Charges related to U.S. Government resolutions | 1,689 | 46,000 | ||||||
| Changes in working capital | (27,845 | ) | (23,871 | ) | ||||
| Net cash provided by operating activities | 68,395 | 39,596 | ||||||
| Cash flows from investing activities: | ||||||||
| Capital expenditures | (18,634 | ) | (17,321 | ) | ||||
| Payment made in connection with acquisition | (5,250 | ) | ||||||
| Net proceeds from sale of Breg, Inc. | 153,773 | |||||||
| Net cash provided by (used in) investing activities | 135,139 | (22,571 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Net proceeds from issuance of common shares | 24,406 | 18,890 | ||||||
| Repayments of long-term debt | (188,695 | ) | (3,750 | ) | ||||
| Payment of refinancing fees | (758 | ) | ||||||
| Repayment of bank borrowings, net | (1,036 | ) | (2,642 | ) | ||||
| Change in restricted cash | (20,219 | ) | (14,288 | ) | ||||
| Cash payment for purchase of minority interest in subsidiary | (517 | ) | ||||||
| Tax benefit on non-qualified stock options | 2,321 | 1,575 | ||||||
| Net cash (used in) provided by financing activities | (183,223 | ) | (1,490 | ) | ||||
| Effect of exchange rate changes on cash | 54 | (76 | ) | |||||
| Net increase in cash and cash equivalents | 20,365 | 15,459 | ||||||
| Cash and cash equivalents at the beginning of period | 33,207 | 13,561 | ||||||
| Cash and cash equivalents at the end of period | $ | 53,572 | $ | 29,020 |
Non-GAAP Performance Measures
The tables in this press release present reconciliations of net sales, net income (loss) and net income (loss) per diluted share, operating income and effective tax rate calculated in accordance with
generally accepted accounting principles (GAAP) to non-GAAP performance measures, referred to as Adjusted Constant Currency Net Sales , Adjusted Net Income and Adjusted Net Income per Diluted Share , Adjusted EPS from
Continuing Operations and Adjusted Operating Income that exclude the items specified in the tables. Management believes it is important to provide investors with the same non-GAAP metrics it uses to supplement information regarding
the performance and underlying trends of Orthofix s business operations in order to facilitate comparisons to its historical operating results and internally evaluate the effectiveness of the Company s operating strategies. A more detailed
explanation of the items in the tables below that are excluded from GAAP net sales and GAAP net income (loss) and net income (loss) per diluted share, as well as why management believes the non-GAAP measures are useful to them, is included in the
Regulation G Supplemental Information schedule attached to this press release.
Reconciliations of Non-GAAP Performance Measures
Adjusted Net Income from continuing operations and Adjusted Net Income from continuing operations per Diluted Share Reconciling Items
Note: The reconciling items were tax effected in the current period at the prevailing rate within the respective jurisdictions.
Adjusted Operating Income Reconciling Items
Adjusted EPS from Continuing Operations Reconciling Items
Note: The reconciling items were tax effected in the current period at the prevailing rate within the respective jurisdictions.
Management use of, and economic substance
behind, Non-GAAP Performance Measures
Management uses non-GAAP measures to evaluate performance period over period, to analyze the
underlying trends in the Company s business, to assess its performance relative to its competitors and to establish operational goals and forecasts that are used in allocating resources. In recent years, management has increased its focus on
cash generation and debt reduction. Management uses these non-GAAP measures as the basis for assessing the ability of the underlying operations to generate cash for use in paying down debt. In addition, management uses these non-GAAP measures to
further its understanding of the performance of the Company s business units. The items excluded from Orthofix s non-GAAP measures are also excluded from the profit or loss reported by the Company s business units for the purpose of
analyzing their performance.
Material Limitations Associated with the Use of Non-GAAP Measures