Full Press Release Details
Orthofix International Announces
4th Quarter and Full Year 2012 Results
Lewisville, TX, February 21, 2013 Orthofix International N.V. (NASDAQ:OFIX) (the Company) today announced
its results for the fourth quarter and year ended December 31, 2012. Net sales were $112.0 million and $462.3 million for the fourth quarter and full year ended December 31, 2012, respectively.
Net income from continuing operations was $14.6 million, or $0.74 per diluted share, for the fourth quarter and net income was $53.9 million, or $2.78
per diluted share, for the full year ended December 31, 2012. Adjusted net income from continuing operations was $16.0 million, or $0.81 per diluted share, for the fourth quarter and $58.9 million, or $3.04 per diluted share, for the full year
ended December 31, 2012.
Robert Vaters, President and Chief Executive Officer, commented, I am extremely pleased with our fourth
quarter and full year adjusted net income from continuing operations, both records for the Company as we have exceeded our multi-year margin expansion goals. As we previously announced, I was disappointed by our performance in international markets,
as well as by our Spine Regenerative Stimulation business where we experienced sales turnover from the implementation of our Corporate Integrity Agreement. While we remain focused on overcoming near-term challenges that are impacting top-line
growth, we have improved the Company s margins and overall financial profile while removing the burden of significant government investigations. This improved financial position provides financial flexibility for increased investment in the
product pipeline and inorganic activities that will drive future growth.
Net sales were $112.0 million in the fourth quarter of 2012, decreasing 9% on a reported basis from $123.1 million in the fourth quarter of the prior year. On a constant currency basis, net sales
decreased 8% as foreign currency translation negatively impacted the fourth quarter net sales by approximately $1.6 million. For the full year 2012, net sales were $462.3 million, decreasing 2% on a reported basis but up slightly on a constant
currency basis as foreign currency translation negatively impacted net sales by approximately $9.8 million.
External net sales by global
| Three Months Ended December 31, | ||||||||||||||||
| (USD in millions ) | 2012 | 2011 | Reported Growth | Constant Currency Growth | ||||||||||||
| Spine | ||||||||||||||||
| Spine Repair Implants and Regenerative Biologics | $ | 36.3 | $ | 36.2 | 0 | % | 0 | % | ||||||||
| Spine Regenerative Stimulation | 39.4 | 42.4 | -7 | % | -7 | % | ||||||||||
| Total Spine | 75.7 | 78.6 | -4 | % | -4 | % | ||||||||||
| Orthopedics | 36.4 | 44.5 | -18 | % | -15 | % | ||||||||||
| Total net sales | $ | 112.0 | $ | 123.1 | -9 | % | -8 | % |
Note: Some calculations may be impacted by rounding.
Fourth quarter net sales in the Company s Spine global business unit were $75.7 million, which decreased 4% from the prior year. Strength in domestic Repair Implants and Regenerative Biologics sales
were offset by challenging regulatory and macroeconomic conditions in international markets. In addition, Spine Regenerative Stimulation business was negatively impacted in the second half of the year by sales force turnover as we initially
implemented our Corporate Integrity Agreement in June 2012.
Fourth quarter net sales in the Company s orthopedics global business unit
were $36.4 million for the fourth quarter of 2012, which reflects an 18% decrease on a reported basis and a 15% decrease on a constant currency basis compared to the prior year. This decrease was primarily due to regulatory and macroeconomic
conditions in certain international markets, which included mandatory price reductions for public hospitals in Italy, cancellation of reimbursement by the government on Physio-Stim in France, and a delay of surgeries by government hospitals and
insurance providers.
Earnings Performance
Reported net income from continuing operations for the fourth quarter 2012 was $14.6 million and net income per diluted share was $0.74, up 21% over $0.62 in the fourth quarter of the prior year. Adjusted
net income from continuing operations in the fourth quarter of 2012 was $16.0 million, or $0.81 per diluted share, an increase of 9% compared with $0.75 per diluted share in the fourth quarter of the prior year.
Subsequent to year end, the Company won an arbitration award against an insurance carrier relating to its
denial of coverage under excess products liability policies with total limits of $30 million. As a result of the binding arbitration award, the carrier is obligated to reimburse the Company for defense expenses, settlements, and judgments associated
with the underlying products liability claims at issue. The Company estimates that it is entitled to reimbursement of approximately $13 million for past losses incurred, as well as up to $15 million in future coverage for pending products liability
matters. The reimbursed amount included in net income from discontinued operations added approximately $0.42 to per diluted share during the fourth quarter 2012.
The following tables reconcile reported net income from continuing operations and net income from continuing operations per diluted share to adjusted net income from continuing operations and adjusted net
income from continuing operations per diluted share for the quarters ended December 31, 2012 and 2011, and for the full years ended December 31, 2012 and 2011:
| Fourth Quarter Adjusted Net Income from Continuing Operations | Q4 2012 | Q4 2011 | % Change | |||||||||||||||||||||
| ($000 s) | EPS | ($000 s) | EPS | Earnings | EPS | |||||||||||||||||||
| Reported GAAP net income and net income per diluted share | $ | 14,636 | $ | 0.74 | $ | 11,530 | $ | 0.62 | 27 | % | 21 | % | ||||||||||||
| Specified Items: | ||||||||||||||||||||||||
| Charges related to U.S. Government resolutions | 185 | 2,456 | ||||||||||||||||||||||
| Foreign exchange gain/loss | 284 | 30 | ||||||||||||||||||||||
| Tax settlement | 885 | |||||||||||||||||||||||
| Adjusted net income and net income per diluted share | $ | 15,990 | $ | 0.81 | $ | 14,016 | $ | 0.75 | 14 | % | 9 | % | ||||||||||||
| Shares used to calculate EPS (in thousands) | 19,668 | 18,740 |
Note: Some calculations may be impacted by rounding. Please refer to the Non-GAAP Performance Measure section at the end
of this press release for more information about the specified items listed above.
| Full Year Adjusted Net Income from Continuing Operations | 2012 | 2011 | % Change | |||||||||||||||||||||
| ($000 s) | EPS | ($000 s) | EPS | Earnings | EPS | |||||||||||||||||||
| Reported GAAP net income (loss) and net income (loss) per diluted share | $ | 53,936 | $ | 2.78 | $ | (1,740 | ) | $ | (0.10 | ) | nm | nm | ||||||||||||
| Specified Items: | ||||||||||||||||||||||||
| Strategic Investments in MTF | $ | 1,890 | $ | |||||||||||||||||||||
| Charges related to U.S. Government resolutions | (83 | ) | 48,456 | |||||||||||||||||||||
| Foreign exchange loss | 321 | 1,009 | ||||||||||||||||||||||
| Succession and restructuring charges | 2,738 | |||||||||||||||||||||||
| Arbitration Resolution of Co- Development Agreement | 1,953 | |||||||||||||||||||||||
| Tax settlement | 885 | |||||||||||||||||||||||
| Adjusted net income and net income per diluted share | $ | 58,902 | $ | 3.04 | $ | 50,462 | $ | 2.72 | 17 | % | 12 | % | ||||||||||||
| Shares used to calculate EPS (in thousands) | 19,390 | 18,564 |
Note: Some calculations may be impacted by rounding.
The shares used to calculate Reported GAAP net loss per diluted shares for 2011 was 18,219,343.
Please refer to the Non-GAAP Performance Measure section at the end of this press release for more information about the specified items listed above.
The following table reconciles operating income from continuing operations to adjusted operating income from
continuing operations for the fourth quarters ended December 31, 2012 and 2011:
| Fourth Quarter Adjusted Operating Income from Continuing Operations | Q4 2012 | Q4 2011 | ||||||||||||||
| ($000 s) | % of Sales | ($000 s) | % of Sales | |||||||||||||
| Reported GAAP operating income | $ | 24,481 | 21.9 | % | $ | 15,811 | 12.8 | % | ||||||||
| Specified Items: | ||||||||||||||||
| Charges related to U.S. Government resolutions | 283 | 10,463 | ||||||||||||||
| Adjusted operating income | $ | 24,764 | 22.1 | % | $ | 26,274 | 21.3 | % |
Note: Some calculations may be impacted by rounding. Please refer to the Non-GAAP Performance measure section at the end
of this press release for more information about the specified items listed above.
The fourth quarter adjusted operating margin from
continuing operations increased 80 basis points compared to the same period of the prior year. The increase was partially driven by the gross margin improvement in the quarter.
During 2013, the Company expects constant currency net sales growth to be
between 1.0% and 3.0% over net sales in 2012. The Company anticipates foreign currency translation to negatively impact net sales by 0.5%, leading reported net sales growth to be between 0.5% and 2.5%, or $465 million and $475 million.
The Company expects GAAP net income from continuing operations for the full year 2013 to be between $2.84 and $2.94 per diluted share. After adjusting
for the strategic initiatives associated with the Musculoskeletal Transplant Foundation and the commercialization of Trinity Elite, net income from continuing operations is expected to be between $2.90 and $3.00 per diluted share.
Reported and Adjusted EPS - Full Year 2013
| Reported GAAP EPS Range | $ | 2.84 | $ | 2.94 | ||||||||
| Specified Items: | ||||||||||||
| Strategic Investments in MTF | $ | 0.06 | ||||||||||
| Adjusted EPS Range | $ | 2.90 | $ | 3.00 |
Orthofix will host a conference call today at 4:30 PM Eastern time to discuss the Company s financial results for the fourth quarter and full year 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, by 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
technologies 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 http://www.orthofix.com.
Forward-Looking Statements:
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 our indemnification obligations with respect to certain product liability claims against, and the government investigation of our former sports medicine global business unit), 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 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, whether as a result of new information, future events or circumstances, or otherwise.
- 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 December 31, | Year Ended December 31, | |||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Net sales | $ | 112,035 | $ | 123,085 | $ | 462,320 | $ | 470,121 | ||||||||
| Cost of sales | 18,504 | 23,239 | 86,492 | 92,619 | ||||||||||||
| Gross profit | 93,531 | 99,846 | 375,828 | 377,502 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Sales and marketing | 51,713 | 53,388 | 200,343 | 200,145 | ||||||||||||
| General and administrative | 11,112 | 14,269 | 53,827 | 64,374 | ||||||||||||
| Research and development | 5,418 | 5,207 | 28,577 | 22,861 | ||||||||||||
| Amortization of intangible assets | 524 | 708 | 2,098 | 2,350 | ||||||||||||
| Charges related to U.S. Government resolutions | 283 | 10,463 | 1,973 | 56,463 | ||||||||||||
| 69,050 | 84,035 | 286,818 | 346,193 | |||||||||||||
| Operating income | 24,481 | 15,811 | 89,010 | 31,309 | ||||||||||||
| Other income and expense | ||||||||||||||||
| Interest expense, net | (626 | ) | (2,576 | ) | (4,577 | ) | (9,456 | ) | ||||||||
| Other expense | (713 | ) | (562 | ) | (1,705 | ) | (2,412 | ) | ||||||||
| Income before income taxes | 23,142 | 12,673 | 82,728 | 19,441 | ||||||||||||
| Income tax expense | (8,506 | ) | (1,143 | ) | (28,792 | ) | (21,181 | ) | ||||||||
| Net income (loss) from continuing operations, net of tax | 14,636 | 11,530 | 53,936 | (1,740 | ) | |||||||||||
| Discontinued operations | ||||||||||||||||
| Gain on sale of Breg, Inc. net of tax | 83 | 1,345 | ||||||||||||||
| Income (loss) from discontinued operations | 11,386 | 1,140 | (4,012 | ) | 1,263 | |||||||||||
| Income tax (expense) benefit | (5,591 | ) | (278 | ) | 26 | (596 | ) | |||||||||
| Net income (loss) from discontinued operations, net of tax | 5,878 | 862 | (2,641 | ) | 667 | |||||||||||
| Net income (loss) | $ | 20,514 | $ | 12,392 | $ | 51,295 | $ | (1,073 | ) | |||||||
| Net income (loss) per common share - basic | ||||||||||||||||
| Net income (loss) from continuing operations, net of tax | $ | 0.76 | $ | 0.62 | $ | 2.84 | $ | (0.10 | ) | |||||||
| Net income (loss) from discontinued operations, net of tax | $ | 0.30 | $ | 0.05 | $ | (0.14 | ) | $ | 0.04 | |||||||
| Net income (loss) per common share - basic | $ | 1.06 | $ | 0.67 | $ | 2.70 | $ | (0.06 | ) | |||||||
| Net income (loss) per common share - diluted | ||||||||||||||||
| Net income (loss) from continuing operations, net of tax | $ | 0.74 | $ | 0.62 | $ | 2.78 | $ | (0.10 | ) | |||||||
| Net income (loss) from discontinued operations, net of tax | $ | 0.30 | $ | 0.04 | $ | (0.14 | ) | $ | 0.04 | |||||||
| Net income (loss) per common share - diluted | $ | 1.04 | $ | 0.66 | $ | 2.64 | $ | (0.06 | ) | |||||||
| Weighted average number of common shares outstanding - basic | 19,322,409 | 18,436,756 | 18,977,263 | 18,219,343 | ||||||||||||
| Weighted average number of common shares outstanding - diluted | 19,668,480 | 18,739,623 | 19,390,413 | 18,219,343 |
ORTHOFIX INTERNATIONAL N.V.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, U.S. Dollars, in thousands)
| December 31, 2012 | December 31, 2011 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 31,055 | $ | 33,207 | ||||
| Restricted cash | 21,314 | 45,476 | ||||||
| Trade accounts receivable, net | 150,316 | 132,828 | ||||||
| Inventories, net | 88,744 | 82,969 | ||||||
| Deferred income taxes | 16,959 | 16,349 | ||||||
| Escrow receivable | 41,537 | |||||||
| Prepaid expenses and other current assets | 32,056 | 26,069 | ||||||
| Assets held for sale | 171,185 | |||||||
| Total current assets | 340,444 | 549,620 | ||||||
| Property, plant and equipment, net | 51,362 | 43,368 | ||||||
| Patents and other intangible assets, net | 6,880 | 8,236 | ||||||
| Goodwill | 74,388 | 73,094 | ||||||
| Deferred income taxes | 19,904 | 18,584 | ||||||
| Other long-term assets | 11,303 | 11,570 | ||||||
| Total assets | $ | 504,281 | $ | 704,472 | ||||
| Liabilities and shareholders equity | ||||||||
| Current liabilities: | ||||||||
| Bank borrowings | $ | 16 | $ | 1,318 | ||||
| Current portion of long-term debt | 17,500 | |||||||
| Trade accounts payable | 21,812 | 16,488 | ||||||
| Accrued charges related to U.S. Government resolutions | 82,500 | |||||||
| Other current liabilities | 46,969 | 45,327 | ||||||
| Liabilities held for sale | 22,676 | |||||||
| Total current liabilities | 68,797 | 185,809 | ||||||
| Long-term debt | 20,000 | 191,195 | ||||||
| Deferred income taxes | 11,456 | 9,778 | ||||||
| Other long-term liabilities | 4,930 | 2,519 | ||||||
| Total liabilities | 105,183 | 389,301 | ||||||
| Shareholders equity: | ||||||||
| Common shares | 1,934 | 1,846 | ||||||
| Additional paid-in capital | 246,111 | 214,310 | ||||||
| Retained earnings | 148,549 | 97,254 | ||||||
| Accumulated other comprehensive income | 2,504 | 1,761 | ||||||
| Total shareholders equity | 399,098 | 315,171 | ||||||
| Total liabilities and shareholders equity | $ | 504,281 | $ | 704,472 |
ORTHOFIX INTERNATIONAL N.V.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, U.S. Dollars, in thousands)
| For the Years Ended December 31, | ||||||||
| 2012 | 2011 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | 51,295 | $ | (1,073 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 20,261 | 22,776 | ||||||
| Other non-cash adjustments | 17,736 | 26,904 | ||||||
| Change in operating assets and liabilities: | ||||||||
| Escrow receivable | 41,537 | (32,562 | ) | |||||
| Charges related to U.S. Government resolutions | 1,973 | 88,463 | ||||||
| Changes in working capital | (121,596 | ) | (39,727 | ) | ||||
| Net cash provided by operating activities | 11,206 | 64,781 | ||||||
| Cash flows from investing activities: | ||||||||
| Capital expenditures | (28,774 | ) | (25,758 | ) | ||||
| 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 | 124,999 | (31,008 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Net proceeds from issuance of common shares | 25,586 | 20,113 | ||||||
| Repayments of long-term debt | (188,695 | ) | (7,500 | ) | ||||
| Payment of refinancing fees | (758 | ) | ||||||
| Repayment of bank borrowings, net | (1,297 | ) | (2,561 | ) | ||||
| Change in restricted cash | 25,799 | (24,178 | ) | |||||
| Cash payment for purchase of minority interest in subsidiary | (517 | ) | ||||||
| Tax benefit on non-qualified stock options | 1,737 | |||||||
| Net cash (used in) provided by financing activities | (138,607 | ) | (13,664 | ) | ||||
| Effect of exchange rate changes on cash | 250 | (463 | ) | |||||
| Net increase in cash and cash equivalents | (2,152 | ) | 19,646 | |||||
| Cash and cash equivalents at the beginning of period | 33,207 | 13,561 | ||||||
| Cash and cash equivalents at the end of period | 31,055 | 33,207 |
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 and operating income 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 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 below.
Reconciliations of Non-GAAP Performance Measures
Adjusted Net Income from continuing operations and Adjusted Net Income 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 Full Year Earnings Per Share Guidance Reconciling Items