Full Press Release Details
Orthofix International Announces
First Quarter 2013 Results
Lewisville, TX, May 8, 2013 Orthofix International N.V. (NASDAQ:OFIX) (the Company) today announced its results for the first quarter ended March 31, 2013. Net sales were $100.3 million,
a 14% decrease over the first quarter of the prior year, or 13% on a constant currency basis.
Net income from continuing operations was $4.9
million, or $0.25 per diluted share compared to $0.64 per diluted share in the prior year. Adjusted net income from continuing operations was $4.6 million, or $0.23 per diluted share, decreasing 66% from $0.69 per diluted share from the first
quarter of the prior year.
The Orthofix Board of Directors has authorized a share repurchase program allowing the Company to repurchase up to
$50 million of the Company s common stock, effective beginning May 10, 2013.
Brad Mason, President and Chief Executive Officer,
commented, I am delighted to rejoin Orthofix and am confident that I can lead the Company in a way that will maximize its potential to create shareholder value. I am very encouraged by the many strengths I see in our organization.
That said, the first quarter sales and earnings results were disappointing. The good news is that the primary issues that led to these results are
identifiable, within our control, and fixable. We are developing a strategy with specific initiatives that will both improve our internal competencies and drive growth.
Importantly, Orthofix generated free cash flow of $9 million in the quarter which, in spite of the revenue shortfall, highlights the underlying stability of Orthofix s business. Given this and
our confidence in our prospects for the future, the Board has approved a share repurchase program of up to $50 million. The Board and I believe that, while Orthofix s stock is trading at current valuations, this is an appropriate use of cash
and will benefit the shareholders.
Net sales were $100.3 million in the first quarter of 2013, down 14% from $116.0 million in the first quarter of the prior year. Foreign currency translation and two less selling days both negatively
impacted the first quarter net sales by 0.6% and 3.2%, respectively.
External net sales by global business unit
| Three Months Ended March 31, | ||||||||||||||||
| (USD in millions) | 2013 | 2012 | Reported Decline | Constant Currency Decline | ||||||||||||
| Spine | ||||||||||||||||
| Spine Repair Implants and Regenerative Biologics | $ | 34.3 | $ | 35.8 | -4 | % | -4 | % | ||||||||
| Spine Regenerative Stimulation | 32.0 | 39.3 | -18 | % | -18 | % | ||||||||||
| Total Spine | 66.3 | 75.0 | -12 | % | -12 | % | ||||||||||
| Orthopedics | 33.9 | 41.0 | -17 | % | -16 | % | ||||||||||
| Total net sales | $ | 100.3 | $ | 116.0 | -14 | % | -13 | % |
Note: Spine Repair Implants and Regenerative Biologics includes $9.4 million and $8.7 million of marketing service fees
in the three months ended March 31, 2013 and 2012, respectively. Orthopedics includes $2.5 million of marketing service fees in the three months ended March 31, 2013 and 2012.
Note: Some calculations may be impacted by rounding.
Total Spine sales were $66.3 million, which
decreased 12% from the prior year. The reduction in sales was primarily a result of residual effects of distribution disruptions and higher than ordinary mix of wholesale revenue in 2012 in the Company s Stimulation business. In addition, sales
from Spine Implants were impacted by weakness in international markets as well as pricing pressures in the U.S.
Orthopedics sales were $33.9
million, which decreased 17% on a reported basis and 16% on a constant currency basis compared to the prior year. The decline in revenue was due primarily to a number of challenges currently impacting the Company in Brazil. Sales from Europe
were also negatively affected by poor macroeconomic conditions.
Earnings Performance
Reported net income for the first quarter of 2013 was $4.9 million and net income per diluted share was $0.25. Excluding certain items summarized in the
table below, adjusted net income in the first quarter of 2013 was $4.6 million, or $0.23 per diluted share, decreasing 66% from the first quarter of the prior year.
The 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 March 31, 2013 and 2012:
First Quarter Adjusted Net
Income from Continuing Operations
| Q1 2013 | Q1 2012 | % Change | ||||||||||||||||||||||
| ($000 s) | EPS | ($000 s) | EPS | Earnings | EPS | |||||||||||||||||||
| Reported GAAP net income and net income per diluted share | $ | 4,908 | $ | 0.25 | $ | 12,216 | $ | 0.64 | -60 | % | -61 | % | ||||||||||||
| Specified Items: | ||||||||||||||||||||||||
| Succession charges | 2,828 | |||||||||||||||||||||||
| Gain related to demutualization of a mutual insurance company | (2,776 | ) | ||||||||||||||||||||||
| Foreign exchange gain/loss | (392 | ) | 296 | |||||||||||||||||||||
| Strategic investment in MTF | 630 | |||||||||||||||||||||||
| Adjusted net income and net income per diluted share | $ | 4,568 | $ | 0.23 | $ | 13,142 | $ | 0.69 | -65 | % | -66 | % | ||||||||||||
| Shares used to calculate EPS (in thousands) | 19,691 | 19,116 |
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 following table reconciles operating income to
adjusted operating income for each of the quarters ended March 31, 2013 and 2012:
First Quarter Adjusted Operating Income from
Continuing Operations
| Q1 2013 | Q1 2012 | |||||||||||||||
| ($000 s) | % of Sales | ($000 s) | % of Sales | |||||||||||||
| Reported GAAP operating income | $ | 4,024 | 4.0 | % | $ | 22,431 | 19.3 | % | ||||||||
| Specified Items: | ||||||||||||||||
| Succession charges | 3,587 | |||||||||||||||
| Strategic investment in MTF | 1,000 | |||||||||||||||
| Adjusted operating income | $ | 7,611 | 7.6 | % | $ | 23,431 | 20.2 | % |
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 following table reconciles Free Cash Flow for the
quarter ended March 31, 2013:
| Q1 2013 | ||||
| Net cash provided by operating activities | $ | 15,454 | ||
| Capital expenditures | (6,468 | ) | ||
| Free Cash Flow | $ | 8,986 |
Share Repurchase Program
The Company announced today that its Board of Directors has authorized a share repurchase program in an amount up to $50 million. Repurchases are expected to consist primarily of open market transactions
at prevailing market prices in accordance with the guidelines specified under Rule 10b-18 of the Securities Exchange Act of 1934, as amended, though the Company may also make repurchases through block trades or privately negotiated transactions. The
Company expects that repurchases will begin on or about May 10, 2013. Repurchases are expected to be
made from cash on hand, cash generated from operations, and additional borrowings. The timing of the transactions and the aggregate number of shares of common stock that will be repurchased under
the repurchase program will depend on a variety of factors, including market conditions and the prices at which the securities are repurchased. The Company may discontinue repurchases without prior notice at any time if it determines additional
repurchases are not warranted.
For the second quarter, the Company expects revenues to be between $104 million and $107 million. The Company noted that in June 2013 it will host a call to outline plans to drive revenue growth, enhance
performance and create long-term value for shareholders. The Company will provide updated annual guidance at that time.
Orthofix will host a conference call today at 4:30 PM Eastern time to discuss the Company s financial results for the first quarter
of 2013. 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:
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 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.
ORTHOFIX INTERNATIONAL N.V.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, U.S. Dollars, in thousands,
except per share and share data)
| Three Months Ended March 31, | ||||||||
| 2013 | 2012 | |||||||
| Product sales | $ | 88,358 | $ | 104,820 | ||||
| Marketing service fees | 11,896 | 11,222 | ||||||
| Net sales | 100,254 | 116,042 | ||||||
| Cost of sales | 22,699 | 21,940 | ||||||
| Gross profit | 77,555 | 94,102 | ||||||
| Operating expenses | ||||||||
| Sales and marketing | 48,839 | 49,521 | ||||||
| General and administrative | 18,788 | 14,570 | ||||||
| Research and development | 5,400 | 7,050 | ||||||
| Amortization of intangible assets | 504 | 530 | ||||||
| 73,531 | 71,671 | |||||||
| Operating income | 4,024 | 22,431 | ||||||
| Other income and expense | ||||||||
| Interest expense, net | (560 | ) | (2,221 | ) | ||||
| Other income (expense) | 4,764 | (631 | ) | |||||
| Income before income taxes | 8,228 | 19,579 | ||||||
| Income tax expense | (3,320 | ) | (7,363 | ) | ||||
| Net income from continuing operations, net of tax | 4,908 | 12,216 | ||||||
| Discontinued operations | ||||||||
| Loss from discontinued operations | (4,432 | ) | (506 | ) | ||||
| Income tax benefit | 1,640 | 306 | ||||||
| Net loss from discontinued operations, net of tax | (2,792 | ) | (200 | ) | ||||
| Net income | $ | 2,116 | $ | 12,016 | ||||
| Net income per common share - basic | ||||||||
| Net income from continuing operations, net of tax | $ | 0.25 | $ | 0.65 | ||||
| Net loss from discontinued operations, net of tax | ($ | 0.14 | ) | ($ | 0.01 | ) | ||
| Net income per common share - basic | $ | 0.11 | $ | 0.64 | ||||
| Net income per common share - diluted | ||||||||
| Net income from continuing operations, net of tax | $ | 0.25 | $ | 0.64 | ||||
| Net loss from discontinued operations, net of tax | ($ | 0.14 | ) | ($ | 0.01 | ) | ||
| Net income per common share - diluted | $ | 0.11 | $ | 0.63 | ||||
| Weighted average number of common shares outstanding - basic | 19,431,093 | 18,675,694 | ||||||
| Weighted average number of common shares outstanding - diluted | 19,691,141 | 19,116,195 |
ORTHOFIX INTERNATIONAL N.V.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, U.S. Dollars, in thousands)
| March 31, | December 31, | |||||||
| 2013 | 2012 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 33,675 | $ | 31,055 | ||||
| Restricted cash | 29,446 | 21,314 | ||||||
| Trade accounts receivable, net | 132,425 | 150,316 | ||||||
| Inventories | 92,133 | 88,744 | ||||||
| Deferred income taxes | 17,363 | 16,959 | ||||||
| Prepaid expenses and other current assets | 32,211 | 32,056 | ||||||
| Total current assets | 337,253 | 340,444 | ||||||
| Property, plant and equipment, net | 52,402 | 51,362 | ||||||
| Patents and other intangible assets, net | 6,765 | 6,880 | ||||||
| Goodwill | 72,607 | 74,388 | ||||||
| Deferred income taxes | 20,200 | 19,904 | ||||||
| Other long-term assets | 14,153 | 11,303 | ||||||
| Total assets | $ | 503,380 | $ | 504,281 | ||||
| Liabilities and shareholders equity | ||||||||
| Current liabilities: | ||||||||
| Trade accounts payable | $ | 14,230 | $ | 21,812 | ||||
| Other current liabilities | 51,295 | 46,985 | ||||||
| Total current liabilities | 65,525 | 68,797 | ||||||
| Long-term debt | 20,000 | 20,000 | ||||||
| Deferred income taxes | 11,460 | 11,456 | ||||||
| Other long-term liabilities | 4,227 | 4,930 | ||||||
| Total liabilities | 101,212 | 105,183 | ||||||
| Shareholders equity: | ||||||||
| Common shares | 1,945 | 1,934 | ||||||
| Additional paid-in capital | 250,186 | 246,111 | ||||||
| Retained earnings | 150,665 | 148,549 | ||||||
| Accumulated other comprehensive income | (628 | ) | 2,504 | |||||
| Total shareholders equity | 402,168 | 399,098 | ||||||
| Total liabilities and shareholders equity | $ | 503,380 | $ | 504,281 |
ORTHOFIX INTERNATIONAL N.V.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, U.S. Dollars, in thousands)
| Three Months Ended March 31, | ||||||||
| 2013 | 2012 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 2,116 | $ | 12,016 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 4,995 | 5,667 | ||||||
| Other non-cash adjustments | 5,642 | 6,639 | ||||||
| Change in operating assets and liabilities: | ||||||||
| Escrow receivable | 41,537 | |||||||
| Changes in working capital | 2,701 | (16,745 | ) | |||||
| Net cash provided by operating activities | 15,454 | 49,114 | ||||||
| Cash flows from investing activities: | ||||||||
| Capital expenditures | (6,468 | ) | (6,523 | ) | ||||
| Net cash used in investing activities | (6,468 | ) | (6,523 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Net proceeds from issuance of common shares | 2,143 | 6,641 | ||||||
| Repayments of long-term debt | (3,750 | ) | ||||||
| (Repayment of) proceeds from bank borrowings, net | (15 | ) | 69 | |||||
| Change in restricted cash | (8,141 | ) | (32,271 | ) | ||||
| Excess income tax benefit on employee stock-based awards | 78 | 242 | ||||||
| Net cash used in financing activities | (5,935 | ) | (29,069 | ) | ||||
| Effect of exchange rate changes on cash | (431 | ) | 324 | |||||
| Net increase in cash and cash equivalents | 2,620 | 13,846 | ||||||
| Cash and cash equivalents at the beginning of period | 31,055 | 33,207 | ||||||
| Cash and cash equivalents at the end of period | $ | 33,675 | $ | 47,053 |
Non-GAAP Performance Measures
The tables in this press release present reconciliations of net sales, net income and net income per diluted share, operating income and net cash provided by operating activities 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
Operating Income and Free Cash Flow 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 above that are excluded from GAAP net sales and GAAP net income and net income 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