Full Press Release Details
Orthofix International
Reports First Quarter 2014 Results
LEWISVILLE, TX. May 7, 2014 Orthofix International N.V. (NASDAQ:OFIX) today reported results for the
first quarter ended March 31, 2014. Net sales were $101.3 million for the first quarter of 2014, decreasing 2.0% from net sales of $103.4 million in the first quarter of 2013. Net margin, which the Company calculates as gross profit less sales
and marketing expenses, increased 6.5% during the period to $34.8 million, or 34.4% of sales, over $32.7 million, or 31.6% of sales in the first quarter 2013.
President and Chief Executive Officer Brad Mason commented on the Company s financial results, The first quarter results were better than expected
and give us further confidence that our initiatives to improve and grow our business are appropriate and effective. Additionally, during the quarter we announced a number of Board and executive leadership changes that bring added experience and
talent to help us drive improved results.
First Quarter 2014 Sales Results
Net sales in the Company s BioStim strategic
business unit, or SBU, increased 0.5% to $38.4 million in the first quarter of 2014 compared to $38.2 million for the same period in the prior year, an increase of $0.2 million. The BioStim revenue was driven by a stable performance in Spine
Stimulation and a lower, yet improving performance in Physio-Stim, as the Company continued to transition the Physio-Stim sales force.
Net sales in the Company s Biologics SBU decreased $0.4 million, or 2.7%, to $13.0 in the first quarter of 2014 compared to $13.4 million for the
same period in the prior year. This was due to a decrease in the Company s marketing service fee rate with the Musculoskeletal Transplant Foundation ( MTF ) to 65% from 70% on April 1, 2013, for Trinity Evolution and Trinity
Elite sales. Assuming no marketing fee rate decrease, sales in Biologics grew 4.0% year-over-year in the first quarter.
Net sales in the Company s Extremity Fixation SBU increased $0.9 million, or 3.3%, to $27.1 million in the first quarter of 2014 compared to $26.2 million
for the same period last year. The sales improvement was driven primarily due to increased sales in the U.K. and France, offset somewhat by lower performance in the U.S. and Brazil due to ongoing restructuring activities.
Net sales in the Company s Spine
Fixation SBU decreased $2.7 million, or 10.6%, to $22.8 million in the first quarter of 2014 compared to $25.5 million for the same period last year. This decrease was primarily due to lower international sales.
First Quarter 2014 Net Margin and Earnings Results
First quarter 2014 consolidated net margin increased 6.5% to $34.8 million over $32.7 million in the first quarter of the prior year. As a percentage of sales,
net margin improved to 34.4% in the first quarter 2014 from 31.6% in the first quarter 2013. This increase was primarily driven by Spine Fixation and Extremity Fixation, which was offset by a decrease in BioStim net margin. Spine Fixation net margin
benefitted from cost reductions and lower commissions due to a higher international sales mix, while BioStim net margin was negatively impacted primarily by an increase in commission expense.
First quarter 2014 net income (loss) from continuing operations was ($0.2)million, or ($0.01) per diluted share, compared to net income of $7.6 million, or
$0.39 per diluted share for the same period last year. First quarter 2014 and 2013 net income also included the specified items detailed below. When excluding these items, adjusted net income from continuing operations for the first quarter 2014 was
$5.2 million, or $0.29 per diluted share, compared to $7.2 million, or $0.37 per diluted share, in the first quarter 2013.
Orthofix will host a conference call to discuss first quarter results today, Wednesday, May 7, 2014 at 4:30 p.m. EDT (3:30 p.m. CDT). 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.
International N.V. is a diversified, global medical device company focused on improving patients lives by providing superior reconstructive and regenerative orthopedic and spine solutions to physicians worldwide. Headquartered in Lewisville,
TX, the Company has four strategic business units that include BioStim, Biologics, Extremity Fixation and Spine Fixation. Orthofix products are widely distributed via the Company s sales representatives, distributors and its subsidiaries. In
addition, Orthofix is collaborating on research and development activities with leading clinical organizations such as the Musculoskeletal Transplant Foundation, the Orthopedic Research and Education Foundation and the Texas Scottish Rite Hospital
for Children. For more information, 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 our recent Audit Committee review and the recently filed restatement of our financial
statements for certain prior periods and related legal proceedings (including potential action by the Division of Enforcement of the SEC and pending securities class action litigation); the
Company s review of allegations of improper payments involving the Company s Brazil-based subsidiary; the expected sales of the Company s products, including recently launched products; unanticipated expenditures; changing
relationships with customers, suppliers, strategic partners and lenders; changes to and the interpretation of governmental regulations; the resolution of pending litigation matters (including the Company s indemnification obligations with
respect to certain product liability claims against, and the government investigation of, the Company s former sports medicine global business unit); the Company s ongoing compliance obligations under a corporate integrity agreement with
the Office of Inspector General of the Department of Health and Human Services (and related terms of probation), a deferred prosecution agreement with the U.S. Department of Justice and a Consent Decree with the SEC; 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 risks described in Item 1A under
the heading Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, as well as in other subsequent periodic reports filed by the Company with the 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.
The following tables are summaries of sales reconciled to constant currency sales growth for the quarters ended March 31, 2014, and 2013. Amounts shown
are in millions and reflect unaudited figures. Some calculations may be impacted by rounding.
External net sales by strategic business unit
| Three Months Ended March 31, | ||||||||||||||||
| (U.S. Dollars in millions) | 2014 | 2013 | Reported Growth | Constant Currency Growth | ||||||||||||
| BioStim | 38.4 | 38.2 | 1 | % | 1 | % | ||||||||||
| Biologics | 13.0 | 13.4 | -3 | % | -3 | % | ||||||||||
| Extremity Fixation | 27.1 | 26.2 | 3 | % | 4 | % | ||||||||||
| Spine Fixation | 22.8 | 25.5 | -11 | % | -11 | % | ||||||||||
| Total net sales | $ | 101.3 | $ | 103.4 | -2 | % | -2 | % |
The following tables are summaries of first quarter 2014 and 2013 net margins by strategic business unit. Amounts shown are in millions and reflect unaudited
figures. Some calculations may be impacted by rounding.
ORTHOFIX INTERNATIONAL N.V.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| Three Months Ended March 31, | ||||||||
| (U.S. Dollars in millions) | 2014 | 2013 | ||||||
| Net margin by Strategic Business Unit: | ||||||||
| BioStim | $ | 14.2 | $ | 16.9 | ||||
| Biologics | 6.7 | 6.0 | ||||||
| Extremity Fixation | 9.3 | 8.0 | ||||||
| Spine Fixation | 5.1 | 2.2 | ||||||
| Corporate | (0.4 | ) | (0.4 | ) | ||||
| Subtotal | 34.8 | 32.7 | ||||||
| Consolidated Expenses: | ||||||||
| General and administrative expense | (17.5 | ) | (18.3 | ) | ||||
| Research and development expense | (5.9 | ) | (5.7 | ) | ||||
| Amortization of intangible assets | (0.6 | ) | (0.5 | ) | ||||
| Costs related to accounting review and restatement | (8.3 | ) | ||||||
| Consolidated Operating income | 2.5 | 8.1 |
The following table reconciles reported operating income from continuing operations to adjusted operating income from
continuing operations for the quarters ended March 31, 2014, and 2013. Some calculations may be impacted by rounding. Please refer to the Non-GAAP Performance Measures section at the end of this press release for more information about the
specified items listed below.
First Quarter Adjusted Operating Income from Continuing Operations
| Q1 2014 | Q1 2013 | |||||||||||||||
| ($ 000 s) | % of Sales | ($ 000 s) | % of Sales | |||||||||||||
| Reported GAAP operating income | $ | 2,465 | 2.4 | % | $ | 8,087 | 7.8 | % | ||||||||
| Specified Items: | ||||||||||||||||
| Costs related to accounting review and restatement | 8,306 | |||||||||||||||
| Succession and restructuring charges | 3,537 | |||||||||||||||
| Adjusted operating income | $ | 10,771 | 10.6 | % | $ | 11,624 | 11.2 | % |
The following table reconciles 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 March 31, 2014, and 2013. Some calculations may be impacted by rounding. Please refer to
the Non-GAAP Performance Measures section at the end of this press release for more information about the specified items listed below.
Adjusted Net Income from Continuing Operations
| Q1 2014 | Q1 2013 | % Change | ||||||||||||||||||||||
| ($ 000 s) | EPS | ($000 s) | EPS | Earnings | EPS | |||||||||||||||||||
| Reported GAAP net (loss) income and net (loss) income per diluted share | $ | (222 | ) | $ | (0.01 | ) | $ | 7,610 | $ | 0.39 | -103 | % | -103 | % | ||||||||||
| Specified Items: | ||||||||||||||||||||||||
| Costs related to accounting review and restatement | 5,482 | |||||||||||||||||||||||
| Succession and restructuring charges | 2,756 | |||||||||||||||||||||||
| Foreign exchange gain | (53 | ) | (393 | ) | ||||||||||||||||||||
| Gain related to demutualization of a Mutual insurance company | (2,776 | ) | ||||||||||||||||||||||
| Adjusted net income and net income per diluted share | $ | 5,207 | $ | 0.29 | $ | 7,197 | $ | 0.37 | -28 | % | -22 | % |
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, | ||||||||
| 2014 | 2013 | |||||||
| Net sales | $ | 101,342 | $ | 103,373 | ||||
| Cost of sales | 22,632 | 25,617 | ||||||
| Gross profit | 78,710 | 77,756 | ||||||
| Operating expenses | ||||||||
| Sales and marketing | 43,871 | 45,054 | ||||||
| General and administrative | 17,545 | 18,330 | ||||||
| Research and development | 5,939 | 5,741 | ||||||
| Amortization of intangible assets | 584 | 544 | ||||||
| Costs related to the accounting review and restatement | 8,306 | |||||||
| 76,245 | 69,669 | |||||||
| Operating income | 2,465 | 8,087 | ||||||
| Other income and expense | ||||||||
| Interest expense, net | (486 | ) | (560 | ) | ||||
| Other income (expense) | (261 | ) | 4,764 | |||||
| Income before income taxes | 1,718 | 12,291 | ||||||
| Income tax expense | (1,940 | ) | (4,681 | ) | ||||
| Net income (loss) from continuing operations | (222 | ) | 7,610 | |||||
| Discontinued operations | ||||||||
| Loss from discontinued operations | (794 | ) | (4,434 | ) | ||||
| Income tax (expense) benefit | 234 | 1,324 | ||||||
| Net income (loss) from discontinued operations | (560 | ) | (3,110 | ) | ||||
| Net income (loss) | $ | (782 | ) | $ | 4,500 | |||
| Net income (loss) per common share - basic | ||||||||
| Net income (loss) from continuing operations | $ | (0.01 | ) | $ | 0.39 | |||
| Net loss from discontinued operations | $ | (0.03 | ) | $ | (0.16 | ) | ||
| Net income (loss) per common share - basic | $ | (0.04 | ) | $ | 0.23 | |||
| Net income (loss) per common share - diluted | ||||||||
| Net income (loss) from continuing operations | $ | (0.01 | ) | $ | 0.39 | |||
| Net loss from discontinued operations | $ | (0.03 | ) | $ | (0.16 | ) | ||
| Net income (loss) per common share - diluted | $ | (0.04 | ) | $ | 0.23 | |||
| Weighted average number of common shares outstanding - basic | 18,197,363 | 19,431,093 | ||||||
| Weighted average number of common shares outstanding - diluted | 18,197,363 | 19,691,141 |
ORTHOFIX INTERNATIONAL N.V.
CONDENSED CONSOLIDATED
(Unaudited, U.S. Dollars, in thousands)
| March 31, | December 31, | |||||||
| 2014 | 2013 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 26,747 | $ | 30,486 | ||||
| Restricted cash | 19,270 | 23,761 | ||||||
| Trade accounts receivable, net | 76,917 | 75,567 | ||||||
| Inventories, net | 92,753 | 90,577 | ||||||
| Deferred income taxes | 33,956 | 33,947 | ||||||
| Prepaid expenses and other current assets | 28,781 | 25,906 | ||||||
| Total current assets | 278,424 | 280,244 | ||||||
| Property, plant and equipment, net | 52,532 | 54,606 | ||||||
| Patents and other intangible assets, net | 8,518 | 9,046 | ||||||
| Goodwill | 53,565 | 53,565 | ||||||
| Deferred income taxes | 18,758 | 18,336 | ||||||
| Other long-term assets | 6,743 | 7,385 | ||||||
| Total assets | $ | 418,540 | $ | 423,182 | ||||
| Liabilities and shareholders equity | ||||||||
| Current liabilities: | ||||||||
| Trade accounts payable | 14,022 | 20,674 | ||||||
| Other current liabilities | 41,467 | 46,146 | ||||||
| Total current liabilities | 55,489 | 66,820 | ||||||
| Long-term debt | 20,000 | 20,000 | ||||||
| Deferred income taxes | 13,307 | 13,132 | ||||||
| Other long-term liabilities | 12,487 | 12,736 | ||||||
| Total liabilities | 101,283 | 112,688 | ||||||
| Shareholders equity: | ||||||||
| Common shares | 1,836 | 1,810 | ||||||
| Additional paid-in capital | 223,630 | 216,653 | ||||||
| Retained earnings | 88,550 | 89,332 | ||||||
| Accumulated other comprehensive income | 3,241 | 2,699 | ||||||
| Total shareholders equity | 317,257 | 310,494 | ||||||
| Total liabilities and shareholders equity | $ | 418,540 | $ | 423,182 |
ORTHOFIX INTERNATIONAL N.V.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited, U.S. Dollars, in thousands)
| Three Months Ended March 31, | ||||||||
| 2014 | 2013 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | (782 | ) | $ | 4,500 | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | $ | 6,004 | $ | 5,029 | ||||
| Other non-cash adjustments | $ | 4,523 | $ | 4,367 | ||||
| Change in operating assets and liabilities: | ||||||||
| Changes in working capital | $ | (19,923 | ) | $ | 1,164 | |||
| Net cash (used in) provided by operating activities | $ | (10,178 | ) | $ | 15,060 | |||
| Cash flows from investing activities: | ||||||||
| Capital expenditures | (3,737 | ) | (6,073 | ) | ||||
| Net cash used in investing activities | (3,737 | ) | (6,073 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Net proceeds from issuance of common shares | 5,542 | 2,143 | ||||||
| Repayment of bank borrowings, net | (15 | ) | ||||||
| Change in restricted cash | 4,502 | (8,141 | ) | |||||
| Excess income tax benefit on employee stock-based awards | 29 | 78 | ||||||
| Net cash provided by (used in) financing activities | 10,073 | (5,935 | ) | |||||
| Effect of exchange rate changes on cash | 103 | (431 | ) | |||||
| Net (decrease) increase in cash and cash equivalents | (3,739 | ) | 2,620 | |||||
| Cash and cash equivalents at the beginning of period | 30,486 | 31,055 | ||||||
| Cash and cash equivalents at the end of period | 26,747 | 33,675 |
Non-GAAP Performance Measures
The tables in this press
release present reconciliations of operating income, 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 operating income from continuing operations , adjusted net income from continuing operations and adjusted net income from continuing operations per diluted share , 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
Adjusted Operating Income From Continuing Operations Reconciling Items
Adjusted Net Income From Continuing Operations and Adjusted Net Income from Continuing Operations Per Diluted Share Reconciling Items
Note: The reconciling items were tax affected 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. Management uses these non-GAAP measures as the basis for assessing the ability of the underlying operations to generate
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