LEWISVILLE, Texas–(BUSINESS WIRE)–Orthofix International N.V. (NASDAQ:OFIX) today reported its financial results for the third quarter ended September 30, 2015, including net sales of $101.2 million, diluted loss per share from continuing operations of ($0.04) and adjusted diluted earnings per share from continuing operations of $0.30.
“The third quarter was a very good quarter for Orthofix in many respects, led by the financial results, which are at the high end of our expectations. Our third quarter net sales continue to confirm that the plan we are executing will deliver consistent top line growth. With this growth we also anticipate ongoing improvement in our operating leverage,” said President and Chief Executive Officer, Brad Mason. “I am also pleased to report that our Board of Directors has approved a $75 million share repurchase plan. I believe our improving financial performance and significant cash flow generation ability affords us this opportunity to return capital to shareholders while driving profitable growth.”
Third Quarter Financial Results
The following table provides net sales and constant currency net sales growth by strategic business unit (“SBU”) for the three months ended September 30, 2015 and 2014:
|Three Months Ended September 30,|
|(Unaudited, U.S. Dollars, in thousands)||2015||2014||
|Total net sales||$||101,151||$||100,994||0.2||%||4.1||%|
Net sales of $101.2 million were relatively flat when compared to the same prior year period; however, net sales increased by approximately 4.1% on a constant currency basis. Net sales increased in our BioStim and Biologics SBUs due primarily to continued expansion of our sales channels and improving execution of our commercial strategies. Net sales in our Extremity Fixation SBU decreased 10.6% (an increase of 3.4% on a constant currency basis) compared to the same prior year period. The increase in constant currency terms was primarily driven by growth in the U.S. and increased cash collections, partially offset by weakness in Brazil. Net sales in our Spine Fixation SBU decreased 3.9% in constant currency year-over-year; however, third quarter sales grew 4.5% sequentially over the second quarter, marking three consecutive quarters of sales growth in this segment and highlighting the success of the team and strategies that were put in place late last year.
Gross profit increased $1.6 million to $77.3 million, compared to $75.7 million in the same prior year period. Gross margin was 76.4% compared to 75.0% for the same prior year period, primarily due to the increased sales mix of our BioStim and Biologics regenerative solutions relative to our other products.
Total net margin (gross profit less sales and marketing expenses) was $31.2 million, or 30.8% of net sales, a decrease of $3.5 million or 10.3% from $34.7 million, or 34.4% of net sales, in the third quarter of 2014. The decrease in net margin was driven by an increase in sales and marketing expenses of $5.1 million, partially due to an increase in bad debt expense of $3.0 million, $2.0 million of which resulted from an increase in accounts receivable reserves in response to the recent fiscal and economic difficulties experienced by the Puerto Rico Commonwealth, including receiving downgrades in credit ratings. Also contributing to this increase was the planned increase in sales management and field-based education and training personnel as well as overachievement of sales commission quotas in certain territories. These increases in sales and marketing expenses were partially offset by the increase in gross profit.
Operating expenses increased by $3.9 million to $73.1 million, compared to $69.2 million in the prior year period. The increase in operating expenses was primarily a result of the increase in sales and marketing expense, partially offset by a decrease of $1.2 million in restatements and related costs from lower professional fees.
Adjusted EBITDA, which excludes share-based compensation, foreign exchange impact, strategic investments, restatements and related costs, infrastructure investments, legal judgment, gain on sale of assets, and the Puerto Rico adjustment, decreased to $15.9 million or 15.7% of net sales for the quarter, compared to $17.6 million or 17.4% of net sales in the same prior year period due primarily to increased operating expenses as described above.
Net loss from continuing operations for the quarter was ($0.8) million, or ($0.04) per diluted share, compared to net income of $28 thousand, or $0.00 per diluted share, in the same prior year period.
Adjusted net income from continuing operations for the quarter was $5.7 million, or $0.30 per diluted share, compared to adjusted net income from continuing operations of $3.3 million, or $0.17 per diluted share, in the same prior year period.
As of September 30, 2015, cash and cash equivalents were $63.7 million compared to $71.2 million, which includes restricted cash, as of December 31, 2014. On August 31, 2015, the Company entered into a new credit agreement that provides for a five year, $125 million secured revolving credit facility, and replaces the Company’s prior 2010 credit facility. As of September 30, 2015, the Company had no outstanding indebtedness and borrowing capacity of $125 million.
Class Action Settlement
Subject to court approval, a settlement in principle has been reached in the shareholder action related to the first restatement. The settlement is within the Company’s insurance coverage limits. Further details of the settlement are provided in the 2015 third quarter Form 10-Q.
Share Repurchase Plan
The Company’s Board of Directors has authorized a share repurchase plan, authorizing the purchase of up to $75 million of the Company’s common stock through the end of September 2017. The timing of purchases and the number of shares to be purchased will depend on market conditions and other factors. Repurchases are expected to consist primarily of open market transactions at prevailing market prices in accordance with the guidelines specified under Rule 10b-18 of the Securities Exchange Act of 1934, as amended.
Fiscal 2015 Outlook
Based on the Company’s year-to-date results and updated forecast for the fourth quarter of this year, the Company is narrowing its range of Net Sales and adjusted EBITDA guidance as shown in the table below. The guidance assumes constant currency exchange rates from those currently prevailing.
|Net Sales||$ 390 million — $ 395 million||$ 392 million — $ 395 million1|
|Adjusted EBITDA||$ 57 million — $ 60 million||$ 58 million — $ 60 million2|
1 Represents a year over year increase of 1.1% to 1.9% on a constant currency basis and a decrease of 2.6% to 1.8% on a reported basis.
2 Represents a year over year decrease of 11.5% to 8.4% on a constant currency basis and a decrease of 11.3% to 8.3% on a reported basis.
Orthofix will host a conference call today at 4:30 PM Eastern time to discuss the Company’s financial results for the third quarter 2015. Interested parties may access the conference call by dialing (888) 427-9380 in the U.S. and (719) 325-2412 outside the U.S., and referencing the conference ID 344751. A replay of the call will be available for two weeks by dialing (888) 203-1112 in the U.S. and (719) 457-0820 outside the U.S., and entering the conference ID 344751. 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 improving patients’ lives by providing superior reconstructive and regenerative orthopedic and spine solutions to physicians worldwide. Headquartered in Lewisville, Texas, 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 and the Texas Scottish Rite Hospital for Children. For more information, please visit www.orthofix.com.