Financial

Wright Medical Group N.V. Reports 2018 Second Quarter Financial Results

AMSTERDAM, The Netherlands, Aug. 08, 2018 (GLOBE NEWSWIRE) — Wright Medical Group N.V. (NASDAQ:WMGI) today reported financial results for its second quarter ended July 1, 2018 and increased its 2018 annual guidance.  Unless otherwise noted, all net sales growth rates in this release are stated on a constant currency basis.

Net sales totaled $205.4 million during the second quarter ended July 1, 2018, representing 14.3% as reported and 12.9% constant currency growth, an estimated 370 basis point improvement versus the first quarter of 2018.  Gross margins were 77.8% during the quarter ended July 1, 2018 and were 78.5% on a non-GAAP adjusted basis.  Reconciliations of all historical non-GAAP financial measures used in this release to the most comparable GAAP measures can be found in the attached financial tables.

Robert Palmisano, president and chief executive officer, commented, “We produced outstanding results across the board in the second quarter, including 13% constant currency net sales growth, an estimated 370 basis point increase versus the first quarter of 2018, and we exited the quarter on a strong, positive trajectory, which we expect to continue throughout the remainder of 2018.  These results represent another strong performance in our U.S. upper extremities business, which grew 22% in the second quarter, driven by 24% growth in our U.S. shoulder business.  We anticipate that continued penetration of our SIMPLICITI shoulder system, our ongoing PERFORM Reversed launch and accelerating adoption of our BLUEPRINT enabling technology will continue to drive market-leading shoulder sales growth in 2018.”

Palmisano further commented, “Our U.S. lower extremities growth rate accelerated to 9% in the second quarter, driven by approximately 15% growth in total ankle and improved growth in our core lower extremities business.  The lower extremities business returned to market rates of growth well ahead of schedule, driven primarily by increased contributions from our expanded sales organization.  We are on a good trajectory headed into the second half of the year when we expect the third quarter launch of our PROstep Minimally Invasive Surgery System to provide further momentum for this business.  We also received PMA approval for AUGMENT Injectable Bone Graft and initiated launch activities in the U.S.  We believe the superior handling characteristics and ease of use of AUGMENT Injectable, combined with the proven clinical benefits of AUGMENT, will accelerate the growth in our biologics business in the back half of this year.”

Net loss from continuing operations for the second quarter of 2018 totaled $90.6 million, or $(0.85) per diluted share.

The company’s net loss from continuing operations for the second quarter of 2018 included the after-tax impacts of a $39.9 million non-cash loss on extinguishment of debt to write-off unamortized debt discount and deferred financing fees associated with the partial settlement of its 2020 convertible notes, a loss of $32.9 million related to mark-to-market adjustments on derivatives, non-cash interest expense of $12.3 million related to its convertible notes, non-cash foreign currency translation charges of $1.9 million, and $1.3 million of transaction and transition costs associated with non-cash inventory provisions.  These charges were offset by an unrealized gain of $2.5 million related to mark-to-market adjustments on contingent value rights (CVRs) issued in connection with the BioMimetic acquisition and a $6.2 million U.S. tax benefit within continuing operations recorded as a result of the pre-tax gain recognized within discontinued operations due to the previously announced $30.75 million insurance settlement.

The company’s second quarter 2018 non-GAAP net loss from continuing operations, as adjusted for the above items, was $9.6 million.  The company’s second quarter 2018 non-GAAP adjusted EBITDA from continuing operations, as defined in the non-GAAP to GAAP reconciliation provided later in this release, was $25.6 million. The attached financial tables include reconciliations of all historical non-GAAP measures to the most comparable GAAP measures.

Cash and cash equivalents totaled $313.2 million as of the end of the second quarter of 2018.

Palmisano concluded, “Overall, second quarter net sales growth improved significantly, with Upper Extremities, Lower Extremities, Biologics and International all accelerating their constant currency growth rates.  Based on the strength of the underlying business and the approval of AUGMENT Injectable, we are increasing our guidance, which now calls for annual constant currency net sales growth of 10% to 12%, excluding the impact of the four fewer selling days in the fourth quarter of 2018.  I believe we are set up well for the remainder of 2018.  Our end markets remain healthy and fast growing, our gross margins are outstanding, and our new product pipeline is full of innovative and commercially impactful products and surgical solutions across all parts of our business.”

Outlook

As a result of the approval of AUGMENT Injectable and the performance of the business, the company is increasing its net sales guidance for full-year 2018 to approximately $808 million to $820 million from its previous guidance of approximately $800 million to $812 million.  This guidance range has approximately 0.5% cushion from foreign currency exchange rates as compared to current rates.  In addition, this range implies full-year 2018 constant currency net sales growth of 10% to 12%, excluding the estimated $9 million impact of the four fewer selling days in fourth quarter of 2018.

The company is raising its full-year 2018 non-GAAP adjusted EBITDA from continuing operations, as described in the non-GAAP reconciliation provided later in this release, to a range of $106 million to $113 million.

The company expects its non-GAAP adjusted earnings per share from continuing operations, including share-based compensation, as described in the non-GAAP to GAAP reconciliation provided later in this release, for full-year 2018 to be a loss of $0.14 to $0.21 per diluted share.

The company estimates approximately 106.4 million diluted weighted average ordinary shares outstanding for fiscal year 2018.

The company’s non-GAAP adjusted EBITDA from continuing operations target is measured by adding back to net loss from continuing operations charges for interest, income taxes, depreciation and amortization expenses, non-cash share-based compensation expense and non-operating income and expense.  Additionally, the company’s adjusted EBITDA from continuing operations target excludes possible future acquisitions; other material future business developments; and due diligence, transaction and transition costs associated with acquisitions and divestitures.

The company’s non-GAAP adjusted earnings per share from continuing operations target is measured by adding back to net loss from continuing operations non-cash interest expense associated with the convertible notes; due diligence, transaction and transition costs associated with acquisitions and divestitures; mark-to-market adjustments to CVRs; non-cash mark-to-market derivative adjustments; non-cash gains and losses associated with foreign currency translation of balances denominated in foreign currencies; and charges for non-cash amortization expenses, net of taxes. Note that as a result of the company’s relatively low effective tax rate due to the valuation allowance impacting a substantial portion of the company’s income/loss, the company is currently estimating the tax effect on amortization expense at 0%. Further, this non-GAAP adjusted earnings per share from continuing operations target excludes possible future acquisitions and other material future business developments.

All the historical non-GAAP financial measures used in this release are reconciled to the most directly comparable GAAP measures. With respect to the company’s 2018 financial guidance regarding non-GAAP adjusted EBITDA from continuing operations and non-GAAP adjusted earnings per share from continuing operations, however, the company cannot provide a quantitative reconciliation to the most directly comparable GAAP measures without unreasonable effort due to its inability to make accurate projections and estimates related to certain information needed to calculate some of the adjustments as described above, including the foreign currency fluctuations and market driven fair value adjustments to CVRs and derivatives. The anticipated differences between these non-GAAP financial measures and the most directly comparable GAAP measure are described above qualitatively.

The company’s anticipated ranges for net sales from continuing operations, non-GAAP adjusted EBITDA from continuing operations, and non-GAAP adjusted earnings per share from continuing operations are forward-looking statements, as are any other statements that anticipate or aspire to future events or performance.  They are subject to various risks and uncertainties that could cause the company’s actual results to differ materially from the anticipated targets.  The anticipated targets are not predictions of the company’s actual performance.  See the cautionary information about forward-looking statements in the “Cautionary Note Regarding Forward-Looking Statements” section of this release.

Supplemental Financial Information

To view the second quarter of 2018 supplemental financial information, visit ir.wright.com.  For historical information on Wright Medical Group N.V. segment reporting changes and non-GAAP combined pro forma financial information, please refer to the presentation posted on Wright’s website at ir.wright.com in the “Financial Information” section.

Internet Posting of Information

Wright routinely posts information that may be important to investors in the “Investor Relations” section of its website at www.wright.com.  The company encourages investors and potential investors to consult the Wright website regularly for important information about Wright.

Conference Call and Webcast

As previously announced, Wright will host a conference call starting at 3:30 p.m. Central Time today.  The live dial-in number for the call is (844) 295-9436 (U.S.) / (574) 990-1040 (Outside U.S.).  The participant passcode for the call is “Wright.”  A simultaneous webcast of the call will be available via Wright’s corporate website at www.wright.com.

A replay of the call will be available beginning at 5:30 p.m. Central Time on August 8, 2018 through August 15, 2018.  To hear this replay, dial (855) 859-2056 (U.S.) / (404) 537-3406 (Outside U.S.) and enter code 9379128.  A replay of the conference call will also be available via the internet starting today and continuing for at least 12 months.  To access a replay of the conference call via the internet, go to the “Investor Relations – Presentations/Calendar” section of the company’s corporate website located at www.wright.com.

The conference call may include a discussion of non-GAAP financial measures.  Reference is made to the most directly comparable GAAP financial measures, the reconciliation of the differences between the two financial measures, and the other information included in this release, the Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (SEC) today, or otherwise available in the “Investor Relations – Supplemental Financial Information” section of the company’s corporate website located at www.wright.com.

The conference call may include forward-looking statements.  See the cautionary information about forward-looking statements in the “Cautionary Note Regarding Forward-Looking Statements” section of this release.

About Wright Medical Group N.V.

Wright Medical Group N.V. is a global medical device company focused on extremities and biologics products. The company is committed to delivering innovative, value-added solutions improving the quality of life for patients worldwide.  Wright is a recognized leader of surgical solutions for the upper extremities (shoulder, elbow, wrist and hand), lower extremities (foot and ankle) and biologics markets, three of the fastest growing segments in orthopaedics.  For more information about Wright, visit www.wright.com.

™ and ® denote trademarks and registered trademarks of Wright Medical Group N.V. or its affiliates, registered as indicated in the United States, and in other countries.  All other trademarks and trade names referred to in this release are the property of their respective owners.

Non-GAAP Financial Measures  

To supplement the company’s consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles, the company uses certain non-GAAP financial measures in this release. Reconciliations of the historical non-GAAP financial measures used in this release to the most comparable GAAP measures for the respective periods can be found in tables later in this release. Wright’s non-GAAP financial measures include net sales, excluding the impact of foreign currency; net income, as adjusted; EBITDA, as adjusted; gross margin, as adjusted; earnings, as adjusted; and earnings, as adjusted, per diluted share, in each case, from continuing operations. The company’s management believes that the presentation of these measures provides useful information to investors.  These measures may assist investors in evaluating the company’s operations, period over period. Wright’s non-GAAP financial measures exclude such items as non-cash interest expense related to the company’s convertible notes, non-cash loss on extinguishment of debt, transaction and transition costs, net gains and losses on mark-to-market adjustments on CVRs and derivative assets and liabilities, net non-cash gains and losses on foreign currency translation all of which may be highly variable, difficult to predict and of a size that could have substantial impact on the company’s reported results of operations for a period.  It is for this reason that the company cannot provide without unreasonable effort a quantitative reconciliation to the most directly comparable GAAP measures for its 2018 financial guidance regarding non-GAAP adjusted EBITDA from continuing operations and non-GAAP adjusted earnings per share from continuing operations. Management uses the non-GAAP measures in this release internally for evaluation of the performance of the business, including the allocation of resources and the evaluation of results relative to employee performance compensation targets.  Investors should consider non-GAAP financial measures only as a supplement to, not as a substitute for or as superior to, measures of financial performance prepared in accordance with GAAP.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 

This release includes forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally can be identified by the use of words such as “anticipate,” “expect,” “could,” “may,” “will,” “believe,” “estimate,” “continue,” “guidance,” “future,” other words of similar meaning and the use of future dates. Forward-looking statements in this release include, but are not limited to, statements about the company’s anticipated financial results for 2018, including net sales from continuing operations, adjusted EBITDA from continuing operations and adjusted earnings per share from continuing operations, anticipated continued strong shoulder sales growth, at or above market growth for our U.S. lower extremities business, accelerated growth in our biologics business in the second half of 2018, and the success of our new products, including our PROstep Minimally Invasive Surgery System. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Each forward-looking statement contained in this release is subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statement. Applicable risks and uncertainties include, among others, the failure of the company’s 2017 U.S. sales force additions to achieve expected results, delay or failure to drive U.S. lower extremities or biologics sales to anticipated levels; continued supply constraints; failure to integrate the legacy Wright and Tornier businesses and realize net sales synergies and cost savings from the merger with Tornier or delay in realization thereof; operating costs and business disruption as a result of the merger, including adverse effects on employee retention and sales force productivity and on business relationships with third parties; integration costs; actual or contingent liabilities; adverse effects of diverting resources and attention to providing transition services to the purchaser of the large joints business; the adequacy of the company’s capital resources and need for additional financing; the timing of regulatory approvals and introduction of new products; physician acceptance, endorsement, and use of new products; failure to achieve the anticipated commercial sales of our AUGMENT® Bone Graft and other new products; the effect of regulatory actions, changes in and adoption of reimbursement rates; product liability claims and product recalls; pending and threatened litigation; risks associated with the metal-on-metal master settlement agreement and the settlement agreement with the three settling insurers; risks associated with the subsequent metal-on-metal settlement agreements and ability to obtain the additional new insurance proceeds contingent thereon; risks associated with international operations and expansion; fluctuations in foreign currency exchange rates; other business effects, including the effects of industry, economic or political conditions outside of the company’s control; reliance on independent distributors and sales agencies; competitor activities; changes in tax and other legislation; and the risks identified under the heading “Risk Factors” in Wright’s Annual Report on Form 10-K for the year ended December 31, 2017 filed by Wright with the SEC on February 27, 2018 and subsequent SEC filings by Wright, including without limitation its Quarterly Reports on Form 10-Q for the quarters ended April 1, 2018 and July 1, 2018. Investors should not place considerable reliance on the forward-looking statements contained in this release. Investors are encouraged to read Wright’s filings with the SEC, available at www.sec.gov, for a discussion of these and other risks and uncertainties. The forward-looking statements in this release speak only as of the date of this release, and Wright undertakes no obligation to update or revise any of these statements. Wright’s business is subject to substantial risks and uncertainties, including those referenced above. Investors, potential investors, and others should give careful consideration to these risks and uncertainties.

Investors & Media:

Julie D. Dewey
Sr. Vice President, Chief Communications Officer
Wright Medical Group N.V.
(901) 290-5817
julie.dewey@wright.com

–Tables Follow–

Wright Medical Group N.V.
Condensed Consolidated Statements of Operations
 (dollars in thousands, except per share data–unaudited)
Three months ended Six months ended
July 1, 2018 June 25, 2017 July 1, 2018 June 25, 2017
Net sales $ 205,400 $ 179,693 $ 403,937 $ 356,884
Cost of sales 45,558 38,122 86,697 75,248
Gross profit 159,842 141,571 317,240 281,636
Operating expenses:
Selling, general and administrative 140,826 130,818 278,074 260,652
Research and development 14,665 12,547 28,564 24,979
Amortization of intangible assets 6,009 6,999 13,150 14,396
Total operating expenses 161,500 150,364 319,788 300,027
Operating loss (1,658 ) (8,793 ) (2,548 ) (18,391 )
Interest expense, net 20,678 18,339 40,490 36,534
Other expense (income), net 72,747 (6,557 ) 71,747 1,418
Loss from continuing operations before income taxes (95,083 ) (20,575 ) (114,785 ) (56,343 )
(Benefit) provision for income taxes (4,462 ) 385 (4,257 ) 1,324
Net loss from continuing operations $ (90,621 ) $ (20,960 ) $ (110,528 ) $ (57,667 )
Income (loss) from discontinued operations, net of tax 22,923 (20,202 ) 17,316 (42,194 )
Net loss $ (67,698 ) $ (41,162 ) $ (93,212 ) $ (99,861 )
Net loss from continuing operations per share, basic and diluted $ (0.85 ) $ (0.20 ) $ (1.04 ) $ (0.55 )
Net income (loss) from discontinued operations per share, basic and diluted $ 0.21 $ (0.19 ) $ 0.16 $ (0.41 )
Net loss per share, basic and diluted $ (0.64 ) $ (0.39 ) $ (0.88 ) $ (0.96 )
Weighted-average number of shares outstanding-basic and diluted 106,095 104,377 106,000 104,020
Wright Medical Group N.V.
Consolidated Net Sales Analysis
(dollars in thousands–unaudited)
Three months ended Six months ended
July 1, 2018 June 25, 2017 %
change
July 1, 2018 June 25, 2017 %
change
U.S.
Lower extremities $ 59,464 $ 54,348 9.4 % $ 116,287 $ 109,809 5.9 %
Upper extremities 70,171 57,535 22.0 % 137,829 113,493 21.4 %
Biologics 20,234 19,273 5.0 % 38,399 37,907 1.3 %
Sports med & other 1,706 1,780 (4.2 )% 3,853 3,881 (0.7 )%
Total U.S. $ 151,575 $ 132,936 14.0 % $ 296,368 $ 265,090 11.8 %
International
Lower extremities $ 15,680 $ 14,767 6.2 % $ 31,007 $ 28,409 9.1 %
Upper extremities 29,137 22,987 26.8 % 58,731 45,409 29.3 %
Biologics 6,582 5,129 28.3 % 11,839 10,300 14.9 %
Sports med & other 2,426 3,874 (37.4 )% 5,992 7,676 (21.9 )%
Total International $ 53,825 $ 46,757 15.1 % $ 107,569 $ 91,794 17.2 %
Global
Lower extremities $ 75,144 $ 69,115 8.7 % $ 147,294 $ 138,218 6.6 %
Upper extremities 99,308 80,522 23.3 % 196,560 158,902 23.7 %
Biologics 26,816 24,402 9.9 % 50,238 48,207 4.2 %
Sports med & other 4,132 5,654 (26.9 )% 9,845 11,557 (14.8 )%
Total net sales $ 205,400 $ 179,693 14.3 % $ 403,937 $ 356,884 13.2 %
Wright Medical Group N.V.
Supplemental Net Sales Information
(unaudited)
Three months ended July 1, 2018 net sales growth/(decline)
U.S.
as
reported
Int’l
constant
currency
Int’l
as
reported
Global
constant
currency
Global
as
reported
Product line
Lower extremities 9 % 1 % 6 % 8 % 9 %
Upper extremities 22 % 20 % 27 % 21 % 23 %
Biologics 5 % 26 % 28 % 9 % 10 %
Sports med & other (4 %) (41 %) (37 %) (30 %) (27 %)
Total net sales 14 % 10 % 15 % 13 % 14 %
Six months ended July 1, 2018 net sales growth/(decline)
U.S.
as
reported
Int’l
constant
currency
Int’l
as
reported
Global
constant
currency
Global
as
reported
Product line
Lower extremities 6 % 2 % 9 % 5 % 7 %
Upper extremities 21 % 19 % 29 % 21 % 24 %
Biologics 1 % 12 % 15 % 4 % 4 %
Sports med & other (1 %) (29 %) (22 %) (20 %) (15 %)
Total net sales 12 % 9 % 17 % 11 % 13 %

 

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Josh Sandberg

Josh Sandberg is the President of Ortho Spine Partners and Partner for The De Angelis Group. He also serves as Co-Founder and Editor of OrthoSpineNews.

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