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8-K - FORM 8-K - WRIGHT MEDICAL GROUP INC | g27132e8vk.htm |
EX-10.1 - EX-10.1 - WRIGHT MEDICAL GROUP INC | g27132exv10w1.htm |
Exhibit 99
FOR RELEASE 3:00 P.M. CENTRAL Thursday, May 5, 2011 Contact: Lance Berry (901) 867-4607 |
Wright Medical Group, Inc. Reports Results for First
Quarter Ended March 31, 2011
Quarter Ended March 31, 2011
Operating margin expansion drives 14% adjusted EPS growth
Company upwardly revises 2011 adjusted EPS guidance
Company
provides update on status of investigation
ARLINGTON, TN May 5, 2011 Wright Medical Group, Inc. (NASDAQ: WMGI), a global orthopaedic
medical device company and a leading provider of surgical solutions for the foot and ankle market,
today reported financial results for its first quarter ended March 31, 2011.
Net sales totaled $135.4 million during the first quarter ended March 31, 2011, a 3% increase over
net sales of $131.2 million during the first quarter of 2010. Excluding the impact of foreign
currency, net sales increased 2% in the first quarter of 2011, as compared to the same period last
year.
Net income for the first quarter of 2011 totaled $3.6 million, or $0.09 per diluted share, compared
to net loss of $0.5 million, or ($0.01) per diluted share, in the first quarter of 2010.
Net income for the first quarter of 2011 included the after-tax effects of approximately $2.9
million of non-cash stock-based compensation expense, $2.2 million of expenses associated with the
Companys deferred prosecution agreement (DPA), and $4.1 million of deferred financing and
transaction costs associated with the previously announced tender offer for the Companys
Convertible Notes. Net loss for the first quarter of 2010 included the after-tax effects of
approximately $8.1 million of expenses related to U.S. governmental inquiries, $3.0 million of
non-cash stock-based compensation expense, and $544,000 of restructuring charges.
The Companys first quarter net income, as adjusted, increased 11% to $9.4 million in 2011 from
$8.5 million in 2010, while diluted earnings per share, as adjusted, increased 14% to $0.24 in the
first quarter of 2011 from $0.21 in the first quarter of 2010. A reconciliation of U.S. GAAP to
as adjusted results is included in the attached financial tables.
David D. Stevens, Interim Chief Executive Officer commented, We are pleased with our solid first
quarter financial performance, which included constant currency sales growth, operating margin
expansion and excellent free cash flow.
Mr. Stevens continued, Also in the first quarter we successfully completed a tender offer for our
Convertible Notes allowing us to extend the maturity of our debt, increase our total debt capacity,
and increase the flexibility of our capital structure. Further, we continued to execute on our new
product introduction plan as we launched both the PRO-TOE VO Hammertoe system and
the EVOLVE(R) Elbow Plating System (EPS).
Outlook
The Company is reiterating its previously-communicated 2011 net sales outlook of $517 million to
$535 million, representing growth of 0% to 3%. This range includes the previously announced license
agreement with KCI that is expected to have a negative impact on the Companys 2011 revenue growth
rate of approximately 1% to 2%. Excluding this negative impact, Wright Medical expects to achieve
annualized revenue growth of approximately 1% to 5%. The Company is upwardly revising its 2011
as-adjusted earnings per share outlook to a target range for the full year 2011 of $0.89 to $0.97
per diluted share, from $0.88 to $0.95 per diluted share, which was previously communicated on
February 10, 2011. The Companys current outlook for adjusted earnings per share represents
annualized growth expectations of -1% to 8%
The Companys earnings target excludes the transaction costs and non-cash deferred financing fees
associated with the Convertible Notes tendered, possible future acquisitions, other material future
business developments, non-cash stock-based compensation expense, and costs associated with the
Companys DPA (including the associated independent monitor).
While the amount of the non-cash stock-based compensation charges will vary depending upon a
number of factors, the Company currently estimates that the after-tax impact of those expenses will
be approximately $0.19 per diluted share for the full year 2011. Therefore, the Company
anticipates full year 2011 as-adjusted earnings per share including stock-based compensation to be
in the range of $0.70 to $0.78 per diluted share, which represents annualized growth expectations
of 0% to 11%.
The Companys anticipated ranges for net sales, adjusted earnings per share, and non-cash
stock-based compensation charges are forward-looking statements. They are subject to various risks
and uncertainties that could cause the Companys actual results to differ materially from the
anticipated targets. The anticipated targets are not predictions of the Companys actual
performance. See the cautionary information about forward-looking statements in the Safe-Harbor
Statement section of this press release.
Update on Status of Investigation
The
Company also announced today that it received a letter from the United States Attorneys
Office for the District of New Jersey (USAO) pursuant to Paragraph 50 of the Deferred Prosecution
Agreement (DPA) stating that the USAO believes that the Company has knowingly and willfully breached
material provisions of the DPA. As required by the terms of the DPA, the letter provides the Company
an opportunity to make a presentation within three weeks of receipt of the letter.
The Company intends to make a presentation in response to the
letter. The Companys presentation could
address whether any breach has occurred, whether any breach was knowing or willful, materiality,
and whether any breach has been cured. Pursuant to the DPA, the Company expects that the USAO will
not take any further action until consideration of the Companys presentation.
Conference Call
As previously announced, the Company will host a conference call starting at 3:30 p.m. (Central
Time) today. The live dial-in number for the call is 866-788-0538 (domestic) or 85 7-350-1676
(international). The participant passcode for the call is Wright. To access a simultaneous
webcast of the conference call via the internet, go to the Corporate Investor Information
section of the Companys website located at www.wmt.com. A replay of the conference call by
telephone will be available starting at 6:30 p.m. (Central Time) today and continuing until May 12,
2011. To hear this replay, dial 888-286-8010 (domestic) or 617-801-6888 (international) and enter
the passcode 52022847. 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 Corporate Investor Information Audio Archives section of the
Companys website located at www.wmt.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 press release, our Form 8-K filed with the SEC
today, or otherwise available in the Corporate Investor Information Supplemental Financial
Information section of the Companys website located at www.wmt.com.
The conference call may include forward-looking statements. See the cautionary information about
forward-looking statements in the Safe-Harbor Statement section of this press release.
Non-GAAP Financial Measures
The Company uses non-GAAP financial measures, such as net sales, excluding the impact of foreign
currency; operating income, as adjusted; net income, as adjusted; net income, as adjusted, per
diluted share; effective tax rate, as adjusted; and free cash flow. The Companys management
believes that the presentation of these measures provides useful information to investors. These
measures may assist investors in evaluating the Companys operations, period over period. The
measures exclude such items as costs related to the U.S. governmental inquiries and the DPA,
restructuring charges, transaction costs and non-cash deferred financing fees associated
(Page 2 of 8)
with the Convertible Notes tendered and non-cash stock-based expense, all of which may be highly
variable, difficult to predict and of a size that could have substantial impact on the Companys
reported results of operations for a period. Management uses these measures 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 these non-GAAP 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 press release contains forward-looking statements as defined under U.S. federal securities
laws, including statements regarding potential actions by the USAO, independent monitor, OIG and
other agencies or their potential impact, and statements about financial results for the quarter
ended March 31, 2011. These statements reflect managements current knowledge, assumptions,
beliefs, estimates, and expectations and express managements current views of future performance,
results, and trends and may be identified by their use of terms such as anticipate, believe, could,
estimate, expect, intend, may, plan, predict, project, will, and other similar terms.
Forward-looking statements are subject to a number of risks and uncertainties that could cause our
actual results to materially differ from those described in the forward-looking statements. You
should not place undue reliance on forward looking statements. Such statements are made as of the
date of this press release, and we undertake no obligation to update such statements after this date.
Risks and uncertainties that could cause our actual results to materially differ from those
described in forward-looking statements include those discussed in our filings with the Securities
and Exchange Commission (including those described in Item 1A of our Annual Report on Form 10-K for
the year ended December 31, 2010, under the heading Risk Factors and elsewhere), and the impact
of our settlement of the federal investigation into our consulting arrangements with orthopaedic
surgeons relating to our hip and knee products in the United States, including our compliance with
the Deferred Prosecution Agreement through September 2011 (which could, by its terms, be extended
for a further six months) and the Corporate Integrity Agreement through September 2015. Our
failure to comply with the Deferred Prosecution Agreement or the Corporate Integrity Agreement
could expose us to significant liability including, but not limited to, extension of the term of
the DPA by up to 6 months, exclusion from federal healthcare program participation, including
Medicaid and Medicare, which would have a material adverse effect on our financial condition,
results of operations and cash flows, potential prosecution, including under the previously-filed
criminal complaint, civil and criminal fines or penalties, and additional litigation cost and
expense.
Additional risks and uncertainties that could cause our actual results to materially differ from
those described in forward-looking statements include demand for and market acceptance of our new
and existing products; future actions of governmental authorities and other third parties; tax
measures; business development and growth opportunities; product quality or patient safety issues;
products liability claims; enforcement of our intellectual property rights; the geographic and
product mix impact on our sales; retention of sales representatives and independent distributors;
inventory reductions or fluctuations in buying patterns by wholesalers or distributors; ability to
realize the anticipated benefits of restructuring initiatives; and impact of the commercial and
credit environment on us and our customers and suppliers.
Wright Medical Group, Inc. is a global orthopaedic medical device company and a leading provider of
surgical solutions for the foot and ankle market. The Company specializes in the design,
manufacture and marketing of devices and biologic products for extremity, hip and knee repair and
reconstruction. The Company has been in business for more than 60 years and markets its products in
over 60 countries worldwide. For more information about Wright Medical, visit the Companys website
at www.wmt.com.
Tables Follow
(Page 3 of 8)
Wright Medical Group, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share dataunaudited)
Condensed Consolidated Statements of Operations
(in thousands, except per share dataunaudited)
Three Months Ended | ||||||||
March 31, | March 31, | |||||||
2011 | 2010 | |||||||
Net sales |
$ | 135,386 | $ | 131,244 | ||||
Cost of sales |
38,768 | 40,141 | ||||||
Gross profit |
96,618 | 91,103 | ||||||
Operating expenses: |
||||||||
Selling, general and administrative |
74,825 | 76,438 | ||||||
Research and development |
9,207 | 9,835 | ||||||
Amortization of intangible assets |
690 | 649 | ||||||
Restructuring charges |
| 544 | ||||||
Total operating expenses |
84,722 | 87,466 | ||||||
Operating income |
11,896 | 3,637 | ||||||
Interest expense, net |
1,835 | 1,508 | ||||||
Other expense, net |
4,459 | 132 | ||||||
Income before income taxes |
5,602 | 1,997 | ||||||
Provision for income taxes |
2,010 | 2,522 | ||||||
Net income (loss) |
$ | 3,592 | $ | (525 | ) | |||
Net income (loss) per share, basic |
$ | 0.09 | $ | (0.01 | ) | |||
Net income (loss) per share, diluted |
$ | 0.09 | $ | (0.01 | ) | |||
Weighted-average number of common
shares outstanding, basic |
38,033 | 37,540 | ||||||
Weighted-average number of common
shares outstanding, diluted |
38,327 | 37,540 | ||||||
Wright Medical Group, Inc.
Consolidated Sales Analysis
(dollars in thousandsunaudited)
Consolidated Sales Analysis
(dollars in thousandsunaudited)
Three Months Ended | ||||||||||||
March 31, | March 31, | % | ||||||||||
2011 | 2010 | change | ||||||||||
Geographic |
||||||||||||
Domestic |
$ | 77,942 | $ | 77,725 | 0.3 | % | ||||||
International |
57,444 | 53,519 | 7.3 | % | ||||||||
Total net sales |
$ | 135,386 | $ | 131,244 | 3.2 | % | ||||||
Product Line |
||||||||||||
Hip products |
$ | 45,897 | $ | 46,285 | (0.8 | %) | ||||||
Knee products |
32,833 | 32,418 | 1.3 | % | ||||||||
Extremity products |
34,273 | 30,104 | 13.8 | % | ||||||||
Biologics products |
19,307 | 19,792 | (2.5 | %) | ||||||||
Other |
3,076 | 2,645 | 16.3 | % | ||||||||
Total net sales |
$ | 135,386 | $ | 131,244 | 3.2 | % | ||||||
(Page 4 of 8)
Wright Medical Group, Inc.
Supplemental Sales Information
(unaudited)
Supplemental Sales Information
(unaudited)
First Quarter 2011 Sales Growth | ||||||||||||||||||||
Domestic | Intl | Intl | Total | Total | ||||||||||||||||
As | Constant | As | Constant | As | ||||||||||||||||
Reported | Currency | Reported | Currency | Reported | ||||||||||||||||
Hips |
(15 | %) | 5 | % | 9 | % | (3 | %) | (1 | %) | ||||||||||
Knees |
0 | % | 0 | % | 2 | % | 0 | % | 1 | % | ||||||||||
Extremities |
12 | % | 18 | % | 21 | % | 13 | % | 14 | % | ||||||||||
Biologics |
(2 | %) | (5 | %) | (3 | %) | (3 | %) | (2 | %) | ||||||||||
Total |
0 | % | 4 | % | 7 | % | 2 | % | 3 | % |
Sales as a % of Total Sales | ||||||||||||
Three months ended March 31, 2011 | ||||||||||||
Domestic | International | Total | ||||||||||
Hips |
12 | % | 22 | % | 34 | % | ||||||
Knees |
13 | % | 11 | % | 24 | % | ||||||
Extremities |
20 | % | 5 | % | 25 | % | ||||||
Biologics |
12 | % | 3 | % | 14 | % | ||||||
Total |
58 | % | 42 | % | 100 | % |
Wright Medical Group, Inc.
Reconciliation of Net Sales to Net Sales Excluding the Impact of Foreign Currency
(dollars in thousandsunaudited)
Reconciliation of Net Sales to Net Sales Excluding the Impact of Foreign Currency
(dollars in thousandsunaudited)
Three Months Ended | ||||||||
March 31, 2011 | ||||||||
International | Total | |||||||
Net Sales | Net Sales | |||||||
Net sales, as reported |
$ | 57,444 | $ | 135,386 | ||||
Currency impact as compared to prior period |
(1,742 | ) | (1,742 | ) | ||||
Net sales, excluding the impact of foreign
currency |
$ | 55,702 | $ | 133,644 | ||||
(Page 5 of 8)
Wright Medical Group, Inc.
Reconciliation of As Reported Results to Non-GAAP Financial Measures
(in thousands, except per share dataunaudited)
Reconciliation of As Reported Results to Non-GAAP Financial Measures
(in thousands, except per share dataunaudited)
Three Months Ended | ||||||||
March 31, | March 31, | |||||||
2011 | 2010 | |||||||
Operating Income |
||||||||
Operating income, as reported |
$ | 11,896 | $ | 3,637 | ||||
Reconciling items impacting Gross Profit: |
||||||||
Non-cash, stock-based compensation |
347 | 340 | ||||||
Reconciling items impacting Selling,
General and Administrative expenses: |
||||||||
Non-cash, stock-based compensation |
2,068 | 2,267 | ||||||
U.S. governmental inquiries/DPA
related |
2,182 | 8,071 | ||||||
Total |
4,250 | 10,338 | ||||||
Reconciling items impacting Research and
Development expenses: |
||||||||
Non-cash, stock-based compensation |
445 | 398 | ||||||
Other Reconciling Items: |
||||||||
Restructuring charges |
| 544 | ||||||
Operating income, as adjusted |
$ | 16,938 | $ | 15,257 | ||||
Operating income, as adjusted, as a
percentage of net sales |
12.5 | % | 11.6 | % | ||||
(Page 6 of 8)
Wright Medical Group, Inc.
Reconciliation of As Reported Results to Non-GAAP Financial Measures
(continued)
Reconciliation of As Reported Results to Non-GAAP Financial Measures
(continued)
Three Months Ended | ||||||||
March 31, | March 31, | |||||||
2011 | 2010 | |||||||
Net Income |
||||||||
Income before income taxes, as reported |
$ | 5,602 | $ | 1,997 | ||||
U.S. governmental inquiries/DPA related |
2,182 | 8,071 | ||||||
Non-cash, stock-based compensation |
2,860 | 3,005 | ||||||
Restructuring charges |
| 544 | ||||||
Deferred financing fees and transaction
costs associated with Convertible Notes
Tender Offer |
4,099 | | ||||||
Income before income taxes, as adjusted |
14,743 | 13,617 | ||||||
Provision for income taxes, as reported |
2,010 | 2,522 | ||||||
U.S. governmental inquiries/DPA related |
852 | 1,580 | ||||||
Non-cash, stock-based compensation |
847 | 836 | ||||||
Restructuring charges |
| 211 | ||||||
Deferred financing fees and transaction
costs associated with Convertible Notes
Tender Offer |
1,599 | | ||||||
Provision for income taxes, as adjusted |
5,308 | 5,149 | ||||||
Effective tax rate, as adjusted |
36.0 | % | 37.8 | % | ||||
Net income, as adjusted |
$ | 9,435 | $ | 8,468 | ||||
Three Months Ended | Three Months Ended | |||||||||||||||
March 31, 2011 | March 31, 2010 | |||||||||||||||
As Reported | As Adjusted | As Reported | As Adjusted | |||||||||||||
Basic net income (loss) |
$ | 3,592 | $ | 9,435 | $ | (525 | ) | $ | 8,468 | |||||||
Interest expense on convertible notes |
N/A | 787 | N/A | 935 | ||||||||||||
Diluted net income (loss) |
$ | 3,592 | $ | 10,222 | $ | (525 | ) | $ | 9,403 | |||||||
Basic shares |
38,033 | 38,033 | 37,540 | 37,540 | ||||||||||||
Dilutive effect of stock options and
restricted shares |
294 | 294 | N/A | 283 | ||||||||||||
Dilutive effect of convertible notes |
N/A | 4,962 | N/A | 6,126 | ||||||||||||
Diluted shares |
38,327 | 43,289 | 37,540 | 43,949 | ||||||||||||
Net income (loss) per share, diluted |
$ | 0.09 | $ | 0.24 | $ | (0.01 | ) | $ | 0.21 | |||||||
Three Months Ended | ||||||||
March 31, | March 31, | |||||||
2011 | 2010 | |||||||
Net Income per Diluted Share |
||||||||
Net income (loss), as reported, per diluted share |
$ | 0.09 | $ | (0.01 | ) | |||
Interest expense on convertible notes |
0.02 | 0.02 | ||||||
Dilutive effect of convertible notes |
(0.01 | ) | 0.00 | |||||
U.S. governmental inquiries/DPA related |
0.03 | 0.15 | ||||||
Non-cash, stock-based compensation |
0.05 | 0.05 | ||||||
Restructuring charges |
| 0.01 | ||||||
Deferred financing fees and transaction costs associated with
Convertible Notes Tender Offer |
0.06 | | ||||||
Net income, as adjusted, per diluted share |
$ | 0.24 | $ | 0.21 | ||||
(Page 7 of 8)
Wright Medical Group, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousandsunaudited)
Condensed Consolidated Balance Sheets
(dollars in thousandsunaudited)
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 154,839 | $ | 153,261 | ||||
Marketable securities |
14,840 | 19,152 | ||||||
Accounts receivable, net |
107,622 | 105,336 | ||||||
Inventories |
171,738 | 166,339 | ||||||
Prepaid expenses and other current assets |
57,110 | 53,502 | ||||||
Total current assets |
506,149 | 497,590 | ||||||
Property, plant and equipment, net |
161,430 | 158,247 | ||||||
Goodwill and intangible assets, net |
70,460 | 70,673 | ||||||
Marketable securities |
10,071 | 17,193 | ||||||
Other assets |
11,707 | 11,536 | ||||||
Total assets |
$ | 759,817 | $ | 755,239 | ||||
Liabilities and stockholders equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 22,081 | $ | 15,862 | ||||
Accrued expenses and other current liabilities |
58,760 | 54,409 | ||||||
Current portion of long-term obligations |
8,617 | 1,033 | ||||||
Total current liabilities |
89,458 | 71,304 | ||||||
Long-term obligations |
173,269 | 201,766 | ||||||
Other liabilities |
17,157 | 11,197 | ||||||
Total liabilities |
279,884 | 284,267 | ||||||
Stockholders equity |
479,933 | 470,972 | ||||||
Total liabilities and stockholders equity |
$ | 759,817 | $ | 755,239 | ||||
(Page 8 of 8)