Attached files
| file | filename |
|---|---|
| 8-K - 8-K - WRIGHT MEDICAL GROUP INC | form8-kq42013.htm |
FOR IMMEDIATE RELEASE |  |
Investors and Media: | |
Julie D. Tracy | |
Sr. Vice President, Chief Communications Officer Wright Medical Group, Inc. (901) 290-5817 julie.tracy@wmt.com | |
Wright Medical Group, Inc. Reports 2013 Fourth Quarter and Full-Year Financial Results and Provides 2014 Guidance
Transition to High-Growth, Extremities-Biologics Business Completed to Maximize Global Foot and Ankle Opportunity
Fourth Quarter Global Foot and Ankle Net Sales Increase 22% As Reported and 22% Constant Currency
Fourth Quarter Sales from Continuing Operations Increase 16% As Reported and 17% Constant Currency
MEMPHIS, Tenn. - February 24, 2014 - Wright Medical Group, Inc. (NASDAQ: WMGI) today reported financial results for its fourth quarter and full-year ended December 31, 2013 and provided 2014 guidance. As a result of the completed sale of the hip and knee business to MicroPort Medical B.V., a subsidiary of MicroPort Scientific Corporation (MicroPort), this business is now reported as discontinued operations.
Net sales from continuing operations totaled $67.8 million during the fourth quarter ended December 31, 2013, representing a 16% increase as reported and 17% increase on a constant currency basis compared to the fourth quarter of 2012.
Robert Palmisano, president and chief executive officer, commented, “Our performance in the fourth quarter reflects continued strong implementation of the transformational changes to our business with constant currency sales from continuing operations and global foot and ankle increasing 17% and 22%, respectively. In particular, total ankle sales had another outstanding quarter, with growth of 44%, which we believe demonstrates the substantial potential of this product and the long runway for growth. Notably, the eight consecutive quarters of strong, double-digit, global foot and ankle growth underscores the significant positive progress that we continue to make in our foot and ankle business by driving productivity gains in our large, direct U.S. sales organization, introducing new products, and increasing medical education programs.”
Palmisano continued, “During the fourth quarter, we also completed the acquisition of Biotech International, which significantly expands our direct sales channel in France and our international distribution network. In addition, our recent acquisitions of Solana Surgical and OrthoPro add complementary foot and ankle products to further accelerate growth opportunities and profitability.”
Net loss from continuing operations for the fourth quarter of 2013 totaled $135.2 million or ($2.88) per diluted share, compared to net income of $1.6 million or $0.04 per diluted share in the fourth quarter of 2012.
Net loss from continuing operations for the fourth quarter of 2013 included a $119.6 million charge associated with valuation allowances on deferred tax assets, $7.7 million of transition costs associated
1
with the sale of the OrthoRecon business, $2.3 million of transaction and transition costs associated with the acquisition of BioMimetic and Biotech International, $2.2 million of non-cash interest expense related to the 2017 Convertible Notes, an unrealized gain of $2.0 million related to mark-to-market adjustments on derivatives, and $0.8 million of charges associated with distributor conversions and non-competes. Net income for the fourth quarter of 2012 included the after-tax effects of $3.5 million of an unrealized loss related to mark-to-market adjustments on derivatives, $2.1 million of non-cash interest expense related to the 2017 Convertible Notes, $1.8 million of due diligence and transaction costs associated with the acquisition of BioMimetic, and $1.2 million of charges associated with distributor conversions.
The Company's fourth quarter 2013 net loss from continuing operations, as adjusted for the above items, was $7.9 million in 2013, a decline from a net loss of $1.9 million in 2012, while diluted loss per share, as adjusted, decreased to ($0.17) in the fourth quarter of 2013 from ($0.05) in the fourth quarter of 2012. The attached financial tables include a reconciliation of U.S. GAAP to “as adjusted” results.
The Company's fourth quarter 2013 adjusted EBITDA from continuing operations, as defined in the GAAP to non-GAAP reconciliation provided later in this release, was negative $3.2 million, compared to positive $6.1 million in the same quarter of the prior year. For the full-year 2013, adjusted EBITDA from continuing operations decreased to negative $5.9 million, compared to positive $27.3 million for the prior year period. The attached financial tables include a reconciliation of U.S. GAAP to “as adjusted” results.
Cash and cash equivalents and marketable securities totaled $183.1 million as of the end of the fourth quarter of 2013, a decrease of $149.9 million compared to the end of 2012, which was driven by the closing of the BioMimetic and Biotech transactions and expenses associated with the MicroPort transaction.
Palmisano concluded, “With the close of the MicroPort transaction, Wright is now a completely transformed business. During 2014, we look forward to continuing to make investments to accelerate foot and ankle growth and sales productivity, improving our gross margins and exiting the year with positive adjusted EBITDA. I am confident that our Vital Few strategic programs will position us for future success and drive growth and shareholder value.”
Outlook
The Company anticipates full-year 2014 net sales from continuing operations, or Extremity and Biologics revenue, to be in the range of $305 million to $312 million. This represents a growth rate of 26% to 29% (including Solana, OrthoPro and Biotech acquisitions) and an organic growth rate (excluding Solana, OrthoPro and Biotech) of 13% to 15% over last year. This range anticipates some potential minor, short-term dis-synergies due to the closing of the transactions with MicroPort, Biotech International, Solana Surgical and OrthoPro, and includes a negative impact from currency of approximately 1 percent as compared to 2013.
The Company projects 2014 adjusted EBITDA from continuing operations, as described in the GAAP to non-GAAP reconciliation provided later in this release, in the range of negative $(20.0) million to negative $(15.0) million. The Company expects to exit 2014 with positive adjusted EBITDA. The Company's adjusted EBITDA from continuing operations target excludes non-compete and transition costs associated with converting a major portion of independent foot and ankle territories to direct; possible future acquisitions; other material future business developments; non-cash interest expense associated with the 2017 Convertible Notes; due diligence, transaction and transition costs associated with acquisitions and divestitures; impairment charges, mark-to-market adjustments to the contingent value rights (CVRs) and other adjustments to assets and liabilities associated with its BioMimetic acquisition,
2
and non-cash mark-to-market derivative adjustments. Further, this target excludes any expenses, earnings or losses related to the OrthoRecon business.
The Company's anticipated ranges for net sales and adjusted EBITDA 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 “Safe-Harbor Statement” section of this press release.
Conference Call and Webcast
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 800-295-4740 (U.S.) / 617-614-3925 (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 Company's website located at www.wmt.com.
A replay of the conference call by telephone will be available starting at 5:30 p.m. Central Time today and continuing through March 3, 2014. To hear this replay, dial 888-286-8010 (U.S.) or 617-801-6888 (International) and enter the passcode 80150710. 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 Company's 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, the Form 8-K filed with the SEC today, or otherwise available in the “Corporate - Investor Information - Supplemental Financial Information” section of the Company's 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.
About Wright Medical
Wright Medical Group, Inc. is a specialty orthopaedic company that provides extremity and biologic solutions that enable clinicians to alleviate pain and restore their patients’ lifestyles. The company is the recognized leader of surgical solutions for the foot and ankle market, one of the fastest growing segments in medical technology, and markets its products in over 60 countries worldwide. For more information about Wright Medical, visit www.wmt.com.
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; EBITDA, as adjusted; net income, as adjusted, per diluted share; effective tax rate, as adjusted; and free cash flow. 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. The measures exclude such items as costs associated with distributor conversions and non-competes, non-cash
3
interest expense related to the Company's 2017 Convertible Notes, mark-to-market adjustments on derivative assets and liabilities, restructuring charges, gains or losses on the sale of assets, mark-to-market adjustments on CVRs and impairment and other charges to write down to fair value assets and liabilities acquired in the BioMimetic acquisition, and transaction and transition costs, 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. 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.
4
Cautionary Note Regarding Forward-Looking Statements
This press release may contain “forward-looking statements” as defined under U.S. federal securities laws, including statements about our outlook for 2014. These statements reflect management's current knowledge, assumptions, beliefs, estimates, and expectations and express management's current view of future performance, results, and trends. Forward-looking statements 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 actual results to materially differ from those described in the forward-looking statements. The reader 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 in this press release are 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 years ended December 31, 2012 and 2013, and as may be supplemented in our Quarterly Reports on Form 10-Q). By way of example and without implied limitation, such risks and uncertainties include: future actions of the SEC, the United States Attorney's office, the FDA, the Department of Health and Human Services or other U.S. or foreign government authorities, including those resulting from increased scrutiny under the Foreign Corrupt Practices Act and similar laws, that could delay, limit or suspend our development, manufacturing, commercialization and sale of products, or result in seizures, injunctions, monetary sanctions or criminal or civil liabilities; continued liability for product liability claims on OrthoRecon products sold prior to divestiture of our OrthoRecon business or for post-market regulatory obligations on such products; disruptions resulting from loss of personnel, systems and infrastructure changes and transition services arrangements in connection with our OrthoRecon divestiture; failure to realize the anticipated benefits from our acquisitions or from divestiture of our OrthoRecon business; adverse outcomes in existing product liability litigation; new product liability claims; inadequate insurance coverage; copycat claims against our modular hip systems resulting from a competitor's recall of its modular hip product; failure or delay in obtaining FDA approval of Augment® Bone Graft for commercial sale in the United States; challenges to our intellectual property rights or inability to defend our products against the intellectual property rights of others; loss of a key suppliers; failures of, interruptions to, or unauthorized tampering with our information technology systems; failure or delay in obtaining FDA or other regulatory approvals for our products; any actual or alleged breach of the Corporate Integrity Agreement to which we are subject through September 2015, which could expose us to significant liability, including exclusion from Medicare, Medicaid and other federal healthcare programs, potential criminal prosecution, and civil and criminal fines or penalties; the potentially negative effect of our ongoing compliance enhancements on our relationships with customers and on our ability to deliver timely and effective medical education, clinical studies, and new products; the possibility of private securities litigation or shareholder derivative suits; insufficient demand for and market acceptance of our new and existing products; recently enacted healthcare laws and changes in product reimbursements which could generate downward pressure on our product pricing; potentially burdensome tax measures; lack of suitable business development opportunities; inability to capitalize on business development opportunities; product quality or patient safety issues; geographic and product mix impact on our sales; inability to retain key sales representatives, independent distributors and other personnel or to attract new talent; inventory reductions or fluctuations in buying patterns by wholesalers or distributors; and the negative impact of the commercial and credit environment on us, our customers and our suppliers.
--Tables Follow--
5
Wright Medical Group, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data--unaudited)
Three Months Ended | Twelve Months Ended | ||||||||||||||
December 31, 2013 | December 31, 2012 | December 31, 2013 | December 31, 2012 | ||||||||||||
Net sales | $ | 67,824 | $ | 58,380 | $ | 242,330 | $ | 214,105 | |||||||
Cost of sales | 17,423 | 13,322 | 59,721 | 48,239 | |||||||||||
Gross profit | 50,401 | 45,058 | 182,609 | 165,866 | |||||||||||
Operating expenses: | |||||||||||||||
Selling, general and administrative | 66,479 | 43,157 | 230,785 | 150,296 | |||||||||||
Research and development | 5,412 | 3,626 | 20,305 | 13,905 | |||||||||||
Amortization of intangible assets | 1,750 | 1,491 | 7,476 | 4,417 | |||||||||||
BioMimetic impairment charges | — | — | 206,249 | — | |||||||||||
Gain on sale of intellectual property | — | (15,000 | ) | — | (15,000 | ) | |||||||||
Restructuring charges | — | — | — | 431 | |||||||||||
Total operating expenses | 73,641 | 33,274 | 464,815 | 154,049 | |||||||||||
Operating (loss) income | (23,240 | ) | 11,784 | (282,206 | ) | 11,817 | |||||||||
Interest expense, net | 4,061 | 3,910 | 16,040 | 10,113 | |||||||||||
Other (income) expense, net | (2,552 | ) | 3,528 | (67,843 | ) | 5,089 | |||||||||
(Loss) income from continuing operations before income taxes | (24,749 | ) | 4,346 | (230,403 | ) | (3,385 | ) | ||||||||
Provision for income taxes | 110,462 | 2,702 | 49,765 | 2 | |||||||||||
Net (loss) income from continuing operations | $ | (135,211 | ) | $ | 1,644 | $ | (280,168 | ) | $ | (3,387 | ) | ||||
Income from discontinued operations, net of tax | 182 | $ | 3,708 | $ | 6,223 | $ | 8,671 | ||||||||
Net (loss) income | $ | (135,029 | ) | $ | 5,352 | $ | (273,945 | ) | $ | 5,284 | |||||
Net (loss) income from continuing operations per share, basic | $ | (2.88 | ) | $ | 0.04 | $ | (6.19 | ) | $ | (0.09 | ) | ||||
Net income from discontinued operations per share, basic | $ | 0.00 | $ | 0.10 | $ | 0.14 | $ | 0.22 | |||||||
(Loss) earnings per share - basic | $ | (2.88 | ) | $ | 0.14 | $ | (6.05 | ) | $ | 0.14 | |||||
Net (loss) income from continuing operations per share, diluted | $ | (2.88 | ) | $ | 0.04 | $ | (6.19 | ) | $ | (0.09 | ) | ||||
Net income from discontinued operations per share, diluted | $ | 0.00 | $ | 0.09 | $ | 0.14 | $ | 0.22 | |||||||
(Loss) earnings per share - diluted | $ | (2.88 | ) | $ | 0.14 | $ | (6.05 | ) | $ | 0.14 | |||||
Weighted-average number of shares outstanding-basic | 46,897 | 38,959 | 45,265 | 38,769 | |||||||||||
Weighted-average number of shares outstanding-diluted | 46,897 | 39,342 | 45,265 | 39,086 | |||||||||||
6
Wright Medical Group, Inc.
Consolidated Sales Analysis
(dollars in thousands--unaudited)
Three Months Ended | Twelve Months Ended | ||||||||||||||||||||
December 31, 2013 | December 31, 2012 | % change | December 31, 2013 | December 31, 2012 | % change | ||||||||||||||||
Geographic | |||||||||||||||||||||
Domestic | $ | 49,249 | $ | 44,660 | 10.3 | % | $ | 177,648 | $ | 166,111 | 6.9 | % | |||||||||
International | 18,575 | 13,720 | 35.4 | % | 64,682 | 47,994 | 34.8 | % | |||||||||||||
Total net sales | $ | 67,824 | $ | 58,380 | 16.2 | % | $ | 242,330 | $ | 214,105 | 13.2 | % | |||||||||
Three Months Ended | Twelve Months Ended | ||||||||||||||||||||
December 31, 2013 | December 31, 2012 | % change | December 31, 2013 | December 31, 2012 | % change | ||||||||||||||||
Product Line | |||||||||||||||||||||
Foot and Ankle | 43,036 | 35,360 | 21.7 | % | 150,662 | 122,897 | 22.6 | % | |||||||||||||
Upper Extremity | 6,581 | 5,876 | 12.0 | % | 24,663 | 24,977 | (1.3 | %) | |||||||||||||
Biologics | 15,860 | 15,240 | 4.1 | % | 59,792 | 60,495 | (1.2 | %) | |||||||||||||
Other | 2,347 | 1,904 | 23.3 | % | 7,213 | 5,736 | 25.7 | % | |||||||||||||
Total Sales | $ | 67,824 | $ | 58,380 | 16.2 | % | $ | 242,330 | $ | 214,105 | 13.2 | % | |||||||||
Wright Medical Group, Inc.
Supplemental Sales Information
(unaudited)
Fourth Quarter 2013 Sales Growth | |||||
Domestic As Reported | Int'l Constant Currency | Int'l As Reported | Total Constant Currency | Total As Reported | |
Product Line | |||||
Foot and Ankle | 17% | 41% | 40% | 22% | 22% |
Upper Extremity | 14% | 13% | 8% | 14% | 12% |
Biologics | (5%) | 39% | 35% | 5% | 4% |
Other | (28%) | 48% | 52% | 21% | 23% |
Total Sales | 10% | 37% | 35% | 17% | 16% |
7
Wright Medical Group, Inc.
Supplemental Sales Information
(unaudited)
2013 Sales Growth | |||||
Domestic As Reported | Int'l Constant Currency | Int'l As Reported | Total Constant Currency | Total As Reported | |
Product Line | |||||
Foot and Ankle | 16% | 51% | 49% | 23% | 23% |
Upper Extremity | 1% | (2%) | (7%) | 0% | (1%) |
Biologics | (10%) | 36% | 32% | 0% | (1%) |
Other | (3%) | 41% | 42% | 25% | 26% |
Total Sales | 7% | 37% | 35% | 14% | 13% |
Sales as a % of Total Sales | |||||||
Three Months Ended December 31, 2013 | Twelve Months Ended December 31, 2013 | ||||||
Domestic | International | Total | Domestic | International | Total | ||
Product Line | |||||||
Foot and Ankle | 49% | 15% | 63% | 48% | 14% | 62% | |
Upper Extremity | 7% | 3% | 10% | 7% | 3% | 10% | |
Biologics | 16% | 7% | 23% | 18% | 7% | 25% | |
Other | 1% | 3% | 3% | 1% | 2% | 3% | |
Total Sales | 73% | 27% | 100% | 73% | 27% | 100% | |
Wright Medical Group, Inc.
Reconciliation of Net Sales to Net Sales Excluding the Impact of Foreign Currency
(dollars in thousands--unaudited)
Three Months Ended | Twelve Months Ended | ||||||||||||||
December 31, 2013 | December 31, 2013 | ||||||||||||||
International Net Sales | Total Net Sales | International Net Sales | Total Net Sales | ||||||||||||
Net sales, as reported | $ | 18,575 | $ | 67,824 | $ | 64,682 | $ | 242,330 | |||||||
Currency impact as compared to prior period | 294 | 294 | 1,237 | 1,237 | |||||||||||
Net sales, excluding the impact of foreign currency | $ | 18,869 | $ | 68,118 | $ | 65,919 | $ | 243,567 | |||||||
8
Wright Medical Group, Inc.
Reconciliation of As Reported Results to Non-GAAP Financial Measures
(in thousands, except per share data--unaudited)
Three Months Ended | Twelve Months Ended | ||||||||||||||
December 31, 2013 | December 31, 2012 (1) | December 31, 2013 | December 31, 2012 (1) | ||||||||||||
Operating Income from Continued Operations | |||||||||||||||
Operating (loss) income, as reported | $ | (23,240 | ) | $ | 11,784 | $ | (282,206 | ) | $ | 11,817 | |||||
Reconciling items impacting Gross Profit: | |||||||||||||||
Inventory step-up amortization | 278 | 16 | 777 | 160 | |||||||||||
BioMimetic inventory write-down | 1,301 | — | 2,280 | — | |||||||||||
Total | 1,579 | 16 | 3,057 | 160 | |||||||||||
Reconciling items impacting Selling, General and Administrative expense: | |||||||||||||||
Distributor conversions | 129 | 403 | 932 | 1,027 | |||||||||||
Transition costs - OrthoRecon divestiture | 7,745 | — | 21,612 | — | |||||||||||
Due diligence, transaction and transition costs - BioMimetic & Biotech (2) | 2,270 | 1,798 | 12,893 | 1,798 | |||||||||||
Total | 10,144 | 2,201 | 35,437 | 2,825 | |||||||||||
Reconciling items impacting Amortization of Intangible Assets: | |||||||||||||||
Amortization of distributor non-competes | 630 | 812 | 2,802 | 1,946 | |||||||||||
Reconciling items impacting Research and Development expense: | |||||||||||||||
BioMimetic impairment charges | — | — | 206,249 | — | |||||||||||
Total | — | — | 206,249 | — | |||||||||||
Other Reconciling Items: | |||||||||||||||
Gain on sale of intellectual property | — | (15,000 | ) | — | (15,000 | ) | |||||||||
Restructuring charges | — | — | — | 430 | |||||||||||
Operating (loss) income, as adjusted | $ | (10,887 | ) | $ | (187 | ) | $ | (34,661 | ) | $ | 2,178 | ||||
Operating (loss) income, as adjusted, as a percentage of net sales | (16.1 | )% | (0.3 | )% | (14.3 | )% | 1.0 | % | |||||||
_______________________________
(1) Beginning in 2013, we do not adjust reported earnings for non-cash stock-based compensation expense in calculating
adjusted earnings. 2012 adjusted earnings have been recast to reflect this change.
(2) For the twelve months ended December 31, 2013, amount includes $2.3 million of non-cash stock-based compensation
expense related to the conversion of BioMimetic options to Wright Medical options.
9
Wright Medical Group, Inc.
Reconciliation of As Reported Results to Non-GAAP Financial Measures
(in thousands, except per share data--unaudited)
Three Months Ended | Twelve Months Ended | ||||||||||||||
December 31, 2013 | December 31, 2012 | December 31, 2013 | December 31, 2012 | ||||||||||||
EBITDA from Continuing Operations | |||||||||||||||
Net income, as reported | $ | (135,211 | ) | $ | 1,644 | $ | (280,168 | ) | $ | (3,387 | ) | ||||
Interest expense, net | 4,061 | 3,910 | 16,040 | 10,113 | |||||||||||
Provision for income taxes | 110,462 | 2,702 | 49,765 | 2 | |||||||||||
Depreciation | 4,120 | 3,807 | 14,384 | 14,815 | |||||||||||
Amortization of intangible assets | 1,750 | 1,491 | 7,476 | 4,417 | |||||||||||
EBITDA | (14,818 | ) | 13,554 | (192,503 | ) | 25,960 | |||||||||
Reconciling items impacting EBITDA | |||||||||||||||
Non-cash stock-based compensation expense (1) | 2,481 | 1,845 | 9,658 | 7,839 | |||||||||||
Other (income) expense, net | (2,552 | ) | 3,528 | (67,843 | ) | 5,089 | |||||||||
Inventory step-up amortization | 278 | 16 | 777 | 160 | |||||||||||
Distributor conversions | 129 | 403 | 932 | 1,027 | |||||||||||
Due diligence, transaction and transition costs | 10,015 | 1,798 | 34,505 | 1,798 | |||||||||||
BioMimetic impairment and other charges | 1,301 | — | 208,529 | — | |||||||||||
Gain on sale of intellectual property | — | (15,000 | ) | — | (15,000 | ) | |||||||||
Restructuring charges | — | — | — | 430 | |||||||||||
Adjusted EBITDA | $ | (3,166 | ) | $ | 6,144 | $ | (5,945 | ) | $ | 27,303 | |||||
Adjusted EBITDA as a percentage of net sales | (4.7 | )% | 10.5 | % | (2.5 | )% | 12.8 | % | |||||||
_______________________________
(1) For the twelve months ended December 31, 2013, amount excludes $2.3 million of non-cash stock-based compensation
expense related to the conversion of BioMimetic options to Wright Medical options.
10
Wright Medical Group, Inc.
Reconciliation of As Reported Results to Non-GAAP Financial Measures
(in thousands, except per share data--unaudited)
Three Months Ended | Twelve Months Ended | ||||||||||||||
December 31, 2013 | December 31, 2012 (1) | December 31, 2013 | December 31, 2012 (1) | ||||||||||||
Net Income | |||||||||||||||
(Loss) income from continuing operations before taxes, as reported | $ | (24,749 | ) | $ | 4,346 | $ | (230,403 | ) | $ | (3,385 | ) | ||||
Pre-tax impact of reconciling items: | |||||||||||||||
Restructuring charges | — | — | — | 430 | |||||||||||
Inventory step-up amortization | 278 | 16 | 777 | 160 | |||||||||||
Distributor conversion and non-competes | 759 | 1,215 | 3,734 | 2,973 | |||||||||||
Loss on interest rate swap termination | — | — | — | 1,769 | |||||||||||
Non-cash interest expense on 2017 Convertible Notes | 2,222 | 2,086 | 8,678 | 2,773 | |||||||||||
Derivatives mark-to-market adjustment | (2,000 | ) | 3,472 | 1,000 | 1,142 | ||||||||||
Transition costs - OrthoRecon divestiture | 7,745 | — | 21,612 | — | |||||||||||
Due diligence, transaction and transition costs - BioMimetic & Biotech (2) | 2,270 | 1,798 | 12,893 | 1,798 | |||||||||||
BioMimetic impairment and other charges and CVR mark-to-market adjustments | 460 | — | 147,381 | — | |||||||||||
Write-off of deferred financing fees associated with Senior Credit Facility and 2014 Convertible Notes | — | — | — | 2,721 | |||||||||||
Gain on previously held investment in BioMimetic | — | — | (7,798 | ) | — | ||||||||||
Gain on sale of intellectual property | — | (15,000 | ) | — | (15,000 | ) | |||||||||
Loss from continuing operations before taxes, as adjusted | (13,015 | ) | (2,067 | ) | (42,126 | ) | (4,619 | ) | |||||||
Provision for income taxes, as reported | $ | 110,462 | $ | 2,702 | $ | 49,765 | $ | 2 | |||||||
Restructuring charges | — | — | — | 164 | |||||||||||
Inventory step-up amortization | 103 | 1 | 295 | 57 | |||||||||||
Distributor conversion and non-competes | 307 | 474 | 1,459 | 1,155 | |||||||||||
Loss on interest rate swap termination | — | — | — | 691 | |||||||||||
Non-cash interest expense on 2017 Convertible Notes | 849 | 727 | 3,390 | 996 | |||||||||||
Derivatives mark-to-market adjustment | (790 | ) | 1,310 | 391 | 420 | ||||||||||
Transition costs - OrthoRecon divestiture | 3,025 | — | 8,442 | — | |||||||||||
Due diligence, transaction and transition costs - BioMimetic & Biotech (2) | 257 | — | 2,728 | — | |||||||||||
BioMimetic impairment and other charges and CVR mark-to-market adjustments | 274 | — | 36,247 | — | |||||||||||
Write-off of deferred financing fees associated with Senior Credit Facility and 2014 Convertible Notes | — | — | — | 1,063 | |||||||||||
Valuation allowance | (119,623 | ) | — | (119,623 | ) | — | |||||||||
Gain on sale of intellectual property | — | (5,387 | ) | — | (5,387 | ) | |||||||||
Benefit for income taxes, as adjusted | $ | (5,136 | ) | $ | (173 | ) | $ | (16,906 | ) | $ | (839 | ) | |||
Effective tax rate, as adjusted | 39.5 | % | 8.4 | % | 40.1 | % | 18.2 | % | |||||||
Net loss from continuing operations, as adjusted | $ | (7,879 | ) | $ | (1,894 | ) | $ | (25,220 | ) | $ | (3,780 | ) | |||
Net income from discontinued operations, as reported | $ | 182 | $ | 3,708 | $ | 6,223 | $ | 8,671 | |||||||
Reconciling items related to discontinued operations, net of tax (3) | $ | 2,259 | $ | (1,428 | ) | $ | (2,538 | ) | $ | 4,115 | |||||
Net (loss) income, as adjusted | $ | (5,438 | ) | $ | 386 | $ | (21,535 | ) | $ | 9,006 | |||||
____________________________
11
(1) Beginning in 2013, we do not adjust reported earnings for non-cash stock-based compensation expense in calculating
adjusted earnings. 2012 adjusted earnings have been recast to reflect this change.
(2) For the twelve months ended December 31, 2013, amount includes $2.3 million of non-cash stock-based compensation
expense related to the conversion of BioMimetic options to Wright Medical options.
(3) For the three month periods ended December 31, 2013 and 2012, amounts include the after tax impacts of $0.6 million and
$0 of U.S. governmental inquiries and DPA costs, $0.3 million and $0.5 million of amortization of distributor non-
competes, $2.9 million and $0 of transaction costs associated with the OrthoRecon divestiture, and $0 and a $2.4 million increase to management's estimate of the Company's probable insurance recovery for previously recognized costs associated with product liability claims. For the twelve month periods ended December 31, 2013 and 2012, amounts include $2.9 million and $6.6 million of U.S. governmental inquiries and DPA costs, $1.5 million and $1.1 million of amortization of distributor non-competes, $10.9 million and $0 of transaction costs associated with the OrthoRecon divestiture, a gain of $19.4 million and $2.4 for estimated product liability insurance recoveries, and $0 and $1.2 million of restructuring charges, respectively.
12
Wright Medical Group, Inc.
Reconciliation of As Reported Results to Non-GAAP Financial Measures
(continued)
Three Months Ended | Three Months Ended | ||||||||||||||
December 31, 2013 | December 31, 2012 (1) | ||||||||||||||
As Reported | As Adjusted | As Reported | As Adjusted | ||||||||||||
Basic net (loss) income from continuing operations | $ | (135,211 | ) | $ | (7,879 | ) | $ | 1,644 | $ | (1,894 | ) | ||||
Interest expense on convertible notes | N/A | N/A | N/A | N/A | |||||||||||
Diluted net (loss) income from continuing operations | $ | (135,211 | ) | $ | (7,879 | ) | $ | 1,644 | $ | (1,894 | ) | ||||
Diluted net income from discontinued operations | 182 | 2,441 | 3,708 | 2,280 | |||||||||||
Diluted net (loss) income | (135,029 | ) | (5,438 | ) | 5,352 | 386 | |||||||||
Basic shares | 46,897 | 46,897 | 38,959 | 38,959 | |||||||||||
Dilutive effect of stock options and restricted shares | N/A | N/A | 383 | 383 | |||||||||||
Dilutive effect of convertible notes | N/A | N/A | N/A | N/A | |||||||||||
Diluted shares | 46,897 | 46,897 | 39,342 | 39,342 | |||||||||||
Net (loss) income from continued operations per share, diluted | $ | (2.88 | ) | $ | (0.17 | ) | $ | 0.04 | $ | (0.05 | ) | ||||
Net income from discontinued operations per share, diluted | $ | 0.00 | $ | 0.05 | $ | 0.09 | $ | 0.06 | |||||||
Net (loss) income per share - diluted | $ | (2.88 | ) | $ | (0.12 | ) | $ | 0.14 | $ | 0.01 | |||||
_______________________________
(1) Beginning in 2013, we do not adjust reported earnings for non-cash stock-based compensation expense in calculating
adjusted earnings. 2012 adjusted earnings have been recast to reflect this change.
Twelve Months Ended | Twelve Months Ended | ||||||||||||||
December 31, 2013 | December 31, 2012 (1) | ||||||||||||||
As Reported | As Adjusted | As Reported | As Adjusted | ||||||||||||
Basic net (loss) income from continuing operations | $ | (280,168 | ) | $ | (25,220 | ) | $ | (3,387 | ) | $ | (3,780 | ) | |||
Interest expense on convertible notes | N/A | N/A | N/A | N/A | |||||||||||
Diluted net loss from continuing operations | $ | (280,168 | ) | $ | (25,220 | ) | $ | (3,387 | ) | $ | (3,780 | ) | |||
Diluted net income from discontinued operations | 6,223 | 3,685 | 8,671 | 12,786 | |||||||||||
Diluted net (loss) income | (273,945 | ) | (21,535 | ) | 5,284 | 9,006 | |||||||||
Basic shares | 45,265 | 45,265 | 38,769 | 38,769 | |||||||||||
Dilutive effect of stock options and restricted shares | N/A | N/A | 317 | 317 | |||||||||||
Dilutive effect of convertible notes | N/A | N/A | N/A | N/A | |||||||||||
Diluted shares | 45,265 | 45,265 | 39,086 | 39,086 | |||||||||||
Net loss from continued operations per share, diluted | $ | (6.19 | ) | $ | (0.56 | ) | $ | (0.09 | ) | $ | (0.10 | ) | |||
Net income from discontinued operations per share, diluted | $ | 0.14 | $ | 0.08 | $ | 0.22 | $ | 0.33 | |||||||
Net (loss) income per share - diluted | $ | (6.05 | ) | $ | (0.48 | ) | $ | 0.14 | $ | 0.23 | |||||
_______________________________
(1) Beginning in 2013, we do not adjust reported earnings for non-cash stock-based compensation expense in calculating
adjusted earnings. 2012 adjusted earnings have been recast to reflect this change.
13
Wright Medical Group, Inc.
Reconciliation of As Reported Results to Non-GAAP Financial Measures
(continued)
Three Months Ended | Twelve Months Ended | ||||||||||||||
December 31, 2013 | December 31, 2012 (1) | December 31, 2013 | December 31, 2012 (1) | ||||||||||||
Net Income per Diluted Share | |||||||||||||||
Net (loss) income from continuing operations, as reported, per diluted share | $ | (2.88 | ) | $ | 0.04 | $ | (6.19 | ) | $ | (0.09 | ) | ||||
Interest expense on convertible notes | N/A | N/A | N/A | N/A | |||||||||||
Effect of convertible notes on diluted shares | N/A | N/A | N/A | N/A | |||||||||||
Restructuring charges | — | — | — | — | |||||||||||
Inventory step-up amortization | 0.00 | 0.00 | 0.01 | 0.00 | |||||||||||
Distributor conversion and non-competes | 0.01 | 0.02 | 0.05 | 0.05 | |||||||||||
Loss on interest rate swap termination | — | — | — | 0.03 | |||||||||||
Non-cash interest expense on 2017 Convertible Notes | 0.03 | 0.03 | 0.12 | 0.05 | |||||||||||
Derivatives mark-to-market adjustment | (0.03 | ) | 0.05 | 0.01 | 0.02 | ||||||||||
Transition costs - OrthoRecon divestiture | 0.10 | — | 0.29 | — | |||||||||||
Due diligence, transaction and transition costs - BioMimetic & Biotech | 0.04 | 0.05 | 0.22 | 0.05 | |||||||||||
BioMimetic impairment and other charges and CVR mark-to-market adjustments | 0.00 | — | 2.46 | — | |||||||||||
Write-off of deferred financing fees associated with Senior Credit Facility and 2014 Convertible Notes | — | — | — | 0.04 | |||||||||||
Gain on previously held investment in BioMimetic | — | — | (0.17 | ) | — | ||||||||||
Valuation allowance | 2.55 | — | 2.64 | — | |||||||||||
Gain on sale of intellectual property | — | (0.24 | ) | — | (0.25 | ) | |||||||||
Net loss, as adjusted, per diluted share (2) | $ | (0.17 | ) | $ | (0.05 | ) | $ | (0.56 | ) | $ | (0.10 | ) | |||
_______________________________
(1) Beginning in 2013, we do not adjust reported earnings for non-cash stock-based compensation expense in calculating
adjusted earnings. 2012 adjusted earnings have been recast to reflect this change.
(2) Reconciling items may not add to total net income, as adjusted, per diluted share due to rounding differences.
14
Wright Medical Group, Inc.
Reconciliation of Free Cash Flow
(dollars in thousands--unaudited)
Three Months Ended | Twelve Months Ended | ||||||||
December 31, 2013 | December 31, 2012 | December 31, 2013 | December 31, 2012 | ||||||
Net cash (used in) provided by operating activities | (42,322 | ) | 11,070 | (36,601 | ) | 68,822 | |||
Capital expenditures | (15,018 | ) | (6,032 | ) | (37,530 | ) | (19,323 | ) | |
Free cash flow | (57,340 | ) | 5,038 | (74,131 | ) | 49,499 | |||
Wright Medical Group, Inc.
Discontinued Operations Sales Analysis
(dollars in thousands--unaudited)
Three Months Ended | Twelve Months Ended | ||||||||||||||||||||
December 31, 2013 | December 31, 2012 | % change | December 31, 2013 | December 31, 2012 | % change | ||||||||||||||||
Product Line | |||||||||||||||||||||
Hips | $ | 31,348 | $ | 35,929 | (12.8 | %) | $ | 125,695 | $ | 150,550 | (16.5 | %) | |||||||||
Knees | 26,409 | 27,968 | (5.6 | %) | 102,952 | 114,896 | (10.4 | %) | |||||||||||||
Other | 854 | 1,200 | (28.8 | %) | 3,217 | 4,225 | (23.9 | %) | |||||||||||||
Total Sales | $ | 58,611 | $ | 65,097 | (10.0 | %) | $ | 231,864 | $ | 269,671 | (14.0 | %) | |||||||||
15
Wright Medical Group, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands--unaudited)
December 31, 2013 | December 31, 2012 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 168,534 | $ | 320,360 | |||
Marketable securities | 6,898 | 12,646 | |||||
Accounts receivable, net | 45,817 | 31,202 | |||||
Inventories | 72,443 | 57,458 | |||||
Prepaid expenses and other current assets | 69,608 | 63,995 | |||||
Current assets held for sale | 142,015 | 166,484 | |||||
Total current assets | 505,315 | 652,145 | |||||
Property, plant and equipment, net | 70,515 | 41,482 | |||||
Goodwill and intangible assets, net | 157,683 | 51,098 | |||||
Marketable securities | 7,650 | — | |||||
Other assets | 133,845 | 78,998 | |||||
Other assets held for sale | 132,443 | 129,730 | |||||
Total assets | $ | 1,007,451 | $ | 953,453 | |||
Liabilities and stockholders' equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 3,913 | $ | 4,676 | |||
Accrued expenses and other current liabilities | 80,117 | 38,763 | |||||
Current portion of long-term obligations | 4,174 | — | |||||
Current liabilities held for sale | 31,221 | 32,993 | |||||
Total current liabilities | 119,425 | 76,432 | |||||
Long-term obligations | 271,227 | 258,485 | |||||
Other liabilities | 155,686 | 93,064 | |||||
Other liabilities held for sale | 1,399 | 2,031 | |||||
Total liabilities | 547,737 | 430,012 | |||||
Stockholders' equity | 459,714 | 523,441 | |||||
Total liabilities and stockholders' equity | $ | 1,007,451 | $ | 953,453 | |||
16