Attached files
| file | filename |
|---|---|
| 8-K - 8-K - WRIGHT MEDICAL GROUP INC | form8-kq42014.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 2014 Fourth Quarter and Full-Year Financial Results and Provides 2015 Guidance
Fourth Quarter Global Foot and Ankle Net Sales Increase 33% As Reported and 34% Constant Currency
Fourth Quarter Sales Increase 23% As Reported and 25% Constant Currency
MEMPHIS, Tenn. - February 25, 2015 - Wright Medical Group, Inc. (NASDAQ: WMGI) today reported financial results for its fourth quarter and full-year ended December 31, 2014 and provided 2015 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 reported as discontinued operations.
Net sales totaled $83.3 million during the fourth quarter ended December 31, 2014, representing a 23% increase as reported and 25% increase on a constant currency basis compared to the fourth quarter of 2013.
Robert Palmisano, president and chief executive officer, commented, “Our fourth quarter revenue was in‐line with the preliminary results we released in January and represents a significant acceleration in our U.S. foot and ankle business, driven by improved execution and strong contribution from acquired products and new product launches. Gross margins of 77.1% were also strong as we are beginning to see the benefits of our Vital Few initiative. Our U.S. foot and ankle business grew 39%, up significantly from 28% in the third quarter of this year. Notably, we saw global total ankle growth of 38% for the quarter, which was driven primarily by the ongoing launch of our INFINITY total ankle replacement system. We also saw continued gains in U.S. foot and ankle sales force productivity and achieved our goal of exiting 2014 at over $1 million per sales rep. Given our sustained focus and attention in this area, I also believe that we can reach a meaningfully higher level than that goal in the future.”
Palmisano continued, “Our 2015 standalone guidance assumes continued strong growth in our U.S. Foot and Ankle and International businesses. Both our Upper Extremity and Biologics businesses are expected to remain soft, but we believe both of these areas will be addressed by the pending merger with Tornier and anticipated final FDA approval of AUGMENT Bone Graft. We will continue to focus on improving our execution to realize our full potential and believe that the positive progress we saw exiting the fourth quarter is setting us up well for accelerating growth and margin expansion in the coming quarters.”
Net loss from continuing operations for the fourth quarter of 2014 totaled $107.0 million or ($2.11) per diluted share, compared to net loss of $135.2 million or ($2.88) per diluted share in the fourth quarter of 2013.
Net loss from continuing operations for the fourth quarter of 2014 included the after-tax effects of a $73.7 million unrealized loss related to mark-to-market adjustments on contingent value rights (CVRs) issued in
1
connection with the BioMimetic acquisition, $11.9 million of Tornier merger costs, $2.4 million of non-cash interest expense related to the 2017 Convertible Notes, $2.5 million of transaction and transition costs associated with recent acquisitions, $1.4 million of transition costs associated with the sale of the OrthoRecon business, $0.4 million of charges associated with distributor conversions and non-competes, $0.1 million of contingent consideration fair value adjustments and a $2.5 million U.S. tax provision within continuing operations to offset the tax benefit recorded within discontinued operations. 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 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.
The Company's fourth quarter 2014 net loss from continuing operations, as adjusted for the above items, was $12.9 million, a decline from a net loss of $7.9 million in 2013, while diluted loss per share, as adjusted, decreased to ($0.25) in the fourth quarter of 2014 from ($0.17) in the fourth quarter of 2013. The attached financial tables include a reconciliation of U.S. GAAP to “as adjusted” results.
The Company's fourth quarter 2014 adjusted EBITDA from continuing operations, as defined in the GAAP to non-GAAP reconciliation provided later in this release, was negative $0.8 million, compared to negative $3.2 million in the same quarter of the prior year. The attached financial tables include a reconciliation of U.S. GAAP to “as adjusted” results.
Cash and cash equivalents and marketable securities totaled $229.9 million as of the end of the fourth quarter of 2014, an increase of $46.8 million compared to the end of 2013, which was driven by the closing of the MicroPort, Solana Surgical and OrthoPro transactions.
Palmisano concluded, “We are focused on our 2015 commitments, including receiving final FDA approval of, and successfully launching AUGMENT Bone Graft, and executing our Vital Few initiatives, which will further strengthen and expand our market-leading competitive position. In addition, we believe our pending merger with Tornier will enhance shareholder value through the creation of the premier high-growth Extremities-Biologics company that is uniquely positioned with leading technologies and specialized sales forces in three of the fastest growing areas of orthopaedics.”
Outlook
On a standalone basis and assuming final approval of Augment® Bone Graft by the middle of the second quarter of 2015, the Company anticipates net sales for 2015 of approximately $325 million to $335 million, representing constant currency growth of 13% to 16% from 2014. This range assumes U.S. Augment revenue of $10 million to $12 million and a negative impact from currency of approximately $12 million, or 4%, reflecting the recent strengthening of the U.S. dollar as compared to 2014, and excludes any potential dis-synergies from the pending merger with Tornier.
The Company anticipates 2015 adjusted EBITDA from continuing operations, as described in the GAAP to non-GAAP reconciliation provided later in this release, of negative $(22.0) million to negative $(27.0) million.
The Company anticipates adjusted earnings per share from continuing operations, including stock-based compensation, for full-year 2015 of $(1.67) to $(1.77) per diluted share, based on approximately 51.1 million shares outstanding. While the amount of the non-cash stock-based compensation charges will
2
vary depending upon a number of factors, the Company currently estimates that the after-tax impact of those expenses will be approximately $0.24 per diluted share for the full-year 2015.
The Company plans to provide updated guidance when the pending merger with Tornier closes. From a timing standpoint, the Company continues to believe a second quarter 2015 closing is still possible, but is a best-case scenario.
The Company's earnings target and adjusted EBITDA from continuing operations targets exclude possible future acquisitions; other material future business developments; non-cash interest expense associated with the 2017 and 2020 Convertible Notes; due diligence, transaction and transition costs associated with acquisitions and divestitures; impairment charges, mark-to-market adjustments to the CVRs and non-cash mark-to-market derivative adjustments; and charges associated with the February 2015 refinancing of our convertible debt. Further, this earnings target and adjusted EBITDA target excludes any expenses, earnings or losses related to the OrthoRecon business.
The Company's anticipated ranges for net sales, earnings 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.
Internet Posting of Information
Wright routinely posts information that may be important to investors in the “Investor Relations” section of its website at www.wmt.com. Wright encourages investors and potential investors to consult its website regularly for important information about the company.
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 877-280-4959 (U.S.) / 857-244-7316 (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 4, 2015. To hear this replay, dial 888-286-8010 (U.S.) or 617-801-6888 (International) and enter the passcode 51724673. 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.
3
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 interest expense related to the Company's 2017 Convertible Notes, mark-to-market adjustments on derivative assets and liabilities, 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, transaction and transition costs, costs associated with management changes, fair value adjustments of contingent consideration, patent dispute settlement costs, and impacts from the sale of the OrthoRecon business, 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 includes forward-looking statements. These forward-looking statements generally can be identified by the use of words such as “anticipate,” “expect,” “plan,” “could,” “may,” “will,” “believe,” “estimate,” “forecast,” “goal,” “project,” and other words of similar meaning. Forward-looking statements in this press release include, but are not limited to, statements about our outlook for our expected financial results for 2015; statements about the approvable status and anticipated final PMA approval of Augment® Bone Graft and the anticipated positive effects of such; and statements about the timing and anticipated benefits of the previously announced merger with Tornier. Each forward-looking statement contained in this press 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, uncertainties as to the timing of the Tornier transaction; uncertainties as to whether Tornier shareholders and Wright shareholders will approve the transaction; the risk that competing offers will be made; the possibility that various closing conditions for the transaction may not be satisfied or waived, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the transaction, or the terms of such approval; the effects of disruption from the transaction making it more difficult to maintain relationships with employees, customers, vendors and other business partners; the risk that shareholder litigation in connection with the transaction may result in significant costs of defense, indemnification and liability; other business effects, including the effects of industry, economic or political conditions outside of Wright’s or Tornier’s control; the failure to realize synergies and cost-savings from the transaction or delay in realization thereof; the businesses of Wright and Tornier may not be combined successfully, or such combination may take longer, be more difficult, time-consuming or costly to accomplish than expected; operating costs and business disruption following completion of the transaction, including adverse effects on employee retention and on Wright’s and Tornier’s respective business relationships with third parties; transaction costs; actual or contingent liabilities; the adequacy of the combined company’s capital resources; failure or delay in ultimately obtaining FDA approval of Wright’s Augment® Bone Graft for commercial sale in the United States, failure to achieve the anticipated benefits from approval of Augment® Bone Graft, and the risks identified under the heading “Risk Factors” in Wright’s Annual Report on Form 10-K, anticipated to be filed with the SEC on February 25, 2015, and Tornier’s Annual Report on Form 10-K, filed with the SEC on February 24, 2015, as well as both companies’ subsequent Quarterly Reports on Form 10-Q and other information filed by each company with the SEC. Investors should not place considerable reliance on the forward-looking statements contained in this press release. You are encouraged to read Wright’s and Tornier’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 press 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.
IMPORTANT ADDITIONAL INFORMATION ABOUT THE PROPOSED MERGER WITH TORNIER AND WHERE TO FIND IT
In connection with the proposed merger, Tornier has filed with the U.S. Securities and Exchange Commission (SEC) a registration statement on Form S-4 that includes a preliminary joint proxy statement of Wright and Tornier that also constitutes a preliminary prospectus of Tornier. The registration statement is not complete and will be further amended. Wright and Tornier will make the final joint proxy statement/prospectus available to their respective shareholders. Investors are urged to read the final joint proxy statement/prospectus when it becomes available, because it will contain important information. The
5
registration statement, definitive joint proxy statement/prospectus and other documents filed by Tornier and Wright with the SEC will be available free of charge at the SEC’s website (www.sec.gov) and from Tornier and Wright. Requests for copies of the joint proxy statement/prospectus and other documents filed by Wright with the SEC may be made by contacting Julie D. Tracy, Senior Vice President and Chief Communications Officer by phone at (901) 290-5817 or by email at julie.tracy@wmt.com, and request for copies of the joint proxy statement/prospectus and other documents filed by Tornier may be made by contacting Shawn McCormick, Chief Financial Officer by phone at (952) 426-7646 or by email at shawn.mccormick@tornier.com.
Wright, Tornier, their respective directors, executive officers and employees may be deemed to be participants in the solicitation of proxies from Wright’s and Tornier’s respective shareholders in connection with the proposed transaction. Information about the directors and executive officers of Wright and their ownership of Wright stock is set forth in Wright’s annual report on Form 10-K for the fiscal year ended December 31, 2014, which is anticipated to be filed with the SEC on February 25, 2015, and its proxy statement for its 2014 annual meeting of stockholders, which was filed with the SEC on March 31, 2014. Information regarding Tornier’s directors and executive officers is contained in Tornier’s annual report on Form 10-K for the fiscal year ended December 28, 2014, which was filed with the SEC on February 24, 2015, and its proxy statement for its 2014 annual general meeting of shareholders, which was filed with the SEC on May 16, 2014. These documents can be obtained free of charge from the sources indicated above. Certain directors, executive officers and employees of Wright and Tornier may have direct or indirect interest in the transaction due to securities holdings, vesting of equity awards and rights to severance payments. Additional information regarding the participants in the solicitation of Wright and Tornier shareholders will be included in the joint proxy statement/prospectus.
--Tables Follow--
6
Wright Medical Group, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data--unaudited)
Three Months Ended | Twelve Months Ended | ||||||||||||||
December 31, 2014 | December 31, 2013 | December 31, 2014 | December 31, 2013 | ||||||||||||
Net sales | $ | 83,294 | $ | 67,824 | $ | 298,027 | $ | 242,330 | |||||||
Cost of sales | 19,097 | 17,423 | 73,223 | 59,721 | |||||||||||
Gross profit | 64,197 | 50,401 | 224,804 | 182,609 | |||||||||||
Operating expenses: | |||||||||||||||
Selling, general and administrative | 81,991 | 66,479 | 289,620 | 230,785 | |||||||||||
Research and development | 6,360 | 5,412 | 24,963 | 20,305 | |||||||||||
Amortization of intangible assets | 2,786 | 1,750 | 10,027 | 7,476 | |||||||||||
BioMimetic impairment charges | — | — | — | 206,249 | |||||||||||
Total operating expenses | 91,137 | 73,641 | 324,610 | 464,815 | |||||||||||
Operating loss | (26,940 | ) | (23,240 | ) | (99,806 | ) | (282,206 | ) | |||||||
Interest expense, net | 4,525 | 4,061 | 17,398 | 16,040 | |||||||||||
Other expense (income), net | 74,640 | (2,552 | ) | 129,626 | (67,843 | ) | |||||||||
Loss from continuing operations before income taxes | (106,105 | ) | (24,749 | ) | (246,830 | ) | (230,403 | ) | |||||||
Provision (benefit) for income taxes | 863 | 110,462 | (6,334 | ) | 49,765 | ||||||||||
Net loss from continuing operations | $ | (106,968 | ) | $ | (135,211 | ) | $ | (240,496 | ) | $ | (280,168 | ) | |||
(Loss) income from discontinued operations, net of tax | (4,262 | ) | $ | 182 | $ | (19,187 | ) | $ | 6,223 | ||||||
Net loss | $ | (111,230 | ) | $ | (135,029 | ) | $ | (259,683 | ) | $ | (273,945 | ) | |||
Net loss from continuing operations per share, basic | $ | (2.11 | ) | $ | (2.88 | ) | $ | (4.83 | ) | $ | (6.19 | ) | |||
Net loss from continuing operations per share, diluted | $ | (2.11 | ) | $ | (2.88 | ) | $ | (4.83 | ) | $ | (6.19 | ) | |||
Net loss per share, basic | $ | (2.19 | ) | $ | (2.88 | ) | $ | (5.22 | ) | $ | (6.05 | ) | |||
Net loss per share, diluted | $ | (2.19 | ) | $ | (2.88 | ) | $ | (5.22 | ) | $ | (6.05 | ) | |||
Weighted-average number of shares outstanding-basic | 50,698 | 46,897 | 49,758 | 45,265 | |||||||||||
Weighted-average number of shares outstanding-diluted | 50,698 | 46,897 | 49,758 | 45,265 | |||||||||||
7
Wright Medical Group, Inc.
Consolidated Sales Analysis
(dollars in thousands--unaudited)
Three Months Ended | Twelve Months Ended | ||||||||||||||||||||
December 31, 2014 | December 31, 2013 | % change | December 31, 2014 | December 31, 2013 | % change | ||||||||||||||||
U.S. | |||||||||||||||||||||
Foot and Ankle | 46,032 | 33,196 | 38.7 | % | 148,631 | 115,642 | 28.5 | % | |||||||||||||
Upper Extremity | 3,891 | 4,519 | (13.9 | %) | 15,311 | 17,423 | (12.1 | %) | |||||||||||||
Biologics | 12,118 | 11,042 | 9.7 | % | 45,494 | 42,561 | 6.9 | % | |||||||||||||
Other | 445 | 492 | (9.6 | %) | 2,641 | 2,022 | 30.6 | % | |||||||||||||
Total U.S. | $ | 62,486 | $ | 49,249 | 26.9 | % | $ | 212,077 | $ | 177,648 | 19.4 | % | |||||||||
International | |||||||||||||||||||||
Foot and Ankle | 11,119 | 9,840 | 13.0 | % | 47,001 | 35,020 | 34.2 | % | |||||||||||||
Upper Extremity | 2,437 | 2,062 | 18.2 | % | 11,312 | 7,240 | 56.2 | % | |||||||||||||
Biologics | 5,153 | 4,818 | 7.0 | % | 20,590 | 17,231 | 19.5 | % | |||||||||||||
Other | 2,099 | 1,855 | 13.2 | % | 7,047 | 5,191 | 35.8 | % | |||||||||||||
Total International | $ | 20,808 | $ | 18,575 | 12.0 | % | $ | 85,950 | $ | 64,682 | 32.9 | % | |||||||||
Global | |||||||||||||||||||||
Foot and Ankle | 57,151 | 43,036 | 32.8 | % | 195,632 | 150,662 | 29.8 | % | |||||||||||||
Upper Extremity | 6,328 | 6,581 | (3.8 | %) | 26,623 | 24,663 | 7.9 | % | |||||||||||||
Biologics | 17,271 | 15,860 | 8.9 | % | 66,084 | 59,792 | 10.5 | % | |||||||||||||
Other | 2,544 | 2,347 | 8.4 | % | 9,688 | 7,213 | 34.3 | % | |||||||||||||
Total Sales | $ | 83,294 | $ | 67,824 | 22.8 | % | $ | 298,027 | $ | 242,330 | 23.0 | % | |||||||||
Wright Medical Group, Inc.
Supplemental Sales Information
(unaudited)
Fourth Quarter 2014 Sales Growth/(Decline) | |||||
Domestic As Reported | Int'l Constant Currency | Int'l As Reported | Total Constant Currency | Total As Reported | |
Product Line | |||||
Foot and Ankle | 39% | 20% | 13% | 34% | 33% |
Upper Extremity | (14%) | 27% | 18% | (1%) | (4%) |
Biologics | 10% | 12% | 7% | 10% | 9% |
Other | (10%) | 21% | 13% | 14% | 8% |
Total Sales | 27% | 19% | 12% | 25% | 23% |
Wright Medical Group, Inc.
Supplemental Sales Information
(unaudited)
Full Year 2014 Sales Growth/(Decline) | |||||
Domestic As Reported | Int'l Constant Currency | Int'l As Reported | Total Constant Currency | Total As Reported | |
Product Line | |||||
Foot and Ankle | 29% | 34% | 34% | 30% | 30% |
Upper Extremity | (12%) | 58% | 56% | 8% | 8% |
Biologics | 7% | 22% | 20% | 11% | 11% |
Other | 31% | 36% | 36% | 34% | 34% |
Total Sales | 19% | 34% | 33% | 23% | 23% |
8
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, 2014 | December 31, 2014 | ||||||||||||||
International Net Sales | Total Net Sales | International Net Sales | Total Net Sales | ||||||||||||
Net sales, as reported | $ | 20,808 | $ | 83,294 | $ | 85,950 | $ | 298,027 | |||||||
Currency impact as compared to prior period | 1,220 | 1,220 | 644 | 644 | |||||||||||
Net sales, excluding the impact of foreign currency | $ | 22,028 | $ | 84,514 | $ | 86,594 | $ | 298,671 | |||||||
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, 2014 | December 31, 2013 | December 31, 2014 | December 31, 2013 | ||||||||||||
Operating Income | |||||||||||||||
Operating loss, as reported | $ | (26,940 | ) | $ | (23,240 | ) | $ | (99,806 | ) | $ | (282,206 | ) | |||
Reconciling items impacting Gross Profit: | |||||||||||||||
Inventory step-up amortization | 14 | 278 | 1,535 | 777 | |||||||||||
BioMimetic inventory write-down | — | 1,301 | — | 2,280 | |||||||||||
Total | 14 | 1,579 | 1,535 | 3,057 | |||||||||||
Reconciling items impacting Selling, General and Administrative expense: | |||||||||||||||
Distributor conversions | 14 | 129 | 186 | 932 | |||||||||||
Transition costs - OrthoRecon divestiture | 1,425 | 7,745 | 5,849 | 21,612 | |||||||||||
Due diligence, transaction and transition costs - acquisitions (1) | 2,509 | 2,270 | 14,115 | 12,893 | |||||||||||
Patent dispute settlement | — | — | 900 | — | |||||||||||
Management changes (2) | — | — | 1,203 | — | |||||||||||
Tornier merger costs | 11,900 | — | 11,900 | — | |||||||||||
Total | 15,848 | 10,144 | 34,153 | 35,437 | |||||||||||
Reconciling items impacting Amortization of Intangible Assets: | |||||||||||||||
Amortization of distributor non-competes | 359 | 630 | 1,885 | 2,802 | |||||||||||
Other Reconciling Items: | |||||||||||||||
BioMimetic impairment charges | — | — | — | 206,249 | |||||||||||
Operating loss, as adjusted | $ | (10,719 | ) | $ | (10,887 | ) | $ | (62,233 | ) | $ | (34,661 | ) | |||
Operating loss, as adjusted, as a percentage of net sales | (12.9 | )% | (16.1 | )% | (20.9 | )% | (14.3 | )% | |||||||
_______________________________
(1) 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.
(2) For the twelve months ended December 31, 2014, amount includes $0.3 million of non-cash stock-based compensation expense related to the management changes.
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, 2014 | December 31, 2013 | December 31, 2014 | December 31, 2013 | ||||||||||||
EBITDA | |||||||||||||||
Net loss, as reported | $ | (106,968 | ) | $ | (135,211 | ) | $ | (240,496 | ) | $ | (280,168 | ) | |||
Interest expense, net | 4,525 | 4,061 | 17,398 | 16,040 | |||||||||||
Provision (benefit) for income taxes | 863 | 110,462 | (6,334 | ) | 49,765 | ||||||||||
Depreciation | 4,961 | 4,120 | 18,456 | 14,384 | |||||||||||
Amortization of intangible assets | 2,786 | 1,750 | 10,027 | 7,476 | |||||||||||
EBITDA | (93,833 | ) | (14,818 | ) | (200,949 | ) | (192,503 | ) | |||||||
Reconciling items impacting EBITDA | |||||||||||||||
Non-cash stock-based compensation expense (1)(2) | 2,519 | 2,481 | 11,204 | 9,658 | |||||||||||
Other expense (income), net | 74,640 | (2,552 | ) | 129,626 | (67,843 | ) | |||||||||
Inventory step-up amortization | 14 | 278 | 1,535 | 777 | |||||||||||
Distributor conversions | 14 | 129 | 186 | 932 | |||||||||||
Due diligence, transaction and transition costs | 3,934 | 10,015 | 19,964 | 34,505 | |||||||||||
BioMimetic impairment and other charges | — | 1,301 | — | 208,529 | |||||||||||
Patent dispute settlement | — | — | 900 | — | |||||||||||
Management changes | — | — | 1,203 | — | |||||||||||
Tornier merger costs | 11,900 | — | 11,900 | — | |||||||||||
Adjusted EBITDA | $ | (812 | ) | $ | (3,166 | ) | $ | (24,431 | ) | $ | (5,945 | ) | |||
Adjusted EBITDA as a percentage of net sales | (1.0 | )% | (4.7 | )% | (8.2 | )% | (2.5 | )% | |||||||
_______________________________
(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, which is included in due diligence, transaction and transition costs.
(2) For the twelve months ended December 31, 2014, amount excludes $0.3 million of non-cash stock-based compensation expense related to the management changes, which is included in management changes.
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, 2014 | December 31, 2013 | December 31, 2014 | December 31, 2013 | ||||||||||||
Net Income | |||||||||||||||
Loss before taxes, as reported | $ | (106,105 | ) | $ | (24,749 | ) | $ | (246,830 | ) | $ | (230,403 | ) | |||
Pre-tax impact of reconciling items: | |||||||||||||||
Inventory step-up amortization | 14 | 278 | 1,535 | 777 | |||||||||||
Distributor conversion and non-competes | 373 | 759 | 2,071 | 3,734 | |||||||||||
Non-cash interest expense on 2017 Convertible Notes | 2,371 | 2,222 | 9,257 | 8,678 | |||||||||||
Derivatives mark-to-market adjustment | — | (2,000 | ) | 2,000 | 1,000 | ||||||||||
Transition costs - OrthoRecon divestiture | 1,425 | 7,745 | 5,849 | 21,612 | |||||||||||
Due diligence, transaction and transition costs (1) | 2,509 | 2,270 | 14,115 | 12,893 | |||||||||||
BioMimetic impairment and other charges and CVR mark-to-market adjustments | 73,718 | 460 | 125,011 | 147,381 | |||||||||||
Patent dispute settlement | — | — | 900 | — | |||||||||||
Management changes (2) | — | — | 1,203 | — | |||||||||||
Contingent consideration fair value adjustment | 58 | — | 1,808 | — | |||||||||||
Tornier merger costs | 11,900 | — | 11,900 | — | |||||||||||
Gain on previously held investment in BioMimetic | — | — | — | (7,798 | ) | ||||||||||
Loss before taxes, as adjusted | (13,737 | ) | (13,015 | ) | (71,181 | ) | (42,126 | ) | |||||||
Provision (benefit) for income taxes, as reported | $ | 863 | $ | 110,462 | $ | (6,334 | ) | $ | 49,765 | ||||||
U.S. tax impact resulting from gain in discontinued operations | (2,487 | ) | — | 5,453 | — | ||||||||||
Valuation allowance | — | (119,623 | ) | — | (119,623 | ) | |||||||||
Tax effect of all other items | 755 | 4,025 | 755 | 52,952 | |||||||||||
Benefit for income taxes, as adjusted | $ | (869 | ) | $ | (5,136 | ) | $ | (126 | ) | $ | (16,906 | ) | |||
Effective tax rate, as adjusted | 6.3 | % | 39.5 | % | 0.2 | % | 40.1 | % | |||||||
Net loss, as adjusted | $ | (12,868 | ) | $ | (7,879 | ) | $ | (71,055 | ) | $ | (25,220 | ) | |||
Weighted-average number of shares outstanding-diluted | $ | 50,698 | $ | 46,897 | $ | 49,758 | $ | 45,265 | |||||||
Net loss from continuing operations, as adjusted, per diluted share | $ | (0.25 | ) | $ | (0.17 | ) | $ | (1.43 | ) | $ | (0.56 | ) | |||
____________________________
(1) 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.
(2) For the twelve months ended December 31, 2014, amount includes $0.3 million of non-cash stock-based compensation expense related to the management changes.
Wright Medical Group, Inc.
Reconciliation of Free Cash Flow
(dollars in thousands--unaudited)
Three Months Ended | Twelve Months Ended | ||||||||
December 31, 2014 | December 31, 2013 | December 31, 2014 | December 31, 2013 | ||||||
Net cash (used in) provided by operating activities | (29,850 | ) | (42,322 | ) | (116,002 | ) | (36,601 | ) | |
Capital expenditures | (12,897 | ) | (15,018 | ) | (48,603 | ) | (37,530 | ) | |
Free cash flow | (42,747 | ) | (57,340 | ) | (164,605 | ) | (74,131 | ) | |
11
Wright Medical Group, Inc.
Segment Information
(in thousands, except per share data--unaudited)
Three months ended December 31, 2014 | ||||||||||||||||||
U.S. | International | BioMimetic | Corporate | Other (1) | Total | |||||||||||||
Sales | $ | 62,486 | $ | 20,808 | $ | — | $ | — | $ | — | $ | 83,294 | ||||||
Gross profit | 51,318 | 12,916 | — | (23 | ) | (14 | ) | 64,197 | ||||||||||
Operating income (loss) | 10,161 | (2,981 | ) | (2,648 | ) | (15,251 | ) | (16,221 | ) | (26,940 | ) | |||||||
Operating income (loss) as a percent of net sales | 16.3 | % | (14.3 | %) | N/A | N/A | N/A | (32.3 | %) | |||||||||
Depreciation Expense | 2,613 | 800 | 108 | 1,440 | — | 4,961 | ||||||||||||
Amortization Expense | 1,836 | 515 | 76 | — | 359 | 2,786 | ||||||||||||
Non-cash stock-based compensation expense | — | — | — | 2,519 | — | 2,519 | ||||||||||||
Other | — | — | — | — | 15,862 | 15,862 | ||||||||||||
Adjusted EBITDA | 14,610 | (1,666 | ) | (2,464 | ) | (11,292 | ) | — | (812 | ) | ||||||||
_______________________________
(1) Other consists exclusively of the reconciling items from Operating Income, as reported, to Operating Income, as adjusted,
as included in the reconciliations above.
Three months ended December 31, 2013 | ||||||||||||||||||
U.S. | International | BioMimetic | Corporate | Other (1) | Total | |||||||||||||
Sales | $ | 49,249 | $ | 18,575 | $ | — | $ | — | $ | — | $ | 67,824 | ||||||
Gross profit | 40,816 | 11,279 | — | (115 | ) | (1,579 | ) | 50,401 | ||||||||||
Operating income (loss) | 6,873 | (787 | ) | (4,074 | ) | (12,899 | ) | (12,353 | ) | (23,240 | ) | |||||||
Operating income (loss) as a percent of net sales | 14.0 | % | (4.2 | %) | N/A | N/A | N/A | (34.3 | %) | |||||||||
Depreciation Expense | 2,467 | 638 | 119 | 896 | — | 4,120 | ||||||||||||
Amortization Expense | 647 | 396 | 77 | — | 630 | 1,750 | ||||||||||||
Non-cash stock-based compensation expense | — | — | — | 2,481 | — | 2,481 | ||||||||||||
Other | — | — | — | — | 11,723 | 11,723 | ||||||||||||
Adjusted EBITDA | 9,987 | 247 | (3,878 | ) | (9,522 | ) | — | (3,166 | ) | |||||||||
_______________________________
(1) Other consists exclusively of the reconciling items from Operating Income, as reported, to Operating Income, as adjusted,
as included in the reconciliations above.
12
Twelve Months Ended December 31, 2014 | ||||||||||||||||||
U.S. | International | BioMimetic | Corporate | Other (1) | Total | |||||||||||||
Sales | $ | 212,077 | $ | 85,950 | $ | — | $ | — | $ | — | $ | 298,027 | ||||||
Gross profit | 172,035 | 54,558 | — | (254 | ) | (1,535 | ) | 224,804 | ||||||||||
Operating income (loss) | 23,074 | (5,366 | ) | (12,033 | ) | (67,908 | ) | (37,573 | ) | (99,806 | ) | |||||||
Operating income (loss) as a percent of net sales | 10.9 | % | (6.2 | %) | N/A | N/A | N/A | (33.5 | %) | |||||||||
Depreciation Expense | 9,707 | 3,046 | 432 | 5,271 | — | 18,456 | ||||||||||||
Amortization Expense | 5,656 | 2,178 | 307 | 1 | 1,885 | 10,027 | ||||||||||||
Non-cash stock-based compensation expense (2) | 11,204 | — | 11,204 | |||||||||||||||
Other | — | 35,688 | 35,688 | |||||||||||||||
Adjusted EBITDA | 38,437 | (142 | ) | (11,294 | ) | (51,432 | ) | — | (24,431 | ) | ||||||||
_______________________________
(1) Other consists exclusively of the reconciling items from Operating Income, as reported, to Operating Income, as adjusted, as included in the reconciliations above.
(2) For the twelve months ended December 31, 2014, amount excludes $0.3 million of non-cash stock-based compensation expense related to the management changes.
Twelve Months Ended December 31, 2013 | ||||||||||||||||||
U.S. | International | BioMimetic | Corporate | Other (1) | Total | |||||||||||||
Sales | $ | 177,648 | $ | 64,682 | $ | — | $ | — | $ | — | $ | 242,330 | ||||||
Gross profit | 146,541 | 39,630 | — | (505 | ) | (3,057 | ) | 182,609 | ||||||||||
Operating income (loss) | 26,268 | 4,761 | (12,741 | ) | (52,949 | ) | (247,545 | ) | (282,206 | ) | ||||||||
Operating income (loss) as a percent of net sales | 14.8 | % | 7.4 | % | N/A | N/A | N/A | (116.5 | %) | |||||||||
Depreciation Expense | 8,838 | 2,364 | 394 | 2,788 | 14,384 | |||||||||||||
Amortization Expense | 3,507 | 644 | 523 | 2,802 | 7,476 | |||||||||||||
Non-cash stock-based compensation expense (2) | 9,658 | 9,658 | ||||||||||||||||
Other | 244,743 | 244,743 | ||||||||||||||||
Adjusted EBITDA | 38,613 | 7,769 | (11,824 | ) | (40,503 | ) | — | (5,945 | ) | |||||||||
_______________________________
(1) Other consists exclusively of the reconciling items from Operating Income, as reported, to Operating Income, as adjusted, as included in the reconciliations above.
(2) 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, which is included in due diligence, transaction and transition costs.
13
Wright Medical Group, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands--unaudited)
December 31, 2014 | December 31, 2013 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 227,326 | $ | 168,534 | |||
Marketable securities | 2,575 | 6,898 | |||||
Accounts receivable, net | 57,190 | 45,817 | |||||
Inventories | 88,412 | 72,443 | |||||
Prepaid expenses and other current assets | 64,953 | 69,608 | |||||
Current assets held for sale | — | 142,015 | |||||
Total current assets | 440,456 | 505,315 | |||||
Property, plant and equipment, net | 104,235 | 70,515 | |||||
Goodwill and intangible assets, net | 259,991 | 157,683 | |||||
Marketable securities | — | 7,650 | |||||
Other assets | 87,994 | 133,845 | |||||
Other assets held for sale | — | 132,443 | |||||
Total assets | $ | 892,676 | $ | 1,007,451 | |||
Liabilities and stockholders' equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 16,729 | $ | 3,913 | |||
Accrued expenses and other current liabilities | 170,204 | 80,117 | |||||
Current portion of long-term obligations | 718 | 4,174 | |||||
Current liabilities held for sale | — | 31,221 | |||||
Total current liabilities | 187,651 | 119,425 | |||||
Long-term obligations | 280,612 | 271,227 | |||||
Other liabilities | 145,610 | 155,686 | |||||
Other liabilities held for sale | — | 1,399 | |||||
Total liabilities | 613,873 | 547,737 | |||||
Stockholders' equity | 278,803 | 459,714 | |||||
Total liabilities and stockholders' equity | $ | 892,676 | $ | 1,007,451 | |||
14