Orthofix International Announces First Quarter 2013 Results

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Orthofix International Announces First Quarter 2013 Results

  • Board of Directors Authorizes $50.0 million Share Repurchase Program

LEWISVILLE, Texas--(BUSINESS WIRE)-- Orthofix International N.V. (NAS: OFIX) (the Company) today announced its results for the first quarter ended March 31, 2013. Net sales were $100.3 million, a 14% decrease over the first quarter of the prior year, or 13% on a constant currency basis.


Net income from continuing operations was $4.9 million, or $0.25 per diluted share compared to $0.64 per diluted share in the prior year. Adjusted net income from continuing operations was $4.6 million, or $0.23 per diluted share, decreasing 66% from $0.69 per diluted share from the first quarter of the prior year.

The Orthofix Board of Directors has authorized a share repurchase program allowing the Company to repurchase up to $50 million of the Company's common stock, effective beginning May 10, 2013.

Brad Mason, President and Chief Executive Officer, commented, "I am delighted to rejoin Orthofix and am confident that I can lead the Company in a way that will maximize its potential to create shareholder value. I am very encouraged by the many strengths I see in our organization.

"That said, the first quarter sales and earnings results were disappointing. The good news is that the primary issues that led to these results are identifiable, within our control, and fixable. We are developing a strategy with specific initiatives that will both improve our internal competencies and drive growth.

"Importantly, Orthofix generated free cash flow of $9 million in the quarter which, in spite of the revenue shortfall, highlights the underlying stability of Orthofix's business. Given this and our confidence in our prospects for the future, the Board has approved a share repurchase program of up to $50 million. The Board and I believe that, while Orthofix's stock is trading at current valuations, this is an appropriate use of cash and will benefit the shareholders."

Sales Performance

Net sales were $100.3 million in the first quarter of 2013, down 14% from $116.0 million in the first quarter of the prior year. Foreign currency translation and two less selling days both negatively impacted the first quarter net sales by 0.6% and 3.2%, respectively.

External net sales by global business unit   
 Three Months Ended March 31,
Constant
ReportedCurrency
(USD in millions)20132012DeclineDecline
 
Spine
Spine Repair Implants and Regenerative Biologics$34.3$35.8-4%-4%
Spine Regenerative Stimulation 32.0 39.3-18%-18%
Total Spine66.375.0-12%-12%
 
Orthopedics 33.9 41.0-17%-16%
 
Total net sales$100.3$116.0-14%-13%

Note: Spine Repair Implants and Regenerative Biologics includes $9.4 million and $8.7 million of marketing service fees in the three months ended March 31, 2013 and 2012, respectively. Orthopedics includes $2.5 million of marketing service fees in the three months ended March 31, 2013 and 2012.

  
Note: Some calculations may be impacted by rounding.
 

Total Spine sales were $66.3 million, which decreased 12% from the prior year. The reduction in sales was primarily a result of residual effects of distribution disruptions and higher than ordinary mix of wholesale revenue in 2012 in the Company's Stimulation business. In addition, sales from Spine Implants were impacted by weakness in international markets as well as pricing pressures in the U.S.

Orthopedics sales were $33.9 million, which decreased 17% on a reported basis and 16% on a constant currency basis compared to the prior year. The decline in revenue was due primarily to a number of challenges currently impacting the Company in Brazil. Sales from Europe were also negatively affected by poor macroeconomic conditions.

Earnings Performance

Reported net income for the first quarter of 2013 was $4.9 million and net income per diluted share was $0.25. Excluding certain items summarized in the table below, adjusted net income in the first quarter of 2013 was $4.6 million, or $0.23 per diluted share, decreasing 66% from the first quarter of the prior year.

The following table reconciles reported net income and net income per diluted share to adjusted net income and adjusted net income per diluted share for each of the quarters ended March 31, 2013 and 2012:

First Quarter Adjusted Net Income from Continuing Operations Q1 2013 Q1 2012 % Change
($000's) EPS($000's) EPSEarnings EPS
   
Reported GAAP net income and net income per diluted share$4,908$0.25$12,216$0.64-60%-61%

Specified Items:

 
Succession charges2,828-
Gain related to demutualization of a mutual insurance company(2,776)-
Foreign exchange gain/loss(392)296
Strategic investment in MTF -  630
Adjusted net income and net income per diluted share$4,568 $0.23$13,142$0.69-65%-66%
 
Shares used to calculate EPS (in thousands)19,69119,116
Note: Some calculations may be impacted by rounding. Please refer to the Non-GAAP Performance Measure section at the end of this press release for more information about the specified items listed above.
 

The following table reconciles operating income to adjusted operating income for each of the quarters ended March 31, 2013 and 2012:

First Quarter Adjusted Operating Income from Continuing Operations Q1 2013 Q1 2012
($000's) % of Sales($000's) % of Sales
  
Reported GAAP operating income$4,0244.0%$22,43119.3%
 

Specified Items:

 
Succession charges3,587-
Strategic investment in MTF-1,000
  
Adjusted operating income$7,6117.6%$23,43120.2%
Note: Some calculations may be impacted by rounding. Please refer to the Non-GAAP Performance measure section at the end of this press release for more information about the specified items listed above.
 

The following table reconciles Free Cash Flow for the quarter ended March 31, 2013:

Free Cash Flow Q1 2013
 
Net cash provided by operating activities$15,454
Capital expenditures (6,468)
Free Cash Flow$8,986 
 

Share Repurchase Program

The Company announced today that its board of directors has authorized a share repurchase program in an amount up to $50 million. Repurchases are expected to consist primarily of open market transactions at prevailing market prices in accordance with the guidelines specified under Rule 10b-18 of the Securities Exchange Act of 1934, as amended, though the Company may also make repurchases through block trades or privately negotiated transactions. The Company expects that repurchases will begin on or about May 10, 2013. Repurchases are expected to be made from cash on hand, cash generated from operations, and additional borrowings. The timing of the transactions and the aggregate number of shares of common stock that will be repurchased under the repurchase program will depend on a variety of factors, including market conditions and the prices at which the securities are repurchased. The Company may discontinue repurchases without prior notice at any time if it determines additional repurchases are not warranted.

Q2 2013 Outlook

For the second quarter, the Company expects revenues to be between $104 million and $107 million. The Company noted that in June 2013 it will host a call to outline plans to drive revenue growth, enhance performance and create long-term value for shareholders. The Company will provide updated annual guidance at that time.

Conference Call

Orthofix will host a conference call today at 4:30 PM Eastern time to discuss the Company's financial results for the first quarter of 2013. Interested parties may access the conference call by dialing (888) 267-2845 in the U.S. and (973) 413-6102 outside the U.S., and entering the conference ID 38220. A replay of the call will be available for two weeks by dialing (800) 332-6854 in the U.S. and (973) 528-0005 outside the U.S., and entering the conference ID 38220. A webcast of the conference call may be accessed by going to the Company's website at www.orthofix.com, by clicking on the Investors link and then the Events and Presentations page.

About Orthofix

Orthofix International N.V. is a diversified, global medical device company focused on developing and delivering innovative repair and regenerative technologies to the spine and orthopedic markets. Orthofix's products are widely distributed around the world to orthopedic surgeons and patients via Orthofix's sales representatives and its subsidiaries and via collaborations with other leading orthopedic product companies. In addition, Orthofix is collaborating on R&D activities with leading research and clinical organizations such as the Musculoskeletal Transplant Foundation, the Orthopedic Research and Education Foundation and Texas Scottish Rite Hospital for Children. For more information about Orthofix, please visit www.orthofix.com.

Forward-Looking Statements:

This communication contains certain forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements, which may include, but are not limited to, statements concerning the projections, financial condition, results of operations and businesses of Orthofix and its subsidiaries and are based on management's current expectations and estimates and involve risks and uncertainties that could cause actual results or outcomes to differ materially from those contemplated by the forward-looking statements.

The forward-looking statements in this release do not constitute guarantees or promises of future performance. Factors that could cause or contribute to such differences may include, but are not limited to, risks relating to the expected sales of our products, including recently launched products, unanticipated expenditures, the resolution of pending litigation matters (including our indemnification obligations with respect to certain product liability claims against, and the government investigation of our former sports medicine global business unit), our ongoing compliance obligations under a corporate integrity agreement with the Office of Inspector General of the Department of Health and Human Services and a deferred prosecution agreement with the U.S. Department of Justice, changing relationships with customers, suppliers, strategic partners and lenders, changes to and the interpretation of governmental regulations, risks relating to the protection of intellectual property, changes to the reimbursement policies of third parties, the impact of competitive products, changes to the competitive environment, the acceptance of new products in the market, conditions of the orthopedic industry, credit markets and the economy, corporate development and market development activities, including acquisitions or divestitures, unexpected costs or operating unit performance related to recent acquisitions, and other factors described in our annual report on Form 10-K and other periodic reports filed by the Company with the Securities and Exchange Commission (SEC). Existing and prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to update or revise the information contained in this press release, whether as a result of new information, future events or circumstances, or otherwise.

  
 
ORTHOFIX INTERNATIONAL N.V.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, U.S. Dollars, in thousands, except per share and share data)
 
 
Three Months Ended March 31,
20132012
 
Product sales$88,358$104,820
Marketing service fees 11,896  11,222 
Net sales100,254116,042
Cost of sales 22,699  21,940 
Gross profit 77,555  94,102 
 
Operating expenses
Sales and marketing48,83949,521
General and administrative18,78814,570
Research and development5,4007,050
Amortization of intangible assets 504  530 
 73,531  71,671 
 
Operating income4,02422,431
 
Other income and expense
Interest expense, net(560)(2,221)
Other income (expense)4,764(631)
  
Income before income taxes8,22819,579
Income tax expense (3,320) (7,363)
Net income from continuing operations, net of tax 4,908  12,216 
 
Discontinued operations
Loss from discontinued operations(4,432)(506)
Income tax benefit 1,640  306 
Net loss from discontinued operations, net of tax (2,792) (200)
Net income$2,116 $12,016 
 
 
Net income per common share - basic
Net income from continuing operations, net of tax$0.25$0.65
Net loss from discontinued operations, net of tax ($0.14) ($0.01)
Net income per common share - basic$0.11 $0.64 
 
Net income per common share - diluted
Net income from continuing operations, net of tax$0.25$0.64
Net loss from discontinued operations, net of tax ($0.14) ($0.01)
Net income per common share - diluted$0.11 $0.63 
 
Weighted average number of common19,431,09318,675,694
shares outstanding - basic
 
Weighted average number of common
shares outstanding - diluted19,691,14119,116,195
  
 
ORTHOFIX INTERNATIONAL N.V.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, U.S. Dollars, in thousands)
 
 
March 31,December 31,
20132012
 
Assets
Current assets:
Cash and cash equivalents$33,675$31,055
Restricted cash29,44621,314
Trade accounts receivable, net132,425150,316
Inventories92,13388,744
Deferred income taxes17,36316,959
Prepaid expenses and other current assets 32,211  32,056
Total current assets337,253340,444
 
Property, plant and equipment, net52,40251,362
Patents and other intangible assets, net6,7656,880
Goodwill72,60774,388
Deferred income taxes20,20019,904
Other long-term assets 14,153  11,303
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