Orthofix International Announces 4th Quarter and Full Year 2012 Results

Orthofix International Announces 4th Quarter and Full Year 2012 Results

  • Q4/12 gross profit margin of 83%, up 240 basis points
  • Q4/12 reported operating margin of 22% and adjusted operating margin of 22%, up 80 basis points
  • Q4/12 reported and adjusted net income from continuing operations up 27% and 14%, respectively
  • Q4/12 reported net income from continuing operations per share was $0.74; adjusted net income from continuing operations per share was $0.81

LEWISVILLE, Texas--(BUSINESS WIRE)-- Orthofix International N.V. (NAS: OFIX) (the Company) today announced its results for the fourth quarter and year ended December 31, 2012. Net sales were $112.0 million and $462.3 million for the fourth quarter and full year ended December 31, 2012, respectively.

Net income from continuing operations was $14.6 million, or $0.74 per diluted share, for the fourth quarter and net income was $53.9 million, or $2.78 per diluted share, for the full year ended December 31, 2012. Adjusted net income from continuing operations was $16.0 million, or $0.81 per diluted share, for the fourth quarter and $58.9 million, or $3.04 per diluted share, for the full year ended December 31, 2012.


Robert Vaters, President and Chief Executive Officer, commented, "I am extremely pleased with our fourth quarter and full year adjusted net income from continuing operations, both records for the Company as we have exceeded our multi-year margin expansion goals. As we previously announced, I was disappointed by our performance in international markets, as well as by our Spine Regenerative Stimulation business where we experienced sales turnover from the implementation of our Corporate Integrity Agreement. While we remain focused on overcoming near-term challenges that are impacting top-line growth, we have improved the Company's margins and overall financial profile while removing the burden of significant government investigations. This improved financial position provides financial flexibility for increased investment in the product pipeline and inorganic activities that will drive future growth."

Sales Performance

Net sales were $112.0 million in the fourth quarter of 2012, decreasing 9% on a reported basis from $123.1 million in the fourth quarter of the prior year. On a constant currency basis, net sales decreased 8% as foreign currency translation negatively impacted the fourth quarter net sales by approximately $1.6 million. For the full year 2012, net sales were $462.3 million, decreasing 2% on a reported basis but up slightly on a constant currency basis as foreign currency translation negatively impacted net sales by approximately $9.8 million.

External net sales by global business unit         
  Three Months Ended December 31,
Constant
ReportedCurrency
(USD in millions)20122011GrowthGrowth
 
Spine
Spine Repair Implants and Regenerative Biologics$36.3$36.20%0%
Spine Regenerative Stimulation 39.4 42.4-7%-7%
Total Spine75.778.6-4%-4%
 
Orthopedics 36.4 44.5-18%-15%
 
Total net sales$112.0$123.1-9%-8%
 
Note: Some calculations may be impacted by rounding.
 

Fourth quarter net sales in the Company's Spine global business unit were $75.7 million, which decreased 4% from the prior year. Strength in domestic Repair Implants and Regenerative Biologics sales were offset by challenging regulatory and macroeconomic conditions in international markets. In addition, Spine Regenerative Stimulation business was negatively impacted in the second half of the year by sales force turnover as we initially implemented our Corporate Integrity Agreement in June 2012.

Fourth quarter net sales in the Company's orthopedics global business unit were $36.4 million for the fourth quarter of 2012, which reflects an 18% decrease on a reported basis and a 15% decrease on a constant currency basis compared to the prior year. This decrease was primarily due to regulatory and macroeconomic conditions in certain international markets, which included mandatory price reductions for public hospitals in Italy, cancellation of reimbursement by the government on Physio-Stim in France, and a delay of surgeries by government hospitals and insurance providers.

Earnings Performance

Reported net income from continuing operations for the fourth quarter 2012 was $14.6 million and net income per diluted share was $0.74, up 21% over $0.62 in the fourth quarter of the prior year. Adjusted net income from continuing operations in the fourth quarter of 2012 was $16.0 million, or $0.81 per diluted share, an increase of 9% compared with $0.75 per diluted share in the fourth quarter of the prior year.

Subsequent to year end, the Company won an arbitration award against an insurance carrier relating to its denial of coverage under excess products liability policies with total limits of $30 million. As a result of the binding arbitration award, the carrier is obligated to reimburse the Company for defense expenses, settlements, and judgments associated with the underlying products liability claims at issue. The Company estimates that it is entitled to reimbursement of approximately $13 million for past losses incurred, as well as up to $15 million in future coverage for pending products liability matters. The reimbursed amount included in net income from discontinued operations added approximately $0.42 to per diluted share during the fourth quarter 2012.

The following tables reconcile reported net income from continuing operations and net income from continuing operations per diluted share to adjusted net income from continuing operations and adjusted net income from continuing operations per diluted share for the quarters ended December 31, 2012 and 2011, and for the full years ended December 31, 2012 and 2011:

Fourth Quarter Adjusted Net Income from Continuing Operations  Q4 2012   Q4 2011   % Change
($000's)  EPS($000's)  EPSEarnings  EPS
      
Reported GAAP net income and net income per diluted share$14,636$0.74$11,530$0.6227%21%

Specified Items:

 

Charges related to U.S. Government resolutions

1852,456
Foreign exchange gain/loss28430
Tax settlement 885

-

Adjusted net income and net income per diluted share$15,990$0.81$14,016$0.7514%9%
 
Shares used to calculate EPS (in thousands)19,66818,740
 

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.

 
            
Full Year Adjusted Net Income from Continuing Operations20122011% Change
($000's)  EPS($000's)  EPSEarnings  EPS
  
 
Reported GAAP net income (loss) and net income (loss) per diluted share$53,936$2.78$(1,740)$(0.10)nmnm
 

Specified Items:

 
Strategic Investments MTF$1,890$

-

Charges related to U.S. Government resolutions(83)48,456
Foreign exchange loss3211,009
Succession and restructuring charges-2,738
Arbitration Resolution of Co- Development Agreement1,953-
Tax settlement885-
  
Adjusted net income and net income per diluted share$58,902 $3.04$50,462 $2.7217%12%
 
Shares used to calculate EPS (in thousands)19,39018,564
 
Note: Some calculations may be impacted by rounding.
The shares used to calculate Reported GAAP net loss per diluted shares for 2011 was 18,219,343.
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 from continuing operations to adjusted operating income from continuing operations for the fourth quarters ended December 31, 2012 and 2011:

Fourth Quarter Adjusted Operating Income from Continuing Operations  Q4 2012   Q4 2011
($000's)  % of Sales($000's)  % of Sales
    
Reported GAAP operating income$24,48121.9%$15,81112.8%
 

Specified Items:

Charges related to U.S. Government resolutions28310,463
  
Adjusted operating income$24,76422.1%$26,27421.3%
 

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 fourth quarter adjusted operating margin from continuing operations increased 80 basis points compared to the same period of the prior year. The increase was partially driven by the gross margin improvement in the quarter.

2013 Outlook

During 2013, the Company expects constant currency net sales growth to be between 1.0% and 3.0% over net sales in 2012. The Company anticipates foreign currency translation to negatively impact net sales by 0.5%, leading reported net sales growth to be between 0.5% and 2.5%, or $465 million and $475 million.

The Company expects GAAP net income from continuing operations for the full year 2013 to be between $2.84 and $2.94 per diluted share. After adjusting for the strategic initiatives associated with the Musculoskeletal Transplant Foundation and the commercialization of Trinity Elite, net income from continuing operations is expected to be between $2.90 and $3.00 per diluted share.

Reported and Adjusted EPS - Full Year 2013
   
Reported GAAP EPS Range$2.84-$2.94
 

Specified Items:

Strategic Investments in MTF$0.06
 
     
Adjusted EPS Range$2.90 - $3.00
 

Conference Call

Orthofix will host a conference call today at 4:30 PM Eastern time to discuss the Company's financial results for the fourth quarter and full year of 2012. 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 December 31,Year Ended December 31,
2012201120122011
 
Net sales$112,035$123,085$462,320$470,121
Cost of sales 18,504  23,239  86,492  92,619 
Gross profit 93,531  99,846  375,828  377,502 
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