Orthofix International Announces First Quarter 2013 Results

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

Reported

Currency

(USD in millions)

2013

2012

Decline

Decline

Spine

Spine Repair Implants and Regenerative Biologics

$

34.3

$

35.8

-4

%

-4

%

Spine Regenerative Stimulation

32.0

39.3

-18

%

-18

%

Total Spine

66.3

75.0

-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)

EPS

Earnings

EPS

Reported GAAP net income and net income per diluted share

$

4,908

$

0.25

$

12,216

$

0.64

-60

%

-61

%

Specified Items:

Succession charges

2,828

-

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)

19,691

19,116

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

$

4,024

4.0

%

$

22,431

19.3

%

Specified Items:

Succession charges

3,587

-

Strategic investment in MTF

-

1,000

Adjusted operating income

$

7,611

7.6

%

$

23,431

20.2

%

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,

2013

2012

Product sales

$

88,358

$

104,820

Marketing service fees

11,896

11,222

Net sales

100,254

116,042

Cost of sales

22,699

21,940

Gross profit

77,555

94,102

Operating expenses

Sales and marketing

48,839

49,521

General and administrative

18,788

14,570

Research and development

5,400

7,050

Amortization of intangible assets

504

530

73,531

71,671

Operating income

4,024

22,431

Other income and expense

Interest expense, net

(560

)

(2,221

)

Other income (expense)

4,764

(631

)

Income before income taxes

8,228

19,579

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 common

19,431,093

18,675,694

shares outstanding - basic

Weighted average number of common

shares outstanding - diluted

19,691,141

19,116,195

ORTHOFIX INTERNATIONAL N.V.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, U.S. Dollars, in thousands)

March 31,

December 31,

2013

2012

Assets

Current assets:

Cash and cash equivalents

$

33,675

$

31,055

Restricted cash

29,446

21,314

Trade accounts receivable, net

132,425

150,316

Inventories

92,133

88,744

Deferred income taxes

17,363

16,959

Prepaid expenses and other current assets

32,211

32,056

Total current assets

337,253

340,444

Property, plant and equipment, net

52,402

51,362

Patents and other intangible assets, net

6,765

6,880

Goodwill

72,607

74,388

Deferred income taxes

20,200

19,904

Other long-term assets

14,153

11,303