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Wright Medical Group, Inc. (NASDAQ: WMGI), a global orthopaedic medical device company specializing in the design, manufacture and marketing of reconstructive joint devices and biologics, today reported financial results for its third quarter ended September 30, 2009. Net sales totaled $117.7 million during the third quarter ended September 30, 2009, representing a 6% increase over net sales of $111.1 million during the third quarter of 2008. Foreign currency had no net impact on the Company's third quarter 2009 sales results. For the third quarter of 2009, the Company recorded net income of $4.2 million, or $0.11 per diluted share, compared to net income for the third quarter of 2008 of $4.2 million, or $0.11 per diluted share. Net income for the third quarter of 2009 included the after-tax effects of approximately $3.3 million of non-cash stock-based compensation expense, $1.6 million of expenses related to the ongoing U.S. governmental inquiries, and $131,000 of restructuring charges related to the previously announced closure of the Company's Toulon, France operations. Net income for the third quarter of 2008 included the after-tax effects of approximately $3.4 million of non-cash stock-based compensation expense, $1.5 million of expenses related to the ongoing U.S. Governmental inquiries, and $685,000 of restructuring charges related to the previously announced closure of the Company's Toulon, France operations. Excluding those items previously mentioned, third quarter net income, as adjusted, totaled $7.6 million in 2009 compared to $7.6 million in 2008, while diluted earnings per share, as adjusted, totaled to $0.19 for both the third quarter of 2009 and 2008. A reconciliation of U.S. GAAP to "as adjusted" results is included in the attached financial tables. Gary D. Henley, President and Chief Executive Officer commented, "Highlights for the quarter were continued excellent sales performance by our U.S. extremities franchise, significant improvement in our international business, and better than expected foreign currency exchange rates. Together these helped us exceed our top-line guidance range." Mr. Henley continued, "We are also pleased with our operational execution again this quarter as excellent expense control and working capital improvement drove adjusted EPS results above our previously communicated earnings outlook range and produced free cash flow of $8.8 million for the quarter. Additionally, we continued to expand the underlying capabilities of our business, including the further expansion of our product portfolios, the enhancement and expansion of our sales force, and the continued improvement of our working capital utilization." Sales Review Global net sales of the Company's extremity, hip, and knee product lines increased by 18%, 7%, and 5%, respectively, while the biologics product line declined 4% during the third quarter of 2009 when compared to the third quarter of 2008. Domestic sales totaled $73.8 million during the third quarter of 2009, representing an increase of 4% compared to prior year. Domestically, the Company experienced growth in its extremity and knee product lines of 24% and 1%, while its biologics and hip product lines declined 3% and 4%, respectively. International sales, as reported, were $44.0 million for the third quarter of 2009, representing an increase of 9% compared to prior year, both as reported and constant currency. There was no net impact of foreign currency during the third quarter of 2009. Outlook The Company's earnings targets, as communicated in the guidance ranges stated below for the full year and the fourth quarter of 2009 exclude the effect of possible future acquisitions, other material future business developments, the impact of recording non-cash stock-based compensation and restructuring charges, and costs associated with the Company's ongoing U.S. governmental inquiries. The Company has narrowed its sales target for the full year 2009 to a range of $480 million to $485 million, representing the upper end of its previously-communicated guidance range of $475 million to $485 million. This new sales target represents annualized as-reported growth between approximately 3% and 4% and constant-currency growth expectations of approximately 4% to 5%. The Company is also narrowing its previously-communicated as-adjusted earnings per share outlook to a target range for the full year of $0.80 to $0.84 per diluted share compared to its previously communicated guidance range of $0.78 to $0.85 per share. The Company's anticipated targets for the fourth quarter of 2009 for net sales are in the range of $122 million to $127 million, representing as-reported sales growth objectives between approximately 2% and 6% and constant-currency growth expectations of approximately 1% to 5%, with as-adjusted earnings per share results ranging from $0.22 to $0.26 per diluted share. As noted above, the Company's financial targets exclude the impact of non-cash stock-based compensation charges as well as the impact of restructuring charges. While the amount of the non-cash stock-based compensation charges will vary depending upon a number of factors, many of which not being within the Company's control, the Company currently estimates that the after-tax impact of those expenses will range from $0.22 to $0.23 per diluted share for the full year 2009 and $0.06 to $0.07 per diluted share for the fourth quarter of 2009. With regard to restructuring charges, the Company has restated its estimate of total pre-tax charges related to the closing of the Toulon facilities to a range of approximately $28 million to $32 million, of which $26.6 million have been incurred to date. Additionally, we anticipate incurring pre-tax restructuring charges related to the change in our French distribution and support model of $4 million to $5 million, with $3 million to $4 million of these charges in the fourth quarter of 2009. The Company's anticipated targets for net sales, adjusted earnings per share, stock-based compensation charges and restructuring charges are forward-looking statements. 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 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 866-314-5050 (domestic) or 617-213-8051 (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 6:30 p.m. (Central Time) today and continuing until November 5, 2009. To hear this replay, dial 888-286-8010 (domestic) or 617-801-6888 (international) and enter the passcode 71198224. 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, our 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. 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, net income, as adjusted, per diluted share, and effective tax rate, as adjusted. 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 business development activities, including purchased in-process research and development, the financial impact of significant litigation, costs related to the on-going U.S. governmental inquiries, restructuring charges and non-cash stock-based expense, 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. Safe-Harbor Statement This press release contains "forward-looking statements" as defined under U.S. federal securities laws. These statements reflect management's current knowledge, assumptions, beliefs, estimates, and expectations and express management's current views of future performance, results, and trends and 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 our actual results to materially differ from those described in the forward-looking statements. Such risks and uncertainties include those 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 year ended December 31, 2008, under the heading, "Risk Factors" and our subsequently filed Exchange Act reports). Readers 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. Wright Medical Group, Inc. is a global orthopaedic medical device company specializing in the design, manufacture and marketing of reconstructive joint devices and biologics. The Company has been in business for more than 50 years and markets its products in over 60 countries worldwide. For more information about Wright Medical, visit the Company's website at www.wmt.com. --Tables Follow--
Wright Medical Group, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data--unaudited)
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2009 2008 2009 2008
Net sales $ 117,742 $ 111,096 $ 357,580 $ 345,438
Cost of sales 35,880 32,038 110,646 99,287
Gross profit 81,862 79,058 246,934 246,151
Operating expenses:
Selling, general and administrative 63,703 61,897 196,133 197,361
Research and development 8,537 8,338 26,460 24,715
Amortization of intangible assets 1,274 1,287 3,899 3,604
Restructuring charges 131 685 991 5,595
Acquired in-process research and development - - - 2,490
Total operating expenses 73,645 72,207 227,483 233,765
Operating income 8,217 6,851 19,451 12,386
Interest expense, net 1,435 717 3,974 1,127
Other (income) expense, net 108 (284 ) (358 ) (907 )
Income before income taxes 6,674 6,418 15,835 12,166
Provision for income taxes 2,522 2,231 5,939 6,278
Net income $ 4,152 $ 4,187 $ 9,896 $ 5,888
Net income per share, basic $ 0.11 $ 0.11 $ 0.27 $ 0.16
Net income per share, diluted $ 0.11 $ 0.11 $ 0.26 $ 0.16
Weighted-average number of common shares outstanding, basic 37,431 37,095 37,331 36,845
Weighted-average number of common shares outstanding, diluted 37,551 38,037 37,395 37,536
Wright Medical Group, Inc.
Consolidated Sales Analysis
(dollars in thousands--unaudited)
Three Months Ended Nine Months Ended
September 30, September 30, % September 30, September 30, %
2009 2008 change 2009 2008 change
Geographic
Domestic $ 73,780 $ 70,883 4.1 % $ 221,280 $ 207,242 6.8 %
International 43,962 40,213 9.3 % 136,300 138,196 (1.4 %)
Total net sales $ 117,742 $ 111,096 6.0 % $ 357,580 $ 345,438 3.5 %
Product Line
Hip products $ 40,055 $ 37,562 6.6 % $ 123,030 $ 118,873 3.5 %
Knee products 30,114 28,692 5.0 % 90,727 90,116 0.7 %
Extremity products 25,546 21,706 17.7 % 77,116 64,070 20.4 %
Biologics products 19,437 20,197 (3.8 %) 58,672 61,548 (4.7 %)
Other 2,590 2,939 (11.9 %) 8,035 10,831 (25.8 %)
Total net sales $ 117,742 $ 111,096 6.0 % $ 357,580 $ 345,438 3.5 %
Wright Medical Group, Inc.
Reconciliation of Net Sales to Net Sales Excluding the Impact
of Foreign Currency
(dollars in thousands--unaudited)
Three Months Ended Nine Months Ended
September 30, 2009 September 30, 2009
International Total International Total
Net Sales Net Sales Net Sales Net Sales
Net sales, as reported $ 43,962 $ 117,742 $ 136,300 $ 357,580
Currency impact as compared to prior period 0 0 6,419 6,419
Net sales, excluding the impact of foreign currency $ 43,962 $ 117,742 $ 142,719 $ 363,999
Wright Medical Group, Inc.
Reconciliation of As Reported Results to Non-GAAP Financial
Measures
(in thousands, except per share data--unaudited)
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2009 2008 2009 2008
Operating Income
Operating income, as reported $ 8,217 $ 6,851 $ 19,451 $ 12,386
Reconciling items impacting Gross Profit:
Inventory step-up amortization 10 22 70 95
Non-cash, stock-based compensation 335 300 938 952
Total 345 322 1,008 1,047
Reconciling items impacting Selling, General and Administrative
expenses:
Non-cash, stock-based compensation 2,517 2,623 7,822 8,440
U.S. governmental inquiries 1,585 1,546 7,659 4,732
Appellate court decision - - - 2,346
Total 4,102 4,169 15,481 15,518
Reconciling items impacting Research and Development expenses:
Non-cash, stock-based compensation 480 430 1,440 1,096
Other Reconciling Items:
Restructuring charges 131 685 991 5,595
Acquired in-process research and development - - - 2,490
Total 131 685 991 8,085
Operating income, as adjusted $ 13,275 $ 12,457 $ 38,371 $ 38,132
Operating income, as adjusted, as a percentage of net sales 11.3 % 11.2 % 10.7 % 11.0 %
Wright Medical Group, Inc.
Reconciliation of As Reported Results to Non-GAAP Financial
Measures
(continued)
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2009 2008 2009 2008
Net Income
Net income, as reported $ 4,152 $ 4,187 $ 9,896 $ 5,888
Pre-tax impact of reconciling items:
Non-cash, stock-based compensation 3,332 3,353 10,200 10,488
Restructuring charges 131 685 991 5,595
Inventory step-up amortization 10 22 70 95
U.S. governmental inquiries 1,585 1,546 7,659 4,732
Appellate court decision (including interest) - - - 2,638
Acquired in-process research and development - - - 2,490
Total 5,058 5,606 18,920 26,038
Tax effect of reconciling items:
Non-cash, stock-based compensation (968 ) (1,118 ) (3,005 ) (3,098 )
Restructuring charges (52 ) (437 ) (387 ) (2,167 )
Inventory step-up amortization (4 ) (9 ) (27 ) (37 )
U.S. governmental inquiries (624 ) (609 ) (2,997 ) (1,865 )
Appellate court decision - - - (1,039 )
Acquired in-process research and development - - - -
Total (1,648 ) (2,173 ) (6,416 ) (8,206 )
Net income, as adjusted $ 7,562 $ 7,620 $ 22,400 $ 23,720
Three Months Ended Three Months Ended
September 30, 2009 September 30, 2008
As Reported As Adjusted As Reported As Adjusted
Basic net income $ 4,152 $ 7,562 $ 4,187 $ 7,620
Interest expense on convertible notes N/A 935 N/A 937
Diluted net income $ 4,152 $ 8,497 $ 4,187 $ 8,557
Basic shares 37,431 37,431 37,095 37,095
Dilutive effect of stock options and restricted shares 120 120 942 942
Dilutive effect of convertible notes N/A 6,126 - 6,126
Diluted shares 37,551 43,677 38,037 44,163
Net income per share, diluted $ 0.11 $ 0.19 $ 0.11 $ 0.19
Wright Medical Group, Inc.
Reconciliation of As Reported Results to Non-GAAP Financial
Measures
(continued)
Nine Months Ended Nine Months Ended
September 30, 2009 September 30, 2008
As Reported As Adjusted As Reported As Adjusted
Basic net income $ 9,896 $ 22,400 $ 5,888 $ 23,720
Interest expense on convertible notes N/A 2,805 N/A 2,811
Diluted net income $ 9,896 $ 25,205 $ 5,888 $ 26,531
Basic shares 37,331 37,331 36,845 36,845
Dilutive effect of stock options and restricted shares 64 64 691 691
Dilutive effect of convertible notes - 6,126 - 6,126
Diluted shares 37,395 43,521 37,536 43,662
Net income per share, diluted $ 0.26 $ 0.58 $ 0.16 $ 0.61
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2009 2008 2009 2008
Net Income per Diluted Share
Net income, as reported, per diluted share $ 0.11 $ 0.11 $ 0.26 $ 0.16
Interest expense on convertible notes 0.02 0.02 0.06 0.06
Dilutive effect of convertible notes (0.02 ) (0.02 ) (0.04 ) (0.02 )
Non-cash, stock-based compensation 0.05 0.05 0.17 0.17
Restructuring charges 0.00 0.01 0.01 0.08
Inventory step-up amortization 0.00 0.00 0.00 0.00
U.S. governmental inquiries 0.02 0.02 0.11 0.07
Appellate court decision - - - 0.04
Acquired in-process research and development - - - 0.06
Net income, as adjusted, per diluted share $ 0.19 $ 0.19 $ 0.58 $ 0.61
Wright Medical Group, Inc.
Reconciliation of Effective Tax Rate, As Reported, to Effective
Tax Rate, As Adjusted
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2009 2008 2009 2008
Effective tax rate, as reported 37.8 % 34.8 % 37.5 % 51.6 %
Non-cash, stock-based expense (2.6 %) (1.3 %) (2.6 %) (3.2 %)
Restructuring charges 0.0 % 2.8 % 0.1 % (4.1 %)
Inventory step-up amortization 0.0 % 0.0 % 0.0 % 0.0 %
U.S. governmental inquiries 0.3 % 0.3 % 0.5 % (0.3 %)
Appellate court decision - - - (0.3 %)
Acquired in-process research and development - - - (5.8 %)
Effective tax rate, as adjusted 35.5 % 36.6 % 35.5 % 37.9 %
Wright Medical Group, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands--unaudited)
September 30, December 31,
2009 2008
Assets
Current assets:
Cash and cash equivalents $ 121,234 $ 87,865
Marketable securities 40,440 57,614
Accounts receivable, net 110,288 102,046
Inventories 166,339 176,059
Prepaid expenses and other current assets 45,839 53,071
Total current assets 484,140 476,655
Property, plant and equipment, net 137,665 133,651
Goodwill and intangible assets, net 71,497 70,772
Other assets 12,054 11,052
Total assets $ 705,356 $ 692,130
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 14,025 $ 15,877
Accrued expenses and other current liabilities 52,821 59,247
Current portion of long-term obligations 162 125
Total current liabilities 67,008 75,249
Long-term obligations 200,144 200,136
Other liabilities 3,939 5,117
Total liabilities 271,091 280,502
Stockholders' equity 434,265 411,628
Total liabilities and stockholders' equity $ 705,356 $ 692,130
SOURCE: Wright Medical Group, Inc. Wright Medical Group, Inc. John K. Bakewell, 901-867-4527 For full details on Wright Medical (WMGI) click here. Wright Medical (WMGI) has Short Term PowerRatings of 4. Details on Wright Medical (WMGI) Short Term PowerRatings is available at This Link.
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