Orthofix International Reports First Quarter 2014 Results

  Orthofix International Reports First Quarter 2014 Results

Business Wire

LEWISVILLE, Texas -- May 7, 2014

Orthofix International N.V. (NASDAQ:OFIX) today reported results for the first
quarter ended March 31, 2014. Net sales were $101.3 million for the first
quarter of 2014, decreasing 2.0% from net sales of $103.4 million in the first
quarter of 2013. Net margin, which the Company calculates as gross profit less
sales and marketing expenses, increased 6.5% during the period to $34.8
million, or 34.4% of sales, over $32.7 million, or 31.6% of sales in the first
quarter 2013.

President and Chief Executive Officer Brad Mason commented on the Company’s
financial results, “The first quarter results were better than expected and
give us further confidence that our initiatives to improve and grow our
business are appropriate and effective. Additionally, during the quarter we
announced a number of Board and executive leadership changes that bring added
experience and talent to help us drive improved results.”

First Quarter 2014 Sales Results

BioStim

Net sales in the Company’s BioStim strategic business unit, or SBU, increased
0.5% to $38.4 million in the first quarter of 2014 compared to $38.2 million
for the same period in the prior year, an increase of $0.2 million. The
BioStim revenue was driven by a stable performance in Spine Stimulation and a
lower, yet improving performance in Physio-Stim, as the Company continued to
transition the Physio-Stim sales force.

Biologics

Net sales in the Company’s Biologics SBU decreased $0.4 million, or 2.7%, to
$13.0 in the first quarter of 2014 compared to $13.4 million for the same
period in the prior year. This was due to a decrease in the Company’s
marketing service fee rate with the Musculoskeletal Transplant Foundation
(“MTF”) to 65% from 70% April 1, 2013, for Trinity Evolution and Trinity Elite
sales. Assuming no marketing fee rate decrease, sales in Biologics grew 4.0%
year-over-year in the first quarter.

Extremity Fixation

Net sales in the Company’s Extremity Fixation SBU increased $0.9 million, or
3.3%, to $27.1 million in the first quarter of 2014 compared to $26.2 million
for the same period last year. The sales improvement was driven primarily due
to increased sales in the U.K. and France and offset somewhat by lower
performance in the U.S. and Brazil due to ongoing restructuring activities.

Spine Fixation

Net sales in the Company’s Spine Fixation SBU decreased $2.7 million, or
10.6%, to $22.8 million in the first quarter of 2014 compared to $25.5 million
for the same period last year. This decrease was primarily due to lower
international sales.

First Quarter 2014 Net Margin and Earnings Results

First quarter 2014 consolidated net margin increased 6.5% to $34.8 million
over $32.7 million in the first quarter of the prior year. As a percentage of
sales, net margin improved to 34.4% in the first quarter 2014 from 31.6% in
the first quarter 2013. This increase was primarily driven by Spine Fixation
and Extremity Fixation, which was offset by a decrease in BioStim net margin.
Spine Fixation net margin benefitted from cost reductions and lower
commissions due to a higher international sales mix, while BioStim net margin
was negatively impacted primarily by an increase in commission expense.

First quarter 2014 net income (loss) from continuing operations was ($0.2)
million, or ($0.01) per diluted share, compared to net income of $7.6 million,
or $0.39 per diluted share for the same period last year. First quarter 2014
and 2013 net income also included the specified items detailed below. When
excluding these items, adjusted net income from continuing operations for the
first quarter 2014 was $5.2 million, or $0.29 per diluted share, compared to
$7.2 million, or $0.37 per diluted share, in the first quarter 2013.

Conference Call

Orthofix will host a conference call to discuss first quarter results today,
Wednesday, May 7, 2014 at 4:30 p.m. EDT (3:30 p.m. CDT). 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 improving patients’ lives by providing superior reconstructive and
regenerative orthopedic and spine solutions to physicians worldwide.
Headquartered in Lewisville, TX, the Company has four strategic business units
that include BioStim, Biologics, Extremity Fixation and Spine Fixation.
Orthofix products are widely distributed via the Company’s sales
representatives, distributors and its subsidiaries. In addition, Orthofix is
collaborating on research and development activities with leading clinical
organizations such as the Musculoskeletal Transplant Foundation, the
Orthopedic Research and Education Foundation and the Texas Scottish Rite
Hospital for Children. For more information, 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 our recent
Audit and Finance Committee review and the recently filed restatement of our
financial statements for certain prior periods and related legal proceedings
(including potential action by the Division of Enforcement of the SEC and
pending securities class action litigation); the Company’s review of
allegations of improper payments involving the Company’s Brazil-based
subsidiary; the expected sales of the Company’s products, including recently
launched products; unanticipated expenditures; changing relationships with
customers, suppliers, strategic partners and lenders; changes to and the
interpretation of governmental regulations; the resolution of pending
litigation matters (including the Company’s indemnification obligations with
respect to certain product liability claims against, and the government
investigation of, the Company’s former sports medicine global business unit);
the Company’s ongoing compliance obligations under a corporate integrity
agreement with the Office of Inspector General of the Department of Health and
Human Services (and related terms of probation), a deferred prosecution
agreement with the U.S. Department of Justice and a Consent Decree with the
SEC; 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 risks described in Item 1A under the
heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2013, as well as in other subsequent periodic reports filed
by the Company with the 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.

The following table is a summary of sales reconciled to constant currency
sales growth for the quarters ended March 31, 2014, and 2013. Amounts shown
are in millions and reflect unaudited figures. Some calculations may be
impacted by rounding.

                                                                
External net sales by strategic
business unit
                                       Three Months Ended March 31,
                                                                      Constant
                                                           Reported   Currency
(U.S. Dollars in millions)             2014      2013      Growth     Growth
                                                                      
BioStim                                  38.4      38.2    1     %    1     %
Biologics                                13.0      13.4    -3    %    -3    %
Extremity Fixation                       27.1      26.2    3     %    4     %
Spine Fixation                          22.8     25.5    -11   %    -11   %
                                                                      
Total net sales                        $ 101.3   $ 103.4   -2    %    -2    %
                                                                            

The following tables are summaries of first quarter 2014 and 2013 net margin
calculations by strategic business unit. Amounts shown are in millions and
reflect unaudited figures. Some calculations may be impacted by rounding.

                                                             
ORTHOFIX INTERNATIONAL N.V.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
                                                                  
                                                                  
                                                  Three Months Ended March 31,
(U.S. Dollars in millions)
                                                  2014            2013
Net margin by Strategic Business Unit:
BioStim                                           $  14.2         $  16.9
Biologics                                            6.7             6.0
Extremity Fixation                                   9.3             8.0
Spine Fixation                                       5.1             2.2
Corporate                                           (0.4   )       (0.4   )
Subtotal                                             34.8            32.7
                                                                  
Consolidated Expenses:
General and administrative expense                   (17.5  )        (18.3  )
Research and development expense                     (5.9   )        (5.7   )
Amortization of intangible assets                    (0.6   )        (0.5   )
Costs related to accounting review and              (8.3   )       -      
restatement
                                                                  
Consolidated Operating income                       2.5           8.1    
                                                                  

The following table reconciles reported operating income from continuing
operations to adjusted operating income from continuing operations for the
quarters ended March 31, 2014, and 2013. Some calculations may be impacted by
rounding. Please refer to the Non-GAAP performance measures section at the end
of this press release for more information about the specified items below.

                                                              
First Quarter Adjusted
Operating Income from      Q1 2014                     Q1 2013
Continuing Operations
                           ($000's)   % of Sales     ($000's)   % of Sales
                                     
Reported GAAP operating    $ 2,465      2.4    %       $ 8,087      7.8    %
income
                                                                    
Specified Items:
                                                                    
Costs related to
accounting review and        8,306                       -
restatement
Succession and              -                          3,537
restructuring charges
Adjusted operating         $ 10,771     10.6   %       $ 11,624     11.2   %
income
                                                                    

The following table reconciles 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 March 31, 2014, and 2013.
Some calculations may be impacted by rounding. Please refer to the Non-GAAP
performance measures section at the end of this press release for more
information about the specified items below.

                                                               
First Quarter
Adjusted Net
Income from         Q1 2014                     Q1 2013                   % Change
Continuing
Operations
                    ($000's)    EPS           ($000's)     EPS        Earnings   EPS
                                                                                    
Reported GAAP
net (loss)
income and net      $ (222  )     $ (0.01 )     $ 7,610        $ 0.39     -103  %      -103 %
(loss) income
per diluted
share
Specified
Items:
                                                                                       
Costs related
to accounting         5,482                       -
review and
restatement
Succession and
restructuring         -                           2,756
charges
Foreign               (53   )                     (393   )
exchange gain
Gain related to
demutualization
of a mutual          -                         (2,776 )
insurance
company
Adjusted net
income and net      $ 5,207      $ 0.29        $ 7,197       $ 0.37     -28   %     -22  %
income per
diluted share

                                                            
                                                                
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,
                                               2014             2013
                                                                
Net sales                                      $ 101,342        $ 103,373
Cost of sales                                   22,632         25,617     
Gross profit                                    78,710         77,756     
                                                                
Operating expenses
Sales and marketing                              43,871           45,054
General and administrative                       17,545           18,330
Research and development                         5,939            5,741
Amortization of intangible assets                584              544
Costs related to the accounting review and      8,306          -          
restatement
                                                76,245         69,669     
                                                                
Operating income                                 2,465            8,087
                                                                
Other income and expense
Interest expense, net                            (486       )     (560       )
Other income (expense)                          (261       )    4,764      
Income before income taxes                       1,718            12,291
Income tax expense                              (1,940     )    (4,681     )
Net income (loss) from continuing               (222       )    7,610      
operations
                                                                
Discontinued operations
Loss from discontinued operations                (794       )     (4,434     )
Income tax (expense) benefit                    234            1,324      
Net income (loss) from discontinued             (560       )    (3,110     )
operations
Net income (loss)                              $ (782       )   $ 4,500      
                                                                
                                                                
Net income (loss) per common share - basic
Net income (loss) from continuing              $ (0.01      )   $ 0.39
operations
Net loss from discontinued operations          $ (0.03      )   $ (0.16      )
Net income (loss) per common share - basic     $ (0.04      )   $ 0.23       
                                                                
Net income (loss) per common share -
diluted
Net income (loss) from continuing              $ (0.01      )   $ 0.39
operations
Net loss from discontinued operations          $ (0.03      )   $ (0.16      )
Net income (loss) per common share -           $ (0.04      )   $ 0.23       
diluted
                                                                
Weighted average number of common shares         18,197,363       19,431,093
outstanding - basic
                                                                
Weighted average number of common shares         18,197,363       19,691,141
outstanding - diluted

                                                       
                                                           
ORTHOFIX INTERNATIONAL N.V.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, U.S. Dollars, in thousands)
                                                           
                                                           
                                               March 31,   March 31,
                                               2014        2013
                                                           
Assets
Current assets:
Cash and cash equivalents                      $ 26,747    $ 30,486
Restricted cash                                  19,270      23,761
Trade accounts receivable, net                   76,917      75,567
Inventories, net                                 92,753      90,577
Deferred income taxes                            33,956      33,947
Prepaid expenses and other current assets       28,781     25,906
Total current assets                             278,424     280,244
                                                           
Property, plant and equipment, net               52,532      54,606
Patents and other intangible assets, net         8,518       9,046
Goodwill                                         53,565      53,565
Deferred income taxes                            18,758      18,336
Other long-term assets                          6,743      7,385
Total assets                                   $ 418,540   $ 423,182
                                                           
                                                           
Liabilities and shareholders' equity
Current liabilities:
Trade accounts payable                           14,022      20,674
Other current liabilities                       41,467     46,146
Total current liabilities                        55,489      66,820
                                                           
Long-term debt                                   20,000      20,000
Deferred income taxes                            13,307      13,132
Other long-term liabilities                     12,487     12,736
Total liabilities                               101,283    112,688
                                                           
Shareholders' equity:
Common shares                                    1,836       1,810
Additional paid-in capital                       223,630     216,653
Retained earnings                                88,550      89,332
Accumulated other comprehensive income          3,241      2,699
Total shareholders' equity                      317,257    310,494
                                                           
Total liabilities and shareholders' equity     $ 418,540   $ 423,182

                                                               
                                                                    
ORTHOFIX INTERNATIONAL N.V.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, U.S. Dollars, in thousands)
                                                  
                                                  Three Months Ended March 31,
                                                                   
                                                  2014              2013
                                                                    
Cash flows from operating activities:
Net income (loss)                                 $  (782     )     $ 4,500
Adjustments to reconcile net income (loss) to                         -
net cash provided by operating activities:
Depreciation and amortization                     $  6,004          $ 5,029
Other non-cash adjustments                        $  4,523          $ 4,367
Change in operating assets and liabilities:
Changes in working capital                        $  (19,923  )     $ 1,164  
Net cash (used in) provided by operating          $  (10,178  )     $ 15,060
activities
                                                                    
Cash flows from investing activities:
Capital expenditures                                (3,737   )      (6,073 )
Net cash used in investing activities                (3,737   )       (6,073 )
                                                                    
Cash flows from financing activities:
Net proceeds from issuance of common shares          5,542            2,143
Repayment of bank borrowings, net                    -                (15    )
Change in restricted cash                            4,502            (8,141 )
Excess income tax benefit on employee               29             78     
stock-based awards
Net cash provided by (used in) financing             10,073           (5,935 )
activities
                                                                    
Effect of exchange rate changes on cash             103            (431   )
                                                                    
Net (decrease) increase in cash and cash             (3,739   )       2,620
equivalents
Cash and cash equivalents at the beginning of       30,486         31,055 
period
Cash and cash equivalents at the end of             26,747         33,675 
period
                                                                             
                                                                             

Non-GAAP Performance Measures

The tables in this press release present reconciliations of operating income,
net income and net income per diluted share, operating income and net cash
provided by operating activities calculated in accordance with generally
accepted accounting principles (GAAP) to non-GAAP performance measures,
referred to as "adjusted operating income from continuing operations,"
"adjusted net income from continuing operations and adjusted net income from
continuing operations per diluted share," that exclude the items specified in
the tables. Management believes it is important to provide investors with the
same non-GAAP metrics it uses to supplement information regarding the
performance and underlying trends of Orthofix's business operations in order
to facilitate comparisons to its historical operating results and internally
evaluate the effectiveness of the Company's operating strategies. A more
detailed explanation of the items in the tables above that are excluded from
GAAP net sales and GAAP net income and net income per diluted share, as well
as why management believes the non-GAAP measures are useful to them, is
included in the Regulation G Supplemental Information below.

Reconciliations of Non-GAAP Performance Measures

Adjusted Operating Income From Continuing Operations Reconciling Items

  *Costs related to accounting review and restatement - legal, accounting,
    and other professional costs related to the Company's accounting review
    and restatement.
  *Succession and restructuring charges - In 2013 these costs relate to the
    cessation of employment of certain of the Company's former executive
    officers.

Adjusted Net Income From Continuing Operations and Adjusted Net Income from
Continuing Operations Per Diluted Share Reconciling Items

Note: The reconciling items were tax affected in the current period at the
prevailing rate within the respective jurisdictions.

  *Costs related to accounting review and restatement - legal, accounting,
    and other professional costs related to the Company's accounting review
    and restatement.
  *Succession and restructuring charges - In 2013 these costs relate to the
    cessation of employment of certain of the Company's former executive
    officers.
  *Foreign exchange loss (gain) - due to translation adjustments resulting
    from the weakening or strengthening of the U.S. Dollar against various
    foreign currencies. A number of Orthofix's foreign subsidiaries have
    intercompany and third party trade accounts receivables and payables that
    are held in currencies, most notably the U.S. Dollar, other than their
    local currency, and movements in the relative values of those currencies
    result in foreign exchange gains and losses.
  *Gain related to demutualization of a mutual insurance company - the
    Company received cash related to the demutualization of a mutual insurance
    company, in which the Company was an eligible member to share in such
    proceeds.

Management use of, and economic substance behind, Non-GAAP Performance
Measures

Management uses non-GAAP measures to evaluate performance period over period,
to analyze the underlying trends in the Company's business, to assess its
performance relative to its competitors and to establish operational goals and
forecasts that are used in allocating resources. Management uses these
non-GAAP measures as the basis for assessing the ability of the underlying
operations to generate cash. In addition, management uses these non-GAAP
measures to further its understanding of the performance of the Company's
business units. The items excluded from Orthofix's non-GAAP measures are also
excluded from the profit or loss reported by the Company's business units for
the purpose of analyzing their performance.

Material Limitations Associated with the Use of Non-GAAP Measures

The non-GAAP measures used in this press release may have limitations as
analytical tools, and should not be considered in isolation or as a
replacement for GAAP performance measures. Some of the limitations associated
with the use of these non-GAAP performance measures are that they exclude
items that reflect an economic cost to the Company and can have a material
effect on cash flows. Similarly, equity compensation expense does not directly
impact cash flows, but is part of total compensation costs accounted for under
GAAP.

Compensation for Limitations Associated with Use of Non-GAAP Measures

Orthofix compensates for the limitations of its non-GAAP performance measures
by relying upon its GAAP results to gain a complete picture of the Company's
performance. The GAAP results provide the ability to understand the Company's
performance based on a defined set of criteria. The non-GAAP measures reflect
the underlying operating results of the Company's businesses, excluding
non-cash items, which management believes is an important measure of the
Company's overall performance. The Company provides a detailed reconciliation
of the non-GAAP performance measures to their most directly comparable GAAP
measures, and encourages investors to review this reconciliation.

Usefulness of Non-GAAP Measures to Investors

Orthofix believes that providing non-GAAP measures that exclude certain items
provides investors with greater transparency to the information used by the
Company's senior management in its financial and operational decision-making.
Management believes that providing this information enables investors to
better understand the performance of the Company's ongoing operations and to
understand the methodology used by management to evaluate and measure such
performance. Disclosure of these non-GAAP performance measures also
facilitates comparisons of Orthofix's underlying operating performance with
other companies in its industry that also supplement their GAAP results with
non-GAAP performance measures.

Contact:

Orthofix International N.V.
Mark Quick, 214-937-2924
Investor Relations
markquick@orthofix.com
 
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