UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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Date of Report (Date of earliest event reported): November 4, 2015
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WRIGHT MEDICAL GROUP N.V.
(Exact name of registrant as specified in its charter)
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The Netherlands | 1-35065 | 98-0509600 |
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
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Prins Bernhardplein 200 1097 JB Amsterdam The Netherlands | None |
(Address of principal executive offices) | (Zip Code) |
(+ 31) 20 675-4002
(Registrant’s telephone number, including area code)
Not applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Item 2.02. Results of Operations and Financial Condition | |
Item 9.01. Financial Statements and Exhibits | |
Signature | |
Exhibit Index | |
Ex 99.1 | |
Item 2.02. Results of Operations and Financial Condition.
On November 4, 2015, Wright Medical Group N.V. (Wright) issued a press release announcing financial results for the third quarter of fiscal 2015 for Wright Medical Group, Inc. (legacy Wright) and Tornier N.V. (legacy Tornier). A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and the information set forth therein is incorporated herein by reference and constitutes a part of this report. Unless the context otherwise requires, references to Wright, the company, we, our or us in this report refer to Wright Medical Group N.V. and its subsidiaries, including legacy Wright and legacy Tornier and their respective subsidiaries.
Wright is furnishing the information contained in this report, including Exhibit 99.1, pursuant to Item 2.02 of Form 8-K promulgated by the United States Securities and Exchange Commission (the SEC). This information shall not be deemed to be filed with the SEC for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or otherwise subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended (the Securities Act), except as expressly set forth by specific reference in such filing. By filing this report and furnishing this information, Wright makes no admission as to the materiality of any information contained in this report, including Exhibit 99.1. This report shall not be incorporated into any future filings by Wright under the Securities Act or the Exchange Act.
To supplement our consolidated financial statements prepared in accordance with United States generally accepted accounting principles (GAAP), we use certain non-GAAP financial measures, several of which are included in the press release furnished as Exhibit 99.1 to this report. The press release includes the following legacy Wright non-GAAP financial measures: net sales, excluding the impact of foreign currency; operating income, as adjusted; net income from continuing operations, as adjusted; net income from continuing operations, as adjusted, per diluted share; effective tax rate, as adjusted; EBITDA from continuing operations, as adjusted; and free cash flow. In addition, the press release includes the following legacy Tornier non-GAAP financial measures: revenues on a constant currency basis; EBITDA; adjusted EBITDA; adjusted EBITDA margin; adjusted net loss; adjusted net loss per share; adjusted free cash flow; adjusted gross margin; adjusted gross margin percentage; adjusted operating expenses; and adjusted operating expenses as a percentage of revenue.
These non-GAAP financial measures are not in accordance with, or an alternative for, GAAP measures and may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP financial measures are not based on any comprehensive or standard set of accounting rules or principles. Accordingly, the calculation of our non-GAAP financial measures may differ from the definitions of other companies using the same or similar names limiting, to some extent, the usefulness of such measures for comparison purposes. We believe that non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures.
For internal budgeting and resource allocation process, legacy Wright’s management uses financial information that does not include:
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1. | non-cash inventory step-up amortization; |
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2. | costs associated with distributor conversions and amortization of non-competes; |
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3. | non-cash interest expense related to its convertible notes due 2017 and 2020 (2017 & 2020 convertible notes); |
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4. | pro-rata write-off of deferred financing fees and debt discount associated with 2017 convertible notes; |
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5. | mark-to-market adjustments of derivative assets and liabilities; |
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6. | due diligence, transition and transaction costs; |
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7. | patent dispute settlement costs; |
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8. | costs associated with management changes; |
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9. | BioMimetic contingent value right (CVR) mark-to-market adjustments; |
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10. | contingent consideration fair value adjustment; |
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11. | the income tax effects of the foregoing; and |
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12. | the U.S. tax benefit recognized in continuing operations resulting from the U.S. tax provision recognized in discontinued operations. |
For internal budgeting and resource allocation process, legacy Tornier’s management uses financial information that does not include:
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1. | amortization of inventory step-up from acquisition; |
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2. | acquisition, integration and distribution transition costs; |
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3. | reversal of contingent consideration liability; |
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4. | instrument use tax refund; |
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6. | merger-related costs; and |
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7. | reversal of valuation allowance from acquisition. |
Additionally, for internal budgeting process and evaluation of net sales or revenue performance, legacy Wright’s and legacy Tornier’s management use net sales or revenues on a constant currency basis. To measure sales or revenue performance on a constant currency basis, it is necessary to remove the impact of changes in foreign currency exchange rates, which affect the comparability and trend of sales or revenues. Net sales or revenues, excluding the impact of foreign currency exchange rates, is calculated by translating current period results at prior period average foreign currency exchange rates. For internal budgeting and resource allocation process, legacy Wright’s and legacy Tornier’s management use EBITDA, EBITDA as adjusted, and free cash flow. In addition, legacy Tornier’s management uses adjusted free cash flow. EBITDA is calculated by adding back to net income charges for interest, income taxes and depreciation and amortization expenses. EBITDA, as adjusted, is calculated by excluding non-cash stock based compensation expense and non-operating income and expense, as well as the applicable adjustments listed above, from EBITDA. Free cash flow is calculated by subtracting capital expenditures from cash provided by operating activities. Adjusted free cash flow is calculated by Tornier’s management by subtracting instrument investments and plant, property and equipment investments from cash provided by operating activities.
Additionally, for internal budgeting and resource allocation process, legacy Tornier’s management uses the following additional non-GAAP financial measures: adjusted EBITDA margin, adjusted net loss, adjusted net loss per share, adjusted gross margin, adjusted gross margin percentage, adjusted operating expenses and adjusted operating expenses as a percentage of revenues. Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by revenues as reported. Adjusted net loss is calculated by subtracting the applicable adjustments for legacy Tornier listed above from legacy Tornier’s net loss, as reported. Adjusted net loss per share is calculated by dividing adjusted net loss by the number of weighted legacy Tornier ordinary shares. Adjusted gross margin is calculated by subtracting inventory step-up due to acquisition from gross margin. Adjusted gross margin percentage is calculated by dividing adjusted gross margin by revenues as reported. Adjusted operating expenses is calculated by subtracting the applicable adjustments for legacy Tornier listed above from operating expenses, and adjusted operating expenses as a percentage of revenue is calculated by dividing adjusted operating expenses by revenues as reported.
We use these non-GAAP financial measures in making operating decisions because we believe the measures provide meaningful supplemental information regarding our core operational performance and give us a better understanding of how we should invest in research and development activities and how we should allocate resources to both ongoing and prospective business initiatives. We use these measures to help make budgeting and spending decisions, for example, between research and development and selling, general and administrative expenses. Additionally, management is evaluated on the basis of some of these non-GAAP financial measures when determining achievement of their incentive performance compensation targets. Further, these non-GAAP financial measures facilitate management’s internal comparisons to both our historical operating results and to our competitors’ operating results by factoring out potential differences caused by charges not related to our regular, ongoing business, including without limitation non-cash charges, certain large and unpredictable charges, acquisitions and dispositions, legal settlements and tax positions.
As described above, legacy Wright excludes the following items from one or more of its non-GAAP financial measures for the following reasons:
Foreign currency impact on net sales. Legacy Wright excluded the foreign currency impact on net sales compared to prior period from its non-GAAP measure, primarily because it is not reflective of its ongoing operating results, and it is not used by management for internal budgeting process and evaluation of net sales performance. Legacy Wright further believes that excluding this item is useful to investors in that it allows for period-over-period comparability.
Non-cash inventory step-up amortization. Legacy Wright excluded inventory step-up amortization associated with its acquisitions from its non-GAAP measures, primarily because they are not reflective of ongoing operating results, and they are not used by management to assess the core profitability of its business operations. Additionally, because these are non-cash expenses, they do not impact its operational performance, liquidity, or its ability to invest in research and development and to fund acquisitions and capital expenditures. Legacy Wright further believes that excluding this item is useful to investors in that it allows for period-over-period comparability.
Distributor conversion costs and amortization of distributor non-competes. In connection with legacy Wright’s initiative to convert a portion of its independent foot and ankle distributor territories to direct employee sales representation, legacy Wright
entered into conversion agreements with certain independent distributors, which included non-competition clauses. Legacy Wright excluded the distributor conversion costs and amortization of distributor non-competes from its non-GAAP financial measures, primarily because they are not reflective of its ongoing operating results, and they are not used by management to assess the core profitability of its business operations. Legacy Wright further believes that excluding this item is useful to investors in that they allow for period-over-period comparability.
Non-cash interest expense related to the 2017 & 2020 convertible notes. Legacy Wright excluded the non-cash interest expense associated with the amortization of the debt discount related to its 2017 & 2020 convertible notes from its non-GAAP financial measures, primarily because it is a non-cash expense. Legacy Wright believes that it is useful to investors to understand its operational performance, liquidity, and its ability to invest in research and development and to fund acquisitions and capital expenditures. While interest expense associated with the amortization of the debt discount constitutes an ongoing and recurring expense, such expense is excluded from its non-GAAP financial measures because it is not an expense that requires cash settlement and is not used by management to assess the core profitability of its business operations. Legacy Wright further believes that excluding this item is useful to investors in that it allows for period-over-period comparability.
Non-cash write-off of deferred financing fees and debt discount associated with the 2017 convertible notes. Legacy Wright excluded the non-cash pro-rata write-off of deferred financing fees and debt discount from its non-GAAP financial measures, primarily because they are not reflective of its ongoing operating results, and they are not used by management to assess the core profitability of its business operations. Legacy Wright further believes that excluding this item is useful to investors in that they allow for period-over-period comparability.
Mark-to-market adjustment of the derivatives. Legacy Wright excluded the adjustment of the mark-to-market adjustments on the derivatives from its non-GAAP financial measures, primarily because it is not reflective of its ongoing operating results, and it is not used by management to assess the core profitability of its business operations. Legacy Wright further believes that excluding this item is useful to investors in that they allow for period-over-period comparability.
Due diligence, transaction and transition costs. Legacy Wright excluded the due diligence, transaction and transition costs associated with acquisitions and mergers and the divestitures of the OrthoRecon business from its non-GAAP financial measures, primarily because they are not reflective of its ongoing operating results, and they are not used by management to assess the core profitability of its business operations. Legacy Wright further believes that excluding this item is useful to investors in that they allow for period-over-period comparability.
Patent dispute settlement costs. Legacy Wright excluded the costs associated with the settlement of a patent dispute from its non-GAAP financial measures, primarily because they are not reflective of its ongoing operating results, and they are not used by management to assess the core profitability of its business operations. Legacy Wright further believes that excluding this item is useful to investors in that they allow for period-over-period comparability.
Cost associated with management changes. Legacy Wright excluded the costs associated with changes in management from its non-GAAP financial measures, primarily because they are not reflective of its ongoing operating results, and they are not used by management to assess the core profitability of its business operations. Legacy Wright further believes that excluding this item is useful to investors in that they allow for period-over-period comparability.
BioMimetic CVR mark-to-market adjustments. Legacy Wright excluded the adjustment of the mark-to-market adjustments on the contingent value rights associated with acquired assets and liabilities from its BioMimetic acquisition from its non-GAAP financial measures, primarily because they are not reflective of its ongoing operating results, and they are not used by management to assess the core profitability of its business operations. Legacy Wright further believes that excluding this item is useful to investors in that they allow for period-over-period comparability.
Contingent consideration fair value adjustment. Legacy Wright excluded the fair value adjustment of its contingent consideration from its non-GAAP financial measures, primarily because it is not reflective of its ongoing operating results, and it is not used by management to assess the core profitability of its business operations. Legacy Wright further believes that excluding this item is useful to investors in that they allow for period-over-period comparability.
Income tax effects of the foregoing. This amount is used to present each of the amounts described above, except for foreign currency exchange rate impact on net sales, on an after-tax basis consistent with the presentation of net income, as adjusted.
U.S. tax provision/benefit within continuing operations. Legacy Wright excluded the U.S. tax benefit recorded within continuing operations recorded as a result of the U.S. pre-tax gain recognized within discontinued operations due to the sale of the OrthoRecon business during the first quarter of 2014 from its non-GAAP measures, primarily because it is not reflective of
its ongoing operating results, and it is not used by management to assess the core profitability of its business operations. Legacy Wright further believes that excluding this item is useful to investors in that they allow for period-over-period comparability.
Legacy Wright believes that where the adjustments used in calculating net income from continuing operations, as adjusted; and net income from continuing operations, as adjusted, per diluted share are based on specific, identified amounts that impact different line items in its condensed consolidated statements of operations (including operating income and net income), that it is useful for investors to understand how these specific line items in legacy Wright’s condensed consolidated statements of operations are affected by these adjustments for the following reasons:
Operating income. Excluding non-cash inventory step-up amortization from the calculation of operating income assists investors in evaluating period-over-period changes without giving effect to these charges which are non-cash in nature, in order to evaluate the results of the underlying operating activities for the periods presented. Excluding distributor conversion costs and amortization of distributor non-competes; due diligence, transaction, and transition costs; patent dispute settlement costs; and costs associated with management changes from the calculation of operating income assists investors in evaluating period-over-period changes in this measure without giving effect to transactions that do not relate to the performance of legacy Wright’s ongoing operations.
Net income from continuing operations. Excluding the after tax impact of non-cash inventory step-up amortization, non-cash interest expense related to the 2017 & 2020 convertible notes, pro-rata write-off of deferred financing fees and debt discount associated with the 2017 convertible notes, and mark-to-market adjustments on the derivatives from the calculation of net income from continuing operations assists investors in evaluating period-over-period changes without giving effect to these charges which are non-cash in nature, in order to evaluate the results of the underlying operating activities for the periods presented. Excluding distributor conversion costs and amortization of distributor non-competes; due diligence, transaction and transition costs; patent dispute settlement costs; costs associated with management changes; and CVR mark-to-market adjustments from the calculation of net income from continuing operations assists investors in evaluating period-over-period changes in these measures without giving effect to transactions that do not relate to the performance of legacy Wright’s ongoing operations.
Effective tax rate. Excluding the income tax effect of the non-GAAP, pre-tax adjustments and the tax benefit on the sale of discontinued operations from the provision for income taxes assists investors in understanding the tax provision associated with those adjustments and legacy Wright’s effective tax rate related to its ongoing operations.
As described above, legacy Tornier excludes the following items from one or more of its non-GAAP financial measures for the following reasons:
Foreign currency exchange rate impact on revenues. Legacy Tornier excluded the foreign currency exchange rate impact on revenues compared to prior period from its non-GAAP financial measure, primarily because it is not reflective of its ongoing operating results, and it is not used by management for internal budgeting process and evaluation of revenue performance. Legacy Tornier further believes that excluding this item is useful to investors in that it allows for period-over-period comparability.
Amortization of inventory step-up from acquisition. Legacy Tornier excluded amortization of inventory step-up from acquisition from its non-GAAP financial measures, primarily because they are not reflective of ongoing operating results, and they are not used by management to assess the core profitability of its business operations. Additionally, because these are non-cash expenses, they do not impact its operational performance, liquidity, or its ability to invest in research and development and to fund acquisitions and capital expenditures. Legacy Tornier further believes that excluding this item is useful to investors in that it allows for period-over-period comparability.
Acquisition, integration and distribution transition costs. Legacy Tornier excluded acquisition, integration and distribution transition costs from its non-GAAP financial measures, primarily because they are not reflective of its ongoing operating results, and they are not used by management to assess the core profitability of its business operations. Legacy Tornier further believes that excluding this item is useful to investors in that they allow for period-over-period comparability.
Reversal of contingent consideration liability. Legacy Tornier excluded reversal of contingent consideration liability from its non-GAAP financial measures, primarily because they are not reflective of its ongoing operating results, and they are not used by management to assess the core profitability of its business operations. Legacy Tornier further believes that excluding this item is useful to investors in that they allow for period-over-period comparability.
Instrument use tax refund. Legacy Tornier excluded instrument use tax refund from its non-GAAP financial measures, primarily because they are not reflective of its ongoing operating results, and they are not used by management to assess the core profitability of its business operations. Legacy Tornier further believes that excluding this item is useful to investors in that they allow for period-over-period comparability.
Restructuring charges. Legacy Tornier excluded restructuring charges from its non-GAAP financial measures, primarily because they are not reflective of its ongoing operating results, and they are not used by management to assess the core profitability of its business operations. Legacy Tornier further believes that excluding this item is useful to investors in that they allow for period-over-period comparability.
Merger-related costs. Legacy Tornier excluded merger-related costs from its non-GAAP financial measures, primarily because they are not reflective of its ongoing operating results, and they are not used by management to assess the core profitability of its business operations. Legacy Tornier further believes that excluding this item is useful to investors in that they allow for period-over-period comparability.
Reversal of valuation allowance from acquisition. Legacy Tornier excluded reversal of valuation allowance from acquisition from its non-GAAP financial measures, primarily because they are not reflective of its ongoing operating results, and they are not used by management to assess the core profitability of its business operations. Legacy Tornier further believes that excluding this item is useful to investors in that they allow for period-over-period comparability.
We believe that non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with our financial results as determined in accordance with GAAP and that these measures should only be used to evaluate our financial results in conjunction with the corresponding GAAP measures, and that is we qualify the use of non-GAAP financial information in a statement when non-GAAP financial information is presented.
All of the non-GAAP financial measures used in our press release are reconciled to the most directly comparable GAAP measure in the press release.
Wright’s press release also includes certain pro forma data. Wright uses pro forma data to evaluate performance when certain acquisitions or dispositions occur. Historical data reflects results of acquired businesses only after the acquisition dates while pro forma data enhances comparability of financial information between periods by adjusting the data as if the acquisitions or dispositions occurred at the beginning of the preceding year.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
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Exhibit Number | | Description |
99.1 | | Press release issued by Wright Medical Group N.V. on November 4, 2015 announcing Wright Medical Group, Inc.’s and Tornier N.V.’s financial results for the third quarter of fiscal 2015 (furnished herewith) |
Cautionary Note Regarding Forward-Looking Statements
This Current Report on Form 8-K, including the press release in Exhibit 99.1, includes forward-looking under the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally can be identified by the use of words such as “anticipate,” “expect,” “could,” “may,” “will,” “believe,” “estimate,” “forecast,” “goal,” “project,” “continue,” “outlook,” “guidance,” “future,” other words of similar meaning and the use of future dates. Forward-looking statements in this report and Exhibit 99.1 include, but are not limited to, statements about the company’s anticipated financial results for 2015, including pro forma net sales and pro forma adjusted EBITDA from continuing operations; anticipated cost synergies and dis-synergies, the timing thereof and the level of risk of achievement; the company’s expectations regarding the sales growth of its legacy Wright U.S. foot and ankle business, legacy Tornier U.S. upper extremity business, and legacy Wright international business; the benefits of its recently completed merger with Tornier; and the company’s anticipated growth opportunities, path to profitability and adjusted EBITDA margin goal and ability to generate long-term value for shareholders. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Each forward-looking statement contained in this report and Exhibit 99.1 is subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statement. Applicable risks and uncertainties include, among others, the failure to integrate the businesses and realize synergies and cost-savings from the recently completed merger transaction or delay in realization thereof; operating costs and business disruption as a result of the transaction, including adverse effects on employee retention and sales force productivity and on business relationships with third parties; transaction and integration costs; actual or contingent liabilities; the adequacy of the company’s capital resources; the timing of regulatory approvals and introduction of new products; physician acceptance, endorsement, and use of new products; failure to achieve the anticipated benefits from approval of Augment® Bone Graft; the effect of regulatory actions, changes in and adoption of reimbursement rates; product liability claims and product recalls; pending and threatened litigation; risks associated with international operations and expansion; fluctuations in foreign currency exchange rates; other business effects, including the effects of industry, economic or political conditions outside of the company’s control; reliance on independent distributors and sales agencies; competitor activities; changes in tax and other legislation; and the risks identified under the heading “Risk Factors” in Wright Medical Group, Inc.’s Annual Report on Form 10-K, which was filed with the SEC on February 26, 2015, and Tornier’s Annual Report on Form 10-K, which was filed with the SEC on February 24, 2015, as well as both companies’ subsequent Quarterly Reports on Form 10-Q and other information filed by each company with the SEC and a Quarterly Report on Form 10-Q for the quarter ended September 27, 2015 to be filed by Wright with the SEC. Investors should not place considerable reliance on the forward-looking statements contained in this press release. Investors, potential investors, and others are encouraged to read Wright’s and Tornier’s filings with the SEC, available at www.sec.gov, for a discussion of these and other risks and uncertainties. The forward-looking statements in this report and Exhibit 99.1 speak only as of the date of this filing, and Wright undertakes no obligation to update or revise any of these statements. Wright’s business is subject to substantial risks and uncertainties, including those referenced above. Investors, potential investors, and others should give careful consideration to these risks and uncertainties.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: November 4, 2015
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| WRIGHT MEDICAL GROUP N.V. | |
| By: /s/ Robert J. Palmisano | |
| Name: Robert J. Palmisano | |
| Title: President and Chief Executive Officer | |
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Exhibit Number | Description | Method of Filing |
99.1 | Press release issued by Wright Medical Group N.V. on November 4, 2015 announcing Wright Medical Group, Inc.’s and Tornier N.V.’s financial results for the third quarter of fiscal 2015 | Furnished herewith |
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FOR IMMEDIATE RELEASE | |
Investors & Media: |
Wright Medical Group N.V. Julie D. Tracy |
Chief Communications Officer (901) 290-5817 (office) julie.tracy@wmt.com |
Wright Medical Group N.V. Reports 2015 Third Quarter Financial Results
Third Quarter Legacy Wright Global Foot and Ankle Net Sales Increase 20% As Reported and
23% Constant Currency
Third Quarter Legacy Wright Global Total Ankle Replacement Sales Increase 61% As Reported
Third Quarter Legacy Tornier Global Upper Extremity Revenue Increases 7% As Reported and
13% Constant Currency
Provides Pro Forma Guidance for 2015 for Combined Company Following Merger with Tornier N.V.
AMSTERDAM, The Netherlands - November 4, 2015 - Wright Medical Group N.V. (NASDAQ: WMGI) today reported financial results for Wright Medical Group, Inc. for its third quarter ended September 30, 2015 and financial results for Tornier N.V. for its third quarter ended September 27, 2015. As previously announced, Wright and Tornier completed their merger on October 1, 2015, subsequent to the end of each company’s third quarter. Certain preliminary, unaudited non-GAAP pro forma financial results for the combined Wright Medical Group N.V. can be found on Wright’s website at ir.wright.com.
Wright Medical Group, Inc. Third Quarter 2015 Highlights
Net sales totaled $80.1 million during the third quarter ended September 30, 2015, representing a 12% increase as reported and 16% increase on a constant currency basis compared to the third quarter of 2014.
Robert Palmisano, president and chief executive officer, commented, “Third quarter results for our legacy Wright business continued to demonstrate the strong growth of our U.S. foot and ankle business and ongoing improvement in our international business. Specifically, our U.S. foot and ankle business grew 24% in the quarter, which was another quarter of significant growth driven by improved sales force execution, medical education and strong contribution from new products, including the ongoing launch of our INFINITY total ankle system, which drove 54% sales growth in U.S. total ankle replacement. In addition, our U.S. commercial launch activities for AUGMENT Bone Graft are off to a positive start following final FDA approval in September. We believe this product, coupled with continued strong growth in our core U.S. foot and ankle business, will continue to fuel positive momentum for the remainder of the year and beyond.”
Palmisano continued, “The close of our merger with Tornier marked a significant milestone for our company, creating the premier, high-growth Extremities and Biologics company uniquely positioned with leading technologies and specialized sales forces in three of the fastest growing areas of orthopaedics - Upper Extremities, Lower Extremities and Biologics. Our focus now is on bringing our organizations together to accelerate our business momentum and minimize disruption, and we have gotten off to a strong start. For the vast majority of the combined company revenue, we anticipate little to no sales force disruption due to integration. Given the relatively low level of revenue that we anticipate will be directly
impacted by the sales force integration and the amount of dis-synergy that we have targeted in our plan, we view the downside risk in this area to be low. Like our dis-synergy plan, we view achieving our cost synergy target of $40 million to $45 million in year three as also low risk. We have multiple opportunities to extend our leadership position in shoulder, accelerate our foot and ankle business through market expansion, and increase our biologics business through the launch of AUGMENT Bone Graft in the U.S. In addition, I believe that our increased scale and scope will provide an accelerated path to profitability that will enable us to achieve our goal of adjusted EBITDA margins approaching 20% in three to four years and generate long-term value for our shareholders.”
Net loss from continuing operations for the third quarter of 2015 totaled $62.7 million, or $(1.22) per diluted share, compared to net loss from continuing operations of $49.6 million, or $(0.99) per diluted share, in the third quarter of 2014.
Net loss from continuing operations for the third quarter of 2015 included a $14.6 million unrealized loss related to mark-to-market adjustments on contingent value rights (CVRs) issued in connection with the BioMimetic acquisition, a gain of $4.7 million related to mark-to-market adjustments on derivatives, $6.8 million of non-cash interest expense related to the 2017 Convertible Notes and 2020 Convertible Notes, and $19.9 million of transaction and transition costs. Net loss from continuing operations for the third quarter of 2014 included an $18.5 million unrealized loss related to mark-to-market adjustments on CVRs issued in connection with the BioMimetic acquisition, $2.7 million of transaction and transition costs, $2.3 million of non-cash interest expense related to the 2017 Convertible Notes, $1.8 million of contingent consideration fair value adjustments, $1.2 million of costs associated with management changes, an unrealized loss of $1.0 million related to mark-to-market adjustments on derivatives, $0.9 million of patent dispute settlement costs, and $0.5 million of charges associated with distributor conversions and non-competes. These 2014 charges were offset by a $2.8 million U.S. tax benefit within continuing operations recorded as a result of the U.S. pre-tax gain recognized within discontinued operations due to the sale of the OrthoRecon business.
The company's third quarter 2015 net loss from continuing operations, as adjusted for the above items, was $26.1 million, a decline from an adjusted net loss of $17.7 million in 2014, while diluted loss per share, as adjusted, decreased to $(0.51) in the third quarter of 2015 from $(0.35) in the third quarter of 2014. The attached financial tables include a reconciliation of U.S. GAAP to “as adjusted” results.
The company's third quarter 2015 adjusted EBITDA from continuing operations, as defined in the GAAP to non-GAAP reconciliation provided later in this release, was negative $(10.3) million, compared to negative $(5.9) million in the same quarter of the prior year. The attached financial tables include a reconciliation of U.S. GAAP to “as adjusted” results.
Cash and cash equivalents and marketable securities totaled $254.4 million as of the end of the third quarter of 2015, an increase of $24.5 million compared to the end of the fourth quarter of 2014, which was driven by completion of the 2020 convertible debt offering, offset by the Augment® Bone Graft approval CVR milestone payment and merger-related expenses.
Tornier N.V. Third Quarter 2015 Highlights
Tornier’s revenue for the third quarter of 2015 was $74.9 million compared to third quarter 2014 revenue of $76.7 million, a decrease of 2% as reported and an increase of 4% in constant currency. Foreign currency exchange rates negatively impacted third quarter 2015 reported revenue by $4.7 million.
Third quarter 2015 revenue of Tornier's extremities product categories totaled $66.1 million compared to $65.8 million during the prior year period, an increase of 0.5% as reported and an increase of 5% in constant currency.
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• | Revenue from the upper extremities joints and trauma category was $52.6 million, an increase of 13% in constant currency over the same quarter in 2014. Growth was led by the Aequalis Ascend® family of shoulder joint replacement products, which continued to gain global surgeon acceptance. The consistent performance of the Tornier upper extremity joints and trauma category demonstrates the success of the company's strategy to deliver superior products with a differentiated sales force. |
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• | Revenue from Tornier's lower extremity joints and trauma category in the third quarter of 2015 was $10.9 million, a decrease of 18% in constant currency. As anticipated, distractions from the merger with Wright impacted Tornier’s lower extremities business. |
| |
• | Revenue from Tornier’s sports medicine and biologics product category was $2.7 million in the third quarter of 2015, a decrease of 4% in constant currency over the same quarter in 2014, reflecting a decline in Tornier’s soft tissue anchor and biologics products. |
Tornier’s third quarter 2015 adjusted EBITDA, as defined in the GAAP to non-GAAP reconciliation provided later in this release, was $6.1 million, or 8.1% of reported revenue, compared to $4.0 million, or 5.3% of reported revenue, in the same quarter of the prior year.
Palmisano further commented, “Tornier’s third quarter performance highlights the strong momentum in its legacy upper extremities business, driven by an innovative product portfolio and clinically superior sales team. Tornier’s U.S. upper extremity growth of 15% was approximately twice the market rate, driven by the AEQUALIS ASCEND FLEX shoulder system and the U.S. launch of the SIMPLICITI shoulder system, which is now in full market release. As expected, the legacy Tornier lower extremities business experienced distractions related to our merger. However, with the merger now closed, we can focus on leveraging the strengths of both companies and believe we have a very attractive combination of products and people to drive long-term growth and profitability for the combined business.”
Outlook
The company today provided its pro forma full-year 2015 guidance for Wright Medical Group N.V., which includes anticipated financial results for both the legacy Wright and Tornier businesses giving effect to the merger as if it had occurred on the first day of each fiscal year. This combined guidance includes the impact of conforming the combined company’s fiscal calendars; the full-year impact of the divestiture of certain Tornier lower extremities products to Integra LifeSciences; and anticipated revenue dis-synergies and cost synergies related to the merger for 2015. As a result of conforming the combined company’s fiscal calendars, the legacy Wright business will have four fewer selling days in the fourth quarter of 2015.
The company anticipates pro forma net sales for 2015 of approximately $636 million to $642 million.
The company anticipates 2015 pro forma adjusted EBITDA from continuing operations, as described in the GAAP to non-GAAP reconciliation provided later in this release, of negative $(13.0) million to negative $(17.0) million.
Underlying this guidance is the assumption that prior to the impact of conforming the combined company’s fiscal calendars and the impact of anticipated revenue dis-synergies, the legacy Wright U.S. foot and ankle business will continue to grow in the high teens, the legacy Tornier U.S. upper extremity
business will continue to grow in the mid-teens, and the legacy Wright international business growth rates will continue to accelerate, in each case on a constant currency basis compared to fourth quarter of 2014.
The company estimates approximately 103.7 million ordinary shares outstanding for the fourth quarter of 2015.
The company continues to anticipate sales dis-synergies in the first 12 to 18 months following the close of the merger to be in the range of $25 million to $30 million and cost synergies in the range of $40 million to $45 million to be fully realized by the third year after completion of the merger. Expense synergy opportunities include: public company expenses, overlapping support function and systems costs, as well as process and vendor consolidation opportunities across the business.
The company's pro forma adjusted EBITDA from continuing operations target excludes possible future acquisitions; other material future business developments; non-cash interest expense associated with the 2017 and 2020 Convertible Notes; due diligence, transaction and transition costs associated with acquisitions and divestitures; impairment charges, mark-to-market adjustments to the CVRs and non-cash mark-to-market derivative adjustments; charges associated with the February 2015 refinancing of its convertible debt; and the instrument use tax refund. Further, this adjusted EBITDA target excludes any expenses, earnings or losses related to Wright’s divested OrthoRecon business and Tornier’s divested foot and ankle products.
The company's anticipated ranges for pro forma net sales and adjusted EBITDA from continuing operations are forward-looking statements, as are any other statements that anticipate or aspire to future events or performance. 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. In addition, while pro forma data gives effect to the merger as if it had occurred on the first day of each fiscal year and enhances comparability of financial information between periods, pro forma data is not indicative of the results that actually would have been obtained if the merger had occurred as of the beginning of the fiscal year.
Supplemental Financial Information
To view the third quarter of 2015 supplemental financial information, visit ir.wright.com. For updated information on Wright Medical Group N.V. revenue reporting changes and preliminary, combined non-GAAP pro forma historical financials, including third quarter of 2015, please refer to the presentation posted on Wright’s website at ir.wright.com in the “Financial Information” section.
Internet Posting of Information
Wright routinely posts information that may be important to investors in the “Investor Relations” section of its website at www.wright.com. The company encourages investors and potential investors to consult Wright website regularly for important information about Wright.
Conference Call and Webcast
As previously announced, Wright will host a conference call starting at 3:30 p.m. Central Time today. The live dial-in number for the call is 866-318-8617 (U.S.) / 617-399-5136 (International). The participant passcode for the call is “Wright.” A simultaneous webcast of the call will be available via Wright’s corporate website at www.wright.com.
A replay of the conference call by telephone will be available starting at 5:30 p.m. Central Time today and continuing through November 11, 2015. To hear this replay, dial 888-286-8010 (U.S.) or 617-801-6888 (International) and enter the passcode 88327442. 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 “Investor Relations - Presentations/Calendar” section of the company's website located at www.wright.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, the Current Report on Form 8-K filed with the SEC today, or otherwise available in the “Investor Relations - Supplemental Financial Information” section of the company's website located at www.wright.com.
The conference call may include forward-looking statements. See the cautionary information about forward-looking statements in the “Cautionary Note Regarding Forward-Looking Statements” section of this press release.
About Wright
Wright Medical Group N.V. is a global medical device company focused on Extremities and Biologics. The company is committed to delivering innovative, value-added solutions improving quality of life for patients worldwide and is a recognized leader of surgical solutions for the upper extremity (shoulder, elbow, wrist and hand), lower extremity (foot and ankle) and biologics markets, three of the fastest growing segments in orthopedics. For more information about Wright, visit www.wright.com.
Wright®, INFINITY®, Augment®, Tornier®, Aequalis®, Aequalis Ascend®, Aequalis Ascend® Flex™, and Simpliciti® are trademarks of Wright Medical Group N.V. and its subsidiaries, registered as indicated in the United States, and in other countries. All other trademarks and trade names referred to in this release are the property of their respective owners.
Non-GAAP Financial Measures
To supplement the company’s consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP), the company uses certain non-GAAP financial measures in this release. Reconciliations of the non-GAAP financial measures used in this release to the most comparable U.S. GAAP measures for the respective periods can be found in tables later in this press release. Wright’s non-GAAP financial measures, include net sales, excluding the impact of foreign currency; operating income, as adjusted; net income, as adjusted; EBITDA, as adjusted; net income, as adjusted, per diluted share; effective tax rate, as adjusted; and free cash flow. Tornier’s non-GAAP financial measures include revenues on a constant currency basis; EBITDA; adjusted EBITDA; adjusted EBITDA margin; adjusted net loss; adjusted net loss per share; adjusted free cash flow; adjusted gross margin; adjusted gross margin percentage; adjusted operating expenses; and adjusted operating expenses as a percentage of revenue. In addition, the company uses pro forma net sales and pro forma adjusted EBITDA as non-GAAP financial measures in its financial guidance for 2015. 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. Wright’s non-GAAP financial measures exclude such items as costs associated with distributor conversions and non-competes, non-cash interest expense related to the company's 2017 Convertible Notes and 2020 Convertible Notes, write-off of the pro rata unamortized deferred financing costs and debt discount associated with the 2017
Convertible Notes, net gains and losses on mark-to-market adjustments on and settlements of derivative assets and liabilities, mark-to-market adjustments on CVRs, transaction and transition costs, 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. Tornier’s non-GAAP financial measures exclude such items as amortization of inventory step-up from acquisition; acquisition, integration and distribution transition costs; reversal of contingent consideration liability; instrument use tax refund; restructuring charges; merger-related costs; and reversal of valuation allowance from acquisition, 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 financial measures only as a supplement to, not as a substitute for or as superior to, measures of financial performance prepared in accordance with GAAP.
###
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This press release includes forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally can be identified by the use of words such as “anticipate,” “expect,” “could,” “may,” “will,” “believe,” “estimate,” “forecast,” “goal,” “project,” "continue," "outlook," “guidance,” "future,” other words of similar meaning and the use of future dates. Forward-looking statements in this press release include, but are not limited to, statements about the company’s anticipated financial results for 2015, including pro forma net sales and pro forma adjusted EBITDA from continuing operations; anticipated cost synergies and dis-synergies, the timing thereof and level of risk of achievement; the company’s expectations regarding the sales growth of its legacy Wright U.S. foot and ankle business, legacy Tornier U.S. upper extremity business, and legacy Wright international business; the benefits of its recently completed merger with Tornier; and the company’s anticipated growth opportunities, path to profitability and adjusted EBITDA margin goal and ability to generate long-term value for shareholders. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Each forward-looking statement contained in this press release is subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statement. Applicable risks and uncertainties include, among others, the failure to integrate the businesses and realize synergies and cost-savings from the recently completed merger transaction or delay in realization thereof; operating costs and business disruption as a result of the transaction, including adverse effects on employee retention and sales force productivity and on business relationships with third parties; transaction and integration costs; actual or contingent liabilities; the adequacy of the company’s capital resources; the timing of regulatory approvals and introduction of new products; physician acceptance, endorsement, and use of new products; failure to achieve the anticipated benefits from approval of Augment® Bone Graft; the effect of regulatory actions, changes in and adoption of reimbursement rates; product liability claims and product recalls; pending and threatened litigation; risks associated with international operations and expansion; fluctuations in foreign currency exchange rates; other business effects, including the effects of industry, economic or political conditions outside of the company’s control; reliance on independent distributors and sales agencies; competitor activities; changes in tax and other legislation; and the risks identified under the heading “Risk Factors” in Wright Medical Group, Inc.’s Annual Report on Form 10-K, which was filed with the SEC on February 26, 2015, and Tornier’s Annual Report on Form 10-K, which was filed with the SEC on February 24, 2015, as well as both companies’ subsequent Quarterly Reports on Form 10-Q and other information filed by each company with the SEC and a Quarterly Report on Form 10-Q for the quarter ended September 27, 2015 to be filed by Wright with the SEC. Investors should not place considerable reliance on the forward-looking statements contained in this press release. You are encouraged to read Wright’s and Tornier’s filings with the SEC, available at www.sec.gov, for a discussion of these and other risks and uncertainties. The forward-looking statements in this press release speak only as of the date of this release, and Wright undertakes no obligation to update or revise any of these statements. Wright’s business is subject to substantial risks and uncertainties, including those referenced above. Investors, potential investors, and others should give careful consideration to these risks and uncertainties.
--Tables Follow--
Legacy Wright Medical Group, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data--unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2015 | | September 30, 2014 | | September 30, 2015 | | September 30, 2014 |
Net sales | $ | 80,139 |
| | $ | 71,307 |
| | $ | 238,493 |
| | $ | 214,733 |
|
Cost of sales | 23,052 |
| | 16,703 |
| | 63,812 |
| | 54,126 |
|
Gross profit | 57,087 |
| | 54,604 |
| | 174,681 |
| | 160,607 |
|
Operating expenses: | | | | | | | |
Selling, general and administrative | 85,997 |
| | 66,926 |
| | 250,801 |
| | 207,629 |
|
Research and development | 9,570 |
| | 5,948 |
| | 24,644 |
| | 18,603 |
|
Amortization of intangible assets | 2,562 |
| | 2,379 |
| | 7,741 |
| | 7,241 |
|
Total operating expenses | 98,129 |
| | 75,253 |
| | 283,186 |
| | 233,473 |
|
Operating loss | (41,042 | ) | | (20,649 | ) | | (108,505 | ) | | (72,866 | ) |
Interest expense, net | 11,185 |
| | 4,565 |
| | 29,793 |
| | 12,873 |
|
Other (income) expense, net | 10,236 |
| | 21,430 |
| | 7,395 |
| | 54,986 |
|
Loss from continuing operations before income taxes | (62,463 | ) | | (46,644 | ) | | (145,693 | ) | | (140,725 | ) |
Provision (benefit) for income taxes | 187 |
| | 3,003 |
| | 511 |
| | (7,197 | ) |
Net loss from continuing operations | $ | (62,650 | ) | | $ | (49,647 | ) | | $ | (146,204 | ) | | $ | (133,528 | ) |
Loss from discontinued operations, net of tax | (36,211 | ) | | (12,160 | ) | | (46,720 | ) | | (14,925 | ) |
Net loss | $ | (98,861 | ) | | $ | (61,807 | ) | | $ | (192,924 | ) | | $ | (148,453 | ) |
| | | | | | | |
Net loss from continuing operations per share, basic | $ | (1.22 | ) | | $ | (0.99 | ) | | $ | (2.86 | ) | | $ | (2.70 | ) |
Net loss from continuing operations per share, diluted | $ | (1.22 | ) | | $ | (0.99 | ) | | $ | (2.86 | ) | | $ | (2.70 | ) |
| | | | | | | |
Net loss per share, basic | $ | (1.93 | ) | | $ | (1.24 | ) | | $ | (3.78 | ) | | $ | (3.00 | ) |
Net loss per share, diluted | $ | (1.93 | ) | | $ | (1.24 | ) | | $ | (3.78 | ) | | $ | (3.00 | ) |
| | | | | | | |
Weighted-average number of shares outstanding-basic | 51,172 |
| | 50,043 |
| | 51,033 |
| | 49,441 |
|
Weighted-average number of shares outstanding-diluted | 51,172 |
| | 50,043 |
| | 51,033 |
| | 49,441 |
|
Legacy Wright Medical Group, Inc.
Consolidated Sales Analysis
(dollars in thousands--unaudited)
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2015 | | September 30, 2014 | | % change | | September 30, 2015 | | September 30, 2014 | | % change |
U.S. |
| |
| |
| | | | | | |
Foot and Ankle | 43,929 |
| | 35,560 |
| | 23.5 | % | | 128,277 |
| | 102,599 |
| | 25.0 | % |
Upper Extremity | 3,654 |
| | 4,016 |
| | (9.0 | %) | | 11,703 |
| | 11,420 |
| | 2.5 | % |
Biologics | 12,198 |
| | 11,162 |
| | 9.3 | % | | 34,612 |
| | 33,376 |
| | 3.7 | % |
Other | 613 |
| | 559 |
| | 9.7 | % | | 1,558 |
| | 2,196 |
| | (29.1 | %) |
Total U.S. | $ | 60,394 |
| | $ | 51,297 |
| | 17.7 | % | | $ | 176,150 |
| | $ | 149,591 |
| | 17.8 | % |
| | | | | | | | | | | |
International | | | | | | | | | | | |
Foot and Ankle | 10,917 |
| | 10,068 |
| | 8.4 | % | | 35,313 |
| | 35,882 |
| | (1.6 | %) |
Upper Extremity | 1,764 |
| | 2,351 |
| | (25.0 | %) | | 5,723 |
| | 8,875 |
| | (35.5 | %) |
Biologics | 5,260 |
| | 5,860 |
| | (10.2 | %) | | 15,070 |
| | 15,437 |
| | (2.4 | %) |
Other | 1,804 |
| | 1,731 |
| | 4.2 | % | | 6,237 |
| | 4,948 |
| | 26.1 | % |
Total International | $ | 19,745 |
| | $ | 20,010 |
| | (1.3 | %) | | $ | 62,343 |
| | $ | 65,142 |
| | (4.3 | %) |
| | | | | | | | | | | |
Global | | | | | | | | | | | |
Foot and Ankle | 54,846 |
| | 45,628 |
| | 20.2 | % | | 163,590 |
| | 138,481 |
| | 18.1 | % |
Upper Extremity | 5,418 |
| | 6,367 |
| | (14.9 | %) | | 17,426 |
| | 20,295 |
| | (14.1 | %) |
Biologics | 17,458 |
| | 17,022 |
| | 2.6 | % | | 49,682 |
| | 48,813 |
| | 1.8 | % |
Other | 2,417 |
| | 2,290 |
| | 5.5 | % | | 7,795 |
| | 7,144 |
| | 9.1 | % |
Total Sales | $ | 80,139 |
| | $ | 71,307 |
| | 12.4 | % | | $ | 238,493 |
| | $ | 214,733 |
| | 11.1 | % |
| | | | | | | | | | | |
Legacy Wright Medical Group, Inc.
Supplemental Sales Information
(unaudited)
|
| | | | | |
| Third Quarter 2015 Sales Growth/(Decline) |
| Domestic As Reported | Int'l Constant Currency | Int'l As Reported | Total Constant Currency | Total As Reported |
Product Line | | | | | |
Foot and Ankle | 24% | 23% | 8% | 23% | 20% |
Upper Extremity | (9%) | (14%) | (25%) | (11%) | (15%) |
Biologics | 9% | 1% | (10%) | 6% | 3% |
Other | 10% | 20% | 4% | 18% | 6% |
Total Sales | 18% | 12% | (1%) | 16% | 12% |
Legacy Wright Medical Group, Inc.
Supplemental Sales Information
(unaudited)
|
| | | | | |
| Nine Months Ended September 30, 2015 Sales Growth/(Decline) |
| Domestic As Reported | Int'l Constant Currency | Int'l As Reported | Total Constant Currency | Total As Reported |
Product Line | | | | | |
Foot and Ankle | 25% | 12% | (2%) | 22% | 18% |
Upper Extremity | 2% | (26%) | (36%) | (10%) | (14%) |
Biologics | 4% | 8% | (2%) | 5% | 2% |
Other | (29%) | 48% | 26% | 25% | 9% |
Total Sales | 18% | 9% | (4%) | 15% | 11% |
Legacy 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, 2015 | | September 30, 2015 |
| International Net Sales | | Total Net Sales | | International Net Sales | | Total Net Sales |
Net sales, as reported | $ | 19,745 |
| | $ | 80,139 |
| | $ | 62,343 |
| | $ | 238,493 |
|
Currency impact as compared to prior period | 2,656 |
| | 2,656 |
| | 8,394 |
| | 8,394 |
|
Net sales, excluding the impact of foreign currency | $ | 22,401 |
| | $ | 82,795 |
| | $ | 70,737 |
| | $ | 246,887 |
|
Legacy Wright Medical Group, Inc.
Reconciliation of As Reported Results to Non-GAAP Financial Measures
(in thousands--unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2015 | | September 30, 2014 | | September 30, 2015 | | September 30, 2014 |
Operating Loss | | | | | | | |
Operating loss, as reported | $ | (41,042 | ) | | $ | (20,649 | ) | | $ | (108,505 | ) | | $ | (72,866 | ) |
Reconciling items impacting Gross Profit: | | | | | | | |
Inventory step-up amortization | 20 |
| | 302 |
| | 69 |
| | 1,521 |
|
Transaction and transition costs | 2,423 |
| | — |
| | 2,423 |
| | — |
|
Total | 2,443 |
| | 302 |
| | 2,492 |
| | 1,521 |
|
Reconciling items impacting Selling, General and Administrative expense: | | | | | | | |
Distributor conversions | — |
| | 16 |
| | — |
| | 172 |
|
Due diligence, transaction and transition costs | 17,464 |
| | 2,740 |
| | 40,617 |
| | 16,030 |
|
Patent dispute settlement | — |
| | 900 |
| | — |
| | 900 |
|
Management changes (1) | — |
| | 1,203 |
| | — |
| | 1,203 |
|
Total | 17,464 |
| | 4,859 |
| | 40,617 |
| | 18,305 |
|
Reconciling items impacting Amortization of Intangible Assets: | | | | | | | |
Amortization of distributor non-competes | 16 |
| | 462 |
| | 65 |
| | 1,526 |
|
| | | | | | | |
Operating loss, as adjusted | $ | (21,119 | ) | | $ | (15,026 | ) | | $ | (65,331 | ) | | $ | (51,514 | ) |
Operating loss, as adjusted, as a percentage of net sales | (26.4 | )% | | (21.1 | )% | | (27.4 | )% | | (24.0 | )% |
_______________________________
(1) For the three and nine months ended September 30, 2014, amount includes $0.3 million of non-cash stock-based compensation expense related to the management changes.
Legacy Wright Medical Group, Inc.
Reconciliation of As Reported Results to Non-GAAP Financial Measures
(in thousands--unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2015 | | September 30, 2014 | | September 30, 2015 | | September 30, 2014 |
EBITDA | | | | | | | |
Net loss from continuing operations, as reported | $ | (62,650 | ) | | $ | (49,647 | ) | | $ | (146,204 | ) | | $ | (133,528 | ) |
Interest expense, net | 11,185 |
| | 4,565 |
| | 29,793 |
| | 12,873 |
|
Provision (benefit) for income taxes | 187 |
| | 3,003 |
| | 511 |
| | (7,197 | ) |
Depreciation | 6,268 |
| | 4,654 |
| | 16,966 |
| | 13,494 |
|
Amortization of intangible assets | 2,562 |
| | 2,379 |
| | 7,741 |
| | 7,241 |
|
EBITDA | (42,448 | ) | | (35,046 | ) | | (91,193 | ) | | (107,117 | ) |
Reconciling items impacting EBITDA | | | | | | | |
Non-cash stock-based compensation expense (1) | 2,025 |
| | 2,586 |
| | 7,706 |
| | 8,685 |
|
Other expense, net | 10,236 |
| | 21,430 |
| | 7,395 |
| | 54,986 |
|
Inventory step-up amortization | 20 |
| | 302 |
| | 69 |
| | 1,521 |
|
Distributor conversions | — |
| | 16 |
| | — |
| | 172 |
|
Due diligence, transaction and transition costs | 19,887 |
| | 2,740 |
| | 43,040 |
| | 16,030 |
|
Patent dispute settlement | — |
| | 900 |
| | — |
| | 900 |
|
Management changes | — |
| | 1,203 |
| | — |
| | 1,203 |
|
Adjusted EBITDA | $ | (10,280 | ) | | $ | (5,869 | ) | | $ | (32,983 | ) | | $ | (23,620 | ) |
Adjusted EBITDA as a percentage of net sales | (12.8 | )% | | (8.2 | )% | | (13.8 | )% | | (11.0 | )% |
_______________________________
(1) For the three and nine months ended September 30, 2014, amount excludes $0.3 million of non-cash stock-based compensation expense related to the management changes, which is included in management changes.
Legacy 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, 2015 | | September 30, 2014 | | September 30, 2015 | | September 30, 2014 |
Net Income | | | | | | | |
Loss before taxes, as reported | $ | (62,463 | ) | | $ | (46,644 | ) | | $ | (145,693 | ) | | $ | (140,725 | ) |
Pre-tax impact of reconciling items: | | | | | | | |
Inventory step-up amortization | 20 |
| | 302 |
| | 69 |
| | 1,521 |
|
Distributor conversion and non-competes | 16 |
| | 478 |
| | 65 |
| | 1,698 |
|
Non-cash interest expense on 2017 & 2020 Convertible Notes | 6,767 |
| | 2,333 |
| | 17,857 |
| | 6,886 |
|
Write-off of unamortized debt discount and deferred financing fees | (100 | ) | | — |
| | 25,101 |
| | — |
|
Derivatives mark-to-market adjustment | (4,652 | ) | | 1,000 |
| | (12,021 | ) | | 2,000 |
|
Due diligence, transaction and transition costs | 19,887 |
| | 2,740 |
| | 43,040 |
| | 16,030 |
|
Patent dispute settlement | — |
| | 900 |
| | — |
| | 900 |
|
Management changes (1) | — |
| | 1,203 |
| | — |
| | 1,203 |
|
CVR mark-to-market adjustments
| 14,569 |
| | 18,499 |
| | (7,350 | ) | | 51,293 |
|
Contingent consideration fair value adjustment | — |
| | 1,750 |
| | 155 |
| | 1,750 |
|
Loss before taxes, as adjusted | (25,956 | ) | | (17,439 | ) | | (78,777 | ) | | (57,444 | ) |
Provision (benefit) for income taxes, as reported | $ | 187 |
| | $ | 3,003 |
| | $ | 511 |
| | $ | (7,197 | ) |
U.S. tax impact resulting from gain in discontinued operations | — |
| | (2,776 | ) | | — |
| | 7,940 |
|
Tax effect of reconciling items | — |
| | — |
| | 27 |
| | — |
|
Provision (benefit) for income taxes, as adjusted | $ | 187 |
| | $ | 227 |
| | $ | 538 |
| | $ | 743 |
|
Effective tax rate, as adjusted | (0.7 | )% | | (1.3 | )% | | (0.7 | )% | | (1.3 | )% |
Net loss from continuing operations, as adjusted | $ | (26,143 | ) | | $ | (17,666 | ) | | $ | (79,315 | ) | | $ | (58,187 | ) |
| | | | | | | |
Weighted-average number of shares outstanding-diluted | 51,172 |
| | 50,043 |
| | 51,033 |
| | 49,441 |
|
Net loss from continuing operations, as adjusted, per diluted share | $ | (0.51 | ) | | $ | (0.35 | ) | | $ | (1.55 | ) | | $ | (1.18 | ) |
_______________________________
(1) For the three and nine months ended September 30, 2014, amount includes $0.3 million of non-cash stock-based compensation expense related to the management changes.
Legacy Wright Medical Group, Inc.
Reconciliation of Free Cash Flow
(dollars in thousands--unaudited)
|
| | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2015 | September 30, 2014 | | September 30, 2015 | September 30, 2014 |
Net cash used in operating activities | $ | (90,839 | ) | $ | (34,562 | ) | | $ | (141,839 | ) | $ | (86,152 | ) |
Capital expenditures | (8,259 | ) | (11,422 | ) | | (34,013 | ) | (35,706 | ) |
Free cash flow | $ | (99,098 | ) | $ | (45,984 | ) | | $ | (175,852 | ) | $ | (121,858 | ) |
Legacy Wright Medical Group, Inc.
Segment Information
(in thousands--unaudited)
|
| | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2015 |
| U.S. | International | BioMimetic | Corporate | Other (1) | Total |
Sales | $ | 60,394 |
| $ | 19,745 |
| $ | — |
| $ | — |
| $ | — |
| $ | 80,139 |
|
Gross profit | 46,874 |
| 12,673 |
| — |
| (17 | ) | (2,443 | ) | 57,087 |
|
Operating income (loss) | 2,219 |
| (2,627 | ) | (3,952 | ) | (16,759 | ) | (19,923 | ) | (41,042 | ) |
Operating income (loss) as a percent of net sales | 3.7 | % | (13.3 | %) | N/A |
| N/A |
| N/A |
| (51.2 | %) |
| | | | | | |
Depreciation Expense | 3,500 |
| 827 |
| 46 |
| 1,895 |
| — |
| 6,268 |
|
Amortization Expense | 2,025 |
| 469 |
| 52 |
| — |
| 16 |
| 2,562 |
|
Non-cash stock-based compensation expense | — |
| — |
| — |
| 2,025 |
| — |
| 2,025 |
|
Other | — |
| — |
| — |
| — |
| 19,907 |
| 19,907 |
|
Adjusted EBITDA | 7,744 |
| (1,331 | ) | (3,854 | ) | (12,839 | ) | — |
| (10,280 | ) |
_______________________________
(1) Other consists exclusively of the reconciling items from Operating Income, as reported, to Operating Income, as adjusted,
as included in the reconciliations above.
|
| | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2014 |
| U.S. | International | BioMimetic | Corporate | Other (1) | Total |
Sales | $ | 51,297 |
| $ | 20,010 |
| $ | — |
| $ | — |
| $ | — |
| $ | 71,307 |
|
Gross profit | 42,939 |
| 12,010 |
| — |
| (43 | ) | (302 | ) | 54,604 |
|
Operating income (loss) | 6,448 |
| (3,213 | ) | (2,601 | ) | (15,660 | ) | (5,623 | ) | (20,649 | ) |
Operating income (loss) as a percent of net sales | 12.6 | % | (16.1 | %) | N/A |
| N/A |
| N/A |
| (29.0 | %) |
| | | | | | |
Depreciation Expense | 2,414 |
| 841 |
| 108 |
| 1,291 |
| — |
| 4,654 |
|
Amortization Expense | 1,293 |
| 547 |
| 77 |
| — |
| 462 |
| 2,379 |
|
Non-cash stock-based compensation expense | — |
| — |
| — |
| 2,586 |
| — |
| 2,586 |
|
Other | — |
| — |
| — |
| — |
| 5,161 |
| 5,161 |
|
Adjusted EBITDA | 10,155 |
| (1,825 | ) | (2,416 | ) | (11,783 | ) | — |
| (5,869 | ) |
_______________________________
(1) Other consists exclusively of the reconciling items from Operating Income, as reported, to Operating Income, as adjusted,
as included in the reconciliations above.
Legacy Wright Medical Group, Inc.
Segment Information
(in thousands--unaudited)
|
| | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2015 |
| U.S. | International | BioMimetic | Corporate | Other (1) | Total |
Sales | $ | 176,150 |
| $ | 62,343 |
| $ | — |
| $ | — |
| $ | — |
| $ | 238,493 |
|
Gross profit | 138,850 |
| 38,351 |
| — |
| (28 | ) | (2,492 | ) | 174,681 |
|
Operating income (loss) | 8,021 |
| (8,658 | ) | (11,051 | ) | (53,643 | ) | (43,174 | ) | (108,505 | ) |
Operating income (loss) as a percent of net sales | 4.6 | % | (13.9 | %) | N/A |
| N/A |
| N/A |
| (45.5 | %) |
| | | | | | |
Depreciation Expense | 9,693 |
| 2,330 |
| 127 |
| 4,816 |
| — |
| 16,966 |
|
Amortization Expense | 6,132 |
| 1,402 |
| 142 |
| — |
| 65 |
| 7,741 |
|
Non-cash stock-based compensation expense | — |
| — |
| — |
| 7,706 |
| — |
| 7,706 |
|
Other | — |
| — |
| — |
| — |
| 43,109 |
| 43,109 |
|
Adjusted EBITDA | 23,846 |
| (4,926 | ) | (10,782 | ) | (41,121 | ) | — |
| (32,983 | ) |
_______________________________
(1) Other consists exclusively of the reconciling items from Operating Income, as reported, to Operating Income, as adjusted,
as included in the reconciliations above.
|
| | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2014 |
| U.S. | International | BioMimetic | Corporate | Other (1) | Total |
Sales | $ | 149,591 |
| $ | 65,142 |
| $ | — |
| $ | — |
| $ | — |
| $ | 214,733 |
|
Gross profit | 120,717 |
| 41,642 |
| — |
| (231 | ) | (1,521 | ) | 160,607 |
|
Operating income (loss) | 12,914 |
| (2,385 | ) | (9,385 | ) | (52,658 | ) | (21,352 | ) | (72,866 | ) |
Operating income (loss) as a percent of net sales | 8.6 | % | (3.7 | %) | N/A |
| N/A |
| N/A |
| (33.9 | %) |
| | | | | | |
Depreciation Expense | 7,093 |
| 2,246 |
| 324 |
| 3,831 |
| — |
| 13,494 |
|
Amortization Expense | 3,820 |
| 1,663 |
| 231 |
| 1 |
| 1,526 |
| 7,241 |
|
Non-cash stock-based compensation expense | — |
| — |
| — |
| 8,685 |
| — |
| 8,685 |
|
Other | — |
| — |
| — |
| — |
| 19,826 |
| 19,826 |
|
Adjusted EBITDA | 23,827 |
| 1,524 |
| (8,830 | ) | (40,141 | ) | — |
| (23,620 | ) |
_______________________________
(1) Other consists exclusively of the reconciling items from Operating Income, as reported, to Operating Income, as adjusted,
as included in the reconciliations above.
Legacy Wright Medical Group, Inc.
Condensed Consolidated Balance Sheets
(dollars in thousands--unaudited)
|
| | | | | | | |
| September 30, 2015 | | December 31, 2014 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 254,435 |
| | $ | 227,326 |
|
Marketable securities | — |
| | 2,575 |
|
Accounts receivable, net | 51,713 |
| | 57,190 |
|
Inventories | 111,064 |
| | 88,412 |
|
Prepaid expenses and other current assets | 44,663 |
| | 64,953 |
|
Total current assets | 461,875 |
| | 440,456 |
|
| | | |
Property, plant and equipment, net | 122,450 |
| | 104,235 |
|
Goodwill and intangible assets, net | 258,876 |
| | 259,991 |
|
Other assets | 122,334 |
| | 87,994 |
|
Total assets | $ | 965,535 |
| | $ | 892,676 |
|
| | | |
Liabilities and stockholders' equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 18,261 |
| | $ | 16,729 |
|
Accrued expenses and other current liabilities | 79,345 |
| | 170,204 |
|
Current portion of long-term obligations | 784 |
| | 718 |
|
Total current liabilities | 98,390 |
| | 187,651 |
|
Long-term obligations | 565,556 |
| | 280,612 |
|
Other liabilities | 187,618 |
| | 145,610 |
|
Total liabilities | 851,564 |
| | 613,873 |
|
| | | |
Stockholders' equity | 113,971 |
| | 278,803 |
|
Total liabilities and stockholders' equity | $ | 965,535 |
| | $ | 892,676 |
|
Legacy Tornier N.V.
Consolidated Statements of Operations
(in thousands, except per share data--unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 27, 2015 | | September 28, 2014 | | September 27, 2015 | | September 28, 2014 |
Revenue | $ | 74,944 |
| | $ | 76,675 |
| | $ | 246,257 |
| | $ | 252,550 |
|
Cost of goods sold | 16,427 |
| | 17,853 |
| | 55,100 |
| | 61,124 |
|
Cost of goods sold - acquisition related | — |
| | 157 |
| | — |
| | 577 |
|
Gross profit | 58,517 |
| | 58,665 |
| | 191,157 |
| | 190,849 |
|
| 78.1 | % | | 76.5 | % | | 77.6 | % | | 75.6 | % |
Operating expenses: | | | | | | | |
Selling, general and administrative | 55,416 |
| | 57,127 |
| | 174,622 |
| | 178,479 |
|
Research and development | 4,972 |
| | 6,055 |
| | 16,783 |
| | 17,845 |
|
Amortization of intangible assets | 4,004 |
| | 4,274 |
| | 12,051 |
| | 12,928 |
|
Special charges | 2,657 |
| | (4,366 | ) | | 6,860 |
| | (994 | ) |
Total operating expenses | 67,049 |
| | 63,090 |
| | 210,316 |
| | 208,258 |
|
Operating (loss) income | (8,532 | ) | | (4,425 | ) | | (19,159 | ) | | (17,409 | ) |
Other (income) expense | | | | | | | |
Interest income | 64 |
| | 18 |
| | 82 |
| | 126 |
|
Interest expense | (1,419 | ) | | (1,250 | ) | | (4,171 | ) | | (3,964 | ) |
Foreign currency transaction loss | (315 | ) | | (152 | ) | | (410 | ) | | (195 | ) |
Other non-operating income | 60 |
| | 11 |
| | 148 |
| | 20 |
|
Loss before income taxes | (10,142 | ) | | (5,798 | ) | | (23,510 | ) | | (21,422 | ) |
Income tax expense | (652 | ) | | 477 |
| | (1,743 | ) | | 416 |
|
Consolidated net loss | $ | (10,794 | ) | | $ | (5,321 | ) | | $ | (25,253 | ) | | $ | (21,006 | ) |
Net loss per share | | | | | | | |
Basic and diluted | $ | (0.22 | ) | | $ | (0.11 | ) | | $ | (0.51 | ) | | $ | (0.43 | ) |
Weighted average ordinary shares outstanding | | | | | | | |
Basic and diluted | 49,279 |
| | 48,832 |
| | 49,116 |
| | 48,656 |
|
Legacy Tornier N.V.
Selected Revenue Information
(dollars in thousands--unaudited)
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 27, 2015 | | September 28, 2014 | | %
change | | September 27, 2015 | | September 28, 2014 | | % change |
Revenue by product category | | | | | | | | | | | |
Upper extremity joints and trauma | $ | 52,582 |
| | $ | 48,963 |
| | 7.4 | % | | $ | 166,542 |
| | $ | 155,845 |
| | 6.9 | % |
Lower extremity joints and trauma | 10,851 |
| | 13,814 |
| | (21.4 | %) | | 36,756 |
| | 43,356 |
| | (15.2 | %) |
Sports medicine and biologics | 2,680 |
| | 3,009 |
| | (10.9 | %) | | 9,406 |
| | 10,549 |
| | (10.8 | %) |
Total extremities | 66,113 |
| | 65,786 |
| | 0.5 | % | | 212,704 |
| | 209,750 |
| | 1.4 | % |
Large joints and other | 8,831 |
| | 10,889 |
| | (18.9 | %) | | 33,553 |
| | 42,800 |
| | (21.6 | %) |
Total | $ | 74,944 |
| | $ | 76,675 |
| | (2.3 | %) | | $ | 246,257 |
| | $ | 252,550 |
| | (2.5 | %) |
| | | | | | | | | | | |
Revenue by geography | | | | | | | | | | | |
United States | $ | 48,838 |
| | $ | 46,752 |
| | 4.5 | % | | $ | 151,912 |
| | $ | 145,565 |
| | 4.4 | % |
International | 26,106 |
| | 29,923 |
| | (12.8 | %) | | 94,345 |
| | 106,985 |
| | (11.8 | %) |
Total | $ | 74,944 |
| | $ | 76,675 |
| | (2.3 | %) | | $ | 246,257 |
| | $ | 252,550 |
| | (2.5 | %) |
Legacy Tornier N.V.
Reconciliation of Revenue to Non-GAAP Revenue on a Constant Currency Basis
(dollars in thousands--unaudited)
|
| | | | | | | | | | | | | | |
| Three Months Ended | | |
| September 27, 2015 | | September 28, 2014 | | Percent change on a constant currency basis |
| Revenue as reported | | Foreign exchange impact as compared to prior period | | Revenue on a constant currency basis | | Revenue as reported | |
Revenue by product category | | | | | | | | | |
Upper extremity joints and trauma | 52,582 |
| | 2,611 |
| | 55,193 |
| | 48,963 |
| | 12.7 | % |
Lower extremity joints and trauma | 10,851 |
| | 432 |
| | 11,283 |
| | 13,814 |
| | (18.3 | )% |
Sports medicine and biologics | 2,680 |
| | 199 |
| | 2,879 |
| | 3,009 |
| | (4.3 | )% |
Total extremities | 66,113 |
| | 3,242 |
| | 69,355 |
| | 65,786 |
| | 5.4 | % |
Large joints and other | 8,831 |
| | 1,433 |
| | 10,264 |
| | 10,889 |
| | (5.7 | )% |
Total | 74,944 |
| | 4,675 |
| | 79,619 |
| | 76,675 |
| | 3.8 | % |
| | | | | | | | | |
Revenue by geography | | | | | | | | | |
United States | 48,838 |
| | — |
| | 48,838 |
| | 46,752 |
| | 4.5 | % |
International | 26,106 |
| | 4,675 |
| | 30,781 |
| | 29,923 |
| | 2.9 | % |
Total | 74,944 |
| | 4,675 |
| | 79,619 |
| | 76,675 |
| | 3.8 | % |
|
| | | | | | | | | | | | | | |
| Nine Months Ended | | |
| September 27, 2015 | | September 28, 2014 | | Percent change on a constant currency basis |
| Revenue as reported | | Foreign exchange impact as compared to prior period | | Revenue on a constant currency basis | | Revenue as reported | |
Revenue by product category | | | | | | | | | |
Upper extremity joints and trauma | 166,542 |
| | 9,412 |
| | 175,954 |
| | 155,845 |
| | 12.9 | % |
Lower extremity joints and trauma | 36,756 |
| | 1,366 |
| | 38,122 |
| | 43,356 |
| | (12.1 | )% |
Sports medicine and biologics | 9,406 |
| | 756 |
| | 10,162 |
| | 10,549 |
| | (3.7 | )% |
Total extremities | 212,704 |
| | 11,534 |
| | 224,238 |
| | 209,750 |
| | 6.9 | % |
Large joints and other | 33,553 |
| | 6,706 |
| | 40,259 |
| | 42,800 |
| | (5.9 | )% |
Total | 246,257 |
| | 18,240 |
| | 264,497 |
| | 252,550 |
| | 4.7 | % |
| | | | | | | | | |
Revenue by geography | | | | | | | | | |
United States | 151,912 |
| | — |
| | 151,912 |
| | 145,565 |
| | 4.4 | % |
International | 94,345 |
| | 18,240 |
| | 112,585 |
| | 106,985 |
| | 5.2 | % |
Total | 246,257 |
| | 18,240 |
| | 264,497 |
| | 252,550 |
| | 4.7 | % |
Legacy Tornier N.V.
Reconciliation of Net Loss to
Non-GAAP Adjusted Earnings Before Interest, Taxes, Depreciation
and Amortization (EBITDA)
(in thousands--unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 27, 2015 | | September 28, 2014 | | September 27, 2015 | | September 28, 2014 |
Revenue, as reported | $ | 74,944 |
| | $ | 76,675 |
| | $ | 246,257 |
| | $ | 252,550 |
|
Net loss, as reported | $ | (10,794 | ) | | $ | (5,321 | ) | | $ | (25,253 | ) | | $ | (21,006 | ) |
Interest income | (64 | ) | | (18 | ) | | (82 | ) | | (126 | ) |
Interest expense | 1,419 |
| | 1,250 |
| | 4,171 |
| | 3,964 |
|
Income tax expense (benefit) | 652 |
| | (477 | ) | | 1,743 |
| | (416 | ) |
Depreciation | 6,113 |
| | 6,058 |
| | 18,498 |
| | 17,666 |
|
Amortization | 4,004 |
| | 4,274 |
| | 12,051 |
| | 12,928 |
|
Subtotal Non-GAAP EBITDA | 1,330 |
| | 5,766 |
| | 11,128 |
| | 13,010 |
|
Other non-operating (income) expense | (60 | ) | | (11 | ) | | (148 | ) | | (20 | ) |
Foreign currency transaction loss (gain) | 315 |
| | 152 |
| | 410 |
| | 195 |
|
Share-based compensation | 1,854 |
| | 2,348 |
| | 6,512 |
| | 6,869 |
|
Inventory step-up from acquisition | — |
| | 157 |
| | — |
| | 577 |
|
Special Charges: | | | | | | | |
Acquisition, integration and distribution transition costs | (127 | ) | | 214 |
| | 691 |
| | 2,250 |
|
Reversal of OrthoHelix contingent consideration liability | — |
| | (5,000 | ) | | — |
| | (5,000 | ) |
Instrument use tax refund | — |
| | — |
| | (2,000 | ) | | — |
|
Restructuring | — |
| | 420 |
| | — |
| | 1,431 |
|
Proposed merger-related costs | 2,784 |
| | — |
| | 8,169 |
| | — |
|
Other | — |
| | — |
| | — |
| | 325 |
|
Non-GAAP adjusted EBITDA | $ | 6,096 |
| | $ | 4,046 |
| | $ | 24,762 |
| | $ | 19,637 |
|
Non-GAAP adjusted EBITDA margin | 8.1 | % | | 5.3 | % | | 10.1 | % | | 7.8 | % |
Legacy Tornier N.V.
Reconciliation of Net Loss and Loss per Share
to Adjusted Net Loss and Adjusted Net Loss per Share
(in thousands, except per share data--unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 27, 2015 | | September 28, 2014 | | September 27, 2015 | | September 28, 2014 |
Net loss, as reported | $ | (10,794 | ) | | $ | (5,321 | ) | | $ | (25,253 | ) | | $ | (21,006 | ) |
Inventory step-up from acquisition, net of tax | — |
| | (119 | ) | | — |
| | 284 |
|
Reversal of valuation allowance from acquisition | — |
| | — |
| | — |
| | (146 | ) |
Special charges, net of tax: | | | | | | | |
Acquisition, integration and distribution transition costs | (106 | ) | | 200 |
| | 691 |
| | 2,236 |
|
Reversal of OrthoHelix contingent consideration liability | — |
| | (5,000 | ) | | — |
| | (5,000 | ) |
Instrument use tax refund | — |
| | — |
| | (2,000 | ) | | — |
|
Restructuring | — |
| | 420 |
| | — |
| | 1,431 |
|
Proposed merger-related costs | 2,772 |
| | — |
| | 8,157 |
| | — |
|
Other | — |
| | — |
| | — |
| | 325 |
|
Non-GAAP adjusted net loss | (8,128 | ) | | (9,820 | ) | | (18,405 | ) | | (21,876 | ) |
Net loss per share, as reported | | | | | | | |
Basic and diluted | $ | (0.22 | ) | | $ | (0.11 | ) | | $ | (0.51 | ) | | $ | (0.43 | ) |
Inventory step-up from acquisition, net of tax | — |
| | — |
| | — |
| | 0.01 |
|
Reversal of valuation allowance from acquisition | — |
| | — |
| | — |
| | (0.01 | ) |
Special charges, net of tax: | — |
| | — |
| | — |
| | — |
|
Acquisition, integration and distribution transition costs | — |
| | 0.01 |
| | 0.01 |
| | 0.05 |
|
Reversal of OrthoHelix contingent consideration liability | — |
| | (0.11 | ) | | — |
| | (0.11 | ) |
Instrument use tax refund | — |
| | — |
| | (0.04 | ) | | — |
|
Restructuring | — |
| | 0.01 |
| | — |
| | 0.03 |
|
Proposed merger-related costs | 0.06 |
| | — |
| | 0.17 |
| | — |
|
Other | — |
| | — |
| | — |
| | 0.01 |
|
Non-GAAP adjusted net loss per share | | | | | | | |
Basic and diluted | (0.16 | ) | | (0.20 | ) | | (0.37 | ) | | (0.45 | ) |
Weighted average ordinary shares outstanding | | | | | | | |
Basic and diluted | 49,279 |
| | 48,832 |
| | 49,116 |
| | 48,656 |
|
Legacy Tornier N.V.
Reconciliation of Net Cash Provided by Operating Activities
to Non-GAAP Free Cash Flow
(dollars in thousands--unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 27, 2015 | | September 28, 2014 | | September 27, 2015 | | September 28, 2014 |
Net cash provided by operating activities, as reported | $ | 11,299 |
| | $ | (4,622 | ) | | $ | 12,907 |
| | $ | (4,517 | ) |
Adjusted for: | | | | | | | |
Additions of instruments, as reported | (4,808 | ) | | (4,214 | ) | | (14,089 | ) | | (18,749 | ) |
Purchases of property, plant and equipment, as reported | (883 | ) | | (3,248 | ) | | (4,544 | ) | | (8,128 | ) |
Non-GAAP adjusted free cash flow | $ | 5,608 |
| | $ | (12,084 | ) | | $ | (5,726 | ) | | $ | (31,394 | ) |
Legacy Tornier N.V.
Reconciliation of Gross Margin and Gross Margin %
to Non-GAAP Adjusted Gross Margin and Gross Margin %
(dollars in thousands--unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 27, 2015 | | September 28, 2014 | | September 27, 2015 | | September 28, 2014 |
Revenue, as reported | $ | 74,944 |
| | $ | 76,675 |
| | $ | 246,257 |
| | $ | 252,550 |
|
Gross margin, as reported | $ | 58,517 |
| | $ | 58,665 |
| | $ | 191,157 |
| | $ | 190,849 |
|
Gross margin %, as reported | 78.1 | % | | 76.5 | % | | 77.6 | % | | 75.6 | % |
Adjusted for: | | | | | | | |
Inventory step-up due to acquisition | — |
| | 157 |
| | — |
| | 577 |
|
Non-GAAP adjusted gross margins | 58,517 |
| | 58,822 |
| | 191,157 |
| | 191,426 |
|
Non-GAAP adjusted gross margin % | 78.1 | % | | 76.7 | % | | 77.6 | % | | 75.8 | % |
Legacy Tornier N.V.
Reconciliation of Operating Expenses to
Non-GAAP Adjusted Operating Expenses
(dollars in thousands--unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 27, 2015 | | September 28, 2014 | | September 27, 2015 | | September 28, 2014 |
Revenue, as reported | $ | 74,944 |
| | $ | 76,675 |
| | $ | 246,257 |
| | $ | 252,550 |
|
Operating Expenses, as reported | 67,049 |
| | 63,090 |
| | 210,316 |
| | 208,258 |
|
Operating expenses as a percentage of revenue, as reported | 89.5 | % | | 82.3 | % | | 85.4 | % | | 82.5 | % |
Adjusted for: | | | | | | | |
Amortization of intangible assets | (4,004 | ) | | (4,274 | ) | | (12,051 | ) | | (12,928 | ) |
Special charges | (2,657 | ) | | 4,366 |
| | (6,860 | ) | | 994 |
|
Total adjustments | (6,661 | ) | | 92 |
| | (18,911 | ) | | (11,934 | ) |
Non-GAAP adjusted operating expenses | $ | 60,388 |
| | $ | 63,182 |
| | $ | 191,405 |
| | $ | 196,324 |
|
Non-GAAP adjusted operating expenses as a percentage of revenue | 80.6 | % | | 82.4 | % | | 77.7 | % | | 77.7 | % |
Legacy Tornier N.V.
Condensed Consolidated Balance Sheets
(dollars in thousands--unaudited)
|
| | | | | | | |
| September 27, 2015 | | December 28, 2014 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 30,111 |
| | $ | 27,940 |
|
Accounts receivable, net | 62,303 |
| | 63,583 |
|
Inventories | 83,668 |
| | 88,662 |
|
Deferred income taxes and other current assets | 26,902 |
| | 29,516 |
|
Total current assets | 202,984 |
| | 209,701 |
|
Instruments, net | 59,728 |
| | 62,888 |
|
Property, plant and equipment, net | 42,632 |
| | 44,662 |
|
Goodwill and intangible assets, net | 318,115 |
| | 339,902 |
|
Deferred income taxes and other assets | 1,819 |
| | 1,422 |
|
Total assets | $ | 625,278 |
| | $ | 658,575 |
|
Liabilities and stockholders' equity | | | |
Current liabilities: | | | |
Short-term borrowing and current portion of long-term debt | $ | 8,354 |
| | $ | 7,394 |
|
Accounts payable | 15,306 |
| | 15,073 |
|
Accrued liabilities, deferred income taxes and other current liabilities | 59,046 |
| | 61,994 |
|
Total current liabilities | 82,706 |
| | 84,461 |
|
Other long-term debt | 77,774 |
| | 68,105 |
|
Deferred income taxes and other long-term liabilities | 25,571 |
| | 27,119 |
|
Total liabilities | 186,051 |
| | 179,685 |
|
Stockholders' equity | 439,227 |
| | 478,890 |
|
Total liabilities and stockholders' equity | $ | 625,278 |
| | $ | 658,575 |
|
Legacy Tornier N.V.
Consolidated Statements of Cash Flow
(dollars in thousands--unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 27, 2015 | | September 28, 2014 | | September 27, 2015 | | September 28, 2014 |
Cash flows from operating activities | | | | | | | |
Consolidated net loss | $ | (10,794 | ) | | $ | (5,321 | ) | | $ | (25,253 | ) | | $ | (21,006 | ) |
Adjustments to reconcile consolidated net loss to net cash provided by (used in) operating activities | | | | | | | |
Depreciation and amortization | 10,117 |
| | 10,332 |
| | 30,549 |
| | 30,594 |
|
Non-cash foreign currency loss | 325 |
| | 137 |
| | 387 |
| | 176 |
|
Deferred income taxes | 64 |
| | (2,673 | ) | | (2,812 | ) | | (5,254 | ) |
Share-based compensation | 1,854 |
| | 2,348 |
| | 6,512 |
| | 6,869 |
|
Non-cash interest expense and discount amortization | 297 |
| | 211 |
| | 733 |
| | 565 |
|
Inventory obsolescence | 3,555 |
| | 2,711 |
| | 8,568 |
| | 8,389 |
|
Fair value adjustment of contingent consideration liability | (151 | ) | | (5,327 | ) | | 618 |
| | (5,327 | ) |
Inventory step up from acquisition | — |
| | 157 |
| | — |
| | 577 |
|
Other non-cash items affecting earnings | 159 |
| | (14 | ) | | 410 |
| | 312 |
|
| | | | | | | |
Changes in operating assets and liabilities | | | | | | | |
Accounts receivable | 5,439 |
| | 2,204 |
| | (774 | ) | | (1,015 | ) |
Inventories | (2,823 | ) | | (6,260 | ) | | (9,316 | ) | | (21,586 | ) |
Accounts payable and accruals | (655 | ) | | (3,954 | ) | | 2,973 |
| | 4,213 |
|
Other current assets and liabilities | 3,494 |
| | 634 |
| | 29 |
| | (2,713 | ) |
Other non-current assets and liabilities | 418 |
| | 193 |
| | 283 |
| | 689 |
|
Net cash provided by (used in) operating activities | 11,299 |
| | (4,622 | ) | | 12,907 |
| | (4,517 | ) |
Cash flows from investing activities | | | | | | | |
Acquisition-related cash payments | — |
| | (20 | ) | | (360 | ) | | (2,020 | ) |
Additions of instruments | (4,808 | ) | | (4,214 | ) | | (14,089 | ) | | (18,749 | ) |
Purchases of property, plant and equipment | (883 | ) | | (3,248 | ) | | (4,544 | ) | | (8,128 | ) |
Net cash used in investing activities | (5,691 | ) | | (7,482 | ) | | (18,993 | ) | | (28,897 | ) |
Cash flows from financing activities | | | | | | | |
Contingent consideration payments | (1,155 | ) | | (1,171 | ) | | (2,607 | ) | | (6,793 | ) |
Change in short-term debt | — |
| | 6,000 |
| | 1,000 |
| | 6,000 |
|
Repayments of long-term debt | (277 | ) | | (160 | ) | | (1,047 | ) | | (723 | ) |
Proceeds from issuance of long-term debt | — |
| | — |
| | 10,067 |
| | 477 |
|
Deferred financing costs | — |
| | — |
| | (114 | ) | | — |
|
Issuance of ordinary shares | 235 |
| | 932 |
| | 1,958 |
| | 3,128 |
|
Net cash (used in) provided by financing activities | (1,197 | ) | | 5,601 |
| | 9,257 |
| | 2,089 |
|
Effect of currency exchange rates on cash and cash equivalents | (183 | ) | | 662 |
| | (1,000 | ) | | 471 |
|
Decrease in cash and cash equivalents | 4,228 |
| | (5,841 | ) | | 2,171 |
| | (30,854 | ) |
Cash and cash equivalents at beginning of period | 25,883 |
| | 31,771 |
| | 27,940 |
| | 56,784 |
|
Cash and cash equivalents at end of period | $ | 30,111 |
| | $ | 25,930 |
| | $ | 30,111 |
| | $ | 25,930 |
|
Wright Medical Group N.V.
Reconciliation of Estimated 2015 Net Sales to Estimated 2015 Pro Forma Net Sales
(dollars in millions--unaudited)
|
| | | | | | | |
| Twelve Months Ended |
| December 27, 2015 |
| Low-End of Range | | High-End of Range |
Legacy Wright Medical Group year-to-date net sales | $ | 238.5 |
| | $ | 238.5 |
|
Estimated Wright Medical Group N.V. fourth quarter net sales | 161.0 |
| | 167.0 |
|
Estimated 2015 Net Sales | $ | 399.5 |
| | $ | 405.5 |
|
Legacy Tornier N.V. year-to-date net sales | 246.2 |
| | 246.2 |
|
Legacy Tornier N.V. sales of divested foot & ankle products | (9.7 | ) | | (9.7 | ) |
Estimated 2015 Pro Forma Net Sales | $ | 636 |
| | $ | 642 |
|
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