Form 8-K ORTHOFIX INTERNATIONAL For: Mar 31
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 31, 2015
Orthofix International N.V.
(Exact name of Registrant as specified in its charter)
| Curaçao | 0-19961 | N/A | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) | ||
| 7 Abraham de Veerstraat Curaçao |
N/A | |||
| (Address of principal executive offices) | (Zip Code) | |||
Registrant’s telephone number, including area code: 011-59-99-465-8525
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 (see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| Item 2.02. | Results of Operations and Financial Condition. |
On March 31, 2015, Orthofix International N.V. issued a press release announcing, among other things, its financial results for the fiscal quarter ended September 30, 2014. A copy of the press release is furnished herewith as Exhibit 99.1 and attached hereto.
| Item 9.01. | Financial Statements and Exhibits. |
| (d) | Exhibits |
| 99.1 | Press Release, dated March 31, 2015. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Orthofix International N.V. | ||
| By: | /s/ Jeffrey M. Schumm | |
| Jeffrey M. Schumm | ||
| Chief Administrative Officer, General Counsel and Corporate Secretary | ||
Date: March 31, 2015
EXHIBIT INDEX
| Exhibit No. |
Description | |
| 99.1 | Press Release, dated March 31, 2015. | |
Exhibit 99.1
March 31, 2015
Orthofix International Reports Third Quarter 2014 Results and Announces Filing of Restated Financial Statements
LEWISVILLE, Texas—(BUSINESS WIRE)— Orthofix International N.V. (NASDAQ: OFIX) (the “Company,” “we,” “us” or “our”), a diversified, global medical device company focused on improving patients’ lives by providing superior reconstructive and regenerative orthopedic and spine solutions to physicians worldwide, today filed with the Securities and Exchange Commission restated financial statements for fiscal years 2011, 2012 and 2013 and the fiscal quarter ended March 31, 2014, while also filing its late Quarterly Reports on Form 10-Q for the fiscal quarters ended June 30, 2014 and September 30, 2014. The Company continues to work to complete the procedures needed to file its 2014 Annual Report on Form 10-K with the Securities and Exchange Commission. As requested by a letter from NASDAQ, on March 25, 2015, the Company provided a written update to the Hearings Panel regarding these matters. The Company has requested that the Hearings Panel grant the Company relief from delisting through April 30, 2015 while it completes the filing of its 2014 Annual Report on Form 10-K.
Net sales in the third quarter of 2014 were $101.0 million, increasing 10.0% from net sales of $91.8 million in the third quarter of 2013. Third quarter 2014 net income from continuing operations was $28 thousand, or $0.00 per diluted share, compared to a net loss from continuing operations of $16.5 million for the same period last year, or $0.91 per diluted share. Adjusted net income from continuing operations for the third quarter of 2014 was $3.3 million, or $0.17 per diluted share, compared to $4.0 million, or $0.22 per diluted share, in the third quarter of 2013.
“We are pleased to have completed the extensive technical accounting work reflected in the restated financial statements we filed today,” commented President and Chief Executive Officer Brad Mason. “Despite this distraction, the underlying businesses remain solid as reflected in our financial and operating performance in the third quarter. Additionally, our year-to-date cash flow generation continued to strengthen our balance sheet and financial position.”
Third Quarter 2014 Net Sales Results
BioStim
Net sales in the BioStim strategic business unit (“SBU”) increased $7.6 million or 24.8% to $38.3 million in the third quarter of 2014 compared to $30.7 million for the same period in the prior year. The increase was primarily due to the 2013 reduction in third party payor revenue driven by our transition during the third quarter of 2013 to recognize revenue upon accumulation of the full billable package for third party payors, and to a lesser extent, order volume growth as a result of enhancements to the BioStim sales organization.
Biologics
Net sales in the Biologics SBU increased $0.7 million, or 5.3%, to $13.9 million in the third quarter of 2014 compared to $13.2 million for the same period in the prior year. The growth was primarily driven by an expanded sales channel as well as continued conversion to our next generation cell-based bone growth tissue technology (Trinity ELITE®).
Extremity Fixation
Net sales in the Extremity Fixation SBU increased $2.9 million, or 11.7%, to $27.6 million in the third quarter of 2014 compared to $24.7 million for the same period last year. The growth was driven by recent expanded product launches and an improvement in international sales, partially offset by declining revenue at our Brazil subsidiary, which has experienced significant disruption to the sales channel over the past year as we rebuild our sales organization.
Spine Fixation
Net sales in the Spine Fixation SBU decreased $2.0 million or 8.6% to $21.2 million in the third quarter of 2014 compared to $23.2 million for the same period last year primarily due to loss of sales momentum resulting from our efforts to reorganize the sales force in late 2013 through Q2 of 2014 to improve profitability.
Third Quarter 2014 Earnings Results and Adjusted EBITDA
Gross profit increased $9.0 million to $75.7 million in the third quarter of 2014 compared to $66.7 million for the same period last year. Gross profit as a percent of net sales was 75.0% for the third quarter of 2014 and 72.7% for 2013 during the same period. This increase was primarily driven by the change in third party payor revenue for the BioStim business in the third quarter of 2013, which recognized revenue upon accumulation of the full billable package for third party payors causing third quarter 2013 revenue to be lower. In addition, the third quarter of 2013 included additional reserves for excess and obsolete products in multiple SBUs.
Third quarter 2014 sales and marketing expense was $41.0 million, or 40.6% of net sales, compared to $39.1 million, or 42.6% of net sales, for the same period in the prior year. The expense increase was primarily due to higher commissions resulting from the increased BioStim sales.
General and administrative expense increased $5.9 million, or 45.5%, in the third quarter of 2014 to $18.8 million, compared to $12.9 million in the third quarter of 2013. General and administrative expense as a percent of net sales was 18.6% in the third quarter of 2014, compared to 14.2% for the same period in the prior year. The increase in G&A was primarily driven by investment in the following initiatives: implementation of an internal audit function; focused efforts on key process improvements; and remediation of material weaknesses and significant deficiencies. Further, $1.5 million has been spent in the first nine months of 2014 on our multi-year process and systems improvement effort, “Bluecore.”
Research and development expense increased $0.2 million in the third quarter of 2014 to $6.6 million, compared to $6.4 million in the same period in the prior year, as a result of increased spending in both clinical and pre-clinical studies. Research and development expense as a percent of net sales was 6.5% in the third quarter of 2014, compared to 6.9% for the same period in 2013.
Third quarter 2014 adjusted EBITDA from continuing operations was $17.8 million for the period, or 17.6% of sales, compared to $14.4 million, or 15.7% of sales, for the same period in the prior year. The increase in adjusted EBITDA was due primarily to the higher sales mix from the BioStim SBU compared to the prior year.
Third quarter 2014 net income from continuing operations was $28 thousand, or $0.00 per diluted share, compared to a net loss of $16.5 million, or $0.91 per diluted share, for the same period in 2013. Adjusted net income from continuing operations for the third quarter of 2014 was $3.3 million, or $0.17 per diluted share, compared to $4.0 million, or $0.22 per diluted share, in the third quarter of 2013.
Year-to-Date (as of September 30, 2014) Net Sales Results
BioStim
Net sales in the BioStim SBU increased 8.6% to $114.9 million in the first nine months of 2014 compared to $105.8 million for the same period in the prior year, an increase of $9.1 million. This year-over-year increase was primarily due to the reduction in third party payor revenue driven by our billable package transition in the third quarter of 2013, and to a lesser extent, order volume growth as a result of enhancements to the BioStim sales organization.
Biologics
Net sales in the Biologics SBU increased $0.9 million, or 2.3%, to $40.7 million in the first nine months of 2014, compared to $39.8 million for the same period in the prior year, due to an expanded sales channel as well as continued conversion to our next generation cell-based bone growth tissue technology (Trinity ELITE®). This increase was reduced slightly as a result of a decrease in the marketing fees received from Musculoskeletal Transplant Foundation (“MTF”) for Trinity products from 70% of retail price to 65% beginning April 2013.
Extremity Fixation
Net sales in the Extremity Fixation SBU increased $7.9 million, or 10.7%, to $82.0 million in the first nine months of 2014 compared to $74.1 million for the same period in 2013. Year-over-year revenue comparisons are impacted by the transition to sell-through accounting for certain of the Company’s distributors in the second quarter of 2013. Recent expanded product launches also contributed to increased sales as well as increased sales in the U.S. for our TrueLok product line. These items were partially offset by declining revenues at our Brazil subsidiary, which has experienced significant disruption to the sales channel over the past year as we rebuild our Brazil sales organization.
Spine Fixation
Net sales in the Spine Fixation SBU decreased $7.7 million, or 10.6%, to $64.3 million in the first nine months of 2014, compared to $72.0 million for the same period in 2013. This decrease primarily was due to loss of sales momentum resulting from our efforts to reorganize the sales force in late 2013 and through Q2 of 2014 to improve profitability.
Year-to-Date (as of September 30, 2014) Earnings Results and Adjusted EBITDA
Gross profit increased $5.6 million to $224.5 million in the first nine months of 2014 compared to $218.9 million for the same period in the prior year. Gross profit as a percent of net sales was 74.4% for the first nine months of 2014 and 75.0% for 2013 during the same period. The decrease in gross margin was primarily driven by changes in the product and sales channel mix resulting from rebuilding our Brazil sales organization, and reserves for excess and obsolete products across multiple SBUs.
Sales and marketing expense, which includes variable expenses such as commissions and provisions for bad debt, decreased 4.1% for the first nine months of 2014 compared to the prior year. Tighter cost controls on non-variable sales and marketing expenses, lower commission rates due to the reorganization of the Brazil and U.S. Spine Fixation sales forces, and lower Spine sales, resulted in an overall decrease in expense of $5.3 million to $124.2 million, compared to $129.5 million for the same period in the prior year. As a percent of net sales, sales and marketing related expense was 41.1% compared to 44.4% for the same period in 2013.
General and administrative expense increased $7.3 million, or 15.7%, in the first nine months of 2014 to $53.6 million compared to $46.4 million in the first nine months of 2013. General and administrative expense as a percent of net sales was 17.8% for the first nine months of 2014, compared to 15.9% for the same period in the prior year. This increase was primarily driven by investment in the following initiatives: implementation of an internal audit function; focused efforts on key process improvements; and remediation of material weaknesses and significant deficiencies. Additionally, medical insurance payouts have been unusually high in 2014 whereas in 2013 the payouts were unusually low. This has caused a large fluctuation from the prior year because the Company is self-insured up to a stop loss threshold. Approximately $1.5 million has been spent in the first nine months of 2014 on our multi-year process and systems improvement effort, “Bluecore.”
Research and development expense decreased $1.9 million in the first nine months of 2014 to $18.8 million, compared to $20.7 million in the first nine months of 2013. As a percent of net sales, research and development expense was 6.3% in the first nine months of 2014 compared to 7.1% for the same period in the prior year. The decrease was primarily driven by a $2.0 million payment to Musculoskeletal Transplant Foundation (“MTF”) in the second quarter of 2013 for the development and commercialization of Trinity ELITE®, which was released in the first half of 2013.
Year-to-date (as of September 30, 2014) adjusted EBITDA from continuing operations was $49.0 million for the period, or 16.2% of sales, compared to $47.4 million, 16.2% of sales, in the same period in the prior year. The increase in adjusted EBITDA on a dollar basis was due to the $10.3 million increase in net sales.
Year-to-date (as of September 30, 2014) net income from continuing operations was $1.3 million compared to a net loss of $8.6 million for the same period in the prior year. Adjusted net income from continuing operations was $11.1 million, or $0.60 per diluted share, compared to $14.2 million, or $0.75 per diluted share, for the same period in the prior year.
Summary of Restated Financial Statements
On March 24, 2014, the Company filed restated financial statements for the fiscal years ended December 31, 2012, 2011 and 2010 and the fiscal quarter ended March 31, 2013 (the “Original Restatement”). Subsequently, in connection with the Company’s preparation of its consolidated interim quarterly financial statements for the fiscal quarter ended June 30, 2014, the Company determined that certain entries with respect to previously filed financial statements were not properly accounted for under U.S. generally accepted accounting principles (“U.S. GAAP”). Due to these errors, the Company determined in August 2014 to restate its consolidated financial statements for the fiscal years ended December 31, 2013, 2012 and 2011 (including the interim quarterly periods therein) and the fiscal quarter ended March 31, 2014, and that the previously filed financial statements for these periods should no longer be relied upon.
Today, the Company has filed amendments to its Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (the “2013 Form 10-K/A”) and its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2014 (the “2014 First Quarter Form 10-Q/A”), as well as its late Quarterly Reports on Form 10-Q for the fiscal quarters ended June 30, 2014 and September 30, 2014, respectively (the “2014 Second Quarter Form 10-Q” and the “2014 Third Quarter Form 10-Q”). Restated consolidated financial statements for the fiscal years ended December 31, 2013, 2012 and 2011 are contained in the 2013 Form 10-K/A, and restated condensed consolidated financial statements for the fiscal quarters ended March 31, 2014 and 2013 are contained in the 2014 First Quarter Form 10-Q/A. In addition, restated condensed consolidated financial statements for the fiscal quarters ended June 30, 2013 and September 30, 2013 are contained in the 2014 Second Quarter Form 10-Q and the 2014 Third Quarter Form 10-Q, respectively. The Company refers to the restated consolidated financial statements for these periods contained in these filings as the “Further Restatement.” The errors corrected by the Further Restatement are as follows:
| • | Co-Pay and Self-Pay Revenue Adjustments—A majority of revenue from the Company’s BioStim SBU is derived from third parties, which is subject to change due to contractual adjustments related to commercial insurance carriers, and may include certain patient co-pay amounts. The Company previously recorded certain co-pay and self-pay amounts as |
| revenue, with estimated uncollectible portions being recognized as bad debt expense. Given that the collectability of co-pay and self-pay amounts was not reasonably assured, the conditions for revenue recognition had not been met and revenue for those amounts should not have been recognized until collected. Adjustments to correct the foregoing reduce equally both the Company’s historical net sales and its sales and marketing expense by approximately $2.2 million, $9.0 million and $6.0 million for the fiscal years ended December 31, 2013, 2012 and 2011, respectively, and $1.4 million for the fiscal quarter ended March 31, 2014. Additionally, there was $1.4 million in the fiscal quarter ended March 31, 2014 related to contractual amounts from commercial insurance carriers that was incorrectly classified to bad debt expense rather than as a reduction of revenue, for a total reduction to bad debt and revenue of $2.8 million for the fiscal quarter ended March 31, 2014. These adjustments have no effect on net income from continuing operations or net income in these periods. |
| • | Bad Debt Timing Adjustments—Certain bad debt reserves originally recorded in fiscal years 2011 and 2012 were reversed in incorrect periods during the preparation of the Original Restatement in connection with the change to sell-through accounting for certain distributors. As a result, sales and marketing expense was understated by approximately $1.5 million and $1.1 million for the fiscal years ended December 31, 2013 and 2012, respectively, and overstated by approximately $2.1 million for the fiscal year ended December 31, 2011. |
| • | Accounts Receivable Reserve Adjustments—As part of analyzing collections experience on accounts receivable, the Company identified that it had incorrectly considered certain deferred revenue amounts included in gross accounts receivable when calculating estimated reserves. Specifically, the computation of the contractual allowances and bad debt allowances, which serves to adjust accounts receivable to the estimated collectible amount, incorrectly assumed that some percentage of deferred amounts would be collected, rather than fully deferring these amounts. Adjustments to correct this error resulted in a net decrease in operating income of $0.7 million and $0.2 million for the fiscal years ended December 31, 2013 and 2011, respectively, and a net increase in operating income of $2.1 million for the fiscal year ended December 31, 2012, as well as a net decrease in operating loss of $1.5 million for the fiscal quarter ended March 31, 2014. |
| • | Intercompany Profit Adjustments—As part of the Original Restatement, the Company made certain corrections to prior period excess and obsolete inventory reserves. The effect of these corrections was not considered when determining the adjustments needed to eliminate intercompany profits from inventories in the Original Restatement. Adjustments to correct this error resulted in an increase to cost of sales of $1.1 million, $0.2 million and $0.3 million for the fiscal years ended December 31, 2013, 2012 and 2011, respectively, as well as an increase to cost of sales of $3.0 million for the fiscal quarter ended March 31, 2014. |
| • | Inventory: |
| • | Inventory Existence—As part of the remediation activities that followed the Original Restatement, the Company expanded its procedures in the second quarter of 2014 to validate the existence of field inventory held by independent sales representatives and noted that, in many cases, this inventory had higher rates of missing inventory (“shrinkage”) than previously estimated. To determine whether these higher error rates were pervasive across its field inventory, the Company counted approximately 90% of its field inventory during the third and fourth fiscal quarters of 2014. These counts resulted in the identification of errors relating to previous estimates of shrinkage. Adjustments in the Further Restatement to correct these errors, net of the related effect on previously recorded excess and obsolete inventory reserves, resulted in an increase to cost of sales of $0.4 million, $0.3 million and $0.2 million for the fiscal years ended December 31, 2013, 2012 and 2011, respectively, as well as an increase to cost of sales of $0.2 million for the fiscal quarter ended March 31, 2014. |
| • | Inventory Reserves - In connection with its remediation efforts associated with the material weakness noted in the Original Restatement related to inventory reserves, the Company concluded that it was not appropriately calculating inventory reserves, including its consideration of demand assumptions for “kits”, which contain a variety of “piece part” components to be used during surgery as well as inventory held by third parties under inventory purchase obligations. Adjustments to correct this error resulted in an increase to cost of sales of $3.2 million, $1.5 million and $0.1 million for the fiscal years ended December 31, 2013, 2012 and 2011, respectively, as well as an increase to cost of sales of $2.4 million for the fiscal quarter ended March 31, 2014. |
| • | Other Adjustments—In addition to the adjustments described above, the Company has corrected certain other items. The impact of correcting these items results in a decrease to income tax expense of $0.5 million and $1.1 million for the fiscal years ended December 31, 2013 and 2012, respectively; these adjustments are separate from the tax effect of the errors described above. |
Conference Call
Orthofix anticipates hosting a conference call in April in conjunction with the announcement of the Company’s financial results for the fourth quarter of 2014 and the full 2014 fiscal year.
About Orthofix
Orthofix International N.V. is a diversified, global medical device company focused on improving patients’ lives by providing superior reconstructive and regenerative orthopedic and spine solutions to physicians worldwide. Headquartered in Lewisville, TX, the Company has four strategic business units that include BioStim, Biologics, Extremity Fixation and Spine Fixation. Orthofix products are widely distributed via the Company’s sales representatives, distributors and its subsidiaries. In addition, Orthofix is collaborating on research and development activities with leading clinical organizations such as the Musculoskeletal Transplant Foundation, the Orthopedic Research and Education Foundation and the Texas Scottish Rite Hospital for Children. For more information, please visit www.orthofix.com.
Forward-Looking Statements
This communication contains certain forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements, which may include, but are not limited to, statements concerning the projections, financial condition, results of operations and businesses of Orthofix and its subsidiaries, are based on management’s current expectations and estimates and involve risks and uncertainties that could cause actual results or outcomes to differ materially from those contemplated by the forward-looking statements.
The forward-looking statements in this release do not constitute guarantees or promises of future performance. Factors that could cause or contribute to such differences may include, but are not limited to: risks relating to our restatements of our financial statements for prior periods and related legal proceedings (including potential action by the Division of Enforcement of the SEC and pending securities class action litigation); our pending Nasdaq Hearing Panel proceeding; the Company’s review of allegations of improper payments involving the Company’s Brazil-based subsidiary; the expected sales of the Company’s products, including recently launched products; unanticipated expenditures; changing relationships with customers, suppliers, strategic partners and lenders; changes to and the interpretation of governmental regulations; the resolution of pending litigation matters (including the Company’s indemnification obligations with respect to certain product liability claims against, and the government investigation of, the Company’s former sports medicine global business unit); the Company’s ongoing compliance obligations under a corporate integrity agreement with the Office of Inspector General of the Department of Health and Human Services (and related terms of probation), a deferred prosecution agreement with the U.S. Department of Justice and a Consent Decree with the SEC; risks relating to the protection of intellectual property; changes to the reimbursement policies of third parties; the impact of competitive products; changes to the competitive environment, the acceptance of new products in the market, conditions of the orthopedic industry, credit markets and the economy; corporate development and market development activities, including acquisitions or divestitures, unexpected costs or operating unit performance related to recent acquisitions; and other risks described in Item 1A under the heading “Risk Factors” in the 2013 Form 10-K/A, as well as in other subsequent periodic reports filed by the Company with the SEC. Existing and prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to update or revise the information contained in this press release.
The following tables present sales and constant currency sales growth by SBU for the three months and nine months ended September 30, 2014, and 2013, respectively. Some calculations may be impacted by rounding.
| Net Sales by SBU Three Months Ended September 30, |
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| (Unaudited, U.S. Dollars in thousands) |
2014 | 2013 | Reported Growth |
Constant Currency Growth |
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| (Restated) | ||||||||||||||||
| BioStim |
$ | 38,285 | $ | 30,654 | 25 | % | 25 | % | ||||||||
| Biologics |
$ | 13,856 | $ | 13,216 | 5 | % | 5 | % | ||||||||
| Extremity Fixation |
$ | 27,636 | $ | 24,705 | 12 | % | 9 | % | ||||||||
| Spine Fixation |
$ | 21,217 | $ | 23,231 | (9 | )% | (9 | )% | ||||||||
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| Total Net Sales |
$ | 100,994 | $ | 91,806 | 10 | % | 9 | % | ||||||||
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| Net Sales by SBU Nine Months Ended September 30, |
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| (Unaudited, U.S. Dollars in thousands) |
2014 | 2013 | Reported Growth |
Constant Currency Growth |
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| (Restated) | ||||||||||||||||
| BioStim |
$ | 114,937 | $ | 105,828 | 9 | % | 9 | % | ||||||||
| Biologics |
$ | 40,718 | $ | 39,816 | 2 | % | 2 | % | ||||||||
| Extremity Fixation |
$ | 82,005 | $ | 74,112 | 11 | % | 9 | % | ||||||||
| Spine Fixation |
$ | 64,333 | $ | 71,969 | (11 | )% | (11 | )% | ||||||||
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| Total Net Sales |
$ | 301,933 | $ | 291,725 | 3 | % | 3 | % | ||||||||
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The following table presents net margin, which we define as gross profit less sales and marketing expenses, by SBU for the three months and nine months ended September 30, 2014, and 2013, respectively, as well as reconciliations to operating income. Some calculations may be impacted by rounding.
Net Margin by SBU
| Three Months Ended September 30, |
Nine Months Ended September 30, |
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| (Unaudited, U.S. Dollars in thousands) |
2014 | 2013 | 2014 | 2013 | ||||||||||||
| (Restated) | (Restated) | |||||||||||||||
| Net Margin |
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| BioStim |
$ | 16,442 | $ | 13,397 | $ | 49,168 | $ | 48,614 | ||||||||
| Biologics |
6,504 | 6,737 | 19,500 | 18,463 | ||||||||||||
| Extremity Fixation |
8,361 | 7,089 | 21,952 | 17,980 | ||||||||||||
| Spine Fixation |
3,958 | 913 | 11,147 | 5,796 | ||||||||||||
| Corporate |
(537 | ) | (470 | ) | (1,411 | ) | (1,376 | ) | ||||||||
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| Total net margin |
$ | 34,728 | $ | 27,666 | $ | 100,356 | $ | 89,477 | ||||||||
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| General and administrative |
18,814 | 12,933 | 53,643 | 46,355 | ||||||||||||
| Research and development |
6,572 | 6,361 | 18,818 | 20,653 | ||||||||||||
| Amortization of intangible assets |
508 | 616 | 1,753 | 1,725 | ||||||||||||
| Costs related to the accounting review and restatement |
2,326 | 2,664 | 12,959 | 2,664 | ||||||||||||
| Impairment of goodwill |
— | 19,193 | — | 19,193 | ||||||||||||
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| Operating income (loss) |
$ | 6,508 | $ | (14,101 | ) | $ | 13,183 | $ | (1,113 | ) | ||||||
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The following table reconciles reported net income from continuing operations to EBITDA and adjusted EBITDA for the three months ended March 31, 2013, June 30, 2013, September 30, 2013, December 31, 2013, March 31, 2014, June 30, 2014, and September 30, 2014. Some calculations may be impacted by rounding. Please refer to the Non-GAAP Performance Measures section at the end of this press release for more information about the specified items below.
| Three Months Ended | ||||||||||||||||||||||||||||
| (Unaudited, U.S. Dollars, in thousands) |
9/30/2014 | 6/30/2014 | 3/31/2014 | 12/31/2013 | 9/30/2013 | 6/30/2013 | 3/31/2013 | |||||||||||||||||||||
| Net income (loss) from continuing operations |
$ | 28 | $ | 3,266 | $ | (1,948 | ) | $ | (9,639 | ) | $ | (16,504 | ) | $ | 2,012 | $ | 5,926 | |||||||||||
| Other income and expenses1 |
1,927 | 324 | 531 | (427 | ) | 1,615 | 1,507 | (23 | ) | |||||||||||||||||||
| Income tax expense |
4,763 | 3,309 | 1,179 | (392 | ) | 383 | 3,247 | 4,363 | ||||||||||||||||||||
| Depreciation and amortization |
5,578 | 5,913 | 5,603 | 5,778 | 5,302 | 5,201 | 5,046 | |||||||||||||||||||||
| Stock-based compensation |
1,729 | 1,187 | 1,187 | 1,553 | 1,277 | 1,494 | 1,943 | |||||||||||||||||||||
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| EBITDA |
$ | 14,025 | $ | 13,999 | $ | 6,552 | $ | (3,127 | ) | $ | (7,927 | ) | $ | 13,461 | $ | 17,255 | ||||||||||||
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| Strategic Investments in MTF |
0 | 0 | 0 | 0 | 500 | 2,000 | 0 | |||||||||||||||||||||
| Accounting review and restatement |
2,326 | 2,327 | 8,306 | 10,280 | 2,665 | 0 | 0 | |||||||||||||||||||||
| Infrastructure investments |
1,452 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
| Succession charges |
0 | 0 | 0 | 0 | 0 | 1,071 | 3,537 | |||||||||||||||||||||
| Demutualization of a mutual insurance company |
0 | 0 | 0 | 0 | 0 | 0 | (4,406 | ) | ||||||||||||||||||||
| Goodwill impairment |
0 | 0 | 0 | 0 | 19,193 | 0 | 0 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Adjusted EBITDA |
$ | 17,803 | $ | 16,326 | $ | 14,858 | $ | 7,153 | $ | 14,431 | $ | 16,532 | $ | 16,386 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| As a % of Sales |
17.6 | % | 16.2 | % | 14.9 | % | 6.8 | % | 15.7 | % | 16.9 | % | 16.0 | % | ||||||||||||||
| 1. | Other income and expense represents foreign exchange gain/loss and interest expense |
The following table reconciles reported net income from continuing operations to EBITDA and adjusted EBITDA for the nine months ended September 30, 2013 and September 30, 2014. Some calculations may be impacted by rounding. Please refer to the Non-GAAP Performance Measures section at the end of this press release for more information about the specified items below.
| Nine Months Ended | ||||||||
| (Unaudited, U.S. Dollars, in thousands) |
9/30/2014 | 9/30/2013 | ||||||
| Net income (loss) from continuing operations |
1,346 | (8,566 | ) | |||||
| Other income and expenses1 |
2,781 | 3,099 | ||||||
| Income tax expense |
9,251 | 7,993 | ||||||
| Depreciation and amortization |
17,094 | 15,585 | ||||||
| Stock-based compensation |
4,103 | 4,714 | ||||||
|
|
|
|
|
|||||
| EBITDA |
$ | 34,575 | $ | 22,825 | ||||
|
|
|
|
|
|||||
| Strategic Investments in MTF |
0 | 2,500 | ||||||
| Accounting review and restatement |
12,959 | 2,664 | ||||||
| Infrastructure investments |
1,452 | 0 | ||||||
| Succession charges |
0 | 4,608 | ||||||
| Demutualization of a mutual insurance company |
0 | (4,406 | ) | |||||
| Goodwill impairment |
0 | 19,193 | ||||||
|
|
|
|
|
|||||
| Adjusted EBITDA |
$ | 48,986 | $ | 47,384 | ||||
|
|
|
|
|
|||||
| As a % of Sales |
16.2 | % | 16.2 | % | ||||
| 1. | Other income and expense represents foreign exchange gain/loss and interest expense |
The following table reconciles reported net income from continuing operations to adjusted net income from continuing operations for the three months ended March 31, 2013, June 30, 2013, September 30, 2013, December 31, 2013, March 31, 2014, June 30, 2014, and September 30, 2014. Some calculations may be impacted by rounding and are shown net of tax. Please refer to the Non-GAAP Performance Measures section at the end of this press release for more information about the specified items below.
| Three Months Ended | ||||||||||||||||||||||||||||
| (Unaudited, U.S. Dollars, in thousands) |
9/30/2014 | 6/30/2014 | 3/31/2014 | 12/31/2013 | 9/30/2013 | 6/30/2013 | 3/31/2013 | |||||||||||||||||||||
| Net income (loss) from continuing operations |
$ | 28 | $ | 3,266 | $ | (1,948 | ) | $ | (9,639 | ) | $ | (16,504 | ) | $ | 2,012 | $ | 5,926 | |||||||||||
| Strategic Investments in MTF |
— | — | — | — | 315 | 1,260 | — | |||||||||||||||||||||
| Accounting review and restatement |
1,465 | 1,466 | 5,233 | 6,476 | 1,679 | — | — | |||||||||||||||||||||
| Infrastructure investments |
914 | — | — | — | — | — | — | |||||||||||||||||||||
| Succession charges |
— | — | — | — | — | 834 | 2,756 | |||||||||||||||||||||
| Foreign exchange (gain)/loss |
850 | (158 | ) | (43 | ) | (561 | ) | 631 | 629 | (393 | ) | |||||||||||||||||
| Demutualization of a mutual insurance company |
— | — | — | — | — | — | (2,776 | ) | ||||||||||||||||||||
| Goodwill impairment |
— | — | — | — | 17,849 | — | — | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Adjusted net income (loss) from continuing operations |
$ | 3,257 | $ | 4,574 | $ | 3,242 | $ | (3,721 | ) | $ | 3,970 | $ | 4,735 | $ | 5,513 | |||||||||||||
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|||||||||||||||
The following table reconciles reported net income from continuing operations per diluted share to adjusted net income from continuing operations per diluted share for the three months ended March 31, 2013, June 30, 2013, September 30, 2013, December 31, 2013, March 31, 2014, June 30, 2014, and September 30, 2014. Some calculations may be impacted by rounding and are shown net of tax. Please refer to the Non-GAAP Performance Measures section at the end of this press release for more information about the specified items below.
| Three Months Ended | ||||||||||||||||||||||||||||
| (Unaudited, per diluted share) |
9/30/2014 | 6/30/2014 | 3/31/2014 | 12/31/2013 | 9/30/2013 | 6/30/2013 | 3/31/2013 | |||||||||||||||||||||
| EPS from continuing operations |
$ | 0.00 | $ | 0.18 | $ | (0.11 | ) | $ | (0.53 | ) | $ | (0.91 | ) | $ | 0.10 | $ | 0.30 | |||||||||||
| Strategic Investments in MTF |
— | — | — | — | 0.02 | 0.07 | — | |||||||||||||||||||||
| Accounting review and restatement |
0.08 | 0.08 | 0.29 | 0.36 | 0.09 | — | — | |||||||||||||||||||||
| Infrastructure investments |
0.05 | — | — | — | — | — | — | |||||||||||||||||||||
| Succession charges |
— | — | — | — | — | 0.04 | 0.14 | |||||||||||||||||||||
| Foreign exchange (gain)/loss |
0.05 | (0.01 | ) | (0.00 | ) | (0.03 | ) | 0.03 | 0.03 | (0.02 | ) | |||||||||||||||||
| Demutualization of a mutual insurance company |
— | — | — | — | — | — | (0.14 | ) | ||||||||||||||||||||
| Goodwill impairment |
— | — | — | — | 0.98 | — | — | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Adjusted EPS from continuing operations |
$ | 0.17 | $ | 0.25 | $ | 0.18 | $ | (0.21 | ) | $ | 0.22 | $ | 0.25 | $ | 0.28 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
The following table reconciles reported net income from continuing operations to adjusted net income from continuing operations for the nine months ended September 30, 2013 and September 30, 2014, respectively. Some calculations may be impacted by rounding and are shown net of tax. Please refer to the Non-GAAP performance measures section at the end of this press release for more information about the specified items below.
| Nine Months Ended | ||||||||
| (Unaudited, U.S. Dollars, in thousands) |
9/30/2014 | 9/30/2013 | ||||||
| Net income (loss) from continuing operations |
$ | 1,346 | $ | (8,566 | ) | |||
| Strategic Investments in MTF |
— | 1,575 | ||||||
| Accounting review and restatement |
8,164 | 1,679 | ||||||
| Infrastructure investments |
914 | — | ||||||
| Succession charges |
— | 3,590 | ||||||
| Foreign exchange (gain)/loss |
648 | 867 | ||||||
| Demutualization of a mutual insurance company |
— | (2,776 | ) | |||||
| Goodwill impairment |
— | 17,849 | ||||||
|
|
|
|
|
|||||
| Adjusted net income from continuing operations |
$ | 11,072 | $ | 14,218 | ||||
|
|
|
|
|
|||||
The following table reconciles reported net income from continuing operations per diluted share to adjusted net income from continuing operations per diluted share for the nine months ended September 30, 2013 and September 30, 2014, respectively. Some calculations may be impacted by rounding and are shown net of tax. Please refer to the Non-GAAP performance measures section at the end of this press release for more information about the specified items below.
| Nine Months Ended | ||||||||
| (Unaudited, per diluted share) |
9/30/2014 | 9/30/2013 | ||||||
| EPS from continuing operations |
$ | 0.07 | $ | (0.45 | ) | |||
| Strategic Investments in MTF |
— | 0.08 | ||||||
| Accounting review and restatement |
0.44 | 0.09 | ||||||
| Infrastructure investments |
0.05 | — | ||||||
| Succession charges |
— | 0.19 | ||||||
| Foreign exchange (gain)/loss |
0.03 | 0.05 | ||||||
| Demutualization of a mutual insurance company |
— | (0.15 | ) | |||||
| Goodwill impairment |
— | 0.94 | ||||||
|
|
|
|
|
|||||
| Adjusted EPS from continuing operations |
$ | 0.60 | $ | 0.75 | ||||
|
|
|
|
|
|||||
ORTHOFIX INTERNATIONAL N.V.
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
For the three and nine months ended September 30, 2014 and 2013
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| (Unaudited U.S. Dollars, in thousands, except share and per share data) |
2014 | 2013 | 2014 | 2013 | ||||||||||||
| (Restated) | (Restated) | |||||||||||||||
| Product sales |
$ | 88,296 | $ | 80,037 | $ | 265,175 | $ | 256,207 | ||||||||
| Marketing service fees |
12,698 | 11,769 | 36,818 | 35,518 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net sales |
100,994 | 91,806 | 301,993 | 291,725 | ||||||||||||
| Cost of sales |
25,268 | 25,064 | 77,455 | 72,789 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Gross profit |
75,726 | 66,742 | 224,538 | 218,936 | ||||||||||||
| Operating expenses |
||||||||||||||||
| Sales and marketing |
40,998 | 39,076 | 124,182 | 129,459 | ||||||||||||
| General and administrative |
18,814 | 12,933 | 53,643 | 46,355 | ||||||||||||
| Research and development |
6,572 | 6,361 | 18,818 | 20,653 | ||||||||||||
| Amortization of intangible assets |
508 | 616 | 1,753 | 1,725 | ||||||||||||
| Costs related to the accounting review and restatement |
2,326 | 2,664 | 12,959 | 2,664 | ||||||||||||
| Impairment of goodwill |
— | 19,193 | — | 19,193 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 69,218 | 80,843 | 211,355 | 220,049 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Operating income (loss) |
6,508 | (14,101 | ) | 13,183 | (1,113 | ) | ||||||||||
| Other income and (expense) |
||||||||||||||||
| Interest expense, net |
(395 | ) | (539 | ) | (1,355 | ) | (1,536 | ) | ||||||||
| Other income (expense), net |
(1,322 | ) | (1,481 | ) | (1,231 | ) | 2,076 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (1,717 | ) | (2,020 | ) | (2,586 | ) | 540 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Income (loss) before income taxes |
4,791 | (16,121 | ) | 10,597 | (573 | ) | ||||||||||
| Income tax expense |
(4,763 | ) | (383 | ) | (9,251 | ) | (7,993 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net income (loss) from continuing operations |
28 | (16,504 | ) | 1,346 | (8,566 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Discontinued operations |
||||||||||||||||
| Income (loss) from discontinued operations |
260 | (2,375 | ) | (6,363 | ) | (14,427 | ) | |||||||||
| Income tax benefit (expense) |
164 | 43 | 2,278 | 4,593 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net income (loss) from discontinued operations |
424 | (2,332 | ) | (4,085 | ) | (9,834 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net income (loss) |
$ | 452 | $ | (18,836 | ) | $ | (2,739 | ) | $ | (18,400 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net income (loss) per common share—basic: |
||||||||||||||||
| Net income (loss) from continuing operations |
$ | 0.00 | $ | (0.91 | ) | $ | 0.07 | $ | (0.45 | ) | ||||||
| Net income (loss) from discontinued operations |
0.02 | (0.13 | ) | (0.22 | ) | (0.52 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net income (loss) per common share—basic |
$ | 0.02 | $ | (1.04 | ) | $ | (0.15 | ) | $ | (0.97 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net income (loss) per common share—diluted: |
||||||||||||||||
| Net income (loss) from continuing operations |
$ | 0.00 | $ | (0.91 | ) | $ | 0.07 | $ | (0.45 | ) | ||||||
| Net income (loss) from discontinued operations |
0.02 | (0.13 | ) | (0.22 | ) | (0.52 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net income (loss) per common share—diluted |
$ | 0.02 | $ | (1.04 | ) | $ | (0.15 | ) | $ | (0.97 | ) | |||||
|
|
|
|
|
|
|
|
|
|||||||||
| Weighted average number of common shares: |
||||||||||||||||
| Basic |
18,577,540 | 18,142,935 | 18,408,238 | 18,897,887 | ||||||||||||
| Diluted |
18,773,386 | 18,142,935 | 18,564,522 | 18,897,887 | ||||||||||||
| Other comprehensive income (loss), before tax: |
||||||||||||||||
| Unrealized gain (loss) on derivative instrument, net of tax |
$ | 112 | $ | 583 | $ | 184 | $ | 487 | ||||||||
| Foreign currency translation adjustment |
||||||||||||||||
| (3,302 | ) | 3,206 | (2,728 | ) | (184 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Comprehensive income (loss) |
$ | (2,738 | ) | $ | (15,047 | ) | $ | (5,283 | ) | $ | (18,097 | ) | ||||
|
|
|
|
|
|
|
|
|
ORTHOFIX INTERNATIONAL N.V.
Condensed Consolidated Balance Sheets
| (Unaudited U.S. Dollars, in thousands except share and per share data) |
September 30, 2014 |
December 31, 2013 |
||||||
| (Restated) | ||||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 29,825 | $ | 28,924 | ||||
| Restricted cash |
34,630 | 23,761 | ||||||
| Trade accounts receivable, less allowance for doubtful accounts of $8,118 and $9,111 at September 30, 2014 and December 31, 2013, respectively |
62,505 | 70,811 | ||||||
| Inventories |
64,266 | 72,678 | ||||||
| Deferred income taxes |
39,847 | 39,999 | ||||||
| Prepaid expenses and other current assets |
39,272 | 28,933 | ||||||
|
|
|
|
|
|||||
| Total current assets |
270,345 | 265,106 | ||||||
| Property, plant and equipment, net |
49,616 | 54,372 | ||||||
| Patents and other intangible assets, net |
7,455 | 9,046 | ||||||
| Goodwill |
53,565 | 53,565 | ||||||
| Deferred income taxes |
21,226 | 22,394 | ||||||
| Other long-term assets |
8,838 | 7,492 | ||||||
|
|
|
|
|
|||||
| Total assets |
$ | 411,045 | $ | 411,975 | ||||
|
|
|
|
|
|||||
| Liabilities and shareholders’ equity |
||||||||
| Current liabilities: |
||||||||
| Bank borrowings |
$ | — | $ | — | ||||
| Trade accounts payable |
13,233 | 20,674 | ||||||
| Other current liabilities |
68,148 | 48,225 | ||||||
|
|
|
|
|
|||||
| Total current liabilities |
81,381 | 68,899 | ||||||
| Long-term debt |
— | 20,000 | ||||||
| Deferred income taxes |
12,886 | 13,026 | ||||||
| Other long-term liabilities |
11,762 | 12,736 | ||||||
|
|
|
|
|
|||||
| Total liabilities |
106,029 | 114,661 | ||||||
| Contingencies |
||||||||
| Shareholders’ equity |
||||||||
| Common shares $0.10 par value; 50,000,000 shares authorized; 18,604,197 and 18,102,335 issued and outstanding as of September 30, 2014 and December 31, 2013, respectively |
1,861 | 1,810 | ||||||
| Additional paid-in capital |
231,038 | 216,653 | ||||||
| Retained earnings |
71,158 | 73,897 | ||||||
| Accumulated other comprehensive income |
959 | 3,503 | ||||||
|
|
|
|
|
|||||
| Total shareholders’ equity |
305,016 | 295,863 | ||||||
|
|
|
|
|
|||||
| Total liabilities and shareholders’ equity |
$ | 411,045 | $ | 410,524 | ||||
|
|
|
|
|
ORTHOFIX INTERNATIONAL N.V.
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 2014 and 2013
| (Unaudited U.S. Dollars, in thousands) |
Nine Months Ended 2014 |
September, 30, 2013 |
||||||
| (Restated) | ||||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (2,739 | ) | $ | (18,400 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
17,094 | 15,585 | ||||||
| Amortization of debt costs |
490 | 540 | ||||||
| Amortization of exclusivity agreements |
1,698 | 1,069 | ||||||
| Provision for doubtful accounts |
539 | 2,754 | ||||||
| Deferred income taxes |
75 | (223 | ) | |||||
| Share-based compensation |
4,103 | 4,714 | ||||||
| Impairment of goodwill |
— | 19,193 | ||||||
| Excess income tax benefit on employee stock-based awards |
(202 | ) | (82 | ) | ||||
| Other |
1,581 | (1,165 | ) | |||||
| Changes in operating assets and liabilities: |
||||||||
| Trade accounts receivable |
6,118 | 30,374 | ||||||
| Inventories |
5,545 | (8,777 | ) | |||||
| Prepaid expenses and other current assets |
5,002 | 6,405 | ||||||
| Trade accounts payable |
(6,782 | ) | (8,028 | ) | ||||
| Other current liabilities |
3,401 | 9,485 | ||||||
| Other long-term assets |
66 | (1,425 | ) | |||||
| Other long-term liabilities |
(23 | ) | (116 | ) | ||||
|
|
|
|
|
|||||
| Net cash provided by operating activities |
35,966 | 51,903 | ||||||
| Cash flows from investing activities: |
||||||||
| Capital expenditures for property, plant and equipment |
(11,324 | ) | (19,427 | ) | ||||
| Capital expenditures for intangible assets |
(170 | ) | (4,525 | ) | ||||
| Purchase of other investments |
(1,457 | ) | (1,232 | ) | ||||
| Sale of other investments |
32 | — | ||||||
|
|
|
|
|
|||||
| Net cash used in investing activities |
(12,919 | ) | (25,184 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Net proceeds from issuance of common shares |
10,333 | 3,431 | ||||||
| Repayment of bank borrowings, net |
— | (16 | ) | |||||
| Repayments of long-term debt |
(20,000 | ) | — | |||||
| Changes in restricted cash |
(11,023 | ) | (1,371 | ) | ||||
| Repurchase of treasury shares |
— | (39,494 | ) | |||||
| Excess income tax benefit on employee stock-based awards |
202 | 82 | ||||||
|
|
|
|
|
|||||
| Net cash used in financing activities |
(20,488 | ) | (37,368 | ) | ||||
| Effect of exchange rate changes on cash |
(1,658 | ) | 611 | |||||
|
|
|
|
|
|||||
| Net increase (decrease) in cash and cash equivalents |
901 | (10,038 | ) | |||||
| Cash and cash equivalents at the beginning of the period |
28,924 | 30,767 | ||||||
|
|
|
|
|
|||||
| Cash and cash equivalents at the end of the period |
$ | 29,825 | $ | 20,729 | ||||
|
|
|
|
|
Non-GAAP Performance Measures
The tables in this press release present reconciliations of net income from continuing operations and net income from continuing operations per diluted share calculated in accordance with GAAP to non-GAAP performance measures, referred to as “Net Margin,” “EBITDA,” “Adjusted EBITDA,” “Adjusted net income (loss) from continuing operations” and “Adjusted net income (loss) from continuing operations per diluted share,” that exclude the items specified in the tables. A more detailed explanation of the items excluded from these non-GAAP measures, as well as why management believes the non-GAAP measures are useful to them, is included in the Regulation G Supplemental Information below.
Reconciliations of Non-GAAP Performance Measures
Adjusted EBITDA Reconciling Items
| • | Strategic investment in MTF—costs related to the Company’s strategic investment with MTF in the development and commercialization of a next generation cell-based bone growth technology. |
| • | Accounting review and restatement—legal, accounting, and other professional costs related to the Company’s accounting review and restatement. |
| • | Infrastructure investments—costs associated with our multi-year process and systems improvement effort, “Bluecore.” |
| • | Succession charges—in 2013 these costs relate to the succession of certain of the Company’s former executive officers. |
| • | Demutualization of a mutual insurance company—the Company received cash related to the demutualization of a mutual insurance company, in which the Company was an eligible member to share in such proceeds. |
| • | Goodwill impairment—as a result of the Company’s change in reporting structure in July of 2013, the Company allocated goodwill to each reporting unit, and subsequently evaluated all reporting units, including the Extremity Fixation and Spine Fixation reporting units, for the possible impairment of goodwill. The result of this evaluation was a full impairment of the goodwill allocated to the Extremity Fixation and Spine Fixation reporting units, totaling $19.2 million. |
Adjusted Net Income from Continuing Operations and Adjusted Net Income from Continuing Operations Per Diluted Share Reconciling Items
Note: The reconciling items were tax affected in the current period at the prevailing rate within the respective jurisdictions.
| • | Strategic investment in MTF—costs related to the Company’s strategic investment with MTF in the development and commercialization of a next generation cell-based bone growth technology. |
| • | Accounting review and restatement—legal, accounting, and other professional costs related to the Company’s accounting review and restatement. |
| • | Succession charges—in 2013 these costs relate to the cessation of employment of certain of the Company’s former executive officers. |
| • | Foreign exchange (gain)/loss—due to translation adjustments resulting from the weakening or strengthening of the U.S. Dollar against various foreign currencies. A number of Orthofix’s foreign subsidiaries have intercompany and third party trade accounts receivables and payables that are held in currencies, most notably the U.S. Dollar, other than their local currency, and movements in the relative values of those currencies result in foreign exchange gains and losses. |
| • | Demutualization of a mutual insurance company—the Company received cash related to the demutualization of a mutual insurance company, in which the Company was an eligible member to share in such proceeds. |
| • | Goodwill impairment—as a result of the Company’s change in reporting structure in July of 2013, the Company allocated goodwill to each reporting unit, and subsequently evaluated all reporting units, including the Extremity Fixation and Spine Fixation reporting units, for the possible impairment of goodwill. The result of this evaluation was a full impairment of the goodwill allocated to the Extremity Fixation and Spine Fixation reporting units, totaling $19.2 million. |
Management use of, and economic substance behind, Non-GAAP Performance Measures
Management uses non-GAAP measures to evaluate performance period-over-period, to analyze the underlying trends in the Company’s business, to assess its performance relative to its competitors and to establish operational goals and forecasts that are used in allocating resources. Management uses these non-GAAP measures as the basis for assessing the ability of the underlying operations to generate cash. In addition, management uses these non-GAAP measures to further its understanding of the performance of the Company’s business units. The items excluded from Orthofix’s non-GAAP measures are also excluded from the profit or loss reported by the Company’s business units for the purpose of analyzing their performance.
Material Limitations Associated with the Use of Non-GAAP Measures
The non-GAAP measures used in this press release may have limitations as analytical tools, and should not be considered in isolation or as a replacement for GAAP performance measures. Some of the limitations associated with the use of these non-GAAP performance measures are that they exclude items that reflect an economic cost to the Company and can have a material effect on cash flows. Similarly, equity compensation expense does not directly impact cash flows, but is part of total compensation costs accounted for under GAAP.
Compensation for Limitations Associated with Use of Non-GAAP Measures
Orthofix compensates for the limitations of its non-GAAP performance measures by relying upon its GAAP results to gain a complete picture of the Company’s performance. The GAAP results provide the ability to understand the Company’s performance based on a defined set of criteria. The non-GAAP measures reflect the underlying operating results of the Company’s businesses, excluding non-cash items, which management believes is an important measure of the Company’s overall performance. The Company provides a detailed reconciliation of the non-GAAP performance measures to their most directly comparable GAAP measures, and encourages investors to review this reconciliation.
Usefulness of Non-GAAP Measures to Investors
Orthofix believes that providing non-GAAP measures that exclude certain items provides investors with greater transparency to the information used by the Company’s senior management in its financial and operational decision-making. Management believes it is important to provide investors with the same non-GAAP metrics it uses to supplement information regarding the performance and underlying trends of Orthofix’s business operations in order to facilitate comparisons to its historical operating results and internally evaluate the effectiveness of the Company’s operating strategies. Disclosure of these non-GAAP performance measures also facilitates comparisons of Orthofix’s underlying operating performance with other companies in its industry that also supplement their GAAP results with non-GAAP performance measures.
Orthofix International N.V.
Investor Contact:
Mark Quick, 214-937-2924
or
Media Contact:
Denise Landry, 214-937-2529
Source: Orthofix International N.V.
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