Form 8-K Wright Medical Group For: Aug 08

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August 8, 2018 4:13 PM EDT


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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): August 8, 2018
___________________
WRIGHT MEDICAL GROUP N.V.
(Exact name of registrant as specified in its charter)

The Netherlands
1-35065
98-0509600
(State or other jurisdiction
of incorporation)
(Commission File Number)
(I.R.S. Employer
Identification No.)

Prins Bernhardplein 200
1097 JB Amsterdam, The Netherlands
None
(Address of principal executive offices)
(Zip Code)

(+ 31) 20 521 4777
(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))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR 240.12b-2).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
 




TABLE OF CONTENTS





Item 2.02. Results of Operations and Financial Condition.

On August 8, 2018, Wright Medical Group N.V. (Wright) issued a press release announcing financial results for the quarter ended July 1, 2018. 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. References to "legacy Wright" refer to Wright Medical Group, Inc. and its subsidiaries and references to "legacy Tornier" refer to Tornier N.V. and its subsidiaries, in each case prior to the merger between Wright Medical Group, Inc. and Tornier N.V. (the merger or the Wright/Tornier merger).
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 (SEC). This information shall not be deemed to be filed with the SEC for purposes of Section 18 of the United States Securities Exchange Act of 1934, as amended (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 United States Securities Act of 1933, as amended (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 non-GAAP financial measures: net sales, excluding the impact of foreign currency; net income, as adjusted; EBITDA, as adjusted; gross margin, as adjusted; earnings, as adjusted; and earnings, as adjusted, per diluted share. In each case, our non-GAAP financial measures refer to results from continuing operations.
For internal budgeting and resource allocation process, our management uses financial information that does not include:
1.
non-cash interest expense on convertible notes;
2.
non-cash loss on extinguishment of debt;
3.
mark-to-market adjustments of derivatives;
4.
transaction and transition costs;
5.
non-cash foreign currency translation charges;
6.
BioMimetic contingent value right (CVR) mark-to-market adjustments;
7.
contingent consideration fair value adjustment;
8.
the U.S. tax benefit recognized in continuing operations resulting from income from discontinued operations; and
9.
income tax effects of the foregoing.

Additionally, for internal budgeting process and evaluation of net sales performance, management uses net sales on a constant currency basis. To measure net sales on a constant currency basis, it is necessary to remove the impact of changes in foreign currency exchange rates, which affects the comparability and trend of net sales. Net sales, on a constant currency basis, is calculated by translating current period results at prior period average foreign currency exchange rates.
For internal budgeting and resource allocation process, management also uses EBITDA, EBITDA, as adjusted, non-GAAP earnings, as adjusted, and gross margin, as adjusted. EBITDA is calculated by adding back to net loss from continuing operations charges for interest, provision (benefit) from income taxes, depreciation, and amortization expenses. EBITDA, as adjusted, is calculated by excluding non-cash share-based compensation expense, non-operating income and expense, as well as the applicable adjustments numbered above, from EBITDA. Non-GAAP earnings, as adjusted, is calculated by adding back to net loss from continuing operations charges for non-cash amortization expenses, net of taxes, as well as the applicable adjustments numbered above. Non-GAAP adjusted gross margins are calculated by excluding transaction and transition costs from gross profit from continuing operations and dividing by net sales from continuing operations.
We use these non-GAAP financial measures in making operating decisions because we believe these 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 performance incentive plan 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, we exclude the following items from one or more of our non-GAAP financial measures for the following reasons:
Foreign currency impact on net sales. We excluded the foreign currency impact on net sales compared to prior period from our non-GAAP measure, primarily because it is not reflective of our ongoing operating results, and it is not used by management for internal budgeting process and evaluation of net sales performance. We further believe that excluding this item is useful to investors in that it allows for period-over-period comparability.
Non-cash interest expense on convertible notes. We excluded the non-cash interest expense on convertible notes from our non-GAAP financial measures, primarily because it is a non-cash expense. We believe that it is useful to investors to understand our operational performance, liquidity, and our 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 our 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 our business operations. We further believe that excluding this item from our non-GAAP results is useful to investors in that it allows for period-over-period comparability.
Non-cash loss on extinguishment of debt. We excluded the non-cash loss on extinguishment of debt from our non-GAAP financial measures, primarily because it is not reflective of our ongoing operating results, and it is not used by management to assess the core profitability of our business operations. We further believe that excluding this item from our non-GAAP results is useful to investors in that it allows for period-over-period comparability.
Mark-to-market adjustment of derivatives. We excluded the adjustment of the mark-to-market adjustments on derivatives from our non-GAAP financial measures, primarily because it is not reflective of our ongoing operating results, and it is not used by management to assess the core profitability of our business operations. We further believe that excluding this item from our non-GAAP results is useful to investors in that it allows for period-over-period comparability.
Transaction and transition costs. We excluded the transaction and transition costs associated with acquisitions and mergers, including the Wright/Tornier merger, from our non-GAAP financial measures, primarily because such costs are not reflective of our ongoing operating results and are not used by management to assess the core profitability of our business operations. We further believe that excluding this item from our non-GAAP results is useful to investors in that it allows for period-over-period comparability.
Non-cash foreign currency translation charges. We excluded the non-cash foreign currency translation charges from our non-GAAP financial measures, primarily because such charges are not reflective of our ongoing operating results, and are not used by management to assess the core profitability of our business operations. We further believe that excluding this item from our non-GAAP results is useful to investors in that it allows for period-over-period comparability.
BioMimetic CVR mark-to-market adjustments. We excluded the adjustment of the mark-to-market adjustments on the contingent value rights associated with acquired assets and liabilities from our BioMimetic acquisition from our non-GAAP financial measures, primarily because it is not reflective of our ongoing operating results, and it is not used by management to assess the core profitability of our business operations. We further believe that excluding this item from our non-GAAP results is useful to investors in that such exclusion allows for period-over-period comparability.
Contingent consideration fair value adjustment. We excluded the fair value adjustment of our contingent consideration from our non-GAAP measures, primarily because it is not reflective of our ongoing operating results, and it is not used by management to assess the core profitability of our business operations. We further believe that excluding this item from our non-GAAP results is useful to investors in that it allows for period-over-period comparability.

U.S. tax benefit within continuing operations. We excluded the U.S. tax benefit within continuing operations recorded as a result of the pre-tax gain recognized within discontinued operations due to the previously announced $30.75 million insurance settlement from our non-GAAP measures, primarily because it is not reflective of our ongoing operating results, and it is not used by management to assess the core profitability of our business operations. We further believe that excluding this item from our non-GAAP results is useful to investors in that it allows 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.
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. 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. These measures should only be used to evaluate our financial results in conjunction with the corresponding GAAP measures. Accordingly, we qualify our use of non-GAAP financial information in a statement when non-GAAP financial information is presented.
All of the historical non-GAAP financial measures used in our press release are reconciled to the most directly comparable GAAP measure. With respect to our 2018 financial guidance regarding adjusted EBITDA from continuing operations and adjusted non-GAAP earnings per share from continuing operations, we cannot provide a quantitative reconciliation to the most directly comparable GAAP measure without unreasonable effort due to our inability to make accurate projections and estimates related to certain information needed to calculate some of the adjustments. However, we have described in the press release the anticipated differences between these non-GAAP financial measures and the most directly comparable GAAP measure qualitatively.
Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.
The following exhibit is being filed or furnished with this Current Report on Form 8-K:
Exhibit
Number
 
Description
 
Press release issued by Wright Medical Group N.V. on August 8, 2018 announcing financial results for the quarter ended July 1, 2018 (furnished herewith)

Cautionary Note Regarding Forward-Looking Statements
This Current Report on Form 8-K, including the exhibit hereto, 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,” “continue,” “guidance,” “future,” other words of similar meaning and the use of future dates. Forward-looking statements in this report include, but are not limited to, statements about the company’s anticipated financial results for 2018, including net sales from continuing operations, adjusted EBITDA from continuing operations and adjusted earnings per share from continuing operations, anticipated continued strong shoulder sales growth, at or above market growth for our U.S. lower extremities business, accelerated growth in our biologics business in the second half of 2018, and the success of our new products, including our PROstep Minimally Invasive Surgery System. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Each forward-looking statement contained in this report 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 of the company’s 2017 U.S. sales force additions to achieve expected results, delay or failure to drive U.S. lower extremities or biologics sales to anticipated levels; continued supply constraints; failure to integrate the legacy Wright and Tornier businesses and realize net sales synergies and cost savings from the merger with Tornier or delay in realization thereof; operating costs and business disruption as a result of the merger, including adverse effects on employee retention and sales force productivity and on business relationships with third parties; integration costs; actual or contingent liabilities; adverse effects of diverting resources and attention to providing transition services to the purchaser of the large joints business; the adequacy of the company’s capital resources and need for additional financing; the timing of regulatory approvals and introduction of new products; physician acceptance, endorsement, and use of new products; failure to achieve the anticipated commercial sales of our AUGMENT® Bone Graft and other new products; 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 the metal-on-metal master settlement agreement and the settlement agreement with the three settling insurers; risks associated with the subsequent metal-on-metal settlement agreements and ability to obtain the additional new insurance proceeds contingent thereon; 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’s Annual Report on Form 10-K for the year ended December 31, 2017 filed by Wright with the SEC on February 27, 2018 and subsequent SEC filings by Wright, including without limitation its Quarterly Reports on Form 10-Q for the quarters ended April 1, 2018 and July 1, 2018. Investors should not place considerable reliance on the forward-looking statements contained in this report. Investors are encouraged to read Wright’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 speak only as of the date of this report, 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: August 8, 2018

 
WRIGHT MEDICAL GROUP N.V.
 
 
 
 
 
 
 
 
By: /s/ Lance A. Berry
 
 
Name: Lance A. Berry
 
 
Title: Senior Vice President and Chief Financial Officer
 




FOR IMMEDIATE RELEASE
image0a04.jpg
Investors & Media:
Julie D. Dewey
Sr. Vice President, Chief Communications Officer
Wright Medical Group N.V.
(901) 290-5817

Wright Medical Group N.V. Reports 2018 Second Quarter Financial Results

Second Quarter 2018 Net Sales of $205 Million

Second Quarter 2018 Net Loss From Continuing Operations of $91 Million; Non-GAAP Adjusted EBITDA From Continuing Operations of $26 Million

U.S. Upper Extremities Business Increased 22%, Led by Sales Growth of SIMPLICITI™ Shoulder System

U.S. Lower Extremities Business Growth Rate Accelerates to 9%; AUGMENT® Injectable Approved in U.S.

Company Increases 2018 Annual Guidance

AMSTERDAM, The Netherlands - August 8, 2018 - Wright Medical Group N.V. (NASDAQ: WMGI) today reported financial results for its second quarter ended July 1, 2018 and increased its 2018 annual guidance. Unless otherwise noted, all net sales growth rates in this release are stated on a constant currency basis.

Net sales totaled $205.4 million during the second quarter ended July 1, 2018, representing 14.3% as reported and 12.9% constant currency growth, an estimated 370 basis point improvement versus the first quarter of 2018. Gross margins were 77.8% during the quarter ended July 1, 2018 and were 78.5% on a non-GAAP adjusted basis. Reconciliations of all historical non-GAAP financial measures used in this release to the most comparable GAAP measures can be found in the attached financial tables.

Robert Palmisano, president and chief executive officer, commented, “We produced outstanding results across the board in the second quarter, including 13% constant currency net sales growth, an estimated 370 basis point increase versus the first quarter of 2018, and we exited the quarter on a strong, positive trajectory, which we expect to continue throughout the remainder of 2018. These results represent another strong performance in our U.S. upper extremities business, which grew 22% in the second quarter, driven by 24% growth in our U.S. shoulder business. We anticipate that continued penetration of our SIMPLICITI shoulder system, our ongoing PERFORM Reversed launch and accelerating adoption of our BLUEPRINT enabling technology will continue to drive market-leading shoulder sales growth in 2018.”

Palmisano further commented, “Our U.S. lower extremities growth rate accelerated to 9% in the second quarter, driven by approximately 15% growth in total ankle and improved growth in our core lower extremities business. The lower extremities business returned to market rates of growth well ahead of schedule, driven primarily by increased contributions from our expanded sales organization. We are on a good trajectory headed into the second half of the year when we expect the third quarter launch of our PROstep Minimally Invasive Surgery System to provide further momentum for this business. We also received PMA approval for AUGMENT Injectable Bone Graft and initiated launch activities in the U.S. We believe the superior handling characteristics and ease of use of AUGMENT Injectable, combined with the proven clinical benefits of AUGMENT, will accelerate the growth in our biologics business in the back half of this year.”

Net loss from continuing operations for the second quarter of 2018 totaled $90.6 million, or $(0.85) per diluted share.

1



The company’s net loss from continuing operations for the second quarter of 2018 included the after-tax impacts of a $39.9 million non-cash loss on extinguishment of debt to write-off unamortized debt discount and deferred financing fees associated with the partial settlement of its 2020 convertible notes, a loss of $32.9 million related to mark-to-market adjustments on derivatives, non-cash interest expense of $12.3 million related to its convertible notes, non-cash foreign currency translation charges of $1.9 million, and $1.3 million of transaction and transition costs associated with non-cash inventory provisions. These charges were offset by an unrealized gain of $2.5 million related to mark-to-market adjustments on contingent value rights (CVRs) issued in connection with the BioMimetic acquisition and a $6.2 million U.S. tax benefit within continuing operations recorded as a result of the pre-tax gain recognized within discontinued operations due to the previously announced $30.75 million insurance settlement.

The company's second quarter 2018 non-GAAP net loss from continuing operations, as adjusted for the above items, was $9.6 million. The company's second quarter 2018 non-GAAP adjusted EBITDA from continuing operations, as defined in the non-GAAP to GAAP reconciliation provided later in this release, was $25.6 million. The attached financial tables include reconciliations of all historical non-GAAP measures to the most comparable GAAP measures.

Cash and cash equivalents totaled $313.2 million as of the end of the second quarter of 2018.

Palmisano concluded, “Overall, second quarter net sales growth improved significantly, with Upper Extremities, Lower Extremities, Biologics and International all accelerating their constant currency growth rates. Based on the strength of the underlying business and the approval of AUGMENT Injectable, we are increasing our guidance, which now calls for annual constant currency net sales growth of 10% to 12%, excluding the impact of the four fewer selling days in the fourth quarter of 2018. I believe we are set up well for the remainder of 2018. Our end markets remain healthy and fast growing, our gross margins are outstanding, and our new product pipeline is full of innovative and commercially impactful products and surgical solutions across all parts of our business.”

Outlook

As a result of the approval of AUGMENT Injectable and the performance of the business, the company is increasing its net sales guidance for full-year 2018 to approximately $808 million to $820 million from its previous guidance of approximately $800 million to $812 million. This guidance range has approximately 0.5% cushion from foreign currency exchange rates as compared to current rates. In addition, this range implies full-year 2018 constant currency net sales growth of 10% to 12%, excluding the estimated $9 million impact of the four fewer selling days in fourth quarter of 2018.
    
The company is raising its full-year 2018 non-GAAP adjusted EBITDA from continuing operations, as described in the non-GAAP reconciliation provided later in this release, to a range of $106 million to $113 million.

The company expects its non-GAAP adjusted earnings per share from continuing operations, including share-based compensation, as described in the non-GAAP to GAAP reconciliation provided later in this release, for full-year 2018 to be a loss of $0.14 to $0.21 per diluted share.

The company estimates approximately 106.4 million diluted weighted average ordinary shares outstanding for fiscal year 2018.

The company's non-GAAP adjusted EBITDA from continuing operations target is measured by adding back to net loss from continuing operations charges for interest, income taxes, depreciation and amortization expenses, non-cash share-based compensation expense and non-operating income and expense. Additionally, the company’s adjusted EBITDA from continuing operations target excludes possible future acquisitions; other material future business developments; and due diligence, transaction and transition costs associated with acquisitions and divestitures.

The company’s non-GAAP adjusted earnings per share from continuing operations target is measured by adding back to net loss from continuing operations non-cash interest expense associated with the convertible notes; due

2


diligence, transaction and transition costs associated with acquisitions and divestitures; mark-to-market adjustments to CVRs; non-cash mark-to-market derivative adjustments; non-cash gains and losses associated with foreign currency translation of balances denominated in foreign currencies; and charges for non-cash amortization expenses, net of taxes. Note that as a result of the company’s relatively low effective tax rate due to the valuation allowance impacting a substantial portion of the company’s income/loss, the company is currently estimating the tax effect on amortization expense at 0%. Further, this non-GAAP adjusted earnings per share from continuing operations target excludes possible future acquisitions and other material future business developments.

All the historical non-GAAP financial measures used in this release are reconciled to the most directly comparable GAAP measures. With respect to the company’s 2018 financial guidance regarding non-GAAP adjusted EBITDA from continuing operations and non-GAAP adjusted earnings per share from continuing operations, however, the company cannot provide a quantitative reconciliation to the most directly comparable GAAP measures without unreasonable effort due to its inability to make accurate projections and estimates related to certain information needed to calculate some of the adjustments as described above, including the foreign currency fluctuations and market driven fair value adjustments to CVRs and derivatives. The anticipated differences between these non-GAAP financial measures and the most directly comparable GAAP measure are described above qualitatively.

The company's anticipated ranges for net sales from continuing operations, non-GAAP adjusted EBITDA from continuing operations, and non-GAAP adjusted earnings per share 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 “Cautionary Note Regarding Forward-Looking Statements” section of this release.

Supplemental Financial Information

To view the second quarter of 2018 supplemental financial information, visit ir.wright.com. For historical information on Wright Medical Group N.V. segment reporting changes and non-GAAP combined pro forma financial information, 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 the 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 (844) 295-9436 (U.S.) / (574) 990-1040 (Outside U.S.). 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 call will be available beginning at 5:30 p.m. Central Time on August 8, 2018 through August 15, 2018. To hear this replay, dial (855) 859-2056 (U.S.) / (404) 537-3406 (Outside U.S.) and enter code 9379128. 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 corporate 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 release, the Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (SEC) today, or otherwise available in the “Investor Relations - Supplemental Financial Information” section of the company's corporate website located at www.wright.com.

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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 release.
 
About Wright Medical Group N.V.

Wright Medical Group N.V. is a global medical device company focused on extremities and biologics products. The company is committed to delivering innovative, value-added solutions improving the quality of life for patients worldwide. Wright is a recognized leader of surgical solutions for the upper extremities (shoulder, elbow, wrist and hand), lower extremities (foot and ankle) and biologics markets, three of the fastest growing segments in orthopaedics. For more information about Wright, visit www.wright.com.

™ and ® denote trademarks and registered trademarks of Wright Medical Group N.V. or its affiliates, 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, the company uses certain non-GAAP financial measures in this release. Reconciliations of the historical non-GAAP financial measures used in this release to the most comparable GAAP measures for the respective periods can be found in tables later in this release. Wright’s non-GAAP financial measures include net sales, excluding the impact of foreign currency; net income, as adjusted; EBITDA, as adjusted; gross margin, as adjusted; earnings, as adjusted; and earnings, as adjusted, per diluted share, in each case, from continuing operations. 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 non-cash interest expense related to the company's convertible notes, non-cash loss on extinguishment of debt, transaction and transition costs, net gains and losses on mark-to-market adjustments on CVRs and derivative assets and liabilities, net non-cash gains and losses on foreign currency translation 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. It is for this reason that the company cannot provide without unreasonable effort a quantitative reconciliation to the most directly comparable GAAP measures for its 2018 financial guidance regarding non-GAAP adjusted EBITDA from continuing operations and non-GAAP adjusted earnings per share from continuing operations. Management uses the non-GAAP measures in this release 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 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 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,” “continue,” “guidance,” “future,” other words of similar meaning and the use of future dates. Forward-looking statements in this release include, but are not limited to, statements about the company’s anticipated financial results for 2018, including net sales from continuing operations, adjusted EBITDA from continuing operations and adjusted earnings per share from continuing operations, anticipated continued strong shoulder sales growth, at or above market growth for our U.S. lower extremities business, accelerated growth in our biologics business in the second half of 2018, and the success of our new products, including our PROstep Minimally Invasive Surgery System. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Each forward-looking statement contained in this 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 of the company’s 2017 U.S. sales force additions to achieve expected results, delay or failure to drive U.S. lower extremities or biologics sales to anticipated levels; continued supply constraints; failure to integrate the legacy Wright and Tornier businesses

4


and realize net sales synergies and cost savings from the merger with Tornier or delay in realization thereof; operating costs and business disruption as a result of the merger, including adverse effects on employee retention and sales force productivity and on business relationships with third parties; integration costs; actual or contingent liabilities; adverse effects of diverting resources and attention to providing transition services to the purchaser of the large joints business; the adequacy of the company’s capital resources and need for additional financing; the timing of regulatory approvals and introduction of new products; physician acceptance, endorsement, and use of new products; failure to achieve the anticipated commercial sales of our AUGMENT® Bone Graft and other new products; 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 the metal-on-metal master settlement agreement and the settlement agreement with the three settling insurers; risks associated with the subsequent metal-on-metal settlement agreements and ability to obtain the additional new insurance proceeds contingent thereon; 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’s Annual Report on Form 10-K for the year ended December 31, 2017 filed by Wright with the SEC on February 27, 2018 and subsequent SEC filings by Wright, including without limitation its Quarterly Reports on Form 10-Q for the quarters ended April 1, 2018 and July 1, 2018. Investors should not place considerable reliance on the forward-looking statements contained in this release. Investors are encouraged to read Wright’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 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--

5


Wright Medical Group N.V.
Condensed Consolidated Statements of Operations
(dollars in thousands, except per share data--unaudited)
 
Three months ended
 
Six months ended
 
July 1, 2018
 
June 25, 2017
 
July 1, 2018
 
June 25, 2017
Net sales
$
205,400

 
$
179,693

 
$
403,937

 
$
356,884

Cost of sales
45,558

 
38,122

 
86,697

 
75,248

Gross profit
159,842


141,571


317,240


281,636

Operating expenses:
 
 
 
 
 
 
 
Selling, general and administrative
140,826

 
130,818

 
278,074

 
260,652

Research and development
14,665

 
12,547

 
28,564

 
24,979

Amortization of intangible assets
6,009

 
6,999

 
13,150

 
14,396

Total operating expenses
161,500

 
150,364

 
319,788

 
300,027

Operating loss
(1,658
)
 
(8,793
)
 
(2,548
)
 
(18,391
)
Interest expense, net
20,678

 
18,339

 
40,490

 
36,534

Other expense (income), net
72,747

 
(6,557
)
 
71,747

 
1,418

Loss from continuing operations before income taxes
(95,083
)
 
(20,575
)
 
(114,785
)
 
(56,343
)
(Benefit) provision for income taxes
(4,462
)
 
385

 
(4,257
)
 
1,324

Net loss from continuing operations
$
(90,621
)

$
(20,960
)
 
$
(110,528
)
 
$
(57,667
)
Income (loss) from discontinued operations, net of tax
22,923

 
(20,202
)
 
17,316

 
(42,194
)
Net loss
$
(67,698
)
 
$
(41,162
)
 
$
(93,212
)
 
$
(99,861
)
 
 
 
 
 
 
 
 
Net loss from continuing operations per share, basic and diluted
$
(0.85
)
 
$
(0.20
)
 
$
(1.04
)
 
$
(0.55
)
Net income (loss) from discontinued operations per share, basic and diluted
$
0.21

 
$
(0.19
)
 
$
0.16

 
$
(0.41
)
 
 
 
 
 
 
 
 
Net loss per share, basic and diluted
$
(0.64
)
 
$
(0.39
)
 
$
(0.88
)
 
$
(0.96
)
 
 
 
 
 
 
 
 
Weighted-average number of shares outstanding-basic and diluted
106,095

 
104,377

 
106,000

 
104,020


6


Wright Medical Group N.V.
Consolidated Net Sales Analysis
(dollars in thousands--unaudited)
 
Three months ended
 
Six months ended
 
July 1, 2018
 
June 25, 2017
 
%
change
 
July 1, 2018
 
June 25, 2017
 
%
change
U.S.
 
 
 
 
 
 
 
 
 
 
 
Lower extremities
$
59,464

 
$
54,348

 
9.4
 %
 
$
116,287

 
$
109,809

 
5.9
 %
Upper extremities
70,171

 
57,535

 
22.0
 %
 
137,829

 
113,493

 
21.4
 %
Biologics
20,234

 
19,273

 
5.0
 %
 
38,399

 
37,907

 
1.3
 %
Sports med & other
1,706

 
1,780

 
(4.2
)%
 
3,853

 
3,881

 
(0.7
)%
Total U.S.
$
151,575

 
$
132,936

 
14.0
 %
 
$
296,368

 
$
265,090

 
11.8
 %
 
 
 
 
 
 
 
 
 
 
 
 
International
 
 
 
 
 
 
 
 
 
 
 
Lower extremities
$
15,680

 
$
14,767

 
6.2
 %
 
$
31,007

 
$
28,409

 
9.1
 %
Upper extremities
29,137

 
22,987

 
26.8
 %
 
58,731

 
45,409

 
29.3
 %
Biologics
6,582

 
5,129

 
28.3
 %
 
11,839

 
10,300

 
14.9
 %
Sports med & other
2,426

 
3,874

 
(37.4
)%
 
5,992

 
7,676

 
(21.9
)%
Total International
$
53,825

 
$
46,757

 
15.1
 %
 
$
107,569

 
$
91,794

 
17.2
 %
 
 
 
 
 
 
 
 
 
 
 
 
Global
 
 
 
 
 
 
 
 
 
 
 
Lower extremities
$
75,144

 
$
69,115

 
8.7
 %
 
$
147,294

 
$
138,218

 
6.6
 %
Upper extremities
99,308

 
80,522

 
23.3
 %
 
196,560

 
158,902

 
23.7
 %
Biologics
26,816

 
24,402

 
9.9
 %
 
50,238

 
48,207

 
4.2
 %
Sports med & other
4,132

 
5,654

 
(26.9
)%
 
9,845

 
11,557

 
(14.8
)%
Total net sales
$
205,400

 
$
179,693

 
14.3
 %
 
$
403,937

 
$
356,884

 
13.2
 %

Wright Medical Group N.V.
Supplemental Net Sales Information
(unaudited)
 
Three months ended July 1, 2018 net sales growth/(decline)
 
U.S.
as
reported
Int'l
constant
currency
Int'l
as
reported
Global
constant
currency
Global
as
reported
Product line
 
 
 
 
 
Lower extremities
9%
1%
6%
8%
9%
Upper extremities
22%
20%
27%
21%
23%
Biologics
5%
26%
28%
9%
10%
Sports med & other
(4%)
(41%)
(37%)
(30%)
(27%)
Total net sales
14%
10%
15%
13%
14%


7


 
Six months ended July 1, 2018 net sales growth/(decline)
 
U.S.
as
reported
Int'l
constant
currency
Int'l
as
reported
Global
constant
currency
Global
as
reported
Product line
 
 
 
 
 
Lower extremities
6%
2%
9%
5%
7%
Upper extremities
21%
19%
29%
21%
24%
Biologics
1%
12%
15%
4%
4%
Sports med & other
(1%)
(29%)
(22%)
(20%)
(15%)
Total net sales
12%
9%
17%
11%
13%

Wright Medical Group N.V.
Reconciliation of Adjusted Non-GAAP Earnings Per Share to Net Loss from Continuing Operations Per Share
(dollars in thousands, except per share data--unaudited)
 
Three months ended
 
Six months ended
 
July 1, 2018
 
June 25, 2017
 
July 1, 2018
 
June 25, 2017
Net loss from continuing operations, as reported
$
(90,621
)
 
$
(20,960
)
 
$
(110,528
)
 
$
(57,667
)
Net loss from continuing operations per share, as reported
$
(0.85
)
 
$
(0.20
)
 
$
(1.04
)
 
$
(0.55
)
Reconciling items:
 
 
 
 
 
 
 
Non-cash interest expense on convertible notes 1
12,275

 
11,249

 
24,287

 
22,248

Non-cash loss on extinguishment of debt 2
39,935

 
—

 
39,935

 
—

Derivatives mark-to-market adjustments 2
32,879

 
(4,329
)
 
34,573

 
(3,964
)
Transaction and transition costs
1,325

 
3,201

 
2,235

 
6,173

Foreign currency translation expense 2
1,893

 
—

 
2,656

 
—

CVR mark-to-market adjustments 2
(2,523
)
 
(3,924
)
 
(6,447
)
 
2,236

Contingent consideration fair value adjustment 2
365

 
176

 
779

 
176

U.S. tax benefit resulting from income from discontinued operations
(6,183
)
 
—

 
(6,183
)
 
—

Tax effect of reconciling items 3
1,069

 
(52
)
 
859

 
(70
)
Non-GAAP net loss from continuing operations, as adjusted
$
(9,586
)
 
$
(14,639
)
 
$
(17,834
)
 
$
(30,868
)
Add back amortization of intangible assets
6,009

 
6,999

 
13,150

 
14,396

Adjusted non-GAAP earnings
$
(3,577
)
 
$
(7,640
)
 
$
(4,684
)
 
$
(16,472
)
Weighted-average basic shares outstanding
106,095

 
104,377

 
106,000

 
104,020

Adjusted non-GAAP earnings per share
$
(0.03
)
 
$
(0.07
)
 
$
(0.04
)
 
$
(0.16
)
_______________________________
1 
Impacting interest expense, net
2 
Impacting other expense (income), net
3 
Determined based upon the effective tax rate in the jurisdiction in which the expense was incurred.


8


Wright Medical Group N.V.
Reconciliation of Non-GAAP Adjusted EBITDA to Net Loss from Continuing Operations
(dollars in thousands--unaudited)
 
Three months ended
 
Six months ended
 
July 1, 2018
 
June 25, 2017
 
July 1, 2018
 
June 25, 2017
Net loss from continuing operations
$
(90,621
)
 
$
(20,960
)
 
$
(110,528
)
 
$
(57,667
)
Interest expense, net
20,678

 
18,339

 
40,490

 
36,534

(Benefit) provision from income taxes
(4,462
)
 
385

 
(4,257
)
 
1,324

Depreciation
13,883

 
13,678

 
28,382

 
27,124

Amortization
6,009

 
6,999

 
13,150

 
14,396

Non-GAAP EBITDA
$
(54,513
)
 
$
18,441

 
$
(32,763
)
 
$
21,711

Reconciling items impacting EBITDA:
 
 
 
 
 
 
 
Non-cash share-based compensation expense
6,061

 
4,732

 
11,079

 
8,686

Other expense (income), net
72,747

 
(6,557
)
 
71,747

 
1,418

Transaction and transition costs
1,325

 
3,201

 
2,235

 
6,173

Non-GAAP adjusted EBITDA
$
25,620

 
$
19,817

 
$
52,298

 
$
37,988

Net sales from continuing operations
205,400

 
179,693

 
403,937

 
356,884

Non-GAAP adjusted EBITDA margin
12.5
%
 
11.0
%
 
12.9
%
 
10.6
%

Wright Medical Group N.V.
Reconciliation of Non-GAAP Adjusted Gross Margins to Gross Margins from Continuing Operations
(dollars in thousands--unaudited)
 
Three months ended
 
Six months ended
 
July 1, 2018
 
June 25, 2017
 
July 1, 2018
 
June 25, 2017
Gross profit from continuing operations, as reported
$
159,842

 
$
141,571

 
$
317,240

 
$
281,636

Gross margins from continuing operations, as reported
77.8
%
 
78.8
%
 
78.5
%
 
78.9
%
Reconciling items impacting gross profit:
 
 
 
 
 
 
 
Transaction and transition costs
1,326

 
—

 
2,236

 
685

Non-GAAP gross profit from continuing operations, as adjusted
$
161,168

 
$
141,571

 
$
319,476

 
$
282,321

Net sales from continuing operations
205,400

 
179,693

 
403,937

 
356,884

Non-GAAP adjusted gross margins from continuing operations
78.5
%
 
78.8
%
 
79.1
%
 
79.1
%


9


Wright Medical Group N.V.
Reconciliation of Other Non-GAAP Financial Measures to Other As Reported Results
(dollars in thousands--unaudited)
 
Three months ended
 
Six months ended
 
July 1, 2018
 
June 25, 2017
 
July 1, 2018
 
June 25, 2017
Net sales
$
205,400

 
$
179,693

 
$
403,937

 
$
356,884

 
 
 
 
 
 
 
 
Selling, general and administrative expense, as reported
$
140,826

 
$
130,818

 
$
278,074

 
$
260,652

Selling, general and administrative expense as a percentage of net sales, as reported
68.6
%
 
72.8
%
 
68.8
%
 
73.0
%
Reconciling items impacting selling, general and administrative expense:
 
 
 
 
 
 
 
Transaction and transition costs - selling, general and administrative
—

 
3,101

 
—

 
5,388

Selling, general and administrative expense, as adjusted
$
140,826

 
$
127,717

 
$
278,074

 
$
255,264

Selling, general and administrative expense as a percentage of net sales, as adjusted
68.6
%
 
71.1
%
 
68.8
%
 
71.5
%
 
 
 
 
 
 
 
 
Research & development expense, as reported
$
14,665

 
$
12,547

 
$
28,564

 
$
24,979

Research & development expense as a percentage of net sales, as reported
7.1
%
 
7.0
%
 
7.1
%
 
7.0
%
Reconciling items impacting research & development expense:
 
 
 
 
 
 
 
Transaction and transition costs - research & development
—

 
100

 
—

 
100

Research & development expense, as adjusted
$
14,665

 
$
12,447

 
$
28,564

 
$
24,879

Research & development expense as a percentage of net sales, as adjusted
7.1
%
 
6.9
%
 
7.1
%
 
7.0
%


10


Wright Medical Group N.V.
Condensed Consolidated Balance Sheets
(dollars in thousands--unaudited)
 
July 1, 2018
 
December 31, 2017
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
313,214

 
$
167,740

Accounts receivable, net
124,848

 
130,610

Inventories
170,919

 
168,144

Prepaid expenses and other current assets
112,851

 
100,400

Total current assets
721,832

 
566,894

 
 
 
 
Property, plant and equipment, net
217,383

 
212,379

Goodwill and intangible assets, net
1,140,028

 
1,164,663

Other assets
332,789

 
184,788

Total assets
$
2,412,032

 
$
2,128,724

 
 
 
 
Liabilities and shareholders' equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
42,208

 
$
41,831

Accrued expenses and other current liabilities
268,035

 
314,558

Current portion of long-term obligations
39,861

 
58,906

Total current liabilities
350,104

 
415,295

Long-term obligations
1,061,998

 
836,208

Other liabilities
431,690

 
288,525

Total liabilities
1,843,792

 
1,540,028

 
 
 
 
Shareholders' equity
568,240

 
588,696

Total liabilities and shareholders' equity
$
2,412,032

 
$
2,128,724






###

11

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