Orthofix International N.V.
ORTHOFIX INTERNATIONAL N V (Form: 8-K, Received: 08/07/2017 16:11:04)

 

 

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): August 7, 2017

 

 

Orthofix International N.V.

(Exact name of Registrant as specified in its charter)

 

 

Curaçao

 

0-19961

 

98-1340767

(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))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

Emerging growth company 

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. 

 

 

 

 

 


 

Item 2.02.

Results of Operations and Financial Condition.

On August 7, 2017, Orthofix International N.V. (the “Company”) issued a press release announcing, among other things, its financial results for the fiscal quarter ended June 30, 2017. A copy of the press release is furnished herewith as Exhibit 99.1 and attached hereto.

The information furnished in this Item 2.02, including the exhibit incorporated by reference, will not be treated as “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section. This information will not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or into another filing under the Exchange Act, unless that filing expressly refers to specific information in this Report.

Item 7.01

Regulation FD Disclosure.

The press release furnished in Exhibit 99.1 also provides an update on the Company’s business outlook, that is intended to be within the safe harbor provided by the Private Securities Litigation Reform Act of 1995 (the “Act”) as comprising forward looking statements within the meaning of the Act.

The information furnished in this Item 7.01, including the exhibit incorporated by reference, will not be treated as “filed” for the purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section. This information will not be deemed incorporated by reference into any filing under the Securities Act, or into another filing under the Exchange Act, unless that filing expressly refers to specific information in this Report.

 

Item 9.01.

Financial Statements and Exhibits.

(d) Exhibits

99.1 Press Release, dated August 7, 2017.

 


 

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/ Kimberley Elting

 

 

 

Kimberley Elting

Chief Legal Officer

 

 

Date: August 7, 2017

 


 

EXHIBIT INDEX

 

Exhibit No.

 

Description

 

 

 

99.1

 

Press Release, dated August 7, 2017.

 

 

Exhibit 99.1

Orthofix International Reports Second Quarter 2017 Financial Results

 

Second Quarter Highlights

 

Net sales of $108.9 million, an increase of 4.7% compared to prior year or 5.1% on a constant currency basis

 

Biologics sales of $15.7 million, an increase of 9.9% compared to prior year

 

Spine Fixation sales of $21.4 million, an increase of 17.1% compared to prior year

LEWISVILLE, Texas — August 7, 2017 — Orthofix International N.V. (NASDAQ:OFIX) today reported its financial results for the second quarter ended June 30, 2017.  Net sales were $108.9 million, diluted earnings per share from continuing operations was $0.26 and adjusted earnings per share from continuing operations was $0.42.  

“The key take-away from the second quarter is the strong sales performance of our Biologics and Spine Fixation businesses.  Both have averaged mid-single digit year-over-year growth over the last three quarters,” said Brad Mason, President and Chief Executive Officer.  “We believe these growth rates are sustainable in both businesses due to the renewed engagement of our sales partners, the addition of new distributors in underserved markets and our flow of new products to the field.

“The BioStim and Extremity Fixation businesses also performed better than we expected in the second quarter with BioStim delivering another solid top line performance and, when excluding planned subsidiary restructuring and the loss of sales due to the discontinuation of a non-core business last year, Extremity Fixation delivered good constant currency growth.

“Our bottom line performance was in line with our expectations for the period.  Our primary focus this year is investing in the areas necessary to support a sustainable increase to our top line growth rate, rather than margin expansion.  As we move into next year, without sacrificing our top line growth, we expect to return to adjusted EBITDA margin expansion as a result of a number of opportunities we see across the P&L.”

 

Financial Results Overview

The following table provides net sales by strategic business unit (“SBU”):

 

  

 

Three Months Ended June 30,

 

(Unaudited, U.S. Dollars, in thousands)

 

2017

 

 

2016

 

 

Change

 

 

Constant

Currency

Change

 

BioStim

 

$

47,174

 

 

$

44,758

 

 

 

5.4

%

 

 

5.4

%

Biologics

 

 

15,661

 

 

 

14,256

 

 

 

9.9

%

 

 

9.9

%

Extremity Fixation

 

 

24,747

 

 

 

26,817

 

 

 

(7.7

%)

 

 

(6.0

%)

Spine Fixation

 

 

21,360

 

 

 

18,244

 

 

 

17.1

%

 

 

17.1

%

Net sales

 

$

108,942

 

 

$

104,075

 

 

 

4.7

%

 

 

5.1

%

 

Gross profit increased $4.2 million to $85.8 million. Gross margin improved slightly to 78.7% compared to 78.4% in the prior year period, which was slightly below our expectations due primarily to larger than usual inventory reserve expenses. Non-GAAP net margin, an internal metric that we define as gross profit less sales and marketing expenses, was $35.3 million compared to $35.5 million in the prior year period.  The decrease in non-GAAP net margin was primarily due to higher sales and marketing expenses in Biologics and Extremity Fixation.

Net income from continuing operations was $4.7 million, or $0.26 per share, compared to net loss of ($6.3) million, or ($0.35) per share in the prior year period. Adjusted net income from continuing operations was $7.8 million, or $0.42 per share, compared to adjusted net income of $7.5 million, or $0.40 per share in the prior year period.

EBITDA was $14.0 million, compared to $2.6 million in the prior year period. Adjusted EBITDA was $20.5 million, or 18.8% of net sales, for the second quarter, compared to $19.2 million, or 18.5% of net sales, in the prior year period.


 

 

Liquidity

As of June 30, 2017, cash and cash equivalents were $44.3 million compared to $39.6 million as of December 31, 2016. As of June 30, 2017, we had no outstanding indebtedness and borrowing capacity of $125 million. Cash flow from operations decreased $11.6 million to $9.7 million and free cash flow decreased $9.9 million to $1.1 million.

 

2017 Outlook

For the year ending December 31, 2017, the Company expects the following results, assuming exchange rates are the same as those currently prevailing.

 

  

 

Previous 2017 Outlook

 

 

Current 2017 Outlook

(Unaudited, U.S. Dollars, in millions, except per share data)

 

Low

 

 

High

 

 

Low

High

Net sales

 

$

411.0

 

 

$

415.0

 

 

$

422.0

 

1

$

425.0

 

1

Net income from continuing operations

 

$

20.6

 

 

$

23.7

 

 

$

17.7

 

2

$

21.4

 

2

Adjusted EBITDA

 

$

76.0

 

 

$

79.0

 

 

$

79.0

 

3

$

81.0

 

3

EPS from continuing operations

 

$

1.12

 

 

$

1.29

 

 

$

0.96

 

4

$

1.16

 

4

Adjusted EPS from continuing operations

 

$

1.48

 

 

$

1.58

 

 

$

1.54

 

5

$

1.60

 

5

 

1 Represents a year-over-year increase of 3.0% to 3.7% on a reported basis

2 Represents a year-over-year increase of 406.1% to 512.0%

3 Represents a year-over-year decrease of 0.4% to an increase of 2.1%

4 Represents a year-over-year increase of 405.3% to 510.5%

5 Represents a year-over-year increase of 5.5% to 9.6%

 

Conference Call

Orthofix will host a conference call today at 4:30 PM Eastern time to discuss the Company's financial results for the second quarter of 2017. Interested parties may access the conference call by dialing (800) 406-5345 in the U.S. and (719) 325-4807 outside the U.S., and referencing the conference ID 7718902. A replay of the call will be available for two weeks by dialing (888) 203-1112 in the U.S. and (719) 457-0820 outside the U.S., and entering the conference ID 7718902. A webcast of the conference call may be accessed by going to the Company's website at www.orthofix.com , by clicking on the Investors link and then the Events and Presentations page.

 

About Orthofix

Orthofix International N.V. is a diversified, global medical device company focused on improving patients' lives by providing superior reconstructive and regenerative orthopedic and spine solutions to physicians worldwide. Headquartered in Lewisville, Texas, the Company has four strategic business units: BioStim, Biologics, Extremity Fixation and Spine Fixation. Orthofix products are widely distributed via the Company's sales representatives and distributors. In addition, Orthofix is collaborating on research and development activities with leading clinical organizations such as Brown University, Sinai Hospital of Baltimore, Cleveland Clinic, Texas Scottish Rite Hospital for Children, and the Musculoskeletal Transplant Foundation. For more information, please visit  www.orthofix.com .

 

Forward-Looking Statements

This communication contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (“the Exchange Act”), and Section 27A of the Securities Act of 1933, as amended, relating to our business and financial outlook, which are based on our current beliefs, assumptions, expectations, estimates, forecasts and projections. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “intends,” “predicts,” “potential,” or “continue” or other comparable terminology. These forward-looking statements are not guarantees of our future performance and involve risks, uncertainties, estimates and assumptions that are difficult to predict. Therefore, our actual outcomes and results may differ materially from those expressed in these forward-looking statements. You should not place undue reliance on any of these forward-looking statements. Further, any forward-looking statement speaks only as of the date hereof, unless it is specifically otherwise stated to be made as of a different date. We undertake no obligation to further update any such statement, or the risk factors described in Part I, Item 1A under the heading Risk Factors in our Form 10-K for the year ended December 31, 2016, to reflect new information, the occurrence of future events or circumstances or otherwise.

 

2


 

Company Contact

 

 

Orthofix International N.V.

 

 

Mark Quick

 

 

P: 214-937-2924

 

 

E: markquick@orthofix.com

 

 

 

3


 

ORTHOFIX INTERNATIONAL N.V.

Condensed Consolidated Statements of Operations

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(Unaudited, U.S. Dollars, in thousands, except share and per  share data)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net sales

 

$

108,942

 

 

$

104,075

 

 

$

211,680

 

 

$

202,754

 

Cost of sales

 

 

23,177

 

 

 

22,516

 

 

 

45,758

 

 

 

44,653

 

Gross profit

 

 

85,765

 

 

 

81,559

 

 

 

165,922

 

 

 

158,101

 

Sales and marketing

 

 

50,471

 

 

 

46,043

 

 

 

99,003

 

 

 

90,865

 

General and administrative

 

 

20,409

 

 

 

18,545

 

 

 

38,691

 

 

 

35,550

 

Research and development

 

 

6,887

 

 

 

6,796

 

 

 

14,311

 

 

 

14,436

 

Charges related to U.S. Government resolutions

 

 

 

 

 

12,870

 

 

 

 

 

 

12,870

 

Operating  income (loss)

 

 

7,998

 

 

 

(2,695

)

 

 

13,917

 

 

 

4,380

 

Interest income (expense), net

 

 

76

 

 

 

(113

)

 

 

121

 

 

 

(151

)

Other income (expense), net

 

 

585

 

 

 

147

 

 

 

(3,763

)

 

 

1,980

 

Income (loss) before income taxes

 

 

8,659

 

 

 

(2,661

)

 

 

10,275

 

 

 

6,209

 

Income tax expense

 

 

(3,924

)

 

 

(3,685

)

 

 

(7,848

)

 

 

(7,979

)

Net income (loss) from continuing operations

 

 

4,735

 

 

 

(6,346

)

 

 

2,427

 

 

 

(1,770

)

Discontinued operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations

 

 

(1,300

)

 

 

(1,572

)

 

 

(1,827

)

 

 

(2,562

)

Income tax benefit

 

 

418

 

 

 

474

 

 

 

599

 

 

 

728

 

Net loss from discontinued operations

 

 

(882

)

 

 

(1,098

)

 

 

(1,228

)

 

 

(1,834

)

Net income (loss)

 

$

3,853

 

 

$

(7,444

)

 

$

1,199

 

 

$

(3,604

)

Net income (loss) per common share—basic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) from continuing operations

 

$

0.26

 

 

$

(0.35

)

 

$

0.13

 

 

$

(0.10

)

Net loss from discontinued operations

 

 

(0.05

)

 

 

(0.06

)

 

 

(0.06

)

 

 

(0.10

)

Net income (loss) per common share—basic

 

$

0.21

 

 

$

(0.41

)

 

$

0.07

 

 

$

(0.20

)

Net income (loss) per common share—diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) from continuing operations

 

$

0.26

 

 

$

(0.35

)

 

$

0.13

 

 

$

(0.10

)

Net loss from discontinued operations

 

 

(0.05

)

 

 

(0.06

)

 

 

(0.06

)

 

 

(0.10

)

Net income (loss) per common share—diluted

 

$

0.21

 

 

$

(0.41

)

 

$

0.07

 

 

$

(0.20

)

Weighted average number of common shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

18,050,551

 

 

 

18,147,681

 

 

 

18,015,308

 

 

 

18,312,781

 

Diluted

 

 

18,343,038

 

 

 

18,147,681

 

 

 

18,288,050

 

 

 

18,312,781

 

4


 

ORTHOFIX INTERNATIONAL N.V.

Condensed Consolidated Balance Sheets

 

(U.S. Dollars, in thousands except share data)

 

June 30,

2017

 

 

December 31,

2016

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

44,330

 

 

$

39,572

 

Restricted cash

 

 

 

 

 

14,369

 

Accounts receivable, net of allowances of $8,480 and $8,396, respectively

 

 

61,213

 

 

 

57,848

 

Inventories

 

 

75,869

 

 

 

63,346

 

Prepaid expenses and other current assets

 

 

17,192

 

 

 

19,238

 

Total current assets

 

 

198,604

 

 

 

194,373

 

Property, plant and equipment, net

 

 

46,651

 

 

 

48,916

 

Patents and other intangible assets, net

 

 

9,508

 

 

 

7,461

 

Goodwill

 

 

53,565

 

 

 

53,565

 

Deferred income taxes

 

 

42,685

 

 

 

47,325

 

Other long-term assets

 

 

16,664

 

 

 

20,463

 

Total assets

 

$

367,677

 

 

$

372,103

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

14,245

 

 

$

14,353

 

Other current liabilities

 

 

50,858

 

 

 

69,088

 

Total current liabilities

 

 

65,103

 

 

 

83,441

 

Other long-term liabilities

 

 

25,627

 

 

 

25,185

 

Total liabilities

 

 

90,730

 

 

 

108,626

 

Contingencies

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

 

 

Common shares $0.10 par value; 50,000,000 shares authorized; 18,119,430 and

   17,828,155 issued and outstanding as of June 30, 2017 and December 31,

   2016,  respectively

 

 

1,812

 

 

 

1,783

 

Additional paid-in capital

 

 

211,990

 

 

 

204,095

 

Retained earnings

 

 

65,378

 

 

 

64,179

 

Accumulated other comprehensive loss

 

 

(2,233

)

 

 

(6,580

)

Total shareholders’ equity

 

 

276,947

 

 

 

263,477

 

Total liabilities and shareholders’ equity

 

$

367,677

 

 

$

372,103

 

 

 

5


 

ORTHOFIX INTERNATIONAL N.V.
Non-GAAP Financial Measures

The following tables present reconciliations of net income (loss) from continuing operations, earnings per share (“EPS”) from continuing operations, gross profit, and net cash from operating activities, in each case calculated in accordance with U.S. generally accepted accounting principles (“GAAP”), to, as applicable, non-GAAP financial measures, referred to as "EBITDA," "Adjusted EBITDA," "Adjusted net income from continuing operations," "Adjusted earnings per share from continuing operations," "Non-GAAP net margin" and "Free cash flow" that exclude items specified in the tables. A more detailed explanation of the items excluded from these non-GAAP financial measures, as well as why management believes the non-GAAP financial measures are useful to them, is included following the reconciliations.  

 

EBITDA and Adjusted EBITDA

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

(Unaudited, U.S. Dollars, in thousands)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net income (loss) from continuing operations

 

$

4,735

 

 

$

(6,346

)

 

$

2,427

 

 

$

(1,770

)

Interest expense (income), net

 

 

(76

)

 

 

113

 

 

 

(121

)

 

 

151

 

Income tax expense

 

 

3,924

 

 

 

3,685

 

 

 

7,848

 

 

 

7,979

 

Depreciation and amortization

 

 

5,372

 

 

 

5,130

 

 

 

10,447

 

 

 

10,003

 

EBITDA

 

$

13,955

 

 

$

2,582

 

 

$

20,601

 

 

$

16,363

 

Share-based compensation

 

 

2,676

 

 

 

1,913

 

 

 

5,492

 

 

 

4,012

 

Foreign exchange impact

 

 

(618

)

 

 

(185

)

 

 

(1,631

)

 

 

(2,000

)

Strategic investments

 

 

2,226

 

 

 

206

 

 

 

9,326

 

 

 

404

 

SEC / FCPA matters and related costs

 

 

560

 

 

 

545

 

 

 

701

 

 

 

790

 

Infrastructure investments

 

 

 

 

 

1,284

 

 

 

 

 

 

2,246

 

Legal judgments/settlements

 

 

1,392

 

 

 

 

 

 

1,619

 

 

 

 

International restructuring

 

 

321

 

 

 

 

 

 

82

 

 

 

 

Charges related to U.S. Government resolutions

 

 

 

 

 

12,870

 

 

 

 

 

 

12,870

 

Adjusted EBITDA

 

$

20,512

 

 

$

19,215

 

 

$

36,190

 

 

$

34,685

 

As a % of  net sales

 

 

18.8

%

 

 

18.5

%

 

 

17.1

%

 

 

17.1

%

 

Adjusted Net Income from Continuing Operations

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

(Unaudited, U.S. Dollars, in thousands)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net income (loss) from continuing operations

 

$

4,735

 

 

$

(6,346

)

 

$

2,427

 

 

$

(1,770

)

Foreign exchange impact

 

 

(618

)

 

 

(185

)

 

 

(1,631

)

 

 

(2,000

)

Strategic investments

 

 

2,226

 

 

 

206

 

 

 

9,326

 

 

 

404

 

SEC / FCPA matters and related costs

 

 

560

 

 

 

545

 

 

 

701

 

 

 

790

 

Infrastructure investments

 

 

 

 

 

1,284

 

 

 

 

 

 

2,246

 

Legal judgments/settlements

 

 

1,392

 

 

 

 

 

 

1,619

 

 

 

 

International restructuring

 

 

321

 

 

 

 

 

 

82

 

 

 

 

Charges related to U.S. Government resolutions

 

 

 

 

 

12,870

 

 

 

 

 

 

12,870

 

Long-term income tax rate adjustment

 

 

(841

)

 

 

(897

)

 

 

107

 

 

 

182

 

Adjusted net income from continuing operations

 

$

7,775

 

 

$

7,477

 

 

$

12,631

 

 

$

12,722

 

 

6


 

Adjusted Earnings per Share from Continuing Operations

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

(Unaudited, per diluted share)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

EPS from continuing operations

 

$

0.26

 

 

$

(0.35

)

 

$

0.13

 

 

$

(0.10

)

Foreign exchange impact

 

 

(0.03

)

 

 

(0.01

)

 

 

(0.09

)

 

 

(0.11

)

Strategic investments

 

 

0.12

 

 

 

0.01

 

 

 

0.51

 

 

 

0.02

 

SEC / FCPA matters and related costs

 

 

0.03

 

 

 

0.03

 

 

 

0.04

 

 

 

0.04

 

Infrastructure investments

 

 

 

 

 

0.07

 

 

 

 

 

 

0.12

 

Legal judgments/settlements

 

 

0.08

 

 

 

 

 

 

0.09

 

 

 

 

International restructuring

 

 

0.02

 

 

 

 

 

 

 

 

 

 

Charges related to U.S. Government resolutions

 

 

 

 

 

0.70

 

 

 

 

 

 

0.69

 

Long-term income tax rate adjustment

 

 

(0.06

)

 

 

(0.05

)

 

 

0.01

 

 

 

0.02

 

Adjusted EPS from continuing operations

 

$

0.42

 

 

$

0.40

 

 

$

0.69

 

 

$

0.68

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of diluted common shares

 

 

18,343,038

 

 

 

18,511,978

 

 

 

18,288,050

 

 

 

18,645,280

 

 

Non-GAAP Net Margin

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

(Unaudited, U.S. Dollars, in thousands)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Gross profit

 

$

85,765

 

 

$

81,559

 

 

$

165,922

 

 

$

158,101

 

Sales and marketing

 

 

(50,471

)

 

 

(46,043

)

 

 

(99,003

)

 

 

(90,865

)

Non-GAAP net margin

 

$

35,294

 

 

$

35,516

 

 

$

66,919

 

 

$

67,236

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BioStim

 

$

19,469

 

 

$

18,575

 

 

$

36,602

 

 

$

34,983

 

Biologics

 

 

6,470

 

 

 

6,718

 

 

 

12,641

 

 

 

12,822

 

Extremity Fixation

 

 

6,766

 

 

 

8,161

 

 

 

13,178

 

 

 

15,336

 

Spine Fixation

 

 

2,696

 

 

 

2,201

 

 

 

4,703

 

 

 

4,536

 

Corporate

 

 

(107

)

 

 

(139

)

 

 

(205

)

 

 

(441

)

Non-GAAP net margin

 

$

35,294

 

 

$

35,516

 

 

$

66,919

 

 

$

67,236

 

 

 

Free Cash Flow

 

Six Months Ended

June 30,

 

(Unaudited, U.S. Dollars, in thousands)

 

2017

 

 

2016

 

Net cash from operating activities

 

$

9,727

 

 

$

21,373

 

Capital expenditures

 

 

(8,593

)

 

 

(10,356

)

Free cash flow

 

$

1,134

 

 

$

11,017

 

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2017 Outlook

 

 

Previous 2017 Outlook

 

 

Current 2017 Outlook

 

(Unaudited, U.S. Dollars, in millions)

 

Low

 

 

High

 

 

Low

 

 

High

 

Net income from continuing operations

 

$

20.6

 

 

$

23.7

 

 

$

17.7

 

 

$

21.4

 

Interest expense, net

 

 

0.1

 

 

 

0.2

 

 

 

0.2

 

 

 

0.1

 

Income tax expense

 

 

13.6

 

 

 

14.3

 

 

 

15.7

 

 

 

15.5

 

Depreciation and amortization

 

 

20.0

 

 

 

20.0

 

 

 

20.0

 

 

 

20.0

 

EBITDA

 

$

54.3

 

 

$

58.2

 

 

$

53.6

 

 

$

57.0

 

Share-based compensation

 

 

11.8

 

 

 

11.8

 

 

 

13.0

 

 

 

13.0

 

Foreign exchange impact

 

 

(1.0

)

 

 

(1.0

)

 

 

(1.6

)

 

 

(1.6

)

Strategic investments

 

 

8.6

 

 

 

8.1

 

 

 

10.3

 

 

 

9.3

 

SEC / FCPA matters and related costs

 

 

1.3

 

 

 

1.0

 

 

 

1.2

 

 

 

1.0

 

International restructuring

 

 

0.8

 

 

 

0.7

 

 

 

0.9

 

 

 

0.7

 

Legal judgments/settlements

 

 

0.2

 

 

 

0.2

 

 

 

1.6

 

 

 

1.6

 

Adjusted EBITDA

 

$

76.0

 

 

$

79.0

 

 

$

79.0

 

 

$

81.0

 

 

 

 

Previous 2017 Outlook

 

 

Current 2017 Outlook

 

(Unaudited, per diluted share)

 

Low

 

 

High

 

 

Low

 

 

High

 

EPS from continuing operations

 

$

1.12

 

 

$

1.29

 

 

$

0.96

 

 

$

1.16

 

Foreign exchange impact

 

 

(0.05

)

 

 

(0.05

)

 

 

(0.09

)

 

 

(0.09

)

Strategic investments

 

 

0.46

 

 

 

0.44

 

 

 

0.56

 

 

 

0.51

 

SEC / FCPA matters and related costs

 

 

0.07

 

 

 

0.05

 

 

 

0.07

 

 

 

0.05

 

International restructuring

 

 

0.04

 

 

 

0.04

 

 

 

0.05

 

 

 

0.04

 

Legal judgments/settlements

 

 

0.01

 

 

 

0.01

 

 

 

0.09

 

 

 

0.09

 

Long-term income tax rate adjustment

 

 

(0.17

)

 

 

(0.20

)

 

 

(0.10

)

 

 

(0.16

)

Adjusted EPS from continuing operations

 

$

1.48

 

 

$

1.58

 

 

$

1.54

 

 

$

1.60

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of diluted common shares

 

 

18,400,000

 

 

 

18,400,000

 

 

 

18,400,000

 

 

 

18,400,000

 

 


8


 

Non-GAAP Measures:

Constant Currency

Constant currency is a non-GAAP measure, which is calculated by using foreign currency rates from the comparable, prior-year period, to present net sales at comparable rates. Constant currency can be presented for numerous GAAP measures, but is most commonly used by management to analyze net sales without the impact of changes in foreign currency rates.

 

EBITDA

EBITDA is a non-GAAP financial measure, which is calculated by adding interest income (expense), net; income tax expense; and depreciation and amortization to net income (loss) from continuing operations. EBITDA provides management with additional insight to its results of operations.

 

Adjusted EBITDA, Adjusted Net Income from Continuing Operations and Adjusted Earnings per Share from Continuing Operations

These non-GAAP financial measures provide management with additional insight to its results of operations and are calculated using the following adjustments:

 

Share-based compensation  – costs related to our share-based compensation plans, which include stock options, restricted stock awards, performance-based restricted stock awards, market-based restricted stock awards and our stock purchase plan

 

Foreign exchange impact  – gains and losses related to foreign currency transactions; guidance presented does not include the impact of any future foreign exchange fluctuations

 

Strategic investments  – costs related to our strategic investments, including our investment in eNeura, Inc.

 

SEC / FCPA matters and related costs  – legal and other professional fees associated with the SEC Investigation, Securities Class Action Complaint and Brazil subsidiary compliance review

 

Infrastructure investments  – costs associated with our multi-year process and systems improvement effort, "Bluecore,” which was completed in 2016

 

Legal judgments/settlements – adverse or favorable legal judgments or negotiated legal settlements

 

International restructuring costs related to a planned restructuring, primarily consisting of severance charges and the write-down of certain assets

 

Charges related to U.S. Government resolutions – charges related to the settlement with the SEC as further discussed in our Form 10-K for the year ended December 31, 2016

 

Long-term income tax rate adjustment – reflects management’s expectation of a long-term normalized effective tax rate of 38%, which is based on current tax law and current expected income; actual tax expense will ultimately be based on GAAP performance and may differ from the 38% effective tax rate due to a variety of factors, including the jurisdictions in which profits are determined to be earned and taxed, the resolutions of issues arising from tax audits with various tax authorities, and the ability to realize deferred tax assets

 

Non-GAAP Net Margin

Non-GAAP net margin is an internal non-GAAP metric, which we define as gross profit less sales and marketing expense. Non-GAAP net margin is the primary metric used by our Chief Operating Decision Maker in managing our business.

 

Free Cash Flow

Free cash flow is a non-GAAP financial measure, which is calculated by subtracting capital expenditures from cash flow from operating activities. Free cash flow is an important indicator of how much cash is generated or used by our normal business operations, including capital expenditures. Management uses free cash flow as a measure of progress on its capital efficiency and cash flow initiatives.

 

Usefulness and Limitations of Non-GAAP Financial Measures

Management uses non-GAAP measures to evaluate performance period-over-period, to analyze the underlying trends in our business, to assess performance relative to competitors and to establish operational goals and forecasts that are used in allocating

9


 

resou rces. 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 our business units.

 

Material Limitations Associated with the Use of Non-GAAP Financial 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 financial measures. Some of the limitations associated with the use of these non-GAAP financial measures are that they exclude items that reflect an economic cost and can have a material effect on cash flows. Similarly, certain non-cash expenses, such as share-based compensation, do not directly impact cash flows, but are part of total compensation costs accounted for under GAAP.

 

Compensation for Limitations Associated with Use of Non-GAAP Financial Measures

We compensate for the limitations of our non-GAAP financial measures by relying upon GAAP results to gain a complete picture of our performance. The GAAP results provide the ability to understand our performance based on a defined set of criteria. The non-GAAP measures reflect the underlying operating results of our businesses, which we believe is an important measure of our overall performance. We provide a detailed reconciliation of the non-GAAP financial measures to our most directly comparable GAAP measures, and encourage investors to review this reconciliation.

 

Usefulness of Non-GAAP Financial Measures to Investors

We believe that providing non-GAAP financial measures that exclude certain items provides investors with greater transparency to the information used by 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 our business operations in order to facilitate comparisons to its historical operating results and internally evaluate the effectiveness of our operating strategies. Disclosure of these non-GAAP financial measures also facilitates comparisons of our underlying operating performance with other companies in the industry that also supplement their GAAP results with non-GAAP financial measures.

 

Source

Orthofix International N.V.

10