Orthofix International N.V.
ORTHOFIX INTERNATIONAL N V (Form: 8-K, Received: 02/27/2017 16:07:38)

 

 

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): February 27, 2017

 

 

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 .0 2 .

Results of Operations and Financial Condition.

On February 27, 2017, Orthofix International N.V. (the “Company”) issued a press release announcing, among other things, its financial results for the fiscal quarter and year ended December 31, 2016. 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 February 27, 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: February 27, 2017

 


 

EXHIBIT INDEX

 

Exhibit No.

 

Description

 

 

 

99.1

 

Press Release, dated February 27, 2017.

 

 

Exhibit 99.1

Orthofix International Reports Fourth Quarter and Fiscal 2016 Financial Results

 

Fourth Quarter Highlights

 

Net sales of $108.5 million, an increase of 3.7% compared to prior year and 4.2% on a constant currency basis

 

Net loss from continuing operations of $5.1 million; compared to net income of $2.1 million in the prior year

 

Adjusted EBITDA of $21.1 million; an increase of $1.8 million, or 9.4%, over prior year

 

Fiscal Year 2016 Highlights

 

Net sales of $409.8 million, an increase of 3.4% compared to prior year and 4.0% on a constant currency basis

 

Net income from continuing operations of $3.5 million; an increase of $5.8 million over prior year

 

Adjusted EBITDA of $79.3 million; an increase of $18.6 million, or 30.6%, over prior year

LEWISVILLE, Texas — February 27, 2017 — Orthofix International N.V. (NASDAQ:OFIX) today reported its financial results for the fourth quarter and fiscal year ended December 31, 2016.  For the fourth quarter of 2016, net sales were $108.5 million, loss per share from continuing operations was ($0.29) and adjusted earnings per share from continuing operations was $0.42.  For fiscal year 2016, net sales were $409.8 million, earnings per share from continuing operations was $0.19 and adjusted earnings per share from continuing operations was $1.46.

“We are very proud of what we accomplished in 2016 and are encouraged by our momentum at year-end,” commented Brad Mason, President and Chief Executive Officer. “We improved our performance during the year in almost every aspect of our business and exited an era of heavy investment with a rebuilt infrastructure, robust compliance program, rigorous financial controls, strong balance sheet, excellent free cash flow and great momentum in our BioStim and Extremity Fixation businesses. Looking ahead to the next chapter for Orthofix, we are now well positioned and committed to execute on both organic and inorganic strategic opportunities focused on accelerating shareholder value creation.”

 

Financial Results Overview

Fourth Quarter

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

 

 

 

Three Months Ended December 31,

 

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

 

2016

 

 

2015

 

 

Change

 

 

Constant

Currency

Change

 

BioStim

 

$

47,803

 

 

$

44,993

 

 

 

6.2

%

 

 

6.2

%

Biologics

 

 

15,227

 

 

 

15,958

 

 

 

(4.6

%)

 

 

(4.6

%)

Extremity Fixation

 

 

26,843

 

 

 

23,931

 

 

 

12.2

%

 

 

14.3

%

Spine Fixation

 

 

18,664

 

 

 

19,740

 

 

 

(5.5

%)

 

 

(5.6

%)

Net sales

 

$

108,537

 

 

$

104,622

 

 

 

3.7

%

 

 

4.2

%

 

Gross profit increased $2.0 million to $85.2 million. Gross margin decreased to 78.5% compared to 79.5% in the prior year period, primarily due to an increase in the mix of net sales from our Extremity Fixation SBU, which have lower margins than our regenerative products. Net margin (gross profit less sales and marketing expenses) was $36.5 million, a decrease of 5.1% compared to $38.5 million in the prior year period.  The decrease in net margin was primarily due to higher sales and marketing expenses, driven by higher compensation costs, including commissions.

Net loss from continuing operations was $5.1 million, or ($0.29) per share, compared to net income of $2.1 million, or $0.11 per share in the prior year period. Adjusted net income from continuing operations was $7.7 million, or $0.42 per share, compared to adjusted net income of $7.6 million, or $0.40 per share in the prior year period.


 

EBITDA was $8.6 mi llion, compared to $12.5 million in the prior year period. Adjusted EBITDA was $21.1 million or 19.4% of net sales for the fourth quarter, compared to $19.3 million or 18.4% of net sales in the prior year period.

 

Fiscal Year 2016

The following table provides net sales by SBU:

 

 

 

Year Ended December 31,

 

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

 

2016

 

 

2015

 

 

Change

 

 

Constant

Currency

Change

 

BioStim

 

$

176,561

 

 

$

164,955

 

 

 

7.0

%

 

 

7.0

%

Biologics

 

 

57,912

 

 

 

59,832

 

 

 

(3.2

%)

 

 

(3.2

%)

Extremity Fixation

 

 

102,683

 

 

 

96,034

 

 

 

6.9

%

 

 

9.6

%

Spine Fixation

 

 

72,632

 

 

 

75,668

 

 

 

(4.0

%)

 

 

(4.0

%)

Net sales

 

$

409,788

 

 

$

396,489

 

 

 

3.4

%

 

 

4.0

%

Gross profit increased $12.0 million to $321.9 million and gross margin increased to 78.6% compared to 78.2% in the prior year period. The increase in gross profit and gross margin was driven by an increase in sales, an increase in sales mix for our BioStim products, and lower fixed costs. Net margin was $140.6 million, an increase of 6.6% compared to $131.9 million in the prior year period.  The increase in net margin was due to the higher gross profit, partially offset by higher sales and marketing expenses, including an increase in commissions as a result of the increase in net sales.

Net income from continuing operations was $3.5 million, or $0.19 per share, compared to net loss of $2.3 million, or ($0.12) per share in the prior year.  Adjusted net income from continuing operations was $27.0 million, or $1.46 per share, compared to adjusted net income of $19.9 million, or $1.05 per share in the prior year.

EBITDA was $39.1 million, compared to $29.9 million in the prior year. Adjusted EBITDA was $79.3 million or 19.4% of net sales for the year, compared to $60.7 million or 15.3% of net sales in the prior year.

 

Liquidity

As of December 31, 2016, cash and cash equivalents were $39.6 million compared to $63.7 million as of December 31, 2015. The decrease in cash and cash equivalents is due primarily to the repurchase of shares and funding the settlements with the SEC. As of December 31, 2016, we had no outstanding indebtedness and borrowing capacity of $125 million. Cash flow from operations increased $1.1 million to $44.7 million, while free cash flow increased $10.7 million to $26.4 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.

 

 

 

2017 Outlook

 

 

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

 

Low

 

 

High

 

 

Net sales

 

$

407.0

 

1

$

411.0

 

1

Net income from continuing operations

 

$

24.4

 

2

$

29.3

 

2

Adjusted EBITDA

 

$

76.0

 

3

$

79.0

 

3

EPS from continuing operations

 

$

1.33

 

4

$

1.59

 

4

Adjusted EPS from continuing operations

 

$

1.48

 

5

$

1.58

 

5

 

1 Represents a year-over-year decrease of 0.7% to a year-over-year increase of 0.3% on a reported basis

2 Represents a year-over-year increase of 597.7% to 737.9%

3 Represents a year-over-year decrease of 0.4% to 4.2%

4 Represents a year-over-year increase of 600.0% to 736.8%

5 Represents a year-over-year increase of 1.4% to 8.2%

2


 

 

Conference Call

Orthofix will host a conference call today at 4:30 PM Eastern time to discuss the Company's financial results for the fourth quarter and fiscal year 2016. Interested parties may access the conference call by dialing (866) 454-4209 in the U.S. and (913) 312-0839 outside the U.S., and referencing the conference ID 2108139. 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 2108139. 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, including the risks described in Part I, Item 1A, “Risk Factors” of our 2016 Annual Report on Form 10-K. 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, to reflect new information, the occurrence of future events or circumstances or otherwise.

 

Company Contact

 

 

Orthofix International N.V.

 

 

Mark Quick

 

 

P: 214-937-2924

 

 

E: markquick@orthofix.com

 

 

 

3


 

ORTHOFIX INTERNATIONAL N.V.

Consolidated Statements of Operations

 

 

  

 

Three Months Ended

 

 

Year Ended

 

 

 

December 31,

 

 

December 31,

 

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

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net sales

 

$

108,537

 

 

$

104,622

 

 

$

409,788

 

 

$

396,489

 

Cost of sales

 

 

23,320

 

 

 

21,411

 

 

 

87,853

 

 

 

86,525

 

Gross profit

 

 

85,217

 

 

 

83,211

 

 

 

321,935

 

 

 

309,964

 

Sales and marketing

 

 

48,705

 

 

 

44,720

 

 

 

181,287

 

 

 

178,080

 

General and administrative

 

 

21,063

 

 

 

23,734

 

 

 

74,404

 

 

 

87,157

 

Research and development

 

 

7,509

 

 

 

7,570

 

 

 

28,803

 

 

 

26,389

 

Restatements and related costs

 

 

524

 

 

 

(193

)

 

 

2,005

 

 

 

9,083

 

Charges related to U.S. Government resolutions

 

 

 

 

 

 

 

 

14,369

 

 

 

 

Operating  income

 

 

7,416

 

 

 

7,380

 

 

 

21,067

 

 

 

9,255

 

Interest income (expense), net

 

 

443

 

 

 

(166

)

 

 

763

 

 

 

(489

)

Other expense, net

 

 

(4,152

)

 

 

(67

)

 

 

(2,806

)

 

 

(259

)

Income before income taxes

 

 

3,707

 

 

 

7,147

 

 

 

19,024

 

 

 

8,507

 

Income tax expense

 

 

(8,824

)

 

 

(5,041

)

 

 

(15,527

)

 

 

(10,849

)

Net income (loss) from continuing operations

 

 

(5,117

)

 

 

2,106

 

 

 

3,497

 

 

 

(2,342

)

Discontinued operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations

 

 

2,942

 

 

 

488

 

 

 

(638

)

 

 

(1,827

)

Income tax (expense) benefit

 

 

(1,061

)

 

 

775

 

 

 

197

 

 

 

1,360

 

Net income (loss) from discontinued operations

 

 

1,881

 

 

 

1,263

 

 

 

(441

)

 

 

(467

)

Net income (loss)

 

$

(3,236

)

 

$

3,369

 

 

$

3,056

 

 

$

(2,809

)

Net income (loss) per common share—basic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) from continuing operations

 

$

(0.29

)

 

$

0.11

 

 

$

0.19

 

 

$

(0.12

)

Net income (loss) from discontinued operations

 

 

0.11

 

 

 

0.07

 

 

 

(0.02

)

 

 

(0.03

)

Net income (loss) per common share—basic

 

$

(0.18

)

 

$

0.18

 

 

$

0.17

 

 

$

(0.15

)

Net income (loss) per common share—diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) from continuing operations

 

$

(0.29

)

 

$

0.11

 

 

$

0.19

 

 

$

(0.12

)

Net income (loss) from discontinued operations

 

 

0.11

 

 

 

0.07

 

 

 

(0.02

)

 

 

(0.03

)

Net income (loss) per common share—diluted

 

$

(0.18

)

 

$

0.18

 

 

$

0.17

 

 

$

(0.15

)

Weighted average number of common shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

17,862,531

 

 

 

18,823,455

 

 

 

18,144,019

 

 

 

18,795,194

 

Diluted

 

 

17,862,531

 

 

 

19,059,779

 

 

 

18,463,161

 

 

 

18,795,194

 

4


 

ORTHOFIX INTERNATIONAL N.V.

Consolidated Balance Sheets

 

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

 

December 31,

2016

 

 

December 31,

2015

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

39,572

 

 

$

63,663

 

Restricted cash

 

 

14,369

 

 

 

 

Trade accounts receivable, less allowance for doubtful accounts of $8,396 and

   $8,923 at December 31, 2016 and December 31, 2015, respectively

 

 

57,848

 

 

 

59,839

 

Inventories

 

 

63,346

 

 

 

57,563

 

Prepaid expenses and other current assets

 

 

19,238

 

 

 

31,187

 

Total current assets

 

 

194,373

 

 

 

212,252

 

Property, plant and equipment, net

 

 

48,916

 

 

 

52,306

 

Patents and other intangible assets, net

 

 

7,461

 

 

 

5,302

 

Goodwill

 

 

53,565

 

 

 

53,565

 

Deferred income taxes

 

 

47,325

 

 

 

57,306

 

Other long-term assets

 

 

20,463

 

 

 

19,491

 

Total assets

 

$

372,103

 

 

$

400,222

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Trade accounts payable

 

$

14,353

 

 

$

16,391

 

Other current liabilities

 

 

69,088

 

 

 

65,597

 

Total current liabilities

 

 

83,441

 

 

 

81,988

 

Other long-term liabilities

 

 

25,185

 

 

 

27,923

 

Total liabilities

 

 

108,626

 

 

 

109,911

 

Contingencies

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

 

 

Common shares $0.10 par value; 50,000,000 shares authorized; 17,828,155 and

   18,659,696 issued and outstanding as of December 31, 2016 and 2015, respectively

 

 

1,783

 

 

 

1,866

 

Additional paid-in capital

 

 

204,095

 

 

 

232,126

 

Retained earnings

 

 

64,179

 

 

 

62,551

 

Accumulated other comprehensive loss

 

 

(6,580

)

 

 

(6,232

)

Total shareholders’ equity

 

 

263,477

 

 

 

290,311

 

Total liabilities and shareholders’ equity

 

$

372,103

 

 

$

400,222

 

 

 

5


 

ORTHOFIX INTERNATIONAL N.V.
Non-GAAP Financial Measures

The following tables present reconciliations of net income (loss) from continuing operations, earnings per share 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," "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

December 31,

 

 

Year Ended

December 31,

 

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

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net income (loss) from continuing operations

 

$

(5,117

)

 

$

2,106

 

 

$

3,497

 

 

$

(2,342

)

Interest expense (income), net

 

 

(443

)

 

 

166

 

 

 

(763

)

 

 

489

 

Income tax expense

 

 

8,824

 

 

 

5,041

 

 

 

15,527

 

 

 

10,849

 

Depreciation and amortization

 

 

5,358

 

 

 

5,177

 

 

 

20,841

 

 

 

20,923

 

EBITDA

 

$

8,622

 

 

$

12,490

 

 

$

39,102

 

 

$

29,919

 

Share-based compensation

 

 

3,812

 

 

 

1,689

 

 

 

15,686

 

 

 

7,214

 

Foreign exchange impact

 

 

1,475

 

 

 

115

 

 

 

41

 

 

 

3,489

 

Strategic investments

 

 

2,726

 

 

 

258

 

 

 

3,068

 

 

 

1,359

 

Restatements and related costs

 

 

524

 

 

 

(193

)

 

 

2,005

 

 

 

9,083

 

Infrastructure investments

 

 

478

 

 

 

675

 

 

 

3,551

 

 

 

5,407

 

Legal judgments/settlements

 

 

1,446

 

 

 

4,237

 

 

 

(1,554

)

 

 

5,302

 

Gain on sale of assets

 

 

 

 

 

 

 

 

 

 

 

(3,099

)

Puerto Rico

 

 

 

 

 

 

 

 

 

 

 

2,024

 

Charges related to U.S. Government resolutions

 

 

 

 

 

 

 

 

14,369

 

 

 

 

International restructuring

 

 

1,964

 

 

 

 

 

 

1,964

 

 

 

 

Succession charges

 

 

40

 

 

 

 

 

 

1,066

 

 

 

 

Adjusted EBITDA

 

$

21,087

 

 

$

19,271

 

 

$

79,298

 

 

$

60,698

 

As a % of  net sales

 

 

19.4

%

 

 

18.4

%

 

 

19.4

%

 

 

15.3

%

 

Adjusted Net Income from Continuing Operations

 

 

Three Months Ended

December 31,

 

 

Year Ended

December 31,

 

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

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net income (loss) from continuing operations

 

$

(5,117

)

 

$

2,106

 

 

$

3,497

 

 

$

(2,342

)

Foreign exchange impact

 

 

1,475

 

 

 

115

 

 

 

41

 

 

 

3,489

 

Strategic investments

 

 

2,726

 

 

 

258

 

 

 

3,068

 

 

 

1,359

 

Restatements and related costs

 

 

524

 

 

 

(193

)

 

 

2,005

 

 

 

9,083

 

Infrastructure investments

 

 

478

 

 

 

675

 

 

 

3,551

 

 

 

5,407

 

Legal judgments/settlements

 

 

1,446

 

 

 

4,237

 

 

 

(1,554

)

 

 

5,302

 

Gain on sale of assets

 

 

 

 

 

 

 

 

 

 

 

(3,099

)

Puerto Rico

 

 

 

 

 

 

 

 

 

 

 

2,024

 

Charges related to U.S. Government resolutions

 

 

 

 

 

 

 

 

14,369

 

 

 

 

International restructuring

 

 

1,964

 

 

 

 

 

 

1,964

 

 

 

 

Succession charges

 

 

40

 

 

 

 

 

 

1,066

 

 

 

 

Long-term income tax rate adjustment

 

 

4,127

 

 

 

390

 

 

 

(1,016

)

 

 

(1,338

)

Adjusted net income from continuing operations

 

$

7,663

 

 

$

7,588

 

 

$

26,991

 

 

$

19,885

 

 

6


 

Adjusted Earnings per Share from Continuing Operations

 

 

Three Months Ended

December 31,

 

 

Year Ended

December 31,

 

(Unaudited, per diluted share)

 

2016

 

 

2015

 

 

2016

 

 

2015

 

EPS from continuing operations

 

$

(0.29

)

 

$

0.11

 

 

$

0.19

 

 

$

(0.12

)

Foreign exchange impact

 

 

0.08

 

 

 

0.01

 

 

 

 

 

 

0.18

 

Strategic investments

 

 

0.15

 

 

 

0.01

 

 

 

0.16

 

 

 

0.07

 

Restatements and related costs

 

 

0.03

 

 

 

(0.01

)

 

 

0.11

 

 

 

0.48

 

Infrastructure investments

 

 

0.03

 

 

 

0.04

 

 

 

0.19

 

 

 

0.28

 

Legal judgments/settlements

 

 

0.08

 

 

 

0.22

 

 

 

(0.08

)

 

 

0.28

 

Gain on sale of assets

 

 

 

 

 

 

 

 

 

 

 

(0.16

)

Puerto Rico

 

 

 

 

 

 

 

 

 

 

 

0.11

 

Charges related to U.S. Government resolutions

 

 

 

 

 

 

 

 

0.78

 

 

 

 

International restructuring

 

 

0.11

 

 

 

 

 

 

0.11

 

 

 

 

Succession charges

 

 

 

 

 

 

 

 

0.06

 

 

 

 

Long-term income tax rate adjustment

 

 

0.23

 

 

 

0.02

 

 

 

(0.06

)

 

 

(0.07

)

Adjusted EPS from continuing operations

 

$

0.42

 

 

$

0.40

 

 

$

1.46

 

 

$

1.05

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of diluted common shares

 

 

18,148,655

 

 

 

19,059,779

 

 

 

18,463,161

 

 

 

19,016,230

 

 

Net Margin

 

 

Three Months Ended

December 31,

 

 

Year Ended

December 31,

 

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

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Gross profit

 

$

85,217

 

 

$

83,211

 

 

$

321,935

 

 

$

309,964

 

Sales and marketing

 

 

(48,705

)

 

 

(44,720

)

 

 

(181,287

)

 

 

(178,080

)

Net margin

 

$

36,512

 

 

$

38,491

 

 

$

140,648

 

 

$

131,884

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BioStim

 

$

20,489

 

 

$

20,244

 

 

$

75,469

 

 

$

67,878

 

Biologics

 

 

7,249

 

 

 

7,701

 

 

 

26,891

 

 

 

27,226

 

Extremity Fixation

 

 

6,356

 

 

 

6,886

 

 

 

30,526

 

 

 

29,493

 

Spine Fixation

 

 

2,725

 

 

 

3,965

 

 

 

8,650

 

 

 

8,547

 

Corporate

 

 

(307

)

 

 

(305

)

 

 

(888

)

 

 

(1,260

)

Net margin

 

$

36,512

 

 

$

38,491

 

 

$

140,648

 

 

$

131,884

 

 

Free Cash Flow

 

 

Year Ended

December 31,

 

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

 

2016

 

 

2015

 

Net cash from operating activities

 

$

44,707

 

 

$

43,610

 

Capital expenditures

 

 

(18,334

)

 

 

(27,899

)

Free cash flow

 

$

26,373

 

 

$

15,711

 

7


 

 

2017 Outlook

 

 

2017 Outlook

 

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

 

Low

 

 

High

 

Net income from continuing operations

 

$

24.4

 

 

$

29.3

 

Interest expense, net

 

 

0.1

 

 

 

0.2

 

Income tax expense

 

 

16.2

 

 

 

15.7

 

Depreciation and amortization

 

 

20.0

 

 

 

20.0

 

EBITDA

 

$

60.7

 

 

$

65.2

 

Share-based compensation

 

 

11.8

 

 

 

11.8

 

Strategic investments

 

 

1.2

 

 

 

0.7

 

Restatements and related costs

 

 

1.3

 

 

 

0.8

 

International restructuring

 

 

1.0

 

 

 

0.5

 

Adjusted EBITDA

 

$

76.0

 

 

$

79.0

 

 

 

 

2017 Outlook

 

(Unaudited, per diluted share)

 

Low

 

 

High

 

EPS from continuing operations

 

$

1.33

 

 

$

1.59

 

Strategic investments

 

 

0.06

 

 

 

0.04

 

Restatements and related costs

 

 

0.07

 

 

 

0.04

 

International restructuring

 

 

0.05

 

 

 

0.03

 

Long-term income tax rate adjustment

 

 

(0.03

)

 

 

(0.12

)

Adjusted EPS from continuing operations

 

$

1.48

 

 

$

1.58

 

 

 

 

 

 

 

 

 

 

Weighted average number of diluted common shares

 

 

18,400,000

 

 

 

18,400,000

 

 


8


 

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.

 

Restatements and related costs  – legal, accounting, and other professional costs related to the accounting review and restatements through March 2015 and legal 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"

 

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

 

Gain on sale of assets  – gain on the sale of the Tempus Cervical Plate product line

 

Puerto Rico bad debt expense in response to the recent fiscal and economic difficulties experienced by the Puerto Rico Commonwealth

 

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

 

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

 

Succession charges costs related to the succession of certain of our former named executive officers

 

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

 

Net Margin

Net margin is a non-GAAP financial measure, which is calculated by subtracting sales and marketing from gross profit. 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.

 

9


 

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 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 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 equity 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