Orthofix International N.V.
ORTHOFIX INTERNATIONAL N V (Form: 8-K, Received: 05/04/2017 16:01:34)

 

 

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): May 4, 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 May 4, 2017, Orthofix International N.V. (the “Company”) issued a press release announcing, among other things, its financial results for the fiscal quarter ended March 31, 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 May 4, 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: May 4, 2017

 


 

EXHIBIT INDEX

 

Exhibit No.

 

Description

 

 

 

99.1

 

Press Release, dated May 4, 2017.

 

 

Exhibit 99.1

Orthofix International Reports First Quarter 2017 Financial Results

 

First Quarter Highlights

 

Net sales of $102.7 million, an increase of 4.1% compared to prior year or 4.6% on a constant currency basis

 

BioStim sales of $44.5 million, an increase of 8.5% compared to prior year

 

Biologics sales of $15.0 million, an increase of 6.3% compared to prior year

 

Spine Fixation sales of $19.3 million, an increase of 2.3% compared to prior year

LEWISVILLE, Texas — May 4, 2017 — Orthofix International N.V. (NASDAQ:OFIX) today reported its financial results for the first quarter ended March 31, 2017.  Net sales were $102.7 million, loss per share from continuing operations was ($0.13) and adjusted earnings per share from continuing operations was $0.27.  

“We are very pleased with the top-line results for the first quarter 2017 and the momentum we achieved in each of our businesses,” said Brad Mason, President and Chief Executive Officer. “The solid execution of our commercial strategies is delivering results as demonstrated by another strong quarter in our BioStim business and an earlier than expected return to growth in both Biologics and Spine Fixation. Although each strategic business unit has its own commercial strategy, our overriding corporate focus is on expanding distribution in underserved markets, improving engagement of our legacy distributors and providing our salesforce with a robust stream of new products.  Our bottom-line results reflect the investments we are making in these key strategies, which are proving effective in driving our top line growth.”

 

Financial Results Overview

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

 

  

 

Three Months Ended March 31,

 

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

 

2017

 

 

2016

 

 

Change

 

 

Constant

Currency

Change

 

BioStim

 

$

44,539

 

 

$

41,044

 

 

 

8.5

%

 

 

8.5

%

Biologics

 

 

14,987

 

 

 

14,094

 

 

 

6.3

%

 

 

6.3

%

Extremity Fixation

 

 

23,945

 

 

 

24,709

 

 

 

(3.1

%)

 

 

(1.0

%)

Spine Fixation

 

 

19,267

 

 

 

18,832

 

 

 

2.3

%

 

 

2.3

%

Net sales

 

$

102,738

 

 

$

98,679

 

 

 

4.1

%

 

 

4.6

%

 

Gross profit increased $3.6 million to $80.2 million. Gross margin increased slightly to 78.0% compared to 77.6% in the prior year period, which was in line with our expectations. Net margin (gross profit less sales and marketing expenses) was $31.6 million compared to $31.7 million in the prior year period.  The decrease in net margin was primarily due to higher sales and marketing expenses, driven by a higher mix of sales from new distributors in our Biologics and Spine Fixation SBUs, who typically receive higher commission rates in their first year.

Net loss from continuing operations was ($2.3) million, or ($0.13) per share, compared to net income of $4.6 million, or $0.24 per share in the prior year period. The net loss for the quarter was impacted by strategic investments in the quarter of $7.1 million, including a pre-tax impairment of $5.6 million on our eNeura investment. Adjusted net income from continuing operations was $4.9 million, or $0.27 per share, compared to adjusted net income of $5.2 million, or $0.28 per share in the prior year period.

EBITDA was $6.6 million, compared to $13.8 million in the prior year period. Adjusted EBITDA was $15.7 million or 15.3% of net sales for the first quarter, compared to $15.5 million or 15.7% of net sales in the prior year period.

 


 

Liquidity

As of March 31, 2017, cash and cash equivalents were $41.7 million compared to $39.6 million as of December 31, 2016. As of March 31, 2017, we had no outstanding indebtedness and borrowing capacity of $125 million. Cash flow from operations decreased $1.2 million to $3.5 million, while free cash flow increased $1.3 million to ($0.4) 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.

 

  

 

Previous 2017 Outlook

 

 

Current 2017 Outlook

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

 

Low

 

 

High

 

 

Low

High

Net sales

 

$

407.0

 

 

$

411.0

 

 

$

411.0

 

1

$

415.0

 

1

Net income from continuing operations

 

$

24.4

 

 

$

29.3

 

 

$

20.6

 

2

$

23.7

 

2

Adjusted EBITDA

 

$

76.0

 

 

$

79.0

 

 

$

76.0

 

3

$

79.0

 

3

EPS from continuing operations

 

$

1.33

 

 

$

1.59

 

 

$

1.12

 

4

$

1.29

 

4

Adjusted EPS from continuing operations

 

$

1.48

 

 

$

1.58

 

 

$

1.48

 

5

$

1.58

 

5

 

1 Represents a year-over-year increase of 0.3% to 1.3% on a reported basis

2 Represents a year-over-year increase of 489.1% to 577.7%

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

4 Represents a year-over-year increase of 489.5% to 578.9%

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

 

Conference Call

Orthofix will host a conference call today at 4:30 PM Eastern time to discuss the Company's financial results for the first quarter of 2017. Interested parties may access the conference call by dialing (888) 364-3109 in the U.S. and (719) 457-2631 outside the U.S., and referencing the conference ID 9028875. 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 9028875. 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.

Consolidated Statements of Operations

 

 

  

 

Three Months Ended

 

 

 

March 31,

 

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

 

2017

 

 

2016

 

Net sales

 

$

102,738

 

 

$

98,679

 

Cost of sales

 

 

22,581

 

 

 

22,137

 

Gross profit

 

 

80,157

 

 

 

76,542

 

Sales and marketing

 

 

48,532

 

 

 

44,822

 

General and administrative

 

 

18,282

 

 

 

17,005

 

Research and development

 

 

7,424

 

 

 

7,640

 

Operating  income

 

 

5,919

 

 

 

7,075

 

Interest income (expense), net

 

 

45

 

 

 

(38

)

Other income (expense), net

 

 

(4,348

)

 

 

1,833

 

Income before income taxes

 

 

1,616

 

 

 

8,870

 

Income tax expense

 

 

(3,924

)

 

 

(4,294

)

Net income (loss) from continuing operations

 

 

(2,308

)

 

 

4,576

 

Discontinued operations

 

 

 

 

 

 

 

 

Loss from discontinued operations

 

 

(527

)

 

 

(990

)

Income tax benefit

 

 

181

 

 

 

254

 

Net loss from discontinued operations

 

 

(346

)

 

 

(736

)

Net income (loss)

 

$

(2,654

)

 

$

3,840

 

Net income (loss) per common share—basic

 

 

 

 

 

 

 

 

Net income (loss) from continuing operations

 

$

(0.13

)

 

$

0.25

 

Net loss from discontinued operations

 

 

(0.02

)

 

 

(0.04

)

Net income (loss) per common share—basic

 

$

(0.15

)

 

$

0.21

 

Net income (loss) per common share—diluted

 

 

 

 

 

 

 

 

Net income (loss) from continuing operations

 

$

(0.13

)

 

$

0.24

 

Net loss from discontinued operations

 

 

(0.02

)

 

 

(0.04

)

Net income (loss) per common share—diluted

 

$

(0.15

)

 

$

0.20

 

Weighted average number of common shares:

 

 

 

 

 

 

 

 

Basic

 

 

17,979,675

 

 

 

18,477,881

 

Diluted

 

 

17,979,675

 

 

 

18,758,751

 

4


 

ORTHOFIX INTERNATIONAL N.V.

Consolidated Balance Sheets

 

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

 

March 31,

2017

 

 

December 31,

2016

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

41,652

 

 

$

39,572

 

Restricted cash

 

 

 

 

 

14,369

 

Accounts receivable, net of allowances of $8,394 and $8,396, respectively

 

 

59,443

 

 

 

57,848

 

Inventories

 

 

66,271

 

 

 

63,346

 

Prepaid expenses and other current assets

 

 

19,478

 

 

 

19,238

 

Total current assets

 

 

186,844

 

 

 

194,373

 

Property, plant and equipment, net

 

 

47,962

 

 

 

48,916

 

Patents and other intangible assets, net

 

 

8,530

 

 

 

7,461

 

Goodwill

 

 

53,565

 

 

 

53,565

 

Deferred income taxes

 

 

41,431

 

 

 

47,325

 

Other long-term assets

 

 

16,413

 

 

 

20,463

 

Total assets

 

$

354,745

 

 

$

372,103

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

16,555

 

 

$

14,353

 

Other current liabilities

 

 

46,316

 

 

 

69,088

 

Total current liabilities

 

 

62,871

 

 

 

83,441

 

Other long-term liabilities

 

 

24,740

 

 

 

25,185

 

Total liabilities

 

 

87,611

 

 

 

108,626

 

Contingencies

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

 

 

Common shares $0.10 par value; 50,000,000 shares authorized; 18,042,834 and

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

   2016,  respectively

 

 

1,804

 

 

 

1,783

 

Additional paid-in capital

 

 

208,686

 

 

 

204,095

 

Retained earnings

 

 

61,525

 

 

 

64,179

 

Accumulated other comprehensive loss

 

 

(4,881

)

 

 

(6,580

)

Total shareholders’ equity

 

 

267,134

 

 

 

263,477

 

Total liabilities and shareholders’ equity

 

$

354,745

 

 

$

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 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

March 31,

 

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

 

2017

 

 

2016

 

Net income (loss) from continuing operations

 

$

(2,308

)

 

$

4,576

 

Interest expense (income), net

 

 

(45

)

 

 

38

 

Income tax expense

 

 

3,924

 

 

 

4,294

 

Depreciation and amortization

 

 

5,075

 

 

 

4,873

 

EBITDA

 

$

6,646

 

 

$

13,781

 

Share-based compensation

 

 

2,816

 

 

 

2,099

 

Foreign exchange impact

 

 

(1,013

)

 

 

(1,815

)

Strategic investments

 

 

7,100

 

 

 

198

 

SEC / FCPA matters and related costs

 

 

141

 

 

 

245

 

Infrastructure investments

 

 

 

 

 

962

 

Legal judgments/settlements

 

 

227

 

 

 

 

International restructuring

 

 

(239

)

 

 

 

Adjusted EBITDA

 

$

15,678

 

 

$

15,470

 

As a % of  net sales

 

 

15.3

%

 

 

15.7

%

 

Adjusted Net Income from Continuing Operations

  

 

Three Months Ended

March 31,

 

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

 

2017

 

 

2016

 

Net income (loss) from continuing operations

 

$

(2,308

)

 

$

4,576

 

Foreign exchange impact

 

 

(1,013

)

 

 

(1,815

)

Strategic investments

 

 

7,100

 

 

 

198

 

SEC / FCPA matters and related costs

 

 

141

 

 

 

245

 

Infrastructure investments

 

 

 

 

 

962

 

Legal judgments/settlements

 

 

227

 

 

 

 

International restructuring

 

 

(239

)

 

 

 

Long-term income tax rate adjustment

 

 

948

 

 

 

1,079

 

Adjusted net income from continuing operations

 

$

4,856

 

 

$

5,245

 

 

6


 

Adjusted Earnings per Share from Continuing Operations

  

 

Three Months Ended

March 31,

 

(Unaudited, per diluted share)

 

2017

 

 

2016

 

EPS from continuing operations

 

$

(0.13

)

 

$

0.24

 

Foreign exchange impact

 

 

(0.06

)

 

 

(0.10

)

Strategic investments

 

 

0.39

 

 

 

0.01

 

SEC / FCPA matters and related costs

 

 

0.01

 

 

 

0.01

 

Infrastructure investments

 

 

 

 

 

0.05

 

Legal judgments/settlements

 

 

0.01

 

 

 

 

International restructuring

 

 

(0.01

)

 

 

 

Long-term income tax rate adjustment

 

 

0.06

 

 

 

0.07

 

Adjusted EPS from continuing operations

 

$

0.27

 

 

$

0.28

 

 

 

 

 

 

 

 

 

 

Weighted average number of diluted common shares

 

 

18,235,660

 

 

 

18,758,751

 

 

Net Margin

  

 

Three Months Ended

March 31,

 

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

 

2017

 

 

2016

 

Gross profit

 

$

80,157

 

 

$

76,542

 

Sales and marketing

 

 

(48,532

)

 

 

(44,822

)

Net margin

 

$

31,625

 

 

$

31,720

 

 

 

 

 

 

 

 

 

 

BioStim

 

$

17,133

 

 

$

16,408

 

Biologics

 

 

6,171

 

 

 

6,104

 

Extremity Fixation

 

 

6,412

 

 

 

7,175

 

Spine Fixation

 

 

2,007

 

 

 

2,335

 

Corporate

 

 

(98

)

 

 

(302

)

Net margin

 

$

31,625

 

 

$

31,720

 

 

Free Cash Flow

  

 

Three Months Ended

March 31,

 

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

 

2017

 

 

2016

 

Net cash from operating activities

 

$

3,470

 

 

$

4,646

 

Capital expenditures

 

 

(3,905

)

 

 

(6,399

)

Free cash flow

 

$

(435

)

 

$

(1,753

)

7


 

 

2017 Outlook

 

 

Previous 2017 Outlook

 

 

Current 2017 Outlook

 

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

 

Low

 

 

High

 

 

Low

 

 

High

 

Net income from continuing operations

 

$

24.4

 

 

$

29.3

 

 

$

20.6

 

 

$

23.7

 

Interest expense, net

 

 

0.1

 

 

 

0.2

 

 

 

0.1

 

 

 

0.2

 

Income tax expense

 

 

16.2

 

 

 

15.7

 

 

 

13.6

 

 

 

14.3

 

Depreciation and amortization

 

 

20.0

 

 

 

20.0

 

 

 

20.0

 

 

 

20.0

 

EBITDA

 

$

60.7

 

 

$

65.2

 

 

$

54.3

 

 

$

58.2

 

Share-based compensation

 

 

11.8

 

 

 

11.8

 

 

 

11.8

 

 

 

11.8

 

Foreign exchange impact

 

 

 

 

 

 

 

 

(1.0

)

 

 

(1.0

)

Strategic investments

 

 

1.2

 

 

 

0.7

 

 

 

8.6

 

 

 

8.1

 

SEC / FCPA matters and related costs

 

 

1.3

 

 

 

0.8

 

 

 

1.3

 

 

 

1.0

 

International restructuring

 

 

1.0

 

 

 

0.5

 

 

 

0.8

 

 

 

0.7

 

Legal judgments/settlements

 

 

 

 

 

 

 

 

0.2

 

 

 

0.2

 

Adjusted EBITDA

 

$

76.0

 

 

$

79.0

 

 

$

76.0

 

 

$

79.0

 

 

 

 

Previous 2017 Outlook

 

 

Current 2017 Outlook

 

(Unaudited, per diluted share)

 

Low

 

 

High

 

 

Low

 

 

High

 

EPS from continuing operations

 

$

1.33

 

 

$

1.59

 

 

$

1.12

 

 

$

1.29

 

Foreign exchange impact

 

 

 

 

 

 

 

 

(0.05

)

 

 

(0.05

)

Strategic investments

 

 

0.06

 

 

 

0.04

 

 

 

0.46

 

 

 

0.44

 

SEC / FCPA matters and related costs

 

 

0.07

 

 

 

0.04

 

 

 

0.07

 

 

 

0.05

 

International restructuring

 

 

0.05

 

 

 

0.03

 

 

 

0.04

 

 

 

0.04

 

Legal judgments/settlements

 

 

 

 

 

 

 

 

0.01

 

 

 

0.01

 

Long-term income tax rate adjustment

 

 

(0.03

)

 

 

(0.12

)

 

 

(0.17

)

 

 

(0.20

)

Adjusted EPS from continuing operations

 

$

1.48

 

 

$

1.58

 

 

$

1.48

 

 

$

1.58

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of diluted common shares

 

 

18,400,000

 

 

 

18,400,000

 

 

 

18,400,000

 

 

 

18,400,000

 

 


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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

 

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.

 

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.

 

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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