K2M Group Holdings, Inc. Reports U.S. Complex Spine Growth of 24% and Financial Results for the Second Quarter of Fiscal Year 2015
LEESBURG, Va., Aug. 4, 2015 (GLOBE NEWSWIRE) — K2M Group Holdings, Inc. (Nasdaq:KTWO) (the “Company” or “K2M”), a global medical device company focused on designing, developing and commercializing innovative and proprietary complex spine and minimally invasive technologies and techniques, today reported financial results for the second quarter ended June 30, 2015.
Second Quarter Financial Summary:
- Total reported revenue of $56.4 million, up 18.7% year-over-year. Total revenue increased 20.2% year-over-year on a constant currency basis.
- Domestic revenue of $41.4 million, up 24.7% year-over-year
- U.S. Complex Spine growth of 23.6% year-over-year
- U.S. Minimally Invasive Surgery (MIS) growth of 34.5% year-over-year
- U.S. Degenerative growth of 22.3% year-over-year
- International revenue of $14.9 million, up 4.5% year-over-year. International revenue increased 9.3% year-over-year on a constant currency basis.
Second Quarter Highlights:
- Michael A. Turpin joined the Company’s Board of Directors and Audit Committee.
- On July 2, 2015, the Company announced the U.S. commercial launch of the MESA® 2 Deformity Spinal System, the Company’s next-generation pedicle screw system designed to address the most complex spinal pathologies.
“K2M’s financial performance in the second quarter reflects both a solid start to deformity season, where we posted nearly 24% growth year-over-year in sales of our complex spine products, and the continued positive market response to our ongoing focus on introducing innovative spinal products to meet the needs of our surgeon customers around the world,” said President and Chief Executive Officer, Eric Major. “We are extremely proud of the 20% constant currency revenue growth performance we have reported over the first half of fiscal 2015, fueled by the powerful combination of increasing productivity of our sales force, new product introductions and the expansion of our surgeon customer base around the world.”
Second Quarter Financial Results
Total revenue for the second quarter ended June 30, 2015 increased 20.2% year-over-year on a constant currency basis. Total reported revenue increased $8.9 million, or 18.7%, to $56.4 million, compared to $47.5 million in the same period of the prior year. The increase was largely attributable to greater sales volume from new surgeons in the United States, contributions from U.S. surgeons upgrading to newer product offerings, and, to a lesser extent, growth in our international distributor markets and a domestic stocking order.
Geographically, revenue in the United States increased $8.2 million, or 24.7% year-over-year, to $41.4 million, and international revenue increased $0.6 million, or 4.5% year-over-year, to $14.9 million. Foreign currency exchange impacted second quarter international revenue by approximately $0.6 million, representing approximately 480 basis points of growth year-over-year.
| Three Months Ended June 30, | Increase / Decrease | ||||
| 2015 | 2014 | $ Change | % Change | % Change | |
| ($ in thousands) | (as reported) | (constant currency) | |||
| United States | $ 41,434 | $ 33,217 | $ 8,217 | 24.7% | 24.7% |
| International | 14,920 | 14,271 | 649 | 4.5% | 9.3% |
| Total Revenue: | $ 56,354 | $ 47,488 | $ 8,866 | 18.7% | 20.2% |
| Six Months Ended June 30, | Increase / Decrease | ||||
| 2015 | 2014 | $ Change | % Change | % Change | |
| ($ in thousands) | (as reported) | (constant currency) | |||
| United States | $ 76,596 | $ 62,982 | $ 13,614 | 21.6% | 21.6% |
| International | 30,182 | 26,757 | 3,425 | 12.8% | 17.9% |
| Total Revenue: | $ 106,778 | $ 89,739 | $ 17,039 | 19.0% | 20.5% |
By procedure category, U.S. revenue in our Complex Spine, MIS and degenerative categories represented 41.3%, 16.7% and 42.0% of U.S. revenue, respectively, for the three months ended June 30, 2015; and 40.9%, 16.6% and 42.5% of U.S. revenue, respectively, for the six months ended June 30, 2015.
| Three Months Ended June 30, | Increase / Decrease | |||
| 2015 | 2014 | $ Change | % Change | |
| ($ in thousands) | ||||
| Complex Spine | $ 17,131 | $ 13,858 | $ 3,273 | 23.6% |
| Minimally Invasive | 6,914 | 5,141 | 1,773 | 34.5% |
| Degenerative | 17,389 | 14,218 | 3,171 | 22.3% |
| U.S Revenue: | $ 41,434 | $ 33,217 | $ 8,217 | 24.7% |
| Six Months Ended June 30, | Increase / Decrease | |||
| 2015 | 2014 | $ Change | % Change | |
| ($ in thousands) | ||||
| Complex Spine | 31,352 | 25,788 | 5,564 | 21.6% |
| Minimally Invasive | 12,723 | 9,880 | 2,843 | 28.8% |
| Degenerative | 32,521 | 27,314 | 5,207 | 19.1% |
| U.S Revenue: | 76,596 | 62,982 | 13,614 | 21.6% |
Gross profit for the second quarter of 2015 increased $6.2 million, or 20.0% year-over-year, to $37.7 million, or 67.0% of sales, compared to $31.5 million, or 66.2% of sales last year. Gross profit includes amortization expense on investments in surgical instruments and the U.S. medical device excise tax. Amortization expense increased $1.1 million, to $3.0 million, or 5.3% of sales, for the three months ended June 30, 2015, compared to $1.9 million, or 4.0% of sales, last year. The medical device excise tax was $0.7 million, or 1.2% of total Company sales, this year, compared to $0.6 million, or 1.3% of total Company sales, last year.
Operating expenses for the second quarter of 2015 increased $2.1 million, or 4.8% year-over-year, to $46.4 million, compared to $44.3 million for the same period last year. The increase in operating expenses was primarily driven by increased sales commissions as a result of increased sales volume and by higher employee compensation costs related to the hiring of incremental direct sales employees compared to the same period last year. The increase in operating expenses was partially offset by a decrease in general and administrative expenses, due to lower amortization expense on intangible assets.
Loss from operations for the second quarter of 2015 was $8.6 million, compared to a loss of $12.8 million last year. Loss from operations included intangible amortization of $2.6 million and $7.5 million for the second quarter of 2015 and 2014, respectively. Net loss attributable to common stockholders for the second quarter of 2015 was $6.2 million, or $(0.16) per diluted share, compared to $9.6 million, or $(0.32) per diluted share, for the second quarter of 2014. Net loss attributable to common stockholders included the benefit of foreign currency transaction gains of $2.6 million, or $0.07 per diluted share, compared to $0.7 million, or $0.02 per diluted share, in the second quarter of fiscal 2014. Foreign currency translation gain/loss impacted operating results due to changes in the average exchange rates of the U.S. Dollar, Pound Sterling and Euro applied to intercompany transactions in both periods. The decrease in loss per share was also in part due to the increased number of shares outstanding resulting from the Company’s February 2015 follow-on public offering.
As of June 30, 2015, cash and cash equivalents were $28.8 million compared to $11.4 million as of December 31, 2014 and we had no outstanding indebtedness. Working capital was $101.2 million, compared to working capital of $69.7 million as of December 31, 2014.
New Product Approvals, Introductions and Launches
During the second quarter, K2M launched the MESA 2 Deformity Spinal System in the U.S. MESA 2 is the Company’s next generation pedicle screw system designed to address the most complex spinal pathologies. MESA 2 is the much-anticipated upgrade to the Company’s flagship MESA platform and is designed to save time by cutting the number of basic surgical steps as compared to the predecessor system. During the initial introduction phase, the system is available in a limited number of markets in the United States for deformity season and the early response has been very strong. To date, more than 150 surgical cases using MESA 2 have been completed.
2015 Outlook
For the full year 2015, the Company continues to expect:
- Total constant currency revenue growth of 15% to 17% year-over-year, representing estimated revenue of $214 million to $218 million. The Company continues to expect international revenue growth on a reported basis to be impacted by foreign exchange fluctuations, which represented 480 basis points of growth year-over-year in Q2 and 510 basis points of growth year-over-year during the first six months of fiscal year 2015.
- Total net loss in a range of $34 million to $38 million, compared to a total net loss of $59.6 million in fiscal year 2014.
- Adjusted EBITDA in a range of ($2.0) million to $2.0 million, compared to Adjusted EBITDA of ($8.8) million in fiscal year 2014.
Conference Call
Management will host a conference call at 5:00 p.m. Eastern Time today to discuss the results of the quarter and to host a question and answer session. Those who would like to participate may dial 888-287-5563 (719-325-2428 for international callers) and provide access code 7876216 approximately 10 minutes prior to the start of the call. A live webcast of the call will also be provided on the investor relations section of the Company’s website at http://Investors.K2M.com.
For those unable to participate, a replay of the call will be available for two weeks at 888-203-1112 (719-457-0820 for international callers); access code 7876216. The webcast will be archived on the investor relations section of the Company’s website.
About K2M Group Holdings, Inc.
K2M Group Holdings, Inc. is a global medical device company focused on designing, developing and commercializing innovative complex spine and minimally invasive spine technologies and techniques used by spine surgeons to treat some of the most difficult and challenging spinal pathologies. K2M has leveraged these core competencies to bring to market an increasing number of products for patients suffering from degenerative spinal conditions. These technologies and techniques, in combination with a robust product pipeline, enable the Company to favorably compete in the global spinal surgery market. Additional information is available online at www.K2M.com.
