April 30, 2018
LEWISVILLE, Texas–(BUSINESS WIRE)–Orthofix International N.V. (NASDAQ:OFIX) today reported its financial results for the first quarter ended March 31, 2018. Net sales were $108.7 million, diluted earnings per share from continuing operations was $0.27 and adjusted earnings per share from continuing operations was $0.39. The Company also closed the acquisition of Spinal Kinetics Inc., a privately held developer and manufacturer of artificial cervical and lumbar discs.
“Overall, we had another solid quarter in both top and bottom line performance, including a 290 basis point improvement in adjusted EBITDA margin and a 44% increase in adjusted earnings per share compared to the first quarter of 2017,” said Orthofix President and Chief Executive Officer, Brad Mason. “Since announcing our agreement to acquire Spinal Kinetics, we have received very positive feedback from physicians and our sales force about the M6® artificial discs and the strategic value this brings to Orthofix, which further validates our enthusiasm for this transaction. This deal delivers upon our stated strategy of accelerating top-line growth through the acquisition of products, technologies and companies in our core businesses. The Spinal Kinetics M6 artificial discs enters Orthofix into a fast-growing market with a proven technology and further demonstrates our commitment to providing innovative spine treatment solutions to surgeons and patients.”
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) | 2018 | 2017 | Change | Constant
Currency Change |
||||||||||||
| BioStim | $ | 46,163 | $ | 44,539 | 3.6 | % | 3.6 | % | ||||||||
| Extremity Fixation | 27,504 | 23,945 | 14.9 | % | 4.3 | % | ||||||||||
| Spine Fixation | 20,707 | 19,267 | 7.5 | % | 7.2 | % | ||||||||||
| Biologics | 14,335 | 14,987 | (4.4 | %) | (4.4 | %) | ||||||||||
| Net sales | $ | 108,709 | $ | 102,738 | 5.8 | % | 3.3 | % | ||||||||
Gross profit increased $4.4 million to $84.6 million. Gross margin decreased slightly to 77.8% compared to 78.0% in the prior year period due primarily to an unfavorable impact from sales mix this quarter. Non-GAAP net margin, an internal metric that the Company defines as gross profit less sales and marketing expenses, was $34.3 million compared to $31.6 million in the prior year period. The increase in non-GAAP net margin was primarily due to lower marketing expenses and decreased commission rates.
Net income from continuing operations was $5.2 million, or $0.27 per share, compared to a loss of $2.3 million, or ($0.13) per share in the prior year period. Adjusted net income from continuing operations was $7.3 million, or $0.39 per share, compared to adjusted net income of $4.9 million, or $0.27 per share in the prior year period.
EBITDA was $15.2 million, compared to $6.6 million in the prior year period. Adjusted EBITDA was $19.7 million, or 18.1% of net sales, for the first quarter, compared to $15.7 million, or 15.3% of net sales, in the prior year period.
Liquidity
As of March 31, 2018, cash and cash equivalents were $77.1 million compared to $81.2 million as of December 31, 2017. As of March 31, 2018, the Company had no outstanding indebtedness and borrowing capacity of $125 million under its existing credit facility. Cash flow from operations was ($3.6) million, an increase of $7.3 million, and free cash flow was ($7.0) million, an increase of $7.8 million when compared to the prior year period.
2018 Outlook
For the year ending December 31, 2018, the Company expects the following results, assuming exchange rates are the same as those currently prevailing.
| (Unaudited, U.S. Dollars, in millions, except per share data) | Low | High | ||||||||||
| Full Year 2018 Outlook | ||||||||||||
| Net sales | $ | 458.0 | 1 | $ | 464.0 | 1 | ||||||
| Net income from continuing operations | $ | 24.8 | 2 | $ | 27.1 | 2 | ||||||
| Adjusted EBITDA | $ | 85.5 | 3 | $ | 88.0 | 3 | ||||||
| EPS from continuing operations | $ | 1.31 | 4 | $ | 1.43 | 4 | ||||||
| Adjusted EPS from continuing operations | $ | 1.58 | 5 | $ | 1.68 | 5 | ||||||
| 2nd Quarter of 2018 Outlook | ||||||||||||
| Net sales | $ | 113.0 | 6 | $ | 115.0 | 6 | ||||||
| EPS from continuing operations | $ | 0.28 | 7 | $ | 0.30 | 7 | ||||||
| Adjusted EPS from continuing operations | $ | 0.35 | 8 | $ | 0.37 | 8 | ||||||
| 1 | Represents a year-over-year increase of 5.6% to 7.0% on a reported basis | |
| 2 | Represents a year-over-year increase of 240.1% to 271.7% | |
| 3 | Represents a year-over-year increase of 4.8% to 7.9% | |
| 4 | Represents a year-over-year increase of 235.9% to 266.7% | |
| 5 | Represents a year-over-year decrease of 2.5% to a year-over-year increase of 3.7% | |
| 6 | Represents a year-over-year increase of 3.7% to 5.6% on a reported basis | |
| 7 | Represents a year-over-year increase of 7.7% to 15.4% | |
| 8 | Represents a year-over-year decrease of 11.9% to 16.7% | |
Acquisition of Spinal Kinetics
On April 30, 2018, the Company completed the acquisition of Spinal Kinetics, Inc., a privately held developer and manufacturer of artificial cervical and lumbar discs. Terms of the transaction included $45 million in cash plus up to an additional $60 million in future contingent milestone payments related to U.S. Food and Drug Administration approval of the M6-C® cervical disc and the achievement of certain future sales targets. These contingent milestones payments must be achieved within five years of closing.
Inducement Grants Related to Acquisition of Spinal Kinetics
As inducements to enter into employment with Orthofix, Mr. Afzal was granted 8,194 restricted shares of Orthofix common stock and options to purchase 28,624 shares of Orthofix common stock, and 67 additional employees joining from Spinal Kinetics were granted an aggregate of 14,887 restricted shares of Orthofix common stock. All awards vest in one-fourth annual increments beginning on the first anniversary of grant. The grants, which were approved by the Compensation Committee of Orthofix’s Board of Directors, were made under a standalone inducement plan approved pursuant to NASDAQ Marketplace Rule 5635(c)(4), but on terms substantially the same as grants made in the ordinary course under the Company’s 2012 Long Term Incentive Plan.
Domestication to Delaware
As previously announced in February, the Company has been considering a redomicile from Curacao to Delaware. As a result of further analysis during the quarter, the Company has determined to pursue such a redomicile. The redomicile will be subject to approval by shareholders. If approved, the Company expects that the redomicile would be completed by the end of the year.
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 2018 and the acquisition of Spinal Kinetics. Interested parties may access the conference call by dialing (844) 809-1992 in the U.S. and (612) 979-9886 outside the U.S., and referencing the conference ID 5288605. A replay of the call will be available for two weeks by dialing (855) 859-2056 in the U.S. and (404) 537-3406 outside the U.S., and entering the conference ID 5288605. 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.
