Wright Medical Group, Inc. Reports 2015 Second Quarter Financial Results

Second Quarter Global Foot and Ankle Net Sales Increase 17% As Reported and 21% Constant Currency

Second Quarter Global Sales Increase 11% As Reported and 15% Constant Currency

Second Quarter Global Total Ankle Replacement Sales Increase 67% As Reported

MEMPHIS, Tenn., July 29, 2015 (GLOBE NEWSWIRE) -- Wright Medical Group, Inc. (NASDAQ:WMGI) today reported financial results for its second quarter ended June 30, 2015.  As a result of the completed sale of the hip and knee business to MicroPort Medical B.V., a subsidiary of MicroPort Scientific Corporation (MicroPort), this business is now reported as discontinued operations.

Net sales totaled $80.4 million during the second quarter ended June 30, 2015, representing an 11% increase as reported and 15% increase on a constant currency basis compared to the second quarter of 2014.

Robert Palmisano, president and chief executive officer, commented, “Our second quarter results demonstrated the strong growth of our U.S. foot and ankle business and improvement in our international business.  Specifically, our U.S. foot and ankle business grew 25% in the quarter, which was another quarter of significant growth acceleration driven by improved sales force execution, medical education and strong contribution from new products.  In addition, the ongoing launch of our INFINITY total ankle system drove record global total ankle growth of 67% in the quarter, underscoring the excellent results we are seeing from the combination of our leading technology, our Rapid Adoption Process, which is focused on conversions from fusions to total ankle implant procedures, and our emphasis on physician education.  Together, these contributed to the strong sales trajectory and positive momentum we continue to see this quarter and believe we will continue to see throughout 2015.” 

Net loss from continuing operations for the second quarter of 2015 totaled $37.3 million or ($0.73) per diluted share, compared to net loss from continuing operations of $53.6 million or ($1.08) per diluted share in the second quarter of 2014.

Net loss from continuing operations for the second quarter of 2015 included an $8.5 million unrealized gain related to mark-to-market adjustments on contingent value rights (CVRs) issued in connection with the BioMimetic acquisition, a gain of $0.4 million related to mark-to-market adjustments on and settlement of derivatives, $6.6 million of non-cash interest expense related to the 2017 Convertible Notes and 2020 Convertible Notes, $12.1 million of transaction and transition costs, and a $0.2 million fair value adjustment related to contingent consideration.  Net loss from continuing operations for the second quarter of 2014 included an $18.5 million unrealized loss related to mark-to-market adjustments on contingent value rights (CVRs) issued in connection with the BioMimetic acquisition, $5.9 million of transaction and transition costs, $2.3 million of non-cash interest expense related to the 2017 Convertible Notes, $0.7 million of charges associated with distributor conversions and non-competes, and $0.6 million of inventory step-up amortization.  These 2014 charges were offset by a $1.6 million U.S. tax benefit within continuing operations recorded as a result of the U.S. pre-tax gain recognized within discontinued operations due to the sale of the OrthoRecon business.

The Company's second quarter 2015 net loss from continuing operations, as adjusted for the above items, was $27.3 million, a decline from a net loss of $24.0 million in 2014, while diluted loss per share, as adjusted, decreased to ($0.53) in the second quarter of 2015 from ($0.48) in the second quarter of 2014.  The attached financial tables include a reconciliation of U.S. GAAP to “as adjusted” results.

The Company's second quarter 2015 adjusted EBITDA from continuing operations, as defined in the GAAP to non-GAAP reconciliation provided later in this release, was negative ($10.9) million, compared to negative ($11.6) million in the same quarter of the prior year.  The attached financial tables include a reconciliation of U.S. GAAP to “as adjusted” results.

Cash and cash equivalents and marketable securities totaled $427.9 million as of the end of the second quarter of 2015, an increase of $198.0 million compared to the end of the fourth quarter of 2014, which was driven by the completion of the 2020 convertible debt offering.

Update on Augment^® Bone Graft

The Company previously announced that an Augment^® Bone Graft vendor received a Form 483 at completion of an FDA pre-approval facility inspection in January of 2015.  Late in March 2015, the vendor was notified by the FDA that its facility would be reinspected and must be in substantial compliance with the current Good Manufacturing Practice (cGMP) regulation as a condition for approval of the Augment^® Bone Graft Premarket Approval Application (PMA).  The vendor’s facility was subsequently reinspected by the FDA in June of 2015, and the vendor received a Form 483 at the completion of the inspection, which included seven observations.  None of the observations was specifically related to Augment^® Bone Graft.  The vendor has submitted its response to the FDA.  The Company worked closely with the vendor to address the observations and prepare its response.  The FDA has not informed the Company if a reinspection of the vendor’s facility will be required.  Assuming no additional reinspection is required, the Company anticipates final approval of Augment^® Bone Graft in the second half of 2015. 

Update on Proposed Merger with Tornier

As previously announced, all proposals related to the combination of Wright and Tornier were approved by both Wright’s and Tornier’s shareholders.  With the affirmative vote by both Wright and Tornier shareholders, the primary remaining condition to closing is approval by the U.S. Federal Trade Commission (FTC).  As previously disclosed, Tornier is pursuing divestiture of certain U.S. lower extremity product lines.  Subject to receipt of FTC clearance, the transaction is expected to close in the third quarter of 2015.

Palmisano concluded, “We are continuing to work closely with our AUGMENT vendor and the FDA following the completion of the FDA’s inspection at the vendor’s facility in June.  We were pleased that none of the observations from the vendor’s recent reinspection related specifically to AUGMENT.  We also remain focused on our 2015 commitments and Vital Few initiatives, which will further strengthen and expand our market-leading competitive position.  In addition, we believe our pending merger with Tornier and final approval of AUGMENT will create the premier high-growth Extremities-Biologics company that is uniquely positioned with leading technologies and specialized sales forces in three of the fastest growing areas of orthopaedics.  We believe that partnered together, Wright and Tornier will become the fastest-growing company in the Extremities-Biologics industry.”

Outlook

The Company continues to anticipate net sales for 2015 of approximately $325 million to $335 million, representing constant currency growth of 13% to 16% from 2014.      

The Company continues to anticipate 2015 adjusted EBITDA from continuing operations, as described in the GAAP to non-GAAP reconciliation provided later in this release, of negative $(22.0) million to negative $(27.0) million. 

The Company continues to anticipate adjusted earnings per share from continuing operations, including stock-based compensation, for full-year 2015 of $(1.67) to $(1.77) per diluted share, based on approximately 51.1 million shares outstanding.  While the amount of the non-cash stock-based compensation charges will vary depending upon a number of factors, the Company currently estimates that the after-tax impact of those expenses will be approximately $0.24 per diluted share for the full-year 2015.         

As previously stated, the timing of Augment^® approval and future currency fluctuations will influence where revenue results ultimately fall within the guidance ranges. 

The Company plans to provide updated guidance when the pending merger with Tornier closes. 

The Company's earnings target and adjusted EBITDA from continuing operations targets exclude possible future acquisitions; other material future business developments; non-cash interest expense associated with the 2017 and 2020 Convertible Notes; due diligence, transaction and transition costs associated with acquisitions and divestitures; impairment charges, mark-to-market adjustments to the CVRs and non-cash mark-to-market derivative adjustments; and charges associated with the February 2015 refinancing of its convertible debt.  Further, this earnings target and adjusted EBITDA target excludes any expenses, earnings or losses related to the OrthoRecon business.

The Company's anticipated ranges for net sales, earnings and adjusted EBITDA from continuing operations are forward-looking statements, as are any other statements that anticipate or aspire to future events or performance.  They are subject to various risks and uncertainties that could cause the Company's actual results to differ materially from the anticipated targets.  The anticipated targets are not predictions of the Company's actual performance.  See the cautionary information about forward-looking statements in the “Safe-Harbor Statement” section of this press release.

Internet Posting of Information

Wright routinely posts information that may be important to investors in the “Investor Relations” section of its website at www.wmt.com.  Wright encourages investors and potential investors to consult its website regularly for important information.

Conference Call and Webcast

As previously announced, the Company will host a conference call starting at 3:30 p.m. Central Time today.  The live dial-in number for the call is 866-202-0886 (U.S.) / 617-213-8841 (International).  The participant passcode for the call is “Wright.”  A simultaneous webcast of the call will be available via Wright Medical’s corporate website at www.wmt.com.   

A replay of the conference call by telephone will be available starting at 5:30 p.m. Central Time today and continuing through August 5, 2015.  To hear this replay, dial 888-286-8010 (U.S.) or 617-801-6888 (International) and enter the passcode 65124711.  A replay of the conference call will also be available via the internet starting today and continuing for at least 12 months.  To access a replay of the conference call via the internet, go to the “Corporate - Investor Information - Audio Archives” section of the Company's website located at www.wmt.com.

The conference call may include a discussion of non-GAAP financial measures.  Reference is made to the most directly comparable GAAP financial measures, the reconciliation of the differences between the two financial measures, and the other information included in this press release, the Form 8-K filed with the SEC today, or otherwise available in the “Corporate - Investor Information - Supplemental Financial Information” section of the Company's website located at www.wmt.com.

The conference call may include forward-looking statements.  See the cautionary information about forward-looking statements in the “Safe-Harbor Statement” section of this press release.

About Wright Medical

Wright Medical Group, Inc. is a specialty orthopaedic company that provides extremity and biologic solutions that enable clinicians to alleviate pain and restore their patients’ lifestyles.  The company is the recognized leader of surgical solutions for the foot and ankle market, one of the fastest growing segments in medical technology, and markets its products in over 60 countries worldwide.  For more information, visit Wright Medical.

Non-GAAP Financial Measures

The Company uses non-GAAP financial measures, such as net sales, excluding the impact of foreign currency; operating income, as adjusted; net income, as adjusted; EBITDA, as adjusted; net income, as adjusted, per diluted share; effective tax rate, as adjusted; and free cash flow.  The Company's management believes that the presentation of these measures provides useful information to investors.  These measures may assist investors in evaluating the Company's operations, period over period.  The measures exclude such items as costs associated with distributor conversions and non-competes, non-cash interest expense related to the Company's 2017 Convertible Notes and 2020 Convertible Notes, write-off of the pro rata unamortized deferred financing costs and debt discount associated with the 2017 Notes, net gains and losses on mark-to-market adjustments on and settlements of derivative assets and liabilities, mark-to-market adjustments on CVRs, transaction and transition costs, all of which may be highly variable, difficult to predict and of a size that could have substantial impact on the Company's reported results of operations for a period.  Management uses these measures internally for evaluation of the performance of the business, including the allocation of resources and the evaluation of results relative to employee performance compensation targets.  Investors should consider these non-GAAP measures only as a supplement to, not as a substitute for or as superior to, measures of financial performance prepared in accordance with GAAP.