Wright Medical’s Third-Quarter Net Sales Rise 8 Percent

Profits are up at Wright Medical Group N.V.

Third-quarter sales rose 8 percent to $170.5 million, according to the company’s latest earnings report. Gross margins from continuing operations were 77.5 percent during the quarter ended Sept. 24, and were 78.2 percent on a non-GAAP adjusted basis.
 
“Our U.S. upper extremities business had an exceptional quarter and grew 19 percent. However, in total, the third quarter fell short of our expectations,” said Robert Palmisano, president and CEO.  “The third quarter was negatively impacted by the hurricanes. In addition, our U.S. lower extremities business did not perform as we expected as the benefit from the sales force additions is developing slower than we originally anticipated. We have adjusted our net sales guidance accordingly. Despite this impact, we made positive progress on non-GAAP adjusted EBITDA margins, which improved approximately 370 basis points over prior year.”

Net loss from continuing operations for the third quarter totaled $34.1 million, or 33 cents per diluted share.

The company’s net loss from continuing operations included $3.3 million of transition costs, $11.5 million of non-cash interest expense related to its convertible notes, an $8.9 million tax benefit related to the realizability of net operating losses, an unrealized gain of $200,000 related to mark-to-market adjustments on derivatives, and a $4.5 million unrealized loss related to mark-to-market adjustments on contingent value rights (CVRs) issued in connection with the BioMimetic acquisition.
 
“Highlights in the quarter included 19 percent sales growth in U.S. shoulders, led by the ongoing launch of our PERFORM Reversed glenoid, which is on a strong growth trajectory, and continued contributions from our SIMPLICITI shoulder system,” Palmisano noted. “We anticipate that our PERFORM Reversed launch and accelerating adoption of BLUEPRINT enabling technology will drive strong shoulder revenue growth for the remainder of the year and beyond as additional instrument sets are delivered to the U.S. field.”
 
“In U.S. lower extremities, our products, which include AUGMENT Bone Graft, SALVATION Limb Salvage and Total Ankle Replacement continued to perform well, growing 16 percent or about twice the overall market growth rate in the quarter,” Palmisano continued. “Growth in the core U.S. lower extremities and core biologics portfolio was significantly lower than our more technologically advanced products due to slower than anticipated benefit from the sales rep additions that we made earlier in the year. We expect to see improvement in the fourth quarter and beyond as the larger footprint, new products and new reps expanding relationships begin to take effect.”
 
Wright’s third quarter 2017 non-GAAP net loss from continuing operations, as adjusted for the above items, was $23.8 million. Third quarter 2017 non-GAAP adjusted EBITDA from continuing operations was a positive $12.4 million.
 
Cash, cash equivalents and restricted cash totaled $277.8 million as of the end of the third quarter. This amount includes $38.9 million classified as restricted cash on the company’s balance sheet that is held in escrow to fund a portion of the metal-on-metal hip litigation Master Settlement Agreement (MSA). 
 
“I believe we are positioned well for future success in both our upper and lower extremities businesses. We have focused sales organizations, highly differentiated products and robust future product development pipelines. I believe these advantages will enable us to continue to drive high revenue growth rates, gross margins in the high 70 percent range and non-GAAP adjusted EBITDA margins of approximately 20 percent in the next two years,” Palmisano concluded.
 
The company updated its previous net sales guidance range for full-year 2017 of approximately $755 million to $765 million and now anticipates full-year net sales to range between $740 million and $745 million. This guidance range assumes an approximate 1 percent tailwind from currency for the fourth quarter of 2017, which is approximately 1 percent of cushion as compared to current rates.  In addition, this range implies fourth quarter of 2017 constant currency net sales growth of 6 percent to 8 percent, excluding the estimated $7 million impact of the four extra selling days in the fourth quarter of 2017.
 
Wright is increasing its full-year 2017 non-GAAP adjusted EBITDA from continuing operations to be in the range of $84 million to $88 million from its previous range of $78.5 million to $85.5 million. 
 
The company is also increasing its non-GAAP adjusted earnings per share from continuing operations, including share-based compensation for full-year 2017 to 24 cents to 28 cents per diluted share from its previous range of 26 cents to 33 cents per diluted share. 
 
The company estimates approximately 104.5 million diluted weighted average ordinary shares outstanding for fiscal year 2017.
 
Wright Medical Group N.V. is a global medical device company focused on extremities and biologics products. The company is a recognized leader of surgical solutions for the upper extremities (shoulder, elbow, wrist and hand), lower extremities (foot and ankle) and biologics markets, three of the fastest growing segments in orthopedics.