Orthofix Releases First Quarter Financial Results

Lewisville, Texas-based Orthofix International NV has reported its financial results for the first quarter ended March 31. For the first quarter of 2016, net sales were $98.7 million, diluted earnings per share from continuing operations was $0.25 and adjusted diluted earnings per share from continuing operations was $0.28.

“Our first quarter showed a strong start to 2016, both in our financial results as well as our operational improvements, and is our fourth consecutive quarter of solid performance. As reflected in our updated guidance, we believe there is opportunity to further improve our results this year by maintaining our focus on executing initiatives that drive both top line growth and margin improvement,” said Brad Mason, president and CEO.
 
The commercial and operational improvements made over the last two years continue to drive the net sales growth for the company’s Biostim and Biologics strategic business units (SBUs). The increase in net sales in the Extremity Fixation SBU was largely due to growth in the United States and Brazil as well as higher than expected international cash collections, offset by a negative foreign currency impact of $1.7 million. The increase in net sales in the Spine Fixation SBU was primarily due to the continued success of its growth strategy and higher than expected international cash collections.

Gross profit increased $6.1 million to $76.5 million, compared to $70.4 million in the prior year period. Gross margin decreased to 77.6 percent, compared to 78.5 percent in the prior year period. The year-over-year decrease in gross margin was driven primarily by an increase in the sales mix of fixation products, which have a lower gross margin than the regenerative products.
Total net margin (gross profit less sales and marketing expenses) was $31.7 million, an increase of 21.4 percent compared to $26.1 million in the prior year period. This improvement was driven by the increase in gross profit, and a decrease in sales and marketing expenses as a percent of net sales to 45.4 percent from 49.3 percent in the prior year due to increased operating leverage of Orthofix’s fixed sales and marketing expenses as well as a decrease in commission expense as a percent of net sales.

Operating expenses decreased by $8.2 million to $69.4 million, compared to $77.6 million in the prior year period. This was driven by decreases in general and administrative expenses and restatement and related costs, offset by an increase in research and development costs.
Operating income was $7.1 million compared to an operating loss of ($7.2) million in the prior year period.

Adjusted earnings before interest, taxes, depreciation, and amortization, which excludes share-based compensation, foreign exchange impact, strategic investments, restatements and related costs, infrastructure investments and gain on sale of assets, increased to $15.5 million or 15.7 percent of net sales for the first quarter, compared to $8.4 million or 9.4 percent of net sales in the prior year period.

Net income from continuing operations was $4.6 million, or $0.25 per diluted share, compared to net loss of ($7.7) million, or ($0.41) per diluted share in the prior year period.

Adjusted net income from continuing operations was $5.3 million, or $0.28 per diluted share, compared to adjusted net income of $0.7 million, or $0.04 per diluted share in the prior year period.

As of March 31, 2016, cash and cash equivalents were $39.8 million compared to $63.7 million as of December 31, 2015. This change in cash was primarily driven by the execution of the company’s stock repurchase program. As of March 31, 2016 Orthofix had no outstanding indebtedness and borrowing capacity of $125 million.

As previously announced, Orthofix initiated a share repurchase plan in the fourth quarter of 2015 of up to $75 million of the company’s common stock through the end of September 2017. As of March 31, 2016, the company had repurchased a cumulative total of approximately 970,000 shares of common stock for $38.0 million, of which approximately 676,000 shares of common stock were repurchased for $26.5 million in the first quarter of 2016.

For the fiscal year ending December 31, 2016, the company expects the following results, assuming exchange rates are the same as those currently prevailing.