Orthofix Achieves Record Revenue in Second Quarter

Earlier this year, shareholders at Orthofix International N.V. rejected a slate of alternative board members who proposed selling Blackstone Medical Inc., a subsidiary that manufactures spinal implants and other instruments.

Orthofix executives rewarded their shareholders’ loyalty by promising to deliver positive earnings results in the “weeks and months to come.”

Shareholders didn’t have to wait long for executives to keep their promise. In the second quarter of 2009, the Dutch firm reported a record $137.5 million in revenue, a 5.7 percent increase compared with the $130 million it posted in the second quarter of 2008. Gross profit shot up 5.9 percent to $100.6 million, while net income rose to $5.9 million, a 2.3 percent increase compared to the same period last year. Excluding certain items, adjusted net income was $7.2 million, or 42 cents per share, a gain of 17 percent compared with the $6.3 million, or 36 cents per share, reported in the second quarter of 2008.

“These results were consistent across all of our core business segments,” said Alan Milinazzo, Orthofix president and CEO. “This included our spinal implant business, which continued to gain momentum in the second quarter…”

And gain momentum it did. Orthofix’s spinal implant business—which includes Blackstone Medical—generated more than half of the company’s total revenue for the second quarter. The $70.7 million it posted for the period ending June 30 represents a 13 percent increase compared with the $62.7 million the Netherlands-based company reported in the second quarter of 2008.

The growth in Orthofix’s spinal implant business was welcome news for both executives and shareholders who watched the unit struggle to generate considerable profits last year. Spine sales grew incrementally in 2008, rising 2 percent in the second and fourth quarters, but remained flat in the third quarter. For the year, spine sales climbed just 4 percent.

Orthofix executives attribute the spine sector’s robust second-quarter performance this year to the launches of several products, including the Pillar SA spine interbody device (used in most cases as a stand-alone implant between the spinal vertebrae or as a partial vertebral body replacement), the Firebird Spinal Fixation System and its Trinity Evolution stem cell-based allograft. The Firebird System is used to treat degenerative disc disease, while Trinity Evolution is a bone growth matrix that was released to the market in early May.

These products helped both segments of the spine business achieve double-digit growth. Stimulation product sales jumped 13 percent to $40.2 million, while sales of implants and biologics (such as Trinity Evolution and the Firebird System) climbed 12 percent to $30.5 million.

Orthofix’s spine business, however, wasn’t the only segment to achieve double-digit growth in the second quarter. The firm’s vascular segment, which markets the A-V Impulse System, a device that reduces swelling and improves blood flow in veins and arteries, generated $4.3 million in sales, a 14 percent increase compared with the $3.7 million the segment posted in the same period last year.

The sale of sports medicine products, such as shoulder, elbow, knee, ankle and spine braces as well as gel pads, garnered $24.5 million for the company, a 5 percent increase compared with the $23.2 million this segment generated last year. Executives attributed the gain to an 11 percent jump in U.S. revenue from joint and spine braces.

Orthopedic product sales fell 2 percent to $32.6 million, but rose 9 percent on a constant currency basis compared with 2008. The constant currency growth gain was driven mostly by increases in international sales of external and internal fixation devices, as well as a 14 percent spike in worldwide sales of Physio-Stim, a bone growth stimulation product. Sales of biologics products nearly doubled to $1.7 million. Of that total, $1.4 million came from the sale of Trinity, a bone generation product, and $164,000 came from Trinity Evolution sales.

Greatbatch Posts Second-Quarter Revenue Loss

There was no mistaking the signs. With optimism rising among small business owners and the public, venture capital deals gaining traction, and employment gains in education and healthcare, economists were convinced the worst of the recession had ended in the second quarter.

The executives at Greatbatch Inc., however, would disagree with that assessement. Revenue fell 5 percent to $135 million in the second quarter, as foreign exchange rates and “market conditions” took a toll on demand for the company’s orthopedic and Electrochem products.

Despite the drop in revenue, Greatbatch reported a 2.1 percent increase in gross profit and a 39.2 percent jump in net income. According to its latest earnings release, second-quarter gross profit at the Clarence, N.Y.-based firm climbed to $41.4 million, and net income soared to $6.56 million, or 29 cents per share.

“We continued to make strides in reducing costs and implementing the Greatbatch operating model across all of our business lines…” said Thomas J. Hook, Greatbatch president and CEO. “We remain focused on reaching our financial and operational goals for the year, but we are also keenly aware of the market conditions that continue to impact our business.”

Those “market conditions” led to a 20 percent decline in the sale of Electrochem products such as custom battery packs and wireless sensing devices. Those products generated $16.2 million in the quarter ended July 3—a significant decrease compared with the $20.1 million those devices garnered in the second quarter of 2008.

Orthopedic products (including screwdrivers, bone plates and screws, compressors, rods, trays and pin beners) fared just as poorly. The $31.3 million the firm made from the sale of orthopedic products represented a 23 percent decrease compared with the $40.9 million it recorded in the second quarter of 2008.

Operating expenses remained flat at $29 million, while selling, general and administrative expenses fell 4.1 percent to $17.8 million. The decrease in administrative expenses was most likely the result of the closing of facilities in Blaine, Minn., and Exton, Pa., in April. The company’s Teterboro, N.J., facility is expected to close next.

Despite the decrease in revenue and disappointing sales figures for orthopedic and Electrochem products, executives expect 2009 annual revenue to be between $550 million and $600 million.
Accellent Inc. Loses Sales in Q2 but Improves Net Loss

Second-quarter sales and gross profit fell at Accellent Inc., but the company managed to slightly stem its net loss and post an increase in adjusted net earnings.

The Wilmington, Mass.-based firm reported $123.9 million in net sales, an 8.7 percent decrease compared with the $135.7 million in sales it posted in the second quarter of 2008. Gross profit declined 5.1 percent to $34.7 million, but that loss was offset by a gain in adjusted EBITDA (earnings before interest, taxes, depreciation and amortization).

Accellent’s adjusted EBITDA totaled $29.1 million, or 23.5 percent of net sales, for the quarter ended June 30. That figure represents a 6.6 percent increase compared with the $27.3 million, or 20.1 percent of net sales, the company reported in the same period last year.

“In a challenging revenue climate, we continued to benefit from our efforts to improve profitability during the second quarter,” said Robert Kirby, Accellent’s president and CEO. “We continue to focus on strengthening the fundamentals of the business to create a sustainable competitive advantage as we manage through a difficult economic environment.”

Accellent improved its profitability in the second quarter by increasing its income from operations by 4 percent and cutting its net loss by 2 percent. According to the latest earnings report, the company’s income from operations totaled $16.6 million, and its net loss fell from $1.25 million in the second quarter of 2008 to $1.23 million.