Wright Medical Group Sees Broader Q1 Loss - Analyst Blog

Wright Medical Group, Inc. WMGI posted a wider adjusted net loss of $16.6 million or 34 cents per share for the first quarter of 2014 compared with a loss of $3.3 million or 8 cents in the same quarter of 2013. However, the loss was narrower than the Zacks Consensus Estimate of a loss of 42 cents.

Net loss totaled $30.3 million or 62 cents per share compared with a net loss of $4.9 million or 12 cents per share in the year-ago quarter. Reported net loss stood at $30.4 million or 63 cents per share in the quarter compared with earnings of $8.4 million or 20 cents per share in the year-ago quarter.

Despite reporting dismal fiscal 2014-first-quarter results, shares of WMGI jumped almost 8.2% following the earnings release to close at $30.00 yesterday.

Revenues

Revenues in the quarter went up 26.2% (26% in constant currency) to $71.1 million, edging past the Zacks Consensus Estimate of $70.0 million. The revenue growth was driven by strong sales in the Foot and Ankle product line.

On a geographic basis, international sales were strong with a 63.4% rise in revenues to $22.1 million. Revenues from the domestic market improved 14.5% to $49.0 million in the quarter.

Segment Details

Global revenues from the Foot and Ankle business moved up 31.1%, both in reported and constant currency, to $46.0 million, on synergies from the Solana Surgical and OrthoPro acquisitions. Domestic revenues grew 19.3% to $33.1 million whereas, international revenues surged 76.0% (or 74% in constant currency) to $12.9 million.

Global revenues from the Biologics business went up 14.5% (or 16% in constant currency) on the back of growth in international markets mainly driven by sales in China and continued growth of Augment Bone Graft in Australia. Domestic revenues rose 6.6% to $11.1 million while international revenues increased 40.3% (or 47% in constant currency) to $4.5 million.

Revenues from the Upper Extremities business grew 6.9% globally, both in reported and constant currency, to $6.5 million. Excluding the impact of the Biotech International acquisition completed in November last year, Upper Extremities revenues declined 11% during the quarter. Domestic revenues decreased 11.2% to $3.7 million whereas international revenues increased 45.0%, both in reported and constant currency, to $2.8 million.

Global revenues in the Other product line escalated 96.6% (or 92% in constant currency) to $2.9 million. Domestic revenues soared 138.5% to $1.0 million while international revenues grew 79.6% (or 74% in constant currency) to $1.9 million.

Margins

Gross profit rose 25.9% to $53.6 million, primarily on lower inventory reserve requirements. However, gross margin decreased marginally by 20 basis points (bps) to 75.5% from 75.7% a year ago.
 
Adjusted operating loss increased substantially by 227.0% to $14.5 million, while adjusted operating (loss) margin rose 1,250 bps to 20.4% from 7.9% a year ago.

Adjusted EBITDA was a negative $6.2 million compared to a positive $1.4 million in the same quarter last year.

Financial Position

WMGI exited the quarter with cash and cash equivalents of $343.9 million, up 28.6% from $267.5 million as of Mar 31, 2013, due to the completion of the MicroPort, Solana and OrthoPro transactions. Long-term obligations rose 6.3% to $277.7 million from $261.3 million as of Mar 31, 2013.

During the quarter, cash flow from operations deteriorated significantly to the use of $27.2 million from the use of $5.2 million a year ago. Capital expenditures more than doubled to $7.8 million from $3.7 million a year ago.

Outlook

For 2014, WMGI anticipates adjusted loss per share, including stock-based compensation, in the range of $1.28-$1.38. The current Zacks Consensus Estimate of a loss of $1.32 lies within the guided range.

For 2014, WMGI narrowed its revenue guidance to the range of $308–$312 million from the prior range of $305–312 million. The revised guidance represents a year-over-year rise of 27–29% (including Solana, OrthoPro and Biotech acquisitions). The current Zacks Consensus Estimate of $310 million lies within the projected range.

The expected range of revenues incorporates the effect of short-term dis-synergies due to the closure of transactions with MicroPort, Biotech International, Solana Surgical and OrthoPro, and includes a negative year-over-year currency impact of 1%.

WMGI reiterated its previously announced adjusted EBITDA guidance in the range of negative $20.0 million to negative $15.0 million for 2014.

Zacks Rank

Currently, WMGI carries a Zacks Rank #3 (Hold). Some better-ranked medical product stocks include Cardica Inc. CRDC, Enzymotec Ltd. ENZY and Mead Johnson Nutrition Company MJN. All the three stocks carry a Zack Rank #2 (Buy).