WMGI

Wright Medical Group, Inc. (WMGI)

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Industry: Health Care
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Wright Medical Group (WMGI)

Q4 2012 Earnings Call

February 21, 2013 4:30 pm ET

Executives

Julie D. Tracy - Chief Communications Officer and Senior Vice President

Robert J. Palmisano - Chief Executive Officer, President and Director

Lance A. Berry - Chief Financial Officer and Senior Vice President

Analysts

Kaila Krum

Joanne K. Wuensch - BMO Capital Markets U.S.

Kimberly Weeks Gailun - JP Morgan Chase & Co, Research Division

Matthew S. Miksic - Piper Jaffray Companies, Research Division

Michael Matson - Mizuho Securities USA Inc., Research Division

Jason Wittes - Brean Capital LLC, Research Division

Richard Newitter - Leerink Swann LLC, Research Division

Mark Landy - Summer Street Research Partners

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2012 Wright Medical Group Earnings Conference Call. My name is Derrick, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Ms. Julie Tracy, Senior Vice President and Chief Communication Officer. Please proceed.

Julie D. Tracy

Thank you, and good afternoon, everybody. We appreciate you joining us. With me on the call today are Bob Palmisano, Wright's President and Chief Executive Officer; and Lance Berry, Wright's Chief Financial Officer.

We issued a press release this afternoon regarding our fourth quarter results and 2013 guidance. A copy of that press release is available on our website at www.wmt.com. The agenda for this call will include a business update from Bob, a review of our fourth quarter financial results from Lance, followed by a question-and-answer session and conclude with closing comments from Bob.

Before we begin, I would like to remind you that this presentation contains forward-looking statements as defined under U.S. federal securities laws. These statements reflect management's current knowledge, assumptions, beliefs, estimates and expectations, and express management's current views of future performance, events, results and trends and may be identified by their use of terms such as anticipate, believe, could, estimate, expect, intend, may, plan, predict, project, will and other similar terms.

Forward-looking statements are subject to a number of risks and uncertainties that could cause our actual results to materially differ from those described in the forward-looking statements. You should not place undue reliance on forward-looking statements. Such statements are made as of the date of this presentation, and we undertake no obligation to update such statements after this date.

Risks and uncertainties that could cause our actual results to materially differ from those described in forward-looking statements are discussed in our publicly available filings with the Securities and Exchange Commission, including, without limitation, our annual report on Form 10-K for the year ended December 31, 2012 as supplemented by our quarterly reports on Form 10-Q. These risks include by way of example and without limitation the risk that we will be unsuccessful in completing our acquisition of BioMimetic Therapeutics and obtaining FDA approval for its augment product.

Our earnings release includes certain non-GAAP financial measures that may be discussed on this call. Please refer to the reconciliations, which appear on the tables of today's press release, as well as on our website. Note further that our Form 8-K filed today provides a detailed narrative that describes the use of such measures.

And with that introduction, it's now my pleasure to turn the call over to Bob Palmisano. Bob?

Robert J. Palmisano

Thanks, Julie, and welcome to everyone joining us today. Our performance in the fourth quarter reflects continued strong implementation of the transformational changes to our business, as well as the significant progress made throughout 2012 to maximize the foot and ankle opportunity.

For the fourth quarter of 2012, we reported net sales of $123.5 million and adjusted earnings per share, including stock-based expense, of $0.01. Our global Foot and Ankle rate accelerated for the fourth consecutive quarter, resulting in 20% constant currency growth that was far -- that was well ahead of our expectations. This performance underscores the positive progress we are making in our Foot and Ankle business by leveraging our large, direct sales organization, introducing new products, driving productivity gains and increasing our medical education programs.

We also generated strong free cash flow in 2012 of $49.5 million, which was more than triple the amount generated the prior year. Additionally, we officially reached a key milestone for the company with the on-schedule completion of the Deferred Prosecution Agreement. We are now in our Corporate Integrity Agreement period, and compliance will remain a top priority for our company as we continue to execute an effective and efficient compliant system that promotes the highest standards of ethical and legal conduct in all the markets that we serve. I believe these fourth quarter results indicate we are on the right track with strong momentum as we enter 2013.

A year ago, I outlined 3 strategic priorities for our company, which include growing our Foot and Ankle business at well above market growth rates, running a focused and efficient Ortho Recon business and generating cash. I also outlined several important vital few initiatives to transform our business and maximize the opportunities we have. Our solid execution of these vital few initiatives enabled us to exit the year with strong momentum for 2013.

I'd like now to spend a few minutes reviewing the significant progress we have made and discussing our plans for 2013. First, we completed the successful conversion of a major portion of our Foot and Ankle independent distributor territories to direct sales representation in the third quarter of 2012. The conversion was completed ahead of schedule, more reps were converted than originally planned and the revenue dis-synergies to Ortho Recon business were less than anticipated. Additionally, we were able to double our U.S. Foot and Ankle growth rate as compared to Q4 of 2011 while managing the disruption and distraction risks associated with converting that many reps.

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