Wright Medical Group N.V. (WMGI)

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Wright Medical Group (WMGI)

Q1 2013 Earnings Call

April 30, 2013 4:30 pm ET


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


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

Jason Wittes - Brean Capital LLC, Research Division

Richard Newitter - Leerink Swann LLC, Research Division

Matthew S. Miksic - Piper Jaffray Companies, Research Division

Michael Matson - Mizuho Securities USA Inc., Research Division

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

Matthew O'Brien - William Blair & Company L.L.C., Research Division

Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division

Glenn J. Novarro - RBC Capital Markets, LLC, Research Division

Mark Landy - Summer Street Research Partners

Suraj Kalia - Northland Capital Markets, Research Division



Good day, ladies and gentlemen, and welcome to the Q1 2013 Wright Medical Group Inc. Conference Call. My name is Ian. I'll be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I'd like to hand the call over to Ms. Julie Tracy. Please proceed, ma'am.

Julie D. Tracy

Thank you, and good afternoon, everyone. Welcome to Wright Medical Group's First Quarter 2013 Conference Call. We appreciate you joining us. I'm Julie Tracy, Wright's Chief Communications Officer. 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 first quarter results. 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 first 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 obtaining FDA approval for our 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.

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. We delivered a strong start to 2013 with our first quarter results. Implementation of our new vital few initiative is on track, with continued positive progress in driving sales productivity gains in our Foot and Ankle sales business and developing plans for building a growing global OrthoRecon business and improving gross margin.

For the first quarter of 2013, we reported net sales of $120.4 million in adjusted loss per share, including stock-based expense, of $0.02.

Despite the impact of 2 less selling days in the U.S. in the first quarter, our global Foot and Ankle business had a strong constant currency growth of 19%, and our U.S. Foot and Ankle growth accelerated to 17%, both of which are well ahead of last year's annual growth rates and reinforce our leadership position in this market. On a same-day sales basis relative to prior year, we estimate our global Foot and Ankle constant currency sales growth for the quarter would have been slightly more than 20%.

As anticipated, our global OrthoRecon business continued to be impacted by customer -- U.S. customer losses from the prior year and current quarter. At this point, we believe that customer losses from our previous compliance-related issues have run their course, and in Q2 and beyond, these issues will no longer impact our business. Also, we believe we have excellent opportunities to stabilize our U.S. business with our new divisional focus and drive growth in a number of international markets. I believe these first quarter results indicate we're on the right track as we continue to execute our transformational plan.

I'd like now to spend a few minutes reviewing our first quarter progress. As previously reported, we successfully completed our acquisition of BioMimetic Therapies at the beginning of March. This acquisition adds breakthrough technology and pipeline to our Biologics product portfolio and we believe will further accelerate growth opportunities in our Extremity business. We are also very pleased that BioMimetic's talented team is now part of Wright Medical organization and look forward to completing the PMA review progress for Augment Bone Graft.

With regard to our PMA submission for Augment, we are awaiting a response from the FDA and do not have any additional information to report at this time. Our regulatory team is in regular contact with the FDA, and we continue to anticipate an approval between now and January 2014. If approved, we are looking forward to adding Augment to our Biologic product portfolio and capitalizing on the significant market opportunity that exists for use in hindfoot and ankle fusions.

As we discussed in our last call, we are building on the momentum we generated with 3 new vital few projects, which are to increase Foot and Ankle sales force productivity, build a growing global OrthoRecon business and improve gross margin. We are also continuing to move forward our inventory reduction initiatives and focus on cash generation.

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