WMGI

Wright Medical Group, Inc. (WMGI)

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Wright Medical Group (WMGI)

Q2 2013 Earnings Call

August 05, 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

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

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

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

Matthew S. Miksic - Piper Jaffray Companies, Research Division

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

Robert Marcus - Leerink Swann LLC, Research Division

Mark Landy - Summer Street Research Partners

Robert M. Gold - Brigantine Advisors

Jason Wittes - Brean Capital LLC, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Quarter Two 2013 Wright Medical Group, Inc. Earnings Conference Call. My name is Jason, 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 your host for today, Ms. Julie Tracy. Please proceed.

Julie D. Tracy

Thank you, and good afternoon, everyone. Welcome to Wright Medical Group's second 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 second quarter result. A copy of that press release is available on our website at wmt.com. The agenda for this call will include a business update from Bob, a review of our second 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 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, and as supplemented by our quarterly reports on Form 10-Q. These risks include, by way of example and without limitation, the risks that we will be unsuccessful in obtaining FDA approval for our augment product and the risks that we fail to obtain necessary approvals or other intervening events, which could delay or prevent the previously announced sale of our hip and knee business from closing.

Our earnings release include 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. Our second quarter results demonstrate the growth potential of the go-forward business, with sales from continuing operations increasing 17%. The global foot and ankle business grew an outstanding 30%, driven by continued sales productivity gains in our U.S. foot and ankle business, positive progress and focus on international market development and continued strong uptake of recent new foot and ankle product launches.

We are particularly pleased with the U.S. performance of our 2 anchor foot and ankle products, our INBONE Total Ankle and PRO-TOE Hammertoe system, which both grew in the mid-20% range during the second quarter. Our strong international results were driven by Europe and our initial expansion efforts in China. We are excited about the future growth prospects for international and believe the second quarter results indicated we are on the right track as we continue to execute our transformational plan.

We also believe the previously announced agreement to sell our hip and knee business to MicroPort Scientific represents a significant growth opportunity for both businesses going forward. We are making good progress on transition activities to separate the businesses and expect the transaction to close by the end of the third or early fourth quarter of 2013.

Post the close of the transaction, we will be operating substantially independent of each other. However, for a short period of time, we will have a period of transition services. Business continuity and seamless customer experience are top priorities. And we are highly focused on ensuring that no business momentum is lost during this transition period.

As such, we will have inefficiencies immediately post the transaction, but we'll have an excellent opportunity to improve efficiency and leverage fixed costs in the business going forward. Following the close of the transaction, we will complete the transformation of our business into a dedicated, Extremities-Biologics company, exclusively focused on expanding our leadership position in the fast-growing and under-penetrated market around the world. As a smaller high-growth extremities companies with breakthrough biologic opportunities, we will now be able to devote our full resources and attention on accelerating growth opportunities in this area, including increasing foot and ankle sales productivity, extending the global reach and penetration of our products in key international markets and seeking to gain U.S. regulatory approval for Augment Bone Graft.

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