Wright Medical Q1 Loss Wider than Expected, Sales Up Y/Y - Analyst Blog

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Wright Medical Group Inc.WMGI reported adjusted loss of 51 cents per share in the first-quarter of 2015, wider than the Zacks Consensus Estimate of a loss of 45 cents and year-ago quarter loss of 34 cents.

Wright Medical Group Inc. - Earnings Surprise | FindTheCompany

Quarter Details

Net sales increased 10% (up 14% on constant currency) on a year-over-year basis to $77.9 million. The top line handily surpassed the Zacks Consensus Estimate of $75 million.

The year-over-year increase in net sales represents a significant acceleration in the company's U.S. foot and ankle business, driven by better execution and strong contribution from acquired products as well as new product launches.

On a geographic basis, international revenues declined 7.5% year over year to $20.4 million in the quarter whereas revenues from the domestic market grew 17.4% to $57.5 million.

Globally, revenues from the Foot and Ankle business surged 16.9% to $53.8 million. Apart from growth in the core business, global foot and ankle growth was supported by the Solana Surgical and OrthoRecon acquisitions.

Global revenues from the Upper Extremity business were down 10.6% year over year to $5.8 million while the same from the Biologics business fell 0.1% to $15.6 million. Global revenues from Other businesses declined 7.1% to $2.7 million.

Gross margin remained flat on a year-over-year basis at 75.5%, on the back of unfavorable foreign exchange rate.

Selling, general and administrative (SG&A) expenses spiked 19.7% to $82.2 million, driven by escalating international infrastructure costs.

Research and development (R&D) expenses surged 21.53% to $7.1 million from the year-ago quarter.

Adjusted operating loss surged 51.7% year over year to $22 million, mainly driven by higher operating expenses.

Augment Bone Graft Update

Wright Medical previously announced that an Augment Bone Graft vendor had received a Form 483 on completion of an FDA pre-approval facility inspection in Jan2015.

However, in Mar 2015, the vendor was notified by the FDA that its facility will be re-inspected. Wright Medical has notified the FDA that the facility is ready for a re-inspection. The final approval for Augment Bone Graft is expected in the second half of 2015, given the re-inspection is successful.

Tornier Merger Update

On Jan 28, Wright Medical announced that it has received a Request for Additional Information and Documentary Material (commonly known as a Second Request) from the Federal Trade Commission ("FTC"). The Second Request is associated with Wright Medical's merger with Tornier N.V. TRNX . It is expected that the proposed merger will eventually take place, irrespective of the resolution of the Second Request. The merger is expected to take place either at the end of the second quarter or in the third quarter of 2015.

Financial Position

Wright Medical had cash, cash equivalents and marketable securities of $465.2 million as of Mar 31, 2015, higher than $229.9 million at the end of the previous quarter. Long-term obligations, as of Mar 31, 2015 were $548.5 million, as compared to $280.6 million at the end of the previous quarter.

Cash outflow from operating activities decreased to $37.1 million from $42.7 million at the end of the previous quarter.

2015 Guidance

Assuming the approval of Augment Bone Graft by the middle of the second quarter of 2015, the company expects net sales for 2015 in the range of $325-$335 million, representing constant currency growth of 13-16% on a year-over-year basis.

The guidance assumes U.S. Augment revenues of $10-$12 million and a negative impact of approximately $12 million (4%) from foreign exchange fluctuations. The company anticipates 2015 adjusted EBITDA in the band of a loss of $22.0-$27.0 million.

The company expects adjusted loss of $1.67-$1.77 per share for 2015.

Our Take

Wright Medical reported a mixed first quarter of 2015. Although loss per share came in wider than expected, sales showed an improvement from the year-earlier quarter.

The newly launched INFINITY Total Ankle has been received well by Wright Medical's customers, as is reflected in49% growth in global total ankle revenues. We feel this is an important long-term prospect for Wright Medical.

We believe there will be a significant increase in Wright Medical's profitability and subsequent expansion of margin after the completion of the Tornier merger and the commercialization of Augment Bone Graft.

Wright Medical has traditionally relied on its lower extremities offerings while, Tornier, on its part, banks on upper extremities. The merger eyes the formation of a company that will possess the most comprehensive upper and lower extremity product portfolios in the market.

However, escalating international infrastructure costs will act as major headwinds for the company, going forward.

Zacks Rank

Currently, Wright Medical has a Zacks Rank #3 (Hold). Some better-ranked stocks are LeMaitre Vascular LMAT and SurModics SRDX . While SurModics sports a Zacks Rank #1 (Strong Buy), LeMaitre Vascular holds a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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