Wright Medical Group’s (WMGI) second quarter results have no exceptions as the company again posted a broader loss of $24.0 million or 48 cents per share for the quarter compared with $5.8 million or 13 cents in the same quarter of 2013. The loss was also broader than the Zacks Consensus Estimate of 45 cents.
Reported loss was $53.6 million or $1.08 per share in the quarter compared with $15.5 million or 34 cents per share in the second quarter of 2013. The wider loss can be attributable to the company’s rising costs and operating expenses.
Revenues
Revenues in the quarter went up 19.5% (both in reported and constant currency) to $72.4 million, missing the Zacks Consensus Estimate of $74 million. The revenue growth was driven by strong growth in foot and ankles product line.
On a geographic basis, international sales were strong with a 28.4% rise in revenues to $23.0 million. Revenues from domestic market grew 15.7% to $49.3 million in the quarter.
Globally, revenues from Foot and Ankle business surged 25.6% to $46.9 million while the same from the Upper Extremity and Biologics product lines went up 22.4% and 7.0% to $7.45 million and $16.2 million, respectively. However, revenues from Other businesses slid 8.0% to $1.9 million in the quarter.
Margins
Gross profit rose 13.8% to $52.4 million as the strong revenue growth more than offset the impact of a 37.4% rise in cost of sales to $20.0 million. However, gross margin decreased 360 basis points (bps) to 72.4% from 76.0% a year ago.
Adjusted operating loss nearly tripled to $22.0 million from $7.9 million in the year-ago quarter as operating expenses jumped 37.7% to $81.5 million in the 2014-second quarter. Consequently, adjusted operating (loss) margin rose significantly to 30.4% from 13.0% a year ago.
Adjusted EBITDA (loss) was $11.6 million in the quarter in sharp contrast to EBITDA of $590 thousand in the second quarter of 2013. Adjusted EBITDA (loss) margin was 16.0% compared with EBITDA margin of 1.0% in the 2013-quarter.
Financial Position
WMGI had cash and cash equivalents and marketable securities of $315.1 million as of Jun 30, 2014, up from $175.4 million as of Dec 31, 2013. The increase was driven by the closures of the MicroPort, Solana Surgical and OrthoPro transactions. Long-term obligations rose to $280.3 million from $275.4 million as of Dec 31, 2013.
In the first six months of the year, cash flow from operations deteriorated significantly to the use of $51.6 million from an inflow of $5.8 million a year ago. Capital expenditures more than doubled to $24.3 million from $9.7 million in the year-ago period. Consequently, free cash flow significantly increased to $75.9 million from $4.0 million in the first half of 2013.
Guidance Reiterated
For 2014, WMGI reiterated its revenues guidance of $308–$312 million, reflecting a year-over-year rise of 27–29%. 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.
WMGI also reiterated its previously announced adjusted EBITDA (loss) guidance in the range of $20.0 to $15.0 million for 2014. However, the company still expects to exit the year with positive adjusted EBITDA.
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.
Our Take
Arlington, TN-based WMGI is a global orthopedic device company specializing in the design, manufacture and marketing of reconstructive joint devices and bio-orthopaedic materials.
Despite being a loss-making company, we rely on the company’s turnaround outlook for the full year. We are also optimistic about the company’s foot and ankle business, which is a consistently stellar performer.
Currently, WMGI retains a Zacks Rank #2 (Buy). Other medical product stocks that are also worth a look include Symmetry Medical, Inc. (SMA), Alere Inc. (ALR), and Medtronic, Inc. (MDT). Symmetry Medical sports a Zacks Rank #1 (Strong Buy), while both Alere and Medtronic carry the same Zacks Rank as WMGI.
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