Wright Medical Group Inc. (WMGI) reported adjusted loss of 25 cents per share in the fourth-quarter of 2014, narrower than the Zacks Consensus Estimate of a loss of 27 cents. Loss per share during the quarter, however, deteriorated nearly 37% on a year-over-year basis.
Quarter Details
Net sales increased 22.9% year over year to $83.3 million. The top line fell marginally short of the Zacks Consensus Estimate of $84 million. Notably, net sales were in line with the preliminary results provided by the company.
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 grew 12% year over year to $20.8 million in the quarter whereas revenues from the domestic market grew 26.9% to $62.5 million.
Globally, revenues from the Foot and Ankle business surged 32.8% to $57.2 million, primarily driven by the ongoing launch of Wright Medical’s INFINITY total ankle replacement system.
Global revenues from the Upper Extremity business fell 3.8% year over year to $6.3 million while the same from the Biologics business increased 8.9% to $17.3 million.
Global revenues from Other businesses rose 8.4% to $2.5 million.
Gross margin expanded 270 basis points (bps) from the year-ago quarter to 77.1%. It was in line with the estimated figure provided in the company’s preliminary results.
Selling, general and administrative (SG&A) expenses surged 23.3% to $82 million, and research and development (R&D) expenses spiked 18.5% to $6.4 million from the year-ago quarter.
Adjusted operating loss declined 1.8% year over year to $10.7 million. The expansion in gross margin managed to somewhat offset the increase in operating expenses.
Financial Position
Wright Medical had cash, cash equivalents and marketable securities of $229.9 million as of Dec 31, 2014, lower than $276.2 million at the end of the previous quarter. Long-term obligations, as of Dec 31, 2014 was $280.6 million, as compared to $282.9 million at the end of the previous quarter.
Cash outflow from operating activities decreased to $42.7 million from an outflow of $57.3 million at the end of the previous quarter.
2015 Guidance
Assuming the receipt of the FDA approval of Augment Bone Graft by the middle of second-quarter 2015, the company expects net sales for 2015 to lie 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 fourth-quarter 2014, in which loss per share managed to better the Zacks Consensus Estimate but the top line fell short of expectations.
The launch of INFINITY Total Ankle has been quite well received among the customer base, as is reflected by 38% growth in global total ankle revenues. We feel this is an important long-term prospect for Wright Medical.
The upper extremity and biologics businesses remain a soft spot for the company. However, we tend to believe that the pending merger with Tornier N.V. (TRNX) and the expected approval for Augment Bone Graft will address the softness by acting as an external catalyst.
However, escalating international infrastructure costs and increased incentive compensation expenses will act as major headwinds, going forward.
Zacks Rank
Currently, Wright Medical has a Zacks Rank #3 (Hold). Some better-ranked stocks in the medical sector are Affymetrix (AFFX) and Abaxis (ABAX). Both the stocks sport a Zacks Rank #1 (Strong Buy).
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