Wright Medical Group Inc. Tuesday, May 1, reported its adjusted net income declined 9 percent to $8.6 million for the first quarter of 2012 from $9.4 million in Q1 2011, while diluted earnings per share, as adjusted, decreased 8 percent to $0.22 in Q1 from $0.24 in Q1 2011.
The Arlington-based orthopedic medical device maker reported net income of $4.6 million, or 12 cents per diluted share, compared to net income of $3.6 million or 9 cents per diluted share in the first quarter of 2011.
Despite the drop, Wright Medical beat Wall Street expectations, as analysts projected 9 cents per share for the quarter.
Q1 net income included after-tax effects of $2.9 million of expenses associated with the company’s deferred prosecution agreement; $2.4 million of non-cash, stock-based compensation expense; and $0.9 million of charges associated with the company’s previously announced cost restructuring plan.
The company reported its $126.7 million in net sales during the first quarter represented a 6 percent decrease compared to Q1 2011, the result of previously announced distributor changes and challenges associated with enhancements to the company’s compliance processes.
Wright Medical president and CEO Robert Palmisano said that, for the period ended March 31, the company “made significant progress on implementing the important changes that we outlined on our last earnings call to transform our business and deliver significant shareholder return. Specifically, we delivered a solid start to 2012 with our first quarter results.”
Wright Medical reported its Q1 foot and ankle net sales grew 11 percent globally and 9 percent domestically. Growth factors included new product launches, increased medical education programs, and strong performance in international business.
“In our U.S. foot and ankle business, the conversion of a major portion of our independent distributor territories to direct sales representation is proceeding well and according to our plans,” Palmisano said in a statement. “We believe that this increase in U.S. direct foot and ankle sales representation, coupled with our focused initiatives, large and growing product portfolio and increased investment in medical education, will enable us to improve our growth rates in foot and ankle throughout 2012 and exit the year at well above market growth rates.”
Palmisano said a top priority for Wright Medical is to generate cash, and the company saw a strong, free cash flow performance in Q1.
Cash and cash equivalents totaled $170.4 million at the end of Q1, an increase of
$16.7 million compared to the end Q1 2011. Free cash flow totaled $14.5 million in Q1 compared to $8.1 million in the Q1 2011.
Wright Medical says it continues to anticipate significant cash flow improvement over 2011, with full-year 2012 free cash flow anticipated to be in the range of $25 million to $30 million, representing year-to-year growth of 73 percent to 107 percent.
Palmisano said that as Wright Medical moves forward in 2012, “we expect significantly improved cash flow generation and acceleration in U.S. foot and ankle growth rates, particularly in the back half of the year. We also expect continued progress on our inventory reduction initiatives and on improving U.S. foot and ankle sales productivity, both of which we anticipate will accelerate in 2013. We are very enthusiastic about our plan, executing our current strategies and improving our performance.”
Wright Medical anticipates full year 2012 net sales will be in the range of $472 million to $489 million.
Regarding restructuring charges, Wright Medical anticipates incurring pre-tax restructuring charges related to a cost-restructuring plan announced in September 2011 to range from $18 million to $20 million. Of those charges, $17.8 million have been incurred to date, and the company expects the remaining charges to be recorded during the Q2 2012.
In September, the company announced a 6 percent reduction in workforce as part of a cost-restructuring plan to promote the company’s growth and profitability and build shareholder value.
In an effort to cut spending, Wright announced at that time that it would take steps that included streamlining certain parts of its international selling and distribution operations, cutting the size of its international-product portfolio and adjusting plant operations.
Wright Medical at that time also announced the appointment of Palmisano as the company’s new president and CEO.
Palmisano most recently served as president and CEO of ev3 Inc., a global endovascular device company, where, during his two-year tenure, market capitalization more than tripled from about $800 million in April 2008 to $2.6 billion in July 2010.