Orthofix Sales Fall 10 Percent in First Quarter

It was a tough first quarter for Orthofix International N.V.

Net sales fell 10.3 percent to $89.8 million (7.4 percent on a constant currency basis) in the first three months (ended March 31) as the firm contended with volatile exchange rates and two fewer selling days. The company’s Spine Fixation business unit suffered the biggest loss, with sales falling 29 percent to $16.2 million due to the timing of international cash collections and restructuring. Extremity fixation proceeds plummeted 19 percent to $21.8 million, but when adjusted for foreign currency rates and cash collections, sales remained flat.

“While first quarter financial results were negatively impacted by exchange rates, the timing of collections from cash-based distributors and our investments in growth initiatives, our net sales and adjusted EBITDA were in line with our expectations and factored into our recent guidance,” said President/CE Brad Mason. “We have put the foundation in place to grow the business and anticipate that our results will improve over the balance of the year.”

BioStim and Biologics business unit sales increased 2 percent and 7 percent, respectively ($37.7 million and $13.9 million) compared with Q1 2014. Gross profit fell 3.8 percent to $70.4 million though company brass claim the loss was offset by a change in product mix as well as higher demand and lower excess and obsolete inventory charges.

Total net margin (gross profit minus sales and marketing expenses) was $26.1 million, a decrease of 18.5 percent from $32.1 million in Q1 2014. The decline was impacted by a planned increase in sales management and field-based education and training personnel, as well as commission quota overachievement in some sales territories.

Operating expenses increased by  $4.3 million to $77.6 million, compared to $73.3 million in the prior year period. The increase in operating expenses primarily was a result of increased sales and marketing and general and administrative expenses as the company strengthened its sales force and infrastructure, partially offset by decreases in costs related to the accounting review and restatement expenses.

Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) from continuing operations, which excluded share-based compensation, foreign exchange impact, interest income, strategic investments, accounting review and restatement expenses, Bluecore infrastructure investments and a gain on the sale of assets, was $8.4 million or 9.4 percent of net sales, compared with $14.9 million or 14.9 percent of net sales in the prior year period.

Net loss from continuing operations was $7.7 million, or 41 cents per diluted share compared with $1.9 million, or 11 cents per diluted share in the first quarter of 2014.

Adjusted net loss from continuing operations was $2.8 million, or 15 cents per diluted share, compared with adjusted net income of $3.2 million, or 18 cents per diluted share in Q1 2014.

As of March 31, 2015, cash and cash equivalents (including restricted cash) were $57 million compared with $44.4 million as of March 31, 2014.

For the fiscal year, the company expects net sales to range between $385 million and $390 million and adjusted EBITDA to be within $55 million to $58 million.