UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 6, 2019
ORTHOFIX MEDICAL INC.
(Exact name of Registrant as specified in its charter)
Delaware |
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0-19961 |
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98-1340767 |
(State or other jurisdiction of incorporation) |
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(Commission File Number) |
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(IRS Employer Identification No.) |
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3451 Plano Parkway Lewisville, Texas |
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75056 |
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(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code: (214) 937-2000
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
☐ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
☐ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
☐ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
Common stock |
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OFIX |
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NASDAQ |
Item 2.02. |
Results of Operations and Financial Condition. |
On May 6, 2019, Orthofix Medical Inc. (the “Company” or “Orthofix”) issued a press release announcing, among other things, its financial results for the first quarter ended March 31, 2019. A copy of the press release is furnished herewith as Exhibit 99.1 and attached hereto.
The information furnished in this Item 2.02, including the exhibit furnished herewith as Exhibit 99.1, will not be treated as “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section. This information will not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or into another filing under the Exchange Act, unless that filing expressly refers to specific information in this Report.
The information disclosed under Item 7.01 hereof is also responsive to this Item 2.02 and is incorporated by reference into this Item 2.02.
Item 7.01 |
Regulation FD Disclosure. |
The press release furnished as Exhibit 99.1 announced changes to the Company’s reportable business segments, effective March 31, 2019, to align with changes in how the Company manages its business, reviews operating performance and allocates resources.
As of the first quarter 2019, the Company began reporting results under two reportable segments: Global Spine and Global Extremities. Previously, operating results for the Global Spine reporting segment were reported as the Bone Growth Therapies, Spinal Implants, and Biologics segments. The Company began reporting its financial results under the new reportable segments with the filing of its Form 10-Q for the quarter ending March 31, 2019.
Two years of historical financial results for previously reported quarterly and annual periods for fiscal 2018 and 2017 have been recast reflecting the two new reportable segments and are provided in Exhibit 99.2.
Prior Reporting Segments |
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New Reporting Segments |
Bone Growth Therapies |
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Global Spine |
Spinal Implants |
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Global Extremities |
Biologics |
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Orthofix Extremities |
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|
In addition to changing its reportable business segments, the Company changed its profitability measure for its reporting segments to earnings before interest income/expense, net; income tax expense; depreciation and amortization (“EBITDA”), which is a non-GAAP measure.
EBITDA is a measure used by management and, therefore, provided to investors to provide comparability between periods of underlying operational results. EBITDA should not be considered in isolation or as substitutes for net income, operating income (loss), or revenue determined in accordance with generally accepted accounting principles in the United States (“GAAP”). The non-GAAP financial measure and reconciliation thereof to the most directly comparable measures prepared in accordance with GAAP are included in the recast of historical financial results for changes to reportable business segments furnished as Exhibit 99.2 hereto.
The press release furnished as Exhibit 99.1 also provides an update on the Company’s business outlook, that is intended to be within the safe harbor provided by the Private Securities Litigation Reform Act of 1995 (the “Act”) as comprising forward looking statements within the meaning of the Act.
The information furnished in this Item 7.01, including the exhibit furnished herewith as Exhibit 99.1, will not be treated as “filed” for the purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section. This information will not be deemed incorporated by reference into any filing under the Securities Act, or into another filing under the Exchange Act, unless that filing expressly incorporates by reference this Item 7.01 of this report.
Item 9.01. |
Financial Statements and Exhibits. |
(d)Exhibits
99.1Press Release, dated May 6, 2019.
99.2Orthofix recast of historical financial results for changes to reportable business segments.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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Orthofix Medical Inc. |
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By: |
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/s/ Kimberley A. Elting |
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Kimberley A. Elting Chief Legal and Administrative Officer
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Date: May 6, 2019
Exhibit 99.1
Orthofix Reports First Quarter 2019 Results
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• |
Net sales of $109.1 million, an increase of 0.4% compared to prior year and 1.9% on a constant currency basis |
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• |
Biologics products net sales increased 16.6% excluding the contractual reduction in marketing services fee |
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• |
Net income of $0.9 million; compared to net income of $5.2 million in the prior year |
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• |
Adjusted EBITDA of $15.7 million; a decrease of $4.1 million, or 20.5%, compared to prior year |
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• |
Company reiterates full year 2019 guidance |
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• |
First U.S. patients implanted with the M6-C™ artificial cervical disc following FDA approval |
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• |
Initiated limited launch of fiberFUSE™, a differentiated demineralized bone matrix |
LEWISVILLE, Texas — May 6, 2019 — Orthofix Medical Inc. (NASDAQ:OFIX) today reported its financial results for the first quarter ended March 31, 2019. Net sales were $109.1 million, earnings per share (“EPS”) was $0.05 and adjusted EPS was $0.27.
“For the first quarter, our top and bottom line results were slightly better than anticipated and we remain confident about our expected sales acceleration throughout the remainder of the year and into 2020, as we previously guided,” said Brad Mason, Orthofix President and Chief Executive Officer. “Regarding the M6-C artificial cervical disc, the U.S. Food and Drug Administration approval of the M6-C disc was certainly the most important highlight of the first quarter for the company. We recently released the compelling results of the full two-year data from the M6-C IDE clinical study and announced the first commercial U.S. patient implants, which marks the beginning of a measured launch of the M6-C disc in the U.S., including the ramp-up of training and certification of surgeons. Encouragingly, we continue to receive a very high level of interest and enthusiasm from physicians and distributors alike.” Mason continued, “Lastly, in addition to our strong first quarter sales of our Biologics products, we initiated a limited market release of fiberFUSE DBM, a differentiated demineralized bone matrix with handling characteristics similar to our market-leading Trinity ELITE™ stem cell allograft.”
Financial Results Overview
The following table provides net sales by major product category by reporting segment:
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Three Months Ended March 31, |
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(Unaudited, U.S. Dollars, in thousands) |
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2019 |
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2018 |
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Change |
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Constant Currency Change |
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||||
Bone Growth Therapies |
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$ |
47,283 |
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$ |
46,163 |
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|
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2.4 |
% |
|
|
2.4 |
% |
Spinal Implants1 |
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|
22,903 |
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20,707 |
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|
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10.6 |
% |
|
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11.6 |
% |
Biologics2 |
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15,732 |
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|
|
14,335 |
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|
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9.7 |
% |
|
|
9.7 |
% |
Global Spine3 |
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85,918 |
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|
|
81,205 |
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|
|
5.8 |
% |
|
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6.1 |
% |
Global Extremities |
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23,194 |
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|
|
27,504 |
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|
|
(15.7 |
%) |
|
|
(10.4 |
%) |
Net sales4 |
|
$ |
109,112 |
|
|
$ |
108,709 |
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|
|
0.4 |
% |
|
|
1.9 |
% |
1 Excluding Spinal Kinetics, net sales decreased 4.6% on a reported basis and 4.2% on a constant currency basis
2 Excluding the contractual reduction in fee for marketing services, the growth year over year was 16.6% on a reported and constant currency basis
3 Excluding Spinal Kinetics and the contractual reduction in fee for marketing services, the increase was 3.1% on a reported and 3.2% on a constant currency basis
4 Excluding Spinal Kinetics and the contractual reduction in fee for marketing services, net sales decreased 1.6% on a reported and 0.2% on a constant currency basis
Gross profit increased $0.8 million to $85.4 million. Gross margin increased to 78.3% compared to 77.8% in the prior year period, primarily due to favorable product mix, offset slightly by the dilutive impact from Spinal Kinetics.
Net income was $0.9 million, or $0.05 per share, compared to net income of $5.2 million, or $0.27 per share in the prior year period. Adjusted net income from continuing operations was $5.2 million, or $0.27 per share, compared to adjusted net income of $7.4 million, or $0.39 per share in the prior year period.
EBITDA was $0.9 million, compared to $15.2 million in the prior year period. Adjusted EBITDA was $15.7 million, or 14.4% of net sales, compared to $19.7 million, or 18.1% of net sales, in the prior year period.
Liquidity
As of March 31, 2019, cash, cash equivalents, and restricted cash totaled $49.2 million compared to $72.2 million as of December 31, 2018. As of March 31, 2019, the Company had no outstanding indebtedness and borrowing capacity of $125 million under its existing credit facility. Cash flow from operations increased $2.5 million to ($1.0) million, while free cash flow increased $1.0 million to ($6.0) million.
Changes to Reportable Business Segments
The Company has changed its reportable business segments beginning with the first quarter of 2019, to align with changes in how the Company manages its business, reviews operating performance and allocates resources. The Company now reports results under two reportable segments: Global Spine and Global Extremities. Historical financial results for previously reported quarterly and annual periods have been recast to reflect the two new business segments and will be available in the Company’s Form 8-K after market close today.
In addition to changing its reportable business segments, the Company changed its profitability measure for its reporting segments to EBITDA, which is a non-GAAP measure.
2019 Outlook
For the year ending December 31, 2019, the Company expects the following results, assuming exchange rates are the same as those currently prevailing.
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2019 Outlook |
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|||||
(Unaudited, U.S. Dollars, in millions, except per share data) |
|
Low |
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High |
|
|
||
Net sales |
|
$ |
472.0 |
|
1 |
$ |
477.0 |
|
1 |
Net income |
|
$ |
14.6 |
|
2 |
$ |
15.5 |
|
2 |
Adjusted EBITDA |
|
$ |
86.0 |
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3 |
$ |
89.0 |
|
3 |
EPS |
|
$ |
0.75 |
|
4 |
$ |
0.80 |
|
4 |
Adjusted EPS |
|
$ |
1.75 |
|
5 |
$ |
1.82 |
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5 |
1 Represents a year-over-year increase of 4.2% to 5.3% on a reported basis
2 Represents a year-over-year increase of 5.7% to 12.2%
3 Represents a year-over-year decrease of 1.8% to a year-over-year increase of 1.6%
4 Represents a year-over-year increase of 4.2% to 11.1%
5 Represents a year-over-year decrease of 2.2% to year-over-year increase of 1.7%
Conference Call
Orthofix will host a conference call today at 4:30 PM Eastern time to discuss the Company's financial results for the first quarter 2019. Interested parties may access the conference call by dialing (844) 809-1992 in the U.S. and (612) 979-9886 outside the U.S., and referencing the conference ID 3049899. A replay of the call will be available for two weeks by dialing (855) 859-2056 in the U.S. and (404) 537-3406 outside the U.S., and entering the conference ID 3049899. A webcast of the conference call may be accessed by going to the Company's website at www.orthofix.com, by clicking on the Investors link and then the Events and Presentations page.
About Orthofix
Orthofix Medical Inc. is a global medical device company focused on musculoskeletal products and therapies. The Company’s mission is to improve patients' lives by providing superior reconstruction and regenerative musculoskeletal solutions to physicians worldwide. Headquartered in Lewisville, Texas, Orthofix’s spine and orthopedic extremities products are distributed in over 70 countries via the Company's sales representatives and distributors. For more information, please visit www.orthofix.com.
2
This communication contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (“the Exchange Act”), and Section 27A of the Securities Act of 1933, as amended, relating to our business and financial outlook, which are based on our current beliefs, assumptions, expectations, estimates, forecasts and projections. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “intends,” “predicts,” “potential,” or “continue” or other comparable terminology. These forward-looking statements are not guarantees of our future performance and involve risks, uncertainties, estimates and assumptions that are difficult to predict. Therefore, our actual outcomes and results may differ materially from those expressed in these forward-looking statements. You should not place undue reliance on any of these forward-looking statements. Further, any forward-looking statement speaks only as of the date hereof, unless it is specifically otherwise stated to be made as of a different date. We undertake no obligation to further update any such statement, or the risk factors described in Part I, Item 1A under the heading Risk Factors in our Form 10-K for the year ended December 31, 2018, to reflect new information, the occurrence of future events or circumstances or otherwise.
Trademarks
Solely for convenience, our trademarks and trade names in this press release are referred to without the ® and ™ symbols, but such references should not be construed as any indicator that we will not assert, to the fullest extent under applicable law, our rights thereto.
Company Contact |
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Orthofix Medical Inc. |
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Mark Quick |
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P: 214-937-2924 |
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E: markquick@orthofix.com |
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3
Condensed Consolidated Statements of Operations
|
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Three Months Ended |
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|||||
|
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March 31, |
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|||||
(U.S. Dollars, in thousands, except share and per share data) |
|
2019 |
|
|
2018 |
|
||
|
|
(unaudited) |
|
|||||
Net sales |
|
$ |
109,112 |
|
|
$ |
108,709 |
|
Cost of sales |
|
|
23,708 |
|
|
|
24,147 |
|
Gross profit |
|
|
85,404 |
|
|
|
84,562 |
|
Sales and marketing |
|
|
53,694 |
|
|
|
50,268 |
|
General and administrative |
|
|
20,472 |
|
|
|
19,424 |
|
Research and development |
|
|
9,229 |
|
|
|
6,937 |
|
Acquisition-related amortization and remeasurement |
|
|
6,457 |
|
|
|
63 |
|
Operating income (loss) |
|
|
(4,448 |
) |
|
|
7,870 |
|
Interest expense, net |
|
|
(257 |
) |
|
|
(183 |
) |
Other income (expense), net |
|
|
(404 |
) |
|
|
2,912 |
|
Income (loss) before income taxes |
|
|
(5,109 |
) |
|
|
10,599 |
|
Income tax benefit (expense) |
|
|
6,006 |
|
|
|
(5,373 |
) |
Net income |
|
$ |
897 |
|
|
$ |
5,226 |
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.05 |
|
|
$ |
0.28 |
|
Diluted |
|
|
0.05 |
|
|
|
0.27 |
|
Weighted average number of common shares: |
|
|
|
|
|
|
|
|
Basic |
|
|
18,750,184 |
|
|
|
18,404,856 |
|
Diluted |
|
|
19,191,146 |
|
|
|
18,874,591 |
|
4
Condensed Consolidated Balance Sheets
(U.S. Dollars, in thousands, except share data) |
|
March 31, 2019 |
|
|
December 31, 2018 |
|
||
|
|
(unaudited) |
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
46,668 |
|
|
$ |
69,623 |
|
Restricted cash |
|
|
2,540 |
|
|
|
2,566 |
|
Trade accounts receivable, net of allowances of $7,448 and $7,463, respectively |
|
|
79,615 |
|
|
|
77,747 |
|
Inventories |
|
|
79,128 |
|
|
|
76,847 |
|
Prepaid expenses and other current assets |
|
|
16,387 |
|
|
|
17,856 |
|
Total current assets |
|
|
224,338 |
|
|
|
244,639 |
|
Property, plant and equipment, net |
|
|
63,727 |
|
|
|
42,835 |
|
Patents and other intangible assets, net |
|
|
56,764 |
|
|
|
51,897 |
|
Goodwill |
|
|
71,177 |
|
|
|
72,401 |
|
Deferred income taxes |
|
|
36,575 |
|
|
|
33,228 |
|
Other long-term assets |
|
|
26,735 |
|
|
|
21,641 |
|
Total assets |
|
$ |
479,316 |
|
|
$ |
466,641 |
|
Liabilities and shareholders’ equity |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Trade accounts payable |
|
$ |
19,643 |
|
|
$ |
17,989 |
|
Current portion of finance lease liability |
|
|
359 |
|
|
|
— |
|
Other current liabilities |
|
|
43,652 |
|
|
|
67,919 |
|
Total current liabilities |
|
|
63,654 |
|
|
|
85,908 |
|
Long-term portion of finance lease liability |
|
|
20,879 |
|
|
|
— |
|
Other long-term liabilities |
|
|
51,101 |
|
|
|
45,336 |
|
Total liabilities |
|
|
135,634 |
|
|
|
131,244 |
|
Contingencies |
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
|
|
|
|
|
|
|
Common shares $0.10 par value; 50,000,000 shares authorized; 18,790,769 and 18,579,688 issued and outstanding as of March 31, 2019 and December 31, 2018, respectively |
|
|
1,879 |
|
|
|
1,858 |
|
Additional paid-in capital |
|
|
252,862 |
|
|
|
243,165 |
|
Retained earnings |
|
|
87,108 |
|
|
|
87,078 |
|
Accumulated other comprehensive income |
|
|
1,833 |
|
|
|
3,296 |
|
Total shareholders’ equity |
|
|
343,682 |
|
|
|
335,397 |
|
Total liabilities and shareholders’ equity |
|
$ |
479,316 |
|
|
$ |
466,641 |
|
5
ORTHOFIX MEDICAL INC.
Non-GAAP Financial Measures
The following tables present reconciliations of operating income (loss), net income, EPS, and net cash from operating activities, in each case calculated in accordance with U.S. generally accepted accounting principles (“GAAP”), to, as applicable, non-GAAP financial measures, referred to as "EBITDA," "Adjusted EBITDA," "Adjusted net income," "Adjusted EPS," and "Free cash flow" that exclude items specified in the tables. A more detailed explanation of the items excluded from these non-GAAP financial measures, as well as why management believes the non-GAAP financial measures are useful to them, is included following the reconciliations.
EBITDA and Adjusted EBITDA
|
|
Three Months Ended March 31, 2019 |
|
|||||||||||||
(Unaudited, U.S. Dollars, in thousands) |
|
Global Spine |
|
|
Global Extremities |
|
|
Corporate |
|
|
Total Orthofix |
|
||||
Operating income (loss) |
|
$ |
7,730 |
|
|
$ |
(995 |
) |
|
$ |
(11,183 |
) |
|
$ |
(4,448 |
) |
Other income (expense), net |
|
|
(399 |
) |
|
|
(478 |
) |
|
|
473 |
|
|
|
(404 |
) |
Depreciation and amortization |
|
|
2,187 |
|
|
|
1,300 |
|
|
|
1,183 |
|
|
|
4,670 |
|
Amortization of acquired intangibles |
|
|
1,057 |
|
|
|
— |
|
|
|
— |
|
|
|
1,057 |
|
EBITDA |
|
$ |
10,575 |
|
|
$ |
(173 |
) |
|
$ |
(9,527 |
) |
|
$ |
875 |
|
Share-based compensation |
|
|
1,580 |
|
|
|
526 |
|
|
|
1,453 |
|
|
|
3,559 |
|
Foreign exchange impact |
|
|
393 |
|
|
|
458 |
|
|
|
22 |
|
|
|
873 |
|
Strategic investments |
|
|
658 |
|
|
|
— |
|
|
|
1,264 |
|
|
|
1,922 |
|
Domestication to Delaware |
|
|
— |
|
|
|
— |
|
|
|
147 |
|
|
|
147 |
|
Acquisition-related fair value adjustments |
|
|
5,932 |
|
|
|
— |
|
|
|
— |
|
|
|
5,932 |
|
Gain on investment securities |
|
|
— |
|
|
|
— |
|
|
|
(491 |
) |
|
|
(491 |
) |
Legal judgments/settlements |
|
|
55 |
|
|
|
45 |
|
|
|
25 |
|
|
|
125 |
|
Succession charges |
|
|
— |
|
|
|
— |
|
|
|
2,732 |
|
|
|
2,732 |
|
Adjusted EBITDA |
|
$ |
19,193 |
|
|
$ |
856 |
|
|
$ |
(4,375 |
) |
|
$ |
15,674 |
|
|
|
Three Months Ended March 31, 2018 |
|
|||||||||||||
(Unaudited, U.S. Dollars, in thousands) |
|
Global Spine |
|
|
Global Extremities |
|
|
Corporate |
|
|
Total Orthofix |
|
||||
Operating income (loss) |
|
$ |
16,767 |
|
|
$ |
1,843 |
|
|
$ |
(10,740 |
) |
|
$ |
7,870 |
|
Other income (expense), net |
|
|
(20 |
) |
|
|
189 |
|
|
|
2,743 |
|
|
|
2,912 |
|
Depreciation and amortization |
|
|
2,015 |
|
|
|
1,296 |
|
|
|
995 |
|
|
|
4,306 |
|
Amortization of acquired intangibles |
|
|
63 |
|
|
|
— |
|
|
|
— |
|
|
|
63 |
|
EBITDA |
|
$ |
18,825 |
|
|
$ |
3,328 |
|
|
$ |
(7,002 |
) |
|
$ |
15,151 |
|
Share-based compensation |
|
|
1,400 |
|
|
|
507 |
|
|
|
2,009 |
|
|
|
3,916 |
|
Foreign exchange impact |
|
|
(23 |
) |
|
|
(141 |
) |
|
|
(912 |
) |
|
|
(1,076 |
) |
Strategic investments |
|
|
— |
|
|
|
— |
|
|
|
2,419 |
|
|
|
2,419 |
|
Domestication to Delaware |
|
|
— |
|
|
|
— |
|
|
|
798 |
|
|
|
798 |
|
Gain on investment securities |
|
|
— |
|
|
|
— |
|
|
|
(1,629 |
) |
|
|
(1,629 |
) |
Legal judgments/settlements |
|
|
(33 |
) |
|
|
207 |
|
|
|
(27 |
) |
|
|
147 |
|
Adjusted EBITDA |
|
$ |
20,169 |
|
|
$ |
3,901 |
|
|
$ |
(4,344 |
) |
|
$ |
19,726 |
|
6
Adjusted Net Income
|
|
Three Months Ended March 31, |
|
|||||
(Unaudited, U.S. Dollars, in thousands) |
|
2019 |
|
|
2018 |
|
||
Net income |
|
$ |
897 |
|
|
$ |
5,226 |
|
Foreign exchange impact |
|
|
873 |
|
|
|
(1,076 |
) |
Strategic investments |
|
|
1,922 |
|
|
|
2,419 |
|
Domestication to Delaware |
|
|
147 |
|
|
|
798 |
|
Acquisition-related fair value adjustments |
|
|
5,932 |
|
|
|
— |
|
Amortization of acquired intangibles |
|
|
1,057 |
|
|
|
63 |
|
Interest and gain on investment securities |
|
|
(593 |
) |
|
|
(1,629 |
) |
Legal judgments/settlements |
|
|
125 |
|
|
|
147 |
|
Succession charges |
|
|
2,732 |
|
|
|
— |
|
Long-term income tax rate adjustment |
|
|
(7,919 |
) |
|
|
1,410 |
|
Adjusted net income |
|
$ |
5,173 |
|
|
$ |
7,358 |
|
Adjusted EPS
|
|
Three Months Ended March 31, |
|
|||||
(Unaudited, per diluted share) |
|
2019 |
|
|
2018 |
|
||
EPS |
|
$ |
0.05 |
|
|
$ |
0.27 |
|
Foreign exchange impact |
|
|
0.05 |
|
|
|
(0.06 |
) |
Strategic investments |
|
|
0.10 |
|
|
|
0.13 |
|
Domestication to Delaware |
|
|
0.01 |
|
|
|
0.04 |
|
Acquisition-related fair value adjustments |
|
|
0.31 |
|
|
|
— |
|
Amortization of acquired intangibles |
|
|
0.05 |
|
|
|
— |
|
Interest and gain on investment securities |
|
|
(0.03 |
) |
|
|
(0.09 |
) |
Legal judgments/settlements |
|
|
0.01 |
|
|
|
0.01 |
|
Succession charges |
|
|
0.14 |
|
|
|
— |
|
Long-term income tax rate adjustment |
|
|
(0.42 |
) |
|
|
0.09 |
|
Adjusted EPS |
|
$ |
0.27 |
|
|
$ |
0.39 |
|
|
|
|
|
|
|
|
|
|
Weighted average number of diluted common shares (treasury stock method) |
|
|
19,291,988 |
|
|
|
18,997,257 |
|
Free Cash Flow
|
|
Three Months Ended March 31, |
|
|||||
(Unaudited, U.S. Dollars, in thousands) |
|
2019 |
|
|
2018 |
|
||
Net cash from operating activities |
|
$ |
(1,039 |
) |
|
$ |
(3,560 |
) |
Capital expenditures |
|
|
(4,916 |
) |
|
|
(3,438 |
) |
Free cash flow |
|
$ |
(5,955 |
) |
|
$ |
(6,998 |
) |
7
|
|
2019 Outlook |
|
|||||
(Unaudited, U.S. Dollars, in millions) |
|
Low |
|
|
High |
|
||
Net income |
|
$ |
14.6 |
|
|
$ |
15.5 |
|
Interest expense, net |
|
|
0.8 |
|
|
|
0.9 |
|
Income tax expense |
|
|
5.9 |
|
|
|
6.4 |
|
Depreciation and amortization |
|
|
24.2 |
|
|
|
24.2 |
|
EBITDA |
|
$ |
45.5 |
|
|
$ |
47.0 |
|
Share-based compensation |
|
|
19.1 |
|
|
|
20.1 |
|
Foreign exchange impact |
|
|
0.9 |
|
|
|
0.9 |
|
Strategic investments |
|
|
4.8 |
|
|
|
4.9 |
|
Acquisition-related fair value adjustments |
|
|
8.5 |
|
|
|
8.7 |
|
Gain on investment securities |
|
|
(0.5 |
) |
|
|
(0.5 |
) |
Legal judgments/settlements |
|
|
1.3 |
|
|
|
1.3 |
|
Succession charges |
|
|
6.4 |
|
|
|
6.6 |
|
Adjusted EBITDA |
|
$ |
86.0 |
|
|
$ |
89.0 |
|
|
|
2019 Outlook |
|
|||||
(Unaudited, per diluted share) |
|
Low |
|
|
High |
|
||
EPS |
|
$ |
0.75 |
|
|
$ |
0.80 |
|
Foreign exchange impact |
|
|
0.05 |
|
|
|
0.05 |
|
Strategic investments |
|
|
0.25 |
|
|
|
0.25 |
|
Acquisition-related fair value adjustments |
|
|
0.44 |
|
|
|
0.45 |
|
Amortization of intangible assets |
|
|
0.25 |
|
|
|
0.25 |
|
Interest and gain on investment securities |
|
|
(0.03 |
) |
|
|
(0.03 |
) |
Legal judgments/settlements |
|
|
0.07 |
|
|
|
0.07 |
|
Succession charges |
|
|
0.33 |
|
|
|
0.34 |
|
Long-term income tax rate adjustment |
|
|
(0.36 |
) |
|
|
(0.36 |
) |
Adjusted EPS |
|
$ |
1.75 |
|
|
$ |
1.82 |
|
|
|
|
|
|
|
|
|
|
Weighted average number of diluted common shares (treasury stock method) |
|
|
19,375,000 |
|
|
|
19,375,000 |
|
8
Constant currency is a non-GAAP measure, which is calculated by using foreign currency rates from the comparable, prior-year period, to present net sales at comparable rates. Constant currency can be presented for numerous GAAP measures, but is most commonly used by management to analyze net sales without the impact of changes in foreign currency rates.
EBITDA
EBITDA is a non-GAAP financial measure, which is calculated by adding interest expense, net; income tax expense; and depreciation and amortization to net income. EBITDA provides management with additional insight to its results of operations. EBITDA is the primary metric used by our Chief Operating Decision Maker in managing our business.
Adjusted EBITDA, Adjusted Net Income and Adjusted EPS
These non-GAAP financial measures provide management with additional insight to its results of operations and are calculated using the following adjustments:
|
• |
Share-based compensation – costs related to our share-based compensation plans, which include stock options, restricted stock awards, performance-based restricted stock awards, market-based restricted stock awards and our stock purchase plan; see the share-based compensation footnote in our Form 10-Q for the quarter ended March 31, 2019 for a detail of these costs by consolidated statement of income line item; however, certain share-based compensation costs have been included within succession charges for 2019 |
|
• |
Foreign exchange impact – gains and losses related to foreign currency transactions, which are recorded as other expense, net; guidance presented does not include the impact of any future foreign exchange fluctuations |
|
• |
Strategic investments – costs related to our strategic investments, such as due diligence and integration costs, which are primarily recorded as general and administrative expenses |
|
• |
Domestication to Delaware – costs associated with evaluation and completion of changing the Company’s jurisdiction of organization from Curaçao to the State of Delaware during 2018, which are recorded as general and administrative expenses |
|
• |
Acquisition-related fair value adjustments – comprised of i) gains and losses related to remeasurement of contingent consideration to fair value, which are recorded as operating expenses and ii) an adjustment made to inventory acquired to account for the reasonable profit allowance for the selling effort on finished goods inventory, which is recorded as cost of sales |
|
• |
Amortization of acquired intangibles – amortization of intangible assets acquired in business combinations or asset acquisitions, including items such as developed technologies, in process research and development, trade names, and other intangible assets, which are recorded as operating expenses |
|
• |
Interest and gain on investment securities – net gains recognized (realized or unrealized) within other expense, net or interest income recognized relating to our investments in eNeura Inc. and Bone Biologics, Inc. |
|
• |
Legal judgments/settlements – adverse or favorable legal judgments or negotiated legal settlements, including legal and other professional fees associated with the SEC Investigation, Securities Class Action Complaints and Brazil subsidiary compliance review, which are recorded as general and administrative expenses |
|
• |
Succession charges – costs related to the transition of the Company’s President and CEO, including any cessation and onboarding amounts, accelerated share-based compensation expense, consulting services and other related expenses |
|
• |
Long-term income tax rate adjustment – reflects management’s expectation of a long-term normalized effective tax rate of 35% for the first and second quarters of 2018, 29% for the third and fourth quarters of 2018, and 27% for our 2019 results and outlook, which is based on current tax law and current expected income; actual reported tax expense will ultimately be based on GAAP earnings and may differ from the expected long-term normalized effective tax rate due to a variety of factors, including the resolutions of issues arising from tax audits with various tax authorities, the ability to realize deferred tax assets, and the tax impact of certain reconciling items that are excluded in determining Adjusted Net Income |
Free Cash Flow
Free cash flow is a non-GAAP financial measure, which is calculated by subtracting capital expenditures from cash flow from operating activities. Free cash flow is an important indicator of how much cash is generated or used by our normal business
9
operations, including capital expenditures. Management uses free cash flow as a measure of progress on its capital efficiency and cash flow initiatives.
Usefulness and Limitations of Non-GAAP Financial Measures
Management uses non-GAAP measures to evaluate performance period-over-period, to analyze the underlying trends in our business, to assess performance relative to competitors and to establish operational goals and forecasts that are used in allocating resources. Management uses these non-GAAP measures as the basis for assessing the ability of the underlying operations to generate cash. In addition, management uses these non-GAAP measures to further its understanding of the performance of our business units.
Material Limitations Associated with the Use of Non-GAAP Financial Measures
The non-GAAP measures used in this press release may have limitations as analytical tools, and should not be considered in isolation or as a replacement for GAAP financial measures. Some of the limitations associated with the use of these non-GAAP financial measures are that they exclude items that reflect an economic cost and can have a material effect on cash flows. Similarly, certain non-cash expenses, such as equity compensation, do not directly impact cash flows, but are part of total compensation costs accounted for under GAAP.
Compensation for Limitations Associated with Use of Non-GAAP Financial Measures
We compensate for the limitations of our non-GAAP financial measures by relying upon GAAP results to gain a complete picture of our performance. The GAAP results provide the ability to understand our performance based on a defined set of criteria. The non-GAAP measures reflect the underlying operating results of our businesses, which we believe is an important measure of our overall performance. We provide a detailed reconciliation of the non-GAAP financial measures to our most directly comparable GAAP measures, and encourage investors to review this reconciliation.
Usefulness of Non-GAAP Financial Measures to Investors
We believe that providing non-GAAP financial measures that exclude certain items provides investors with greater transparency to the information used by senior management in its financial and operational decision-making. Management believes it is important to provide investors with the same non-GAAP metrics it uses to supplement information regarding the performance and underlying trends of our business operations in order to facilitate comparisons to its historical operating results and internally evaluate the effectiveness of our operating strategies. Disclosure of these non-GAAP financial measures also facilitates comparisons of our underlying operating performance with other companies in the industry that also supplement their GAAP results with non-GAAP financial measures.
Source
Orthofix Medical Inc.
10
Exhibit 99.2
Orthofix Recast of Historical Financial Results for Changes to Reportable Business Segments
During the first quarter of 2019, the Company changed its reporting segments from four reporting segments: Bone Growth Therapies, Spinal Implants, Biologics, and Orthofix Extremities to two reporting segments: Global Spine and Global Extremities. These two reporting segments represent the operating segments for which our Chief Executive Officer, who is also Chief Operating Decision Maker (the “CODM”), reviews financial information and makes resource allocation decisions among businesses. In addition, the Company changed the primary metric used by the CODM in managing the Company to EBITDA from non-GAAP net margin, an internal metric that the Company defined as gross profit less sales and marketing expense. Accordingly, our reporting segment information has been recast based on our two new reporting segments:
Orthofix Medical, Inc.
Recast of Historical Financial Results for Changes to Reportable Segments
|
|
Three Months Ended |
|
|
Year Ended |
|
||||||||||||||
(Unaudited, U.S. Dollars, in thousands) |
|
March 31, 2018 |
|
|
June 30, 2018 |
|
|
September 30, 2018 |
|
|
December 31, 2018 |
|
|
December 31, 2018 |
|
|||||
EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Spine |
|
$ |
18,825 |
|
|
$ |
19,030 |
|
|
$ |
15,637 |
|
|
$ |
23,053 |
|
|
$ |
76,545 |
|
Global Extremities |
|
|
3,328 |
|
|
|
488 |
|
|
|
3,357 |
|
|
|
2,280 |
|
|
|
9,453 |
|
Corporate |
|
|
(7,002 |
) |
|
|
(12,692 |
) |
|
|
(15,403 |
) |
|
|
(8,529 |
) |
|
|
(43,626 |
) |
Total EBITDA |
|
$ |
15,151 |
|
|
$ |
6,826 |
|
|
$ |
3,591 |
|
|
$ |
16,804 |
|
|
$ |
42,372 |
|
Depreciation and amortization |
|
|
(4,369 |
) |
|
|
(4,554 |
) |
|
|
(4,738 |
) |
|
|
(4,998 |
) |
|
|
(18,659 |
) |
Interest income (expense), net |
|
|
(183 |
) |
|
|
(251 |
) |
|
|
(181 |
) |
|
|
(213 |
) |
|
|
(828 |
) |
Income before income taxes |
|
$ |
10,599 |
|
|
$ |
2,021 |
|
|
$ |
(1,328 |
) |
|
$ |
11,593 |
|
|
$ |
22,885 |
|
|
|
Three Months Ended |
|
|
Year Ended |
|
||||||||||||||
(Unaudited, U.S. Dollars, in thousands) |
|
March 31, 2017 |
|
|
June 30, 2017 |
|
|
September 30, 2017 |
|
|
December 31, 2017 |
|
|
December 31, 2017 |
|
|||||
EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Spine |
|
$ |
18,247 |
|
|
$ |
21,604 |
|
|
$ |
19,208 |
|
|
$ |
24,975 |
|
|
$ |
84,034 |
|
Global Extremities |
|
|
1,656 |
|
|
|
(538 |
) |
|
|
2,235 |
|
|
|
3,790 |
|
|
|
7,143 |
|
Corporate |
|
|
(13,257 |
) |
|
|
(7,111 |
) |
|
|
(6,956 |
) |
|
|
(6,922 |
) |
|
|
(34,246 |
) |
Total EBITDA |
|
$ |
6,646 |
|
|
$ |
13,955 |
|
|
$ |
14,487 |
|
|
$ |
21,843 |
|
|
$ |
56,931 |
|
Depreciation and amortization |
|
|
(5,075 |
) |
|
|
(5,372 |
) |
|
|
(4,974 |
) |
|
|
(4,703 |
) |
|
|
(20,124 |
) |
Interest income (expense), net |
|
|
45 |
|
|
|
76 |
|
|
|
(15 |
) |
|
|
(522 |
) |
|
|
(416 |
) |
Income before income taxes |
|
$ |
1,616 |
|
|
$ |
8,659 |
|
|
$ |
9,498 |
|
|
$ |
16,618 |
|
|
$ |
36,391 |
|
Non-GAAP Measures
Management uses non-GAAP measures to evaluate performance period-over-period, to analyze the underlying trends in our business, to assess performance relative to competitors and to establish operational goals and forecasts that are used in allocating resources. Management uses these non-GAAP measures as the basis for assessing the ability of the underlying operations to generate cash. In addition, management uses these non-GAAP measures to further its understanding of the performance of our business units.
A new non-GAAP measure for 2019 is Adjusted EBITDA by reportable segment, which has not been presented in previous press releases. As such, the Company is providing additional information to show Adjusted EBITDA by reportable segment for 2018:
Orthofix Medical, Inc.
Adjusted EBITDA by Reportable Segments
|
|
Three Months Ended March 31, 2018 |
|
|||||||||||||
(Unaudited, U.S. Dollars, in thousands) |
|
Global Spine |
|
|
Global Extremities |
|
|
Corporate |
|
|
Total Orthofix |
|
||||
Operating income (loss) |
|
$ |
16,767 |
|
|
$ |
1,843 |
|
|
$ |
(10,740 |
) |
|
$ |
7,870 |
|
Other income (expense), net |
|
|
(20 |
) |
|
|
189 |
|
|
|
2,743 |
|
|
|
2,912 |
|
Depreciation and amortization |
|
|
2,015 |
|
|
|
1,296 |
|
|
|
995 |
|
|
|
4,306 |
|
Amortization of acquired intangibles |
|
|
63 |
|
|
|
— |
|
|
|
— |
|
|
|
63 |
|
EBITDA |
|
$ |
18,825 |
|
|
$ |
3,328 |
|
|
$ |
(7,002 |
) |
|
$ |
15,151 |
|
Share-based compensation |
|
|
1,400 |
|
|
|
507 |
|
|
|
2,009 |
|
|
|
3,916 |
|
Foreign exchange impact |
|
|
(23 |
) |
|
|
(141 |
) |
|
|
(912 |
) |
|
|
(1,076 |
) |
Strategic investments |
|
|
— |
|
|
|
— |
|
|
|
2,419 |
|
|
|
2,419 |
|
Domestication to Delaware |
|
|
— |
|
|
|
— |
|
|
|
798 |
|
|
|
798 |
|
Acquisition-related fair value adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Interest and (gain) loss on investment securities |
|
|
— |
|
|
|
— |
|
|
|
(1,629 |
) |
|
|
(1,629 |
) |
Legal judgments/settlements |
|
|
(33 |
) |
|
|
207 |
|
|
|
(27 |
) |
|
|
147 |
|
Restructuring |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Adjusted EBITDA |
|
$ |
20,169 |
|
|
$ |
3,901 |
|
|
$ |
(4,344 |
) |
|
$ |
19,726 |
|
|
|
Three Months Ended June 30, 2018 |
|
|||||||||||||
(Unaudited, U.S. Dollars, in thousands) |
|
Global Spine |
|
|
Global Extremities |
|
|
Corporate |
|
|
Total Orthofix |
|
||||
Operating income (loss) |
|
$ |
17,240 |
|
|
$ |
878 |
|
|
$ |
(12,203 |
) |
|
$ |
5,915 |
|
Other income (expense), net |
|
|
(544 |
) |
|
|
(1,675 |
) |
|
|
(1,424 |
) |
|
|
(3,643 |
) |
Depreciation and amortization |
|
|
2,024 |
|
|
|
1,285 |
|
|
|
935 |
|
|
|
4,244 |
|
Amortization of acquired intangibles |
|
|
310 |
|
|
|
— |
|
|
|
— |
|
|
|
310 |
|
EBITDA |
|
$ |
19,030 |
|
|
$ |
488 |
|
|
$ |
(12,692 |
) |
|
$ |
6,826 |
|
Share-based compensation |
|
|
1,836 |
|
|
|
613 |
|
|
|
2,766 |
|
|
|
5,215 |
|
Foreign exchange impact |
|
|
456 |
|
|
|
1,626 |
|
|
|
1,173 |
|
|
|
3,255 |
|
Strategic investments |
|
|
812 |
|
|
|
— |
|
|
|
1,927 |
|
|
|
2,739 |
|
Domestication to Delaware |
|
|
— |
|
|
|
— |
|
|
|
1,910 |
|
|
|
1,910 |
|
Acquisition-related fair value adjustments |
|
|
1,473 |
|
|
|
— |
|
|
|
— |
|
|
|
1,473 |
|
Interest and (gain) loss on investment securities |
|
|
— |
|
|
|
— |
|
|
|
230 |
|
|
|
230 |
|
Legal judgments/settlements |
|
|
212 |
|
|
|
87 |
|
|
|
75 |
|
|
|
374 |
|
Restructuring |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Adjusted EBITDA |
|
$ |
23,819 |
|
|
$ |
2,814 |
|
|
$ |
(4,611 |
) |
|
$ |
22,022 |
|
|
|
Three Months Ended September 30, 2018 |
|
|||||||||||||
(Unaudited, U.S. Dollars, in thousands) |
|
Global Spine |
|
|
Global Extremities |
|
|
Corporate |
|
|
Total Orthofix |
|
||||
Operating income (loss) |
|
$ |
13,344 |
|
|
$ |
2,361 |
|
|
$ |
(11,798 |
) |
|
$ |
3,907 |
|
Other income (expense), net |
|
|
(196 |
) |
|
|
(301 |
) |
|
|
(4,557 |
) |
|
|
(5,054 |
) |
Depreciation and amortization |
|
|
2,060 |
|
|
|
1,297 |
|
|
|
952 |
|
|
|
4,309 |
|
Amortization of acquired intangibles |
|
|
429 |
|
|
|
— |
|
|
|
— |
|
|
|
429 |
|
EBITDA |
|
$ |
15,637 |
|
|
$ |
3,357 |
|
|
$ |
(15,403 |
) |
|
$ |
3,591 |
|
Share-based compensation |
|
|
1,391 |
|
|
|
633 |
|
|
|
3,237 |
|
|
|
5,261 |
|
Foreign exchange impact |
|
|
272 |
|
|
|
277 |
|
|
|
69 |
|
|
|
618 |
|
Strategic investments |
|
|
803 |
|
|
|
— |
|
|
|
2,005 |
|
|
|
2,808 |
|
Domestication to Delaware |
|
|
— |
|
|
|
— |
|
|
|
996 |
|
|
|
996 |
|
Acquisition-related fair value adjustments |
|
|
2,121 |
|
|
|
— |
|
|
|
— |
|
|
|
2,121 |
|
Interest and (gain) loss on investment securities |
|
|
— |
|
|
|
— |
|
|
|
4,449 |
|
|
|
4,449 |
|
Legal judgments/settlements |
|
|
241 |
|
|
|
39 |
|
|
|
92 |
|
|
|
372 |
|
Restructuring |
|
|
1,233 |
|
|
|
— |
|
|
|
— |
|
|
|
1,233 |
|
Adjusted EBITDA |
|
$ |
21,698 |
|
|
$ |
4,306 |
|
|
$ |
(4,555 |
) |
|
$ |
21,449 |
|
|
|
Three Months Ended December 31, 2018 |
|
|||||||||||||
(Unaudited, U.S. Dollars, in thousands) |
|
Global Spine |
|
|
Global Extremities |
|
|
Corporate |
|
|
Total Orthofix |
|
||||
Operating income (loss) |
|
$ |
20,605 |
|
|
$ |
924 |
|
|
$ |
(9,127 |
) |
|
$ |
12,402 |
|
Other income (expense), net |
|
|
(164 |
) |
|
|
(107 |
) |
|
|
(325 |
) |
|
|
(596 |
) |
Depreciation and amortization |
|
|
2,159 |
|
|
|
1,463 |
|
|
|
923 |
|
|
|
4,545 |
|
Amortization of acquired intangibles |
|
|
453 |
|
|
|
— |
|
|
|
— |
|
|
|
453 |
|
EBITDA |
|
$ |
23,053 |
|
|
$ |
2,280 |
|
|
$ |
(8,529 |
) |
|
$ |
16,804 |
|
Share-based compensation |
|
|
1,632 |
|
|
|
498 |
|
|
|
2,408 |
|
|
|
4,538 |
|
Foreign exchange impact |
|
|
130 |
|
|
|
70 |
|
|
|
332 |
|
|
|
532 |
|
Strategic investments |
|
|
348 |
|
|
|
— |
|
|
|
282 |
|
|
|
630 |
|
Domestication to Delaware |
|
|
— |
|
|
|
— |
|
|
|
511 |
|
|
|
511 |
|
Acquisition-related fair value adjustments |
|
|
914 |
|
|
|
— |
|
|
|
— |
|
|
|
914 |
|
Interest and (gain) loss on investment securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Legal judgments/settlements |
|
|
266 |
|
|
|
172 |
|
|
|
(171 |
) |
|
|
267 |
|
Restructuring |
|
|
214 |
|
|
|
— |
|
|
|
— |
|
|
|
214 |
|
Adjusted EBITDA |
|
$ |
26,557 |
|
|
$ |
3,020 |
|
|
$ |
(5,167 |
) |
|
$ |
24,410 |
|
|
|
Year Ended December 31, 2018 |
|
|||||||||||||
(Unaudited, U.S. Dollars, in thousands) |
|
Global Spine |
|
|
Global Extremities |
|
|
Corporate |
|
|
Total Orthofix |
|
||||
Operating income (loss) |
|
$ |
67,956 |
|
|
$ |
6,006 |
|
|
$ |
(43,868 |
) |
|
$ |
30,094 |
|
Other income (expense), net |
|
|
(924 |
) |
|
|
(1,894 |
) |
|
|
(3,563 |
) |
|
|
(6,381 |
) |
Depreciation and amortization |
|
|
8,258 |
|
|
|
5,341 |
|
|
|
3,805 |
|
|
|
17,404 |
|
Amortization of acquired intangibles |
|
|
1,255 |
|
|
|
— |
|
|
|
— |
|
|
|
1,255 |
|
EBITDA |
|
$ |
76,545 |
|
|
$ |
9,453 |
|
|
$ |
(43,626 |
) |
|
$ |
42,372 |
|
Share-based compensation |
|
|
6,259 |
|
|
|
2,251 |
|
|
|
10,420 |
|
|
|
18,930 |
|
Foreign exchange impact |
|
|
835 |
|
|
|
1,832 |
|
|
|
662 |
|
|
|
3,329 |
|
Strategic investments |
|
|
1,963 |
|
|
|
— |
|
|
|
6,633 |
|
|
|
8,596 |
|
Domestication to Delaware |
|
|
— |
|
|
|
— |
|
|
|
4,215 |
|
|
|
4,215 |
|
Acquisition-related fair value adjustments |
|
|
4,508 |
|
|
|
— |
|
|
|
— |
|
|
|
4,508 |
|
Interest and (gain) loss on investment securities |
|
|
— |
|
|
|
— |
|
|
|
3,050 |
|
|
|
3,050 |
|
Legal judgments/settlements |
|
|
686 |
|
|
|
505 |
|
|
|
(31 |
) |
|
|
1,160 |
|
Restructuring |
|
|
1,447 |
|
|
|
— |
|
|
|
— |
|
|
|
1,447 |
|
Adjusted EBITDA |
|
$ |
92,243 |
|
|
$ |
14,041 |
|
|
$ |
(18,677 |
) |
|
$ |
87,607 |
|
The Company reclassified less than $10 thousand of previously reported net income (loss) from discontinued operations during the first, second, and third quarters of 2018 to continuing operations within its Form 10-K for the year ended December 31, 2018; therefore, amounts may differ from previously reported quarterly results for interim periods.
Non-GAAP Information
EBITDA
EBITDA is a non-GAAP financial measure, which is calculated by adding interest expense, net; income tax expense; and depreciation and amortization to net income. EBITDA provides management with additional insight to its results of operations. EBITDA is the primary metric used by our Chief Operating Decision Maker in managing our business.
Adjusted EBITDA
These non-GAAP financial measures provide management with additional insight to its results of operations and are calculated using the following adjustments:
|
• |
Share-based compensation – costs related to our share-based compensation plans, which include stock options, restricted stock awards, performance-based restricted stock awards, market-based restricted stock awards and our stock purchase plan; see the share-based compensation footnote in our quarterly reports on Form 10-Q for each quarter of 2018 and our annual report on Form 10-K for the year ended December 31, 2018 for a detail of these costs by consolidated statement of income line item |
|
• |
Foreign exchange impact – gains and losses related to foreign currency transactions, which are recorded as other expense, net |
|
• |
Strategic investments – costs related to our strategic investments, such as due diligence and integration costs, which are primarily recorded as general and administrative expenses |
|
• |
Domestication to Delaware – costs associated with evaluation and completion of changing the Company’s jurisdiction of organization from Curaçao to the State of Delaware during 2018, which are recorded as general and administrative expenses |
|
• |
Acquisition-related fair value adjustments – comprised of i) gains and losses related to remeasurement of contingent consideration to fair value, which are recorded as operating expenses and ii) an adjustment made to inventory acquired to account for the reasonable profit allowance for the selling effort on finished goods inventory, which is recorded as cost of sales |
|
• |
Amortization of acquired intangibles – amortization of intangible assets acquired in business combinations or asset acquisitions, including items such as developed technologies, in process research and development, trade names, and other intangible assets, which are recorded as operating expenses |
|
• |
Interest and (gain) loss on investment securities – net gains and losses recognized (realized or unrealized) within other income (expense), net or interest income recognized relating to our investments in eNeura Inc. and Bone Biologics, Inc. |
|
• |
Legal judgments/settlements – adverse or favorable legal judgments or negotiated legal settlements, including legal and other professional fees associated with the SEC Investigation, Securities Class Action Complaints and Brazil subsidiary compliance review, which are recorded as general and administrative expenses |
|
• |
Restructuring – costs associated with the elimination of two reporting segment president positions in 2018, which are recorded as operating expenses |
|
• |
Long-term income tax rate adjustment – reflects management’s expectation of a long-term normalized effective tax rate of 35% for the first and second quarters of 2018 and 29% for the third and fourth quarters of 2018, which is based on current tax law and current expected income; actual reported tax expense will ultimately be based on GAAP earnings and may differ from the expected long-term normalized effective tax rate due to a variety of factors, including the resolutions of issues arising from tax audits with various tax authorities, the ability to realize deferred tax assets, and the tax impact of certain reconciling items that are excluded in determining Adjusted Net Income |
Material Limitations Associated with the Use of Non-GAAP Financial Measures
The non-GAAP measures used in this press release may have limitations as analytical tools, and should not be considered in isolation or as a replacement for GAAP financial measures. Some of the limitations associated with the use of these non-GAAP financial measures are that they exclude items that reflect an economic cost and can have a material effect on cash flows. Similarly, certain non-cash expenses, such as equity compensation, do not directly impact cash flows, but are part of total compensation costs accounted for under GAAP.
Compensation for Limitations Associated with Use of Non-GAAP Financial Measures
We compensate for the limitations of our non-GAAP financial measures by relying upon GAAP results to gain a complete picture of our performance. The GAAP results provide the ability to understand our performance based on a defined set of criteria. The non-GAAP measures reflect the underlying operating results of our businesses, which we believe is an important measure of our overall performance. We provide a detailed reconciliation of the non-GAAP financial measures to our most directly comparable GAAP measures, and encourage investors to review this reconciliation.
Usefulness of Non-GAAP Financial Measures to Investors
We believe that providing non-GAAP financial measures that exclude certain items provides investors with greater transparency to the information used by senior management in its financial and operational decision-making. Management believes it is important to provide investors with the same non-GAAP metrics it uses to supplement information regarding the performance and underlying trends of our business operations in order to facilitate comparisons to its historical operating results and internally evaluate the effectiveness of our operating strategies. Disclosure of these non-GAAP financial measures also facilitates comparisons of our underlying operating performance with other companies in the industry that also supplement their GAAP results with non-GAAP financial measures.