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For Further Information:
Charles W. Federico Thomas Hein
Group President & CEO CFO
Orthofix International N.V. Orthofix International N.V.
704.948.2600 704.948.2600
Orthofix Announces Preliminary Second Quarter Results
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PLEASE NOTE: Conference call rescheduled to Tuesday, July 20, 2004, 11:00 AM
(EDT). To participate "live", please dial 800-367-4046;
outside the U.S., dial 212-676-5004.
A replay of the call will be available for one week until July 27, 2004. To hear
the replay, please dial 800-633-8284; outside the U.S. dial 402-977-9140 and
enter reservation number 21199429. A simultaneous web cast of the call will be
accessible via the internet at http://www.Orthofix.com. A replay of the web cast
will also be archived on this site.
HUNTERSVILLE, NC, July 19, 2004 --- Orthofix (NASDAQ:OFIX) announced today that
although sales were up 37% for the Second Quarter versus last year, the
performance was below analysts' expectations.
For the quarter, sales are expected to be approximately $70.8 million versus
prior expectations of $73.0 million to $73.8 million. Earnings per share are
expected to approximate between $0.49 to $0.51 per diluted share, versus prior
expectations of $0.59 to $0.62 per share.
The shortfall in sales and earnings versus targets in the quarter is primarily
due to:
1. Planned increases in Orthotrac did not occur due to the continued
lack of reimbursement. In addition, reduced reimbursements for EZ
Brace have resulted in lower sales than plan for this product.
Growth in spinal stimulators in the second quarter was not
sufficient to offset these issues.
2. Versus last year, sales to the Company's primary customer for the
Impad component used with the AV Impulse System were down $1.5
million due to inventory balancing during the quarter.
3. Lower gross margins in the Company's international business due
to factors including pricing, mix and currency.
Orthofix will provide guidance for the third quarter and full 2004 year at a
follow-up conference call scheduled for tomorrow, Tuesday, July 20, 2004 at
11:00 AM EDT.
The following tables display net sales by geographic destination
and by business segment, net of inter-company eliminations, for each of our
geographic markets and by our market sectors for the three and six months ended
June 30, 2004 and 2003. We provide net sales by geographic destination and by
market sector for information purposes only. We maintain our books and records
by business segment.
Net sales by geographic destination for the periods ended June 30,
(In millions)
Three Months Ended June 30 Six Months Ended June 30
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2004 2003 % Increase 2004 2003 % Increase
---- ---- ---------- ---- ---- ----------
Americas $ 51.0 $ 34.5 48% $ 102.3 $ 65.7 56%
International $ 19.8 $ 17.0 16% $ 39.2 $ 34.0 15%
------ ------ ---- ------- ------ ----
Total $ 70.8 $ 51.5 37% $ 141.5 $ 99.7 42%
====== ====== ==== ======= ====== ====
Net sales by business sector for the periods ended June 30,
(In millions)
Three Months Ended June 30 Six Months Ended June 30
----------------------------------------------------------------------------------
2004 2003 % Increase 2004 2003 % Increase
---- ---- ---------- ---- ---- ----------
Americas Orthofix $ 31.1 $ 29.6 5% $ 60.9 $ 56.3 8%
Americas Breg $ 16.4 - - $ 33.3 - -
Intn'l. Orthofix $ 23.3 $ 21.9 6% $ 47.3 $ 43.4 9%
------ ------ ---- ------- ------ ----
Total $ 70.8 $ 51.5 37% $ 141.5 $ 99.7 42%
====== ====== ==== ======= ====== ====
Net sales by market sector for the periods ended June 30,
(In millions)
Three Months Ended June 30 Six Months Ended June 30(1)
----------------------------------------------------------------------------------
2004 2003 % Increase 2004 2003 % Increase
---- ---- ---------- ---- ---- ----------
Orthopedic Products
Spine $ 20.3 $ 20.4 0% $ 39.9 $ 38.7 3%
Reconstruction $ 29.2 $ 12.3 137% $ 59.3 $ 24.7 140%
Trauma $ 16.1 $ 14.3 13% $ 31.4 $ 26.9 17%
------ ------ ---- ------- ------ ----
Total Orthopedic $ 65.6 $ 47.0 40% $ 130.6 $ 90.3 45%
Non-Orthopedic $ 5.2 $ 4.5 16% $ 10.9 $ 9.4 16%
------ ------ ---- ------- ------ ----
Total $ 70.8 $ 51.5 37% $ 141.5 $ 99.7 42%
====== ====== ==== ======= ====== ====
(1) Six-month table contains a first quarter reclass from trauma to
reconstruction of $0.4 million.
Charles W. Federico, President and CEO of Orthofix, commented, "It was an
overall positive quarter with mixed results for some products. We constantly
assess our business and make strategic adaptations where necessary and this will
continue. Our long-term fundamentals remain solid. The performance of the Breg
acquisition is evidence that we are building more diversity and worldwide
distribution power for the future. We have strong product lines and are not
disadvantaged at all in our cost positions. Our challenge for the rest of this
year is to become more efficient while we continue to focus on growing our
business.
"This is the lowest growth quarter in our core business since 1999, and we did
not meet certain of the aggressive goals we had set for ourselves. The spine
sector was flat in the second quarter as the result of the issues with Orthotrac
and EZ Brace not being offset by revenue gains in spinal stimulation. While
spinal stimulators have had a healthy overall yearly growth rate, the growth
rate does fluctuate quarter to quarter. In fact, five of the last 18 quarters
had spinal stimulation growth rates of less than 5%. I remain positive on the
outlook for the long-term prospects of this market.
"With respect to AVI Impad orders, we already have firm orders for the third and
fourth quarters which show improvement although they are below prior year
levels," Federico said. "Sales of the AV Impulse controller with which the
Impads are used will drive continuing demand for the Impads themselves. Since
sales of the AV Impulse controllers were at healthy historic rates during the
second quarter, we do not anticipate any long-term problem with our AV Impulse
market."
Federico also commented on positive developments during the second quarter.
"Breg continues to perform to our expectations with revenues up 10% for the
second quarter and 12% year-to-date. That is well in excess of the growth rates
for the markets Breg serves. In addition, our Physio-Stim bone growth stimulator
for long bone non-unions grew very strongly at 19% in the second quarter and 22%
year-to-date. We are also continuing to see good early growth for the PC.C.P.
product."
Federico concluded, "We have set aggressive goals for Orthofix, and we will
continue to do so because that is one of the ways we drive our Company to
perform. The underlying fundamentals for this Company, including its history of
revenue growth, excellent gross and operating margins, cash generation power,
modest leverage and a strong balance sheet remain solid. Thus, our
disappointment with sales occurs against a backdrop of aggressive goal setting
and good future prospects, so we remain positive about our overall position."
Orthofix International N.V., a diversified orthopedic products company, offers a
broad line of minimally invasive surgical, as well as non-surgical, products for
the spine, reconstruction, and trauma market sectors that address the lifelong
bone-and-joint health needs of patients of all ages - helping them achieve a
more active and mobile lifestyle. Orthofix's products are widely distributed
around the world to orthopedic surgeons and patients - via Orthofix's sales
representatives, and via partnerships with other leading orthopedic product
companies, such as Medtronic Sofamor Danek, Stryker Howmedica, and Kendall
Healthcare. In addition, Orthofix is collaborating in R&D partnerships with
leading medical institutions such as the Wake Forest University School of
Medicine, the Orthopedic Research and Education Foundation, the Cleveland Clinic
Foundation, Innovative Spinal Technologies and National Osteoporosis Institute.
For more information about Orthofix, please visit www.orthofix.com.
FORWARD-LOOKING STATEMENTS
This communication contains certain forward-looking statements under the Private
Securities Litigation Reform Act of 1995. These forward-looking statements,
which may include, but are not limited to, statements concerning the
projections, financial condition, results of operations and businesses of
Orthofix and are based on management's current expectations and estimates and
involve risks and uncertainties that could cause actual results or outcomes to
differ materially from those contemplated by the forward-looking statements.
Factors that could cause or contribute to such differences may include, but are
not limited to, risks relating to the integration of businesses of Orthofix and
Breg, unanticipated expenditures, the final purchase price allocation, changing
relationship with customers, suppliers and strategic partners, risks relating to
the protection of intellectual property, changes to the reimbursement policies
of third parties, changes to governmental regulation of medical devices, the
impact of competitive products, changes to the competitive environment, the
acceptance of new products in the market, conditions of the orthopedic industry
and the economy and other factors described in the most recent report on Form
10-K and other periodic reports filed by Orthofix with the Securities and
Exchange Commission.