Wright Medical's Hip Sales Increase 52% In Quarter. Ceramic-On-Ceramic and Metal Bearings The Key.
BY JOHN CHOPACK, MAY 3, 2004
Wright Medical (WMGI:NASDAQ) reported that revenues totaled $74.9 million during the 1Q:04 which was a 28% increase (22% on a constant currency basis) over the 1Q:03. WMGI also reported that $6.6 million of these revenues flowed through the P&L to the bottom line representing $0.19 per diluted share. This was a 36% increase over adjusted 1Q:03 EPS and $0.01 better than analysts anticipated.
Revenues
Hips - It is clear that hip sales remain the dominant driver of both revenue and earnings growth at Wright. Hips increased by 41% on a reported basis and 52% in the U.S. over the 1Q:03. While we believe that ceramic-on-ceramic hips have been the primary driver of the growth in hip sales, management stated that the CONSERVE with BFH (Big Femoral Head) Technology and the PROFEMUR product lines have been significant contributors. Hip sales now represent the largest proportion of overall revenues at 33%. Management also disclosed that hard bearings (ceramic and metal) now represent 65% of all implanted hip systems which up from a 60% penetration during the 4Q:03. They also stated that they believe that this number could be as high as 70-75% by year-end. Many analysts expressed concern over the anniversary of the ceramic-on-ceramic product approval having a large effect on the upcoming quarters. Management addressed their concerns by stating that growth in hip sales is likely to moderate to approximately 35% by year-end.
Knees - Although knee revenue growth at 16% on a reported basis was significantly below every other product line at Wright, the rebound from the anemic reported growth (2%) during the 1Q:03 is quite impressive. Management stated that the rebound was a consequence of several factors including a reorganization of its distribution network and new product introductions. They also commented that pull through from hip sales accounted for approximately 2% of the 16% knee growth.
Biologics - Revenues increased by 29% to $14.7 million during the 1Q:04. Wright announced that they were the first Company to receive a 510(k) approval related to their DBM based products. Management also disclosed that its ADCON PMA was submitted and accepted by the FDA. If all goes well the Company expects to gain approval late in the 2H:04.
Extremity - Revenues from extremity products increased by 24.5% on a reported basis totaling $9.3 million. Management indicated that EVOLVE Radial Head and various foot & ankle products help drive the impressive growth in extremities.
Profitability & Cash Flow - Wright was able to increase it's operating margin to 14.7% which was a 100 basis points improvement over the 1Q:03. While the 28% increase in revenues was a significant driver in the improved profitability, WMGI was also successful in reducing its SG&A as a percentage of sales by 210 basis points to 49.6%; making it the second consecutive quarter of sub 50% SG&A expense as a percentage of revenues. Free Cash Flow (FCF), defined as operating cash flow less capital expenditures, totaled $2.4 million during the 1Q:04.
Guidance - Wright is guiding for revenues to total $72.5-74.5 million, operating income to be between $10-11 million and EPS in the range of $0.71-0.75 for the 2Q:04. Management also increased its 2004 guidance from $280-287 million in revenues to $292-296 million and earnings per diluted share from $0.66-0.72 to $0.71-0.75.
