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Wright Medical Holds Annual Analyst Guidance Call - The Future is Bright BY JOHN CHOPACK, DECEMBER 13, 2004

Wright Medical (WMGI:NASDAQ) held its annual analyst guidance call to provide management's outlook for sales, earnings and product trends for the 4Q:04, year-end 2004/2005 and 2006. The forecasts, we think, look strong:

• 4Q:04 - The Company has reaffirmed its October 26/2004 guidance that this quarter's revenues will likely range between $76 million - $78 million for a 10-13% increase over 4Q:03. This quarterly revenue growth rate is slower than the 17% sales increase reported in 3Q:04. Wright anticipates that earnings per-diluted-share will total $0.21 to $0.22 which is an 11-16% increase over the 4Q:03.
• 2004 - Wright's management is estimating that revenues for 2004 will range between $296 million and $298 million which is a 19-20% increase over 2003. The three clear drivers of the Company's strong 2004 revenue growth performance are biologics, extremities and hip product line. Management is estimating that earnings will likely range between $0.72-$0.73 per-diluted-share or approximately $25 million which is a 25% increase over 2003.
• 2005 - Management is expecting that revenues for 2005 can rise to between $333 million and $344 million representing a 12-16% increase over 2004. Earnings, they expect, can reach $0.86-$0.90 per-diluted-share which is a 19-24% increase over 2005.
• 2006 - Finally, Laurence Fairey and his team looked into 2006 and feel comfortable enough with what they see to post a Wright revenue growth forecast of between 13-16% to put sales at between $383 million to $393 million. At that revenue level, Wright can grow its earnings by 17-27% for a total fully diluted EPS of between $0.86-$0.90, according to management.



2005 in Detail
Management indicated that revenue growth in 2005 will be driven by biologic and extremity products which are anticipated to grow at a 20+% and mid-to-upper teen rate, respectively. Biologic revenues are expected to be driven by further penetration of the GRAFTJACKET product line. Extremity revenues are expected to be driven by the MICRONAIL distal radius fracture product and the Newdeal lower extremity products. Reconstructive revenues are anticipated to grow by 8-10% during 2005. Hips are expected to continue to outperform the knee product line which is expected experience a 7% rate of growth during 2005.

Management is estimating that operating margins will improve 100-150 basis points during 2005 reaching approximately 15-16% of sales. Cost-cutting within the SG&A operating line item will be the clear driver of margin improvement as gross margins are expected to remain in line with 2004 and R&D expense as a percentage-of-sales is forecast to increase.

2005 & 2006 Upside Potential
Management guidance excludes two potentially significant drivers of growth in 2005 & 2006: the Conserve Plus Hip Resurfacing device and the Adcon anti-adhesive product line. Both of these products are awaiting FDA panel review and Wright's management isn't comfortable forecasting dates for eventual regulatory approval. Total hip resurfacing devices are currently not available within the U.S. but represent between 20-25% of the reconstructive hip market in Europe. Although the O.U.S. market has multiple players including Corin, Smith & Nephew, Biomet and Zimmer, Wright is expected to be the first to market in the U.S. If both approvals occur during 2005, Wright could see significant upside to its current guidance.

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