Wright Medical Group, Inc. Reports Results for Fourth Quarter Ended De

Wright Medical Group, Inc. Reports Results for Fourth Quarter Ended December 31, 2004

    Business Editors

    ARLINGTON, Tenn.--(BUSINESS WIRE)--Feb. 10, 2005--

Company Delivers Record Quarterly Sales Performance to Conclude Fiscal Year
    Wright Medical Group, Inc. (NASDAQ: WMGI), a global orthopaedic medical device company specializing in the design, manufacture and marketing of reconstructive joint devices and biologics, today reported financial results for its fourth quarter and full year ended December 31, 2004.
    Net sales totaled $77.7 million during the fourth quarter ended December 31, 2004, representing a 13% increase over net sales of $68.9 million during the fourth quarter of 2003. The Company's fourth quarter net sales performance achieved a level higher than any other quarter in Wright's history. Excluding the impact of foreign currency, net sales increased 10% during the fourth quarter. Net income for the fourth quarter of 2004 totaled $6.3 million, or $.18 per diluted share, including the after-tax effect of approximately $2.9 million of inventory and other charges related to the expiration of a distribution arrangement with a vendor for certain foot and ankle products, and the transition to a proprietary, next-generation product line designed and produced internally by Wright. Excluding those costs, net income, as adjusted, increased by 22% over the prior year period to $8.2 million, or $.23 per diluted share, for the fourth quarter of 2004, compared to net income of $6.7 million, or $.19 per diluted share, during the fourth quarter of 2003. A reconciliation of GAAP to "as adjusted" results is included in the attached financial tables.
    For the full year 2004, the Company's net sales totaled a record $297.5 million, representing a 20% increase over net sales of $248.9 million in 2003. Excluding the impact of foreign currency, net sales increased 16% during this period. Net income for the full year 2004 totaled $24.0 million, or $.68 per diluted share, including the after-tax effect of the $2.9 million in costs associated with the Company's foot and ankle product transition recorded in the fourth quarter of 2004, as well as the after-tax effect of approximately $800,000 of costs associated with the voluntary market withdrawal of certain CONSERVE(R) hip components in the third quarter of 2004. For the full year 2003, net income totaled $17.4 million, or $.50 per diluted share, including the after-tax effect of a $4.6 million in-process research and development ("IPRD") charge that resulted from the Company's acquisition of certain ADCON(R) Gel technology assets during the first quarter of 2003. Excluding those previously mentioned items, net income, as adjusted, for the full year 2004 increased 31% to $26.5 million in 2004 from $20.2 million in 2003, while diluted earnings per share, as adjusted, increased 29% to $.75 in 2004 from $.58 per diluted share in 2003.
    Laurence Y. Fairey, President and Chief Executive Officer commented, "We are very pleased with our fourth quarter results. Net sales achieved the upper-end of our outlook range while our adjusted earnings results exceeded the upper-end of our stated guidance range. Our record level of net sales resulted from continued sales growth within all of our product lines. Our hip product line continues to benefit from the market's acceptance of our advanced bearing surfaces and modular neck products, and again led our growth in the fourth quarter with a 17% world-wide sales gain. Our leadership positions in the biologics and extremity markets translated into solid fourth quarter sales growth of 11% for both product areas, and, our knee business, aided by our initial launch of minimally invasive surgical instrumentation, delivered solid growth during the fourth quarter, increasing 8% worldwide."
    Mr. Fairey continued, "In addition to record sales growth, we achieved excellent fourth quarter profitability results, with 20% growth in operating income despite the heightened expense levels we anticipated in connection with the on-going transition of management and distribution personnel in Southern Europe. We were able to over-achieve our outlook for earnings in the fourth quarter as these additional expenses were offset by expansion of our gross margin. As we move into 2005, we look forward to the many opportunities ahead, including the global launch of our new line of internally-developed, next-generation foot and ankle products during the first quarter. Our outlook for 2005 calls for another excellent year for Wright, with continued solid growth in both our sales and operating results."

    Sales Review

    Globally, the Company experienced growth across all of its major product lines during the fourth quarter of 2004, with the Company's hip product line again posting an outstanding growth rate. Specifically, global net sales of the Company's hip, extremity, biologics and knee product lines increased by 17%, 11%, 11% and 8%, respectively, during the fourth quarter of 2004 when compared to the fourth quarter of 2003.
    Domestic sales totaled $46.8 million during the fourth quarter of 2004 and $180.4 million for the full year, representing increases of 14% and 18%, compared to the respective year-ago periods. Fourth quarter domestic sales of the Company's hip, knee, extremity and biologics product lines reflected growth of 28%, 13%, 6% and 6%, respectively.
    International sales totaled $30.9 million during the fourth quarter, an increase of 11% compared to the fourth quarter of 2003. For the full year 2004, international sales reached $117.2 million, an increase of 22% compared to 2003. The Company's international sales results included favorable foreign currency impacts totaling approximately $1.8 million and $8.1 million during the fourth quarter and the full year 2004, respectively.

    Outlook

    The Company has reiterated its previously-communicated sales target for the full year 2005 of a range of $333 million to $344 million, representing a sales growth objective of approximately 12% to 16%, and has reiterated its previously-communicated earnings per share outlook of a target range for the full year of $0.86 to $0.90 per diluted share, representing annual growth of approximately 15% to 20%, as compared to 2004 net income, as adjusted, per diluted share.
    The Company's anticipated targets for the first quarter of 2005 for net sales are in the range of $81 million to $83 million, representing sales growth objectives between approximately 8% and 11% for the quarter, with earnings per share results ranging from $0.19 to $0.21 per diluted share. These targets for both the full year and first quarter of 2005 exclude the effect of possible future acquisitions, other material future business developments, and the impact of expensing stock options pursuant to FASB Statement No. 123R, which is expected to be adopted on July 1, 2005.
    The Company's anticipated targets for net sales and earnings per share are forward-looking statements. They are subject to various risks and uncertainties that could cause the Company's actual results to differ materially from the anticipated targets. The anticipated targets are not predictions of the Company's actual performance. See the cautionary information about forward-looking statements in the "Safe-Harbor Statement" section of this press release.

    Conference Call

    As previously announced, the Company will host a conference call starting at 3:30 p.m. (Central Time) today. The live dial-in number for the call is 800-810-0924 (domestic) or 913-981-4900 (international). To access a simultaneous webcast of the conference call via the internet, go to the "Corporate - Investor Information" section of the Company's website located at www.wmt.com. A replay of the conference call by telephone will be available starting at 7:30 p.m. (Central Time) today and continuing until 12:00 a.m. (Central Time) on February 17, 2005. To hear this replay, dial 888-203-1112 (domestic) or 719-457-0820 (international) and enter the registration number 6382984. A replay of the conference call will also be available via the internet starting today and continuing for at least 12 months. To access a replay of the conference call via the internet, go to the "Corporate - Investor Information - Audio Archives" section of the Company's website located at www.wmt.com.
    The conference call may include a discussion of non-GAAP financial measures. Reference is made to the most directly comparable GAAP financial measures, the reconciliation of the differences between the two financial measures, and the other information included in this press release or otherwise available in the "Corporate - Investor Information - Supplemental Financial Information" section of the Company's website located at www.wmt.com.
    The conference call may include forward-looking statements. See the cautionary information about forward-looking statements in the "Safe-Harbor Statement" section of this press release.

    Non-GAAP Financial Measures

    The Company uses non-GAAP financial measures, such as net sales, excluding the impact of foreign currency, gross profit, as adjusted, operating income, as adjusted, net income, as adjusted and net income, as adjusted, per diluted share. The Company's management believes that the presentation of these measures provides useful information to investors. These measures may assist investors in evaluating the Company's operations, period over period. The measures exclude such items as business development activities, including purchased in-process research and development, and the financial impact of significant litigation, which may be highly variable, difficult to predict and of a size that could have substantial impact on the Company's reported results of operations for a period. Management uses these measures internally for evaluation of the performance of the business, including the allocation of resources and the evaluation of results relative to employee performance compensation targets. Investors should consider these non-GAAP measures only as a supplement to, not as a substitute for or as superior to, measures of financial performance prepared in accordance with GAAP.

    Safe-Harbor Statement

    This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements made in this press release, other than statements of historical fact, are forward-looking statements. Forward-looking statements reflect management's current knowledge, assumptions, beliefs, estimates, and expectations and express management's current views of future performance, results, and trends. The Company wishes to caution readers that actual results might differ materially from those described in the forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties, including the factors discussed in the Company's filings with the Securities and Exchange Commission (including the Company's annual report on Form 10-K for the year ended December 31, 2003 under the heading, "Factors Affecting Future Operating Results," and in its quarterly reports), which could cause the Company's actual results to materially differ from those described in the forward-looking statements. Although the Company believes that the forward-looking statements are accurate, there can be no assurance that any forward-looking statement will prove to be accurate. A forward-looking statement should not be regarded as a representation by the Company that the results described therein will be achieved. The Company wishes to caution readers not to place undue reliance on any forward-looking statement. The forward-looking statements are made as of the date of this press release. The Company assumes no obligation to update any forward-looking statement after this date.
    Wright Medical Group, Inc. is a global orthopaedic medical device company specializing in the design, manufacture and marketing of reconstructive joint devices and biologics. The Company has been in business for more than 50 years and markets its products in over 60 countries worldwide. For more information about Wright Medical, visit the Company's website at www.wmt.com.

Wright Medical Group, Inc. Condensed Consolidated Statements of Operations (in thousands, except per share data--unaudited)

Three Months Ended Year Ended ------------------- ------------------- Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2004 2003 2004 2003 --------- --------- --------- ---------

Net sales $ 77,707 $ 68,890 $297,539 $248,932 Cost of sales 22,416 19,436 84,183 67,815 --------- --------- --------- --------- Gross profit 55,291 49,454 213,356 181,117

Operating expenses: Selling, general and administrative 39,685 33,052 151,144 127,612 Research and development 4,613 4,311 18,421 16,151 Amortization of intangible assets 1,044 935 3,889 3,562 Stock-based expense(1) 329 757 1,489 2,068 Acquired in-process research and development costs - - - 4,558 --------- --------- --------- --------- Total operating expenses 45,671 39,055 174,943 153,951 --------- --------- --------- ---------

Operating income 9,620 10,399 38,413 27,166 Interest expense, net 196 255 1,064 1,107 Other income, net (55) (394) (74) (1,060) --------- --------- --------- --------- Income before income taxes 9,479 10,538 37,423 27,119 Provision for income taxes 3,189 3,791 13,401 9,722 --------- --------- --------- --------- Net income $ 6,290 $ 6,747 $ 24,022 $ 17,397 ========= ========= ========= =========

Net income per share, basic $ 0.19 $ 0.20 $ 0.72 $ 0.53 ========= ========= ========= ========= Net income per share, diluted $ 0.18 $ 0.19 $ 0.68 $ 0.50 ========= ========= ========= ========= Weighted-average number of common shares outstanding, basic 33,674 33,003 33,391 32,857 ========= ========= ========= ========= Weighted-average number of common shares outstanding, diluted 35,191 34,948 35,317 34,561 ========= ========= ========= =========

(1) Amounts presented as stock-based expense consist of; cost of sales totaling $(7) and $27 for the three months ended December 31, 2004 and 2003, respectively, and $68 and $107 for the year ended December 31, 2004 and 2003, respectively; selling, general and administrative expenses of $339 and $723 for the three months ended December 31, 2004 and 2003, respectively, and $1,364 and $1,875 for the year ended December 31, 2004 and 2003, respectively; and research and development expenses of $(3) and $7 for the three months ended December 31, 2004 and 2003, respectively, and $57 and $86 for the year ended December 31, 2004 and 2003, respectively.

Wright Medical Group, Inc. Consolidated Sales Analysis (dollars in thousands--unaudited)

Three Months Ended Year Ended --------------------------- --------------------------- Dec. 31, Dec. 31, % Dec. 31, Dec. 31, % 2004 2003 change 2004 2003 change --------- --------- ------- --------- --------- ------- Geographic ------------- Domestic $ 46,775 $ 41,007 14.1% $180,380 $152,864 18.0% International 30,932 27,883 10.9% 117,159 96,068 22.0% --------- --------- ------- --------- --------- ------- Total net sales $ 77,707 $ 68,890 12.8% $297,539 $248,932 19.5% ========= ========= ======= ========= ========= =======

Product Line -------------- Hip products $ 26,766 $ 22,847 17.2% $ 99,133 $ 78,071 27.0% Knee products 22,626 20,897 8.3% 87,408 78,338 11.6% Biologics products 15,512 13,980 11.0% 62,070 50,056 24.0% Extremity products 9,434 8,484 11.2% 36,433 31,876 14.3% Other 3,369 2,682 25.6% 12,495 10,591 18.0% --------- --------- ------- --------- --------- ------- Total net sales $ 77,707 $ 68,890 12.8% $297,539 $248,932 19.5% ========= ========= ======= ========= ========= =======

Wright Medical Group, Inc. Reconciliation of Net Sales to Net Sales Excluding the Impact of Foreign Currency (dollars in thousands--unaudited)

Three Months Ended Year Ended ------------------- ------------------- Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2004 2003 2004 2003 --------- --------- --------- --------- Net sales, as reported $ 77,707 $ 68,890 $297,539 $248,932 Less: Currency impact as compared to respective prior period (1,760) - (8,120) - --------- --------- --------- --------- Net sales, excluding the impact of foreign currency $ 75,947 $ 68,890 $289,419 $248,932 ========= ========= ========= =========

Wright Medical Group, Inc. Reconciliation of Gross Profit to Gross Profit, As Adjusted (dollars in thousands--unaudited)

Three Months Ended Year Ended ------------------- ------------------- Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2004 2003 2004 2003 --------- --------- --------- --------- Gross profit, as reported $ 55,291 $ 49,454 $213,356 $181,117 Add: Costs incurred for foot and ankle product transition 2,381 - 2,381 - Add: Costs incurred for voluntary market withdrawal of certain CONSERVE(R) hip components - - 138 - --------- --------- --------- --------- Gross profit, as adjusted $ 57,672 $ 49,454 $215,875 $181,117 ========= ========= ========= =========

Gross profit, as adjusted, as a percentage of net sales 74.2% 71.8% 72.6% 72.8% ========= ========= ========= =========

Wright Medical Group, Inc. Reconciliation of Selling, General and Administrative Expense to Selling, General and Administrative Expense, As Adjusted (dollars in thousands--unaudited)

Three Months Ended Year Ended ------------------- ------------------- Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2004 2003 2004 2003 --------- --------- --------- --------- Selling, general and administrative expense, as reported $ 39,685 $ 33,052 $151,144 $127,612 Less: Costs incurred for foot and ankle product transition 510 - 510 - Less: Costs incurred for voluntary market withdrawal of certain CONSERVE(R) hip components - - 653 - --------- --------- --------- --------- Selling, general and administrative expense, as adjusted $ 39,175 $ 33,052 $149,981 $127,612 ========= ========= ========= =========

Selling, general and administrative expense, as adjusted, as a percentage of net sales 50.4% 48.0% 50.4% 51.3% ========= ========= ========= =========

Wright Medical Group, Inc. Reconciliation of Operating Income to Operating Income, As Adjusted (dollars in thousands--unaudited)

Three Months Ended Year Ended ------------------- ------------------- Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2004 2003 2004 2003 --------- --------- --------- --------- Operating income, as reported $ 9,620 $ 10,399 $ 38,413 $ 27,166 Add: Costs incurred for foot and ankle product transition 2,891 - 2,891 - Add: Costs incurred for voluntary market withdrawal of certain CONSERVE(R) hip components - - 791 - Add: Acquired in-process research and development costs - - - 4,558 --------- --------- --------- --------- Operating income, as adjusted $ 12,511 $ 10,399 $ 42,095 $ 31,724 ========= ========= ========= =========

Operating income, as adjusted, as a percentage of net sales 16.1% 15.1% 14.1% 12.7% ========= ========= ========= =========

Wright Medical Group, Inc. Reconciliation of Net Income to Net Income, As Adjusted (in thousands, except per share data--unaudited)

Three Months Ended Year Ended ------------------- ------------------- Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2004 2003 2004 2003 --------- --------- --------- --------- Net income, as reported $ 6,290 $ 6,747 $ 24,022 $ 17,397 Add: Costs incurred for foot and ankle product transition, net of tax 1,918 - 1,918 - Add: Costs incurred for voluntary market withdrawal of certain CONSERVE(R) hip components, net of tax - - 511 - Add: Acquired in-process research and development costs, net of tax - - - 2,819 --------- --------- --------- --------- Net income, as adjusted $ 8,208 $ 6,747 $ 26,451 $ 20,216 ========= ========= ========= =========

Net income, as adjusted, per share, basic $ 0.24 $ 0.20 $ 0.79 $ 0.62 ========= ========= ========= ========= Net income, as adjusted, per share, diluted $ 0.23 $ 0.19 $ 0.75 $ 0.58 ========= ========= ========= ========= Weighted-average number of common shares outstanding, basic 33,674 33,003 33,391 32,857 ========= ========= ========= ========= Weighted-average number of common shares outstanding, diluted 35,191 34,948 35,317 34,561 ========= ========= ========= =========

Wright Medical Group, Inc. Condensed Consolidated Balance Sheets (dollars in thousands--unaudited)

Dec. 31, Dec. 31, 2004 2003 --------- ---------

Assets Current assets: Cash and cash equivalents $ 83,470 $ 66,571 Accounts receivable, net 61,662 55,821 Inventories 76,269 64,204 Prepaid expenses and other current assets 33,621 23,928 --------- --------- Total current assets 255,022 210,524 --------- ---------

Property, plant and equipment, net 70,207 66,915 Intangible assets, net 25,985 29,894 Other assets 9,944 14,770 --------- --------- Total assets $361,158 $322,103 ========= =========

Liabilities and stockholders' equity Current liabilities: Accounts payable $ 13,969 $ 14,227 Accrued expenses and other current liabilities 45,256 42,814 Current portion of long-term obligations 6,331 6,228 --------- --------- Total current liabilities 65,556 63,269 --------- --------- Long-term obligations 5,952 11,096 Other liabilities 13,581 9,420 --------- --------- Total liabilities 85,089 83,785 --------- ---------

Stockholders' equity 276,069 238,318 --------- --------- Total liabilities and stockholders' equity $361,158 $322,103 ========= =========

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CONTACT: Wright Medical Group, Inc. John K. Bakewell, 901-867-4527

KEYWORD: TENNESSEE INDUSTRY KEYWORD: MEDICAL DEVICES BIOTECHNOLOGY EARNINGS CONFERENCE CALLS SOURCE: Wright Medical Group, Inc.

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