Orthofix International N.V. (OFIX)
Q1 2010 Earnings Call Transcript
April 28, 2010 4:30 pm ET
Dan Yarbrough – VP, IR
Alan Milinazzo – President and CEO
Bob Vaters – EVP and CFO
Raj Denhoy – Jefferies
Spencer Nam – Summer Street Research
Michael Matson – Wells Fargo
Jim Sidoti – Sidoti & Company
Mark [ph] – Canaccord
Shawn Bevec – SIG
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Good afternoon, ladies and gentlemen, and welcome to the Orthofix International first quarter earnings release conference call. At this time, all participants have been placed on a listen-only mode. The floor will be opened for your questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Dan Yarbrough. Sir, the floor is yours.
Thanks, Mandy. Good afternoon, everybody, and thanks for joining us to discuss Orthofix International's financial results for the first quarter of 2010.
During this call, we will be making forward-looking statements that involve risks and uncertainties and all statements other than statements of historical fact are forward-looking statements, including any earnings guidance we provide, and any statements about our plans, beliefs, strategies, expectations, objectives, or goals. Factors that could cause actual results to differ materially from forward-looking statements made by us on this call include the risks disclosed under the risk heading ‘Risk Factors’ in our 2009 Form 10-K and subsequent Form 10-Qs filed with the SEC.
On today's call with me are Orthofix's President and Chief Executive Officer, Alan Milinazzo; and our Executive Vice President and CFO, Bob Vaters.
At this point I will turn the call over to Alan.
Thanks, Dan, and good afternoon, everyone. On today’s call we’ll cover three main areas. I will start with a summary of the key drivers of our first quarter results as well provide a brief update on a couple of key activities. Bob Vaters will then provide some additional financial details on our first quarter results, including the key elements of our balance sheet and cash flow. And, finally, Bob will provide an update of our expectations for the remainder of 2010.
Starting off with our first quarter results, we reported quarterly revenue of approximately $139 million, which represented an 8% increase year-over-year and a 6% increase on a constant currency basis. Excluding the impact of the sale of our vascular business as well as another non-core product, which we discontinued distributing in Italy, our adjusted year-over-year growth was a healthy 10%.
Our first quarter growth was the result of solid performance in a few different areas highlighting the benefits of our diversified revenue streams. Let me begin with our Spine business, which grew 8% overall and now represents 52% of the total revenue for the entire company. We believe our Spine Stimulation business continued to take market share with a 12% increase in the sales of our market-leading devices. These results are primarily due to the fact that we have the only FDA approved device for cervical indications as well as from the fact that we maintain a direct sales force, which is dedicated to selling this technology. Another indicator of our success in Q1 was that we increased the number of surgeons who prescribed this therapy by 11% when compared to prior year.
Moving on to our Spinal Implants and Biologics business, as we expected our overall growth rate in Q1 was modest compared to prior year due to the change in the way we recognized revenue from selling a first generation stem cell product in the first half in 2009 to the next generation Trinity Evolution, which we began selling late in Q2 last year.
Total sales for the Spinal Implant and Biologic business grew 3% overall, but revenue from our metal implants increased more than 10% in the quarter as products we introduced late last year continued to gain traction in the marketplace. This included our Firebird pedicle screw system, the PILLAR SA interbody device, and the Ascent LE system.
We expect growth rates in the Spinal Implant and Biologic business to accelerate during the rest of the year as the sales comparisons for the Trinity Evolution line up with our prior year commercialization dates as well as the fact that we will be introducing three new products planned for launch later in the year. These include Phoenix MIS Spinal Fixation system [ph] as well as next generation Peek interbody devices. We are also on track to enter the $500 million plus deformity correction market in the summer. This new system was developed on the successful Firebird platform and will bring some unique and differentiated features to our surgeon customers.
Moving on to our Orthopedics division, which posted a 22% revenue increase, or 16% on a constant currency basis as a result of a 32% increase in sales of our fixation and deformity correction devices. The strategy we adopted for this business continues to show great progress. As an example of our strategy to focus on certain high-potential geographic markets, our Latin American segment grew 50% compared with last year and our business in Brazil now represents the second largest international market outside of Italy for the entire company. We attribute some of the recent success in this area to enhancements in our distribution channels, which included a move to a direct sales force in certain markets.
Finally, in our Orthopedic business, we had a strong increase in sales of Trinity Evolution to our orthopedic surgeon customer base during the quarter. In Q1, we were able to allocate more Trinity Evolution inventory to our U.S. orthopedic sales group and as inventories continued to improve we expect to be able to bring more of our orthopedic customers on board with the product as the year goes on.