Wright Medical Group, Inc. Reports Results for Third Quarter Ended September 30, 2007

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 third quarter ended September 30, 2007. Net sales totaled $91.4 million during the third quarter ended September 30, 2007, representing a 16% increase over net sales of $78.6 million during the third quarter of 2006. Excluding the impact of foreign currency, net sales increased 15% during the third quarter. As previously announced, the Company is expecting to incur pretax restructuring charges totaling approximately $20 million to $25 million related to the closure of the Company’s Toulon, France operations. During the third quarter of 2007 the Company recorded $7.0 million of those pretax charges, primarily for severance and other termination benefit obligations, which are reflected in its third quarter GAAP earnings results. For the third quarter of 2007, the Company recorded a net loss of $1.5 million, or ($0.04) per diluted share, compared to net income for the third quarter of 2006 of $3.6 million, or $0.10 per diluted share. Net loss for the third quarter of 2007 included the after-tax effects of $7.0 million of the aforementioned Toulon restructuring charges, as well as $3.9 million of non-cash stock-based compensation expense and $109,000 of acquisition-related inventory step-up amortization. Net income for the third quarter of 2006 included the after-tax effect of $3.7 million of non-cash stock-based compensation expense and a $1.5 million gain from the sale of an investment. Excluding those previously mentioned items, third quarter net income, as adjusted, increased 24% to $6.1 million in 2007 from $4.9 million in 2006, while diluted earnings per share, as adjusted, increased 21% to $0.17 for the third quarter of 2007 from $0.14 per diluted share for the third quarter of 2006. A reconciliation of GAAP to "as adjusted” results is included in the attached financial tables. Gary D. Henley, President and Chief Executive Officer commented, "We are very pleased with our third quarter results which approached the upper end of our sales outlook and exceeded the upper end of our adjusted earnings per share outlook. This quarter’s sales results were driven by another outstanding performance in our international business, which grew by 17% over the prior year period, and by very good performances in each one of our domestic product categories. Our extremities results reflect the continued growth in our CHARLOTTE™ Foot and Ankle System, as well as the business expansion from our second quarter acquisitions of the Darco line of foot and ankle reconstruction products and the R&R Medical external fixation line of products. Our domestic biologics performance is already exhibiting the impact of the third quarter launch of our PRO-DENSE™ Injectable Regenerative Graft. Additionally, we are pleased by the performance of our large joint reconstructive franchise which reported third quarter growth of 10% both domestically and worldwide.” Mr. Henley continued, "Our operating results this quarter reflect our continued efforts to create leverage in our business model, as demonstrated by the expansion in our adjusted operating margin this quarter despite the investments associated with our second quarter acquisitions. As we head into the fourth quarter of 2007, we anticipate exiting the year well-positioned to achieve a 2008 financial performance that meets our corporate objective of low- to mid-teens sales growth while generating solid operating margin expansion and significant bottom line growth.” Sales Review Globally, the Company experienced growth across all of its major product lines during the third quarter of 2007. Specifically, global net sales of the Company’s extremity, biologics, hip, and knee product lines increased by 45%, 14%, 12% and 9%, respectively, when compared to the third quarter of 2006. Domestic sales totaled $58.0 million during the third quarter of 2007, representing growth of 16% compared to the prior year. Third quarter domestic sales of the Company’s extremity, biologics, hip, and knee product lines reflected growth of 37%, 15%, 11% and 8%, respectively. International sales, as reported, were $33.4 million for the third quarter of 2007, representing an increase of 17% compared to prior year. The Company’s international sales results for the third quarter included a favorable foreign currency impact totaling approximately $1.1 million. Excluding the impact of foreign currency, international sales increased by 13% during the third quarter of 2007. Outlook The Company’s earnings targets, as communicated in the guidance ranges stated below for the full year and the fourth quarter of 2007, exclude the effect of possible future acquisitions, other material future business developments, and the impact of recording non-cash stock-based compensation, restructuring charges and acquisition-related inventory step-up amortization. The Company has narrowed its sales target for the full year 2007 to a range of $382 million to $385 million. This sales target represents annualized growth between approximately 13% and 14%. The Company has also narrowed its previously-communicated full year 2007 as-adjusted earnings per share outlook to $0.75 to $0.77, representing annualized growth between approximately 17% and 20%. The Company’s anticipated targets for the fourth quarter of 2007 for net sales are in the range of $98 million to $101 million, representing a sales growth objective of 13% to 17% for the quarter, with earnings per share results ranging from $0.23 to $0.25 per diluted share, as adjusted. As noted above, the Company’s financial targets exclude the impact of non-cash stock-based compensation charges. While the amount of such non-cash charges will vary depending upon a number of factors, many of which not being within the Company’s control, the Company currently estimates that the after-tax impact of expenses associated with FAS 123R will range from $0.34 to $0.35 per diluted share for the full year 2007 and $0.08 to $0.09 per diluted share for the fourth quarter of 2007. The Company continues to estimate that the total pre-tax charges related to the closing of the Toulon facilities will be in the range of approximately $20 million to $25 million. The majority of the remaining $5 million to $10 million of restructuring charges will likely be recorded in the fourth quarter of 2007. The Company also reiterates its stated long-term outlook for the business, which calls for percentage annualized net sales growth in the low- to mid-teens and percentage operating income growth in excess of the respective annualized net sales growth. The Company’s preliminary outlook for 2008 is consistent with this stated range of long-term objectives, with 2008 constant currency net sales growth rates anticipated within a range of 12% to 15%, and with both operating income and earnings per share growth exceeding the rate of net sales growth. The Company intends to communicate defined ranges of net sales and profitability objectives for 2008 and to assist investors in further developing their financial models during a financial guidance conference call to be held after the Company has completed its 2008 budget preparation process. The call is scheduled to be held at 3:30 p.m. (Central Time) on Tuesday, December 11, 2007. Dial-in and webcast access instructions will be provided in advance of the call. The Company’s anticipated targets for net sales, adjusted earnings per share, stock-based compensation charges and restructuring charges 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 800-896-8445 (domestic) or 785-830-1916 (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 November 8, 2007. To hear this replay, dial 888-203-1112 (domestic) or 719-457-0820 (international) and enter the registration number 3413619. 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, our Form 8-K filed with the SEC today, 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, operating income, as adjusted, net income, as adjusted, net income, as adjusted, per diluted share, and effective tax rate, as adjusted. 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, the financial impact of significant litigation, restructuring charges, and non-cash stock-based expense, all of 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 and may be identified by their use of terms such as "anticipate,” "believe,” "could,” "estimate,” "expect,” "intend,” "may,” "plan,” "predict,” "project,” "will,” and other similar terms. 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, 2006, under the heading, "Risk Factors” and 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. --Tables Follow-- Wright Medical Group, Inc. Condensed Consolidated Statements of Operations (in thousands, except per share data--unaudited)         Three Months Ended Nine Months Ended Sept. 30, 2007 Sept. 30, 2006 Sept. 30, 2007 Sept. 30, 2006   Net sales $ 91,399 $ 78,637 $ 283,694 $ 252,385 Cost of sales   24,268     22,517     80,003     72,245   Gross profit 67,131 56,120 203,691 180,140   Operating expenses: Selling, general and administrative 54,573 45,494 164,806 143,396 Research and development 7,151 6,175 22,106 19,994 Amortization of intangible assets 968 987 2,793 3,254 Restructuring charges   6,966     -     14,505     -   Total operating expenses   69,658     52,656     204,210     166,644     Operating (loss) income (2,527 ) 3,464 (519 ) 13,496 Interest income, net (361 ) (570 ) (1,364 ) (1,188 ) Other (income) expense, net   (10 )   (1,550 )   45     (1,483 ) (Loss) income before income taxes (2,156 ) 5,584 800 16,167 Provision for income taxes   (634 )   1,979     1,223     7,503   Net (loss) income $ (1,522 ) $ 3,605   $ (423 ) $ 8,664     Net (loss) income per share, basic $ (0.04 ) $ 0.10   $ (0.01 ) $ 0.25   Net (loss) income per share, diluted $ (0.04 ) $ 0.10   $ (0.01 ) $ 0.25   Weighted-average number of common shares outstanding, basic   35,981     34,420     35,641     34,289   Weighted-average number of common shares outstanding, diluted   35,981     35,460     35,641     35,319   Wright Medical Group, Inc. Consolidated Sales Analysis (dollars in thousands--unaudited)           Three Months Ended Nine Months Ended Sept. 30, 2007 Sept. 30, 2006 %change Sept. 30, 2007 Sept. 30, 2006 %change Geographic Domestic $ 58,045 $ 50,214 15.6 % $ 172,750 $ 157,789 9.5 % International   33,354   28,423 17.3 %   110,944   94,596 17.3 % Total net sales $ 91,399 $ 78,637 16.2 % $ 283,694 $ 252,385 12.4 %   Product Line Hip products $ 30,914 $ 27,645 11.8 % $ 99,888 $ 90,588 10.3 % Knee products 23,727 21,805 8.8 % 75,011 71,199 5.4 % Biologics products 18,024 15,835 13.8 % 56,136 47,930 17.1 % Extremity products 15,676 10,803 45.1 % 43,349 33,262 30.3 % Other   3,058   2,549 20.0 %   9,310   9,406 (1.0 %) Total net sales $ 91,399 $ 78,637 16.2 % $ 283,694 $ 252,385 12.4 % Wright Medical Group, Inc. Reconciliation of Net Sales to Net Sales Excluding the Impact of Foreign Currency (dollars in thousands--unaudited)       Three Months Ended Nine Months Ended Sept. 30, 2007 Sept. 30, 2007 International Net Sales Total Net Sales International Net Sales Total Net Sales Net sales, as reported $ 33,354 $ 91,399 $ 110,944 $ 283,694 Currency impact as compared to prior period   (1,132 )   (1,132 )   (3,498 )   (3,498 ) Net sales, excluding the impact of foreign currency   $ 32,222   $ 90,267   $ 107,446   $ 280,196   Wright Medical Group, Inc. Reconciliation of Non-GAAP Results of Operations (in thousands, except per share data--unaudited)         Three Months Ended Nine Months Ended Sept. 30, 2007 Sept. 30, 2006 Sept. 30, 2007 Sept. 30, 2006 Operating Income Operating (loss) income, as reported $ (2,527 ) $ 3,464 $ (519 ) $ 13,496 Reconciling items impacting Gross Profit: Inventory step-up amortization 109 - 309 - Non-cash, stock-based compensation   530     258     1,563     487   Total 639 258 1,872 487 Reconciling items impacting Selling, General and Administrative expenses: Non-cash, stock-based compensation 2,936 2,845 8,830 8,007 Reconciling items impacting Research and Development expenses: Non-cash, stock-based compensation 399 556 2,016 1,627 Other Reconciling Items: Restructuring charges   6,966     -     14,505     -   Operating income, as adjusted $ 8,413   $ 7,123   $ 26,704   $ 23,617   Operating income, as adjusted, as a percentage of net sales   9.2 %   9.1 %   9.4 %   9.4 % Wright Medical Group, Inc. Reconciliation of As Reported Results to Non-GAAP Financial Measures (continued)     Three Months Ended   Nine Months Ended Sept. 30, 2007   Sept. 30, 2006 Sept. 30, 2007   Sept. 30, 2006 Net Income Net (loss) income, as reported $ (1,522 ) $ 3,605 $ (423 ) $ 8,664 Pre-tax impact of reconciling items: Non-cash, stock-based compensation 3,865 3,659 12,409 10,121 Inventory step-up amortization 109 - 309 - Restructuring charges 6,966 - 14,505 - Gain on sale of investment   -     (1,499 )   -     (1,499 ) Total 10,940 2,160 27,223 8,622 Tax effect of reconciling items: Non-cash, stock-based compensation (912 ) (918 ) (2,995 ) (2,149 ) Inventory step-up amortization (43 ) - (121 ) - Restructuring charges (2,359 ) - (4,885 ) - Gain on sale of investment   -     95     -     95   Total   (3,314 )   (823 )   (8,001 )   (2,054 ) Net income, as adjusted $ 6,104   $ 4,942   $ 18,799   $ 15,232   Net Income per Diluted Share Net (loss) income, as reported, per diluted share $ (0.04 ) $ 0.10 $ (0.01 ) $ 0.25 Non-cash, stock-based compensation 0.08 0.08 0.26 0.23 Inventory step-up amortization 0.00 - 0.00 - Restructuring charges 0.13 - 0.27 - Gain on sale of investment   -     (0.04 )   -     (0.04 ) Net income, as adjusted, per diluted share   $ 0.17   $ 0.14   $ 0.52   $ 0.43   Wright Medical Group, Inc. Reconciliation of Effective Tax Rate, As Reported, to Effective Tax Rate, As Adjusted (unaudited)       Three Months Ended Nine Months Ended Sept. 30, 2007 Sept. 30, 2006   Sept. 30, 2007 Sept. 30, 2006 Effective tax rate, as reported 29.4 % 35.4 % 152.9 % 46.4 % Non-cash, stock-based expense (5.4 %) (9.9 %) (7.0 %) (12.0 %) Step-up amortization 0.0 % - 0.0 % - Restructuring charges 6.5 % - (113.0 %) - Gain on sale of investment -   10.7 % -   4.2 % Effective tax rate, as adjusted 30.5 % 36.2 % 32.9 % 38.6 % Wright Medical Group, Inc. Condensed Consolidated Balance Sheets (dollars in thousands--unaudited)     Sept. 30, 2007 Dec. 31, 2006   Assets Current assets: Cash and cash equivalents $ 42,873 $ 57,939 Marketable securities 14,200 30,325 Accounts receivable, net 85,275 72,476 Inventories 110,972 86,157 Prepaid expenses and other current assets   38,250   32,825 Total current assets   291,570   279,722   Property, plant and equipment, net 93,630 86,265 Intangible assets, net 36,654 17,795 Other assets   38,662   25,620 Total assets $ 460,516 $ 409,402   Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 17,170 $ 17,049 Accrued expenses and other current liabilities 60,631 41,366 Current portion of long-term obligations   647   1,001 Total current liabilities   78,448   59,416 Long-term obligations 539 723 Other liabilities   6,382   13,439 Total liabilities   85,369   73,578   Stockholders’ equity   375,147   335,824 Total liabilities and stockholders’ equity $ 460,516 $ 409,402