“K2M’s strong revenue growth in the first quarter of 2015 is a result of our continued focus on introducing innovative spinal products to meet the needs of our surgeon customers around the World,” said President and Chief Executive Officer, Eric Major. “We achieved 19.3% total revenue
growth this quarter, driven by strong performance in both the U.S. and International markets. We were particularly pleased with the performance in our Complex Spine and MIS product categories in U.S. in the first quarter, which posted revenue growth of 19.2% and 22.6%, respectively, year-over-year. We look forward to continued top-line revenue performance driven by the anticipated combination of increasing utilization of our innovative products, recent new product introductions and by the expansion of our surgeon customer base around the World.”
First Quarter Financial Results
Total revenue for the first quarter ended March 31, 2015 increased 20.6% year-over-year on a constant currency basis. Total reported revenue increased $8.1 million, or 19.3%, to $50.4 million, compared to $42.3 million in the same period of the prior year. The increase was largely attributable to greater sales volume from new surgeons in the U.S. and growth in our international distributor markets.
Geographically, revenue in the United States increased $5.4 million, or 18.1% year-over-year, to $35.2 million, and our international revenue increased $2.8 million, or 22.2% year-over-year, to $15.3 million. Foreign currency exchange impacted first quarter international revenue by approximately $0.5 million, representing approximately 430 basis points of growth year-over-year.
By procedure category, U.S. revenue in our Complex Spine, MIS and degenerative categories represented 40.5%, 16.5% and 43.0% of U.S. revenue, respectively, for the three months ended March 31, 2015.
Gross profit for the first quarter of 2015 increased $5.1 million, or 18.3% year-over-year, to $32.9 million, or 65.3% of sales, compared to $27.8 million, or 65.9% of sales last year. Gross profit includes amortization expense on investments in surgical instruments and the U.S. medical device excise tax. Amortization expense increased $1.2 million, or 70.6%, to $2.9 million, or 5.8% of sales, for the three months ended March 31, 2015, compared to $1.7 million, or 4.0% of sales, last year. The medical device excise tax was $0.6 million, or 1.2% of total Company sales, for the three months ended March 31, 2015, compared to $0.5 million, or 1.2% of total Company sales, last year.
Operating expenses for the first quarter of 2015 increased $1.5 million, or 3.5% year-over-year, to $43.0 million, compared to $41.5 million for the same period last year. The increase in operating expenses was primarily driven by increased sales commissions as a result of increased sales volume, and by higher employee compensation costs related to the hiring of incremental direct sales employees compared to the same period last year. The increase in operating expenses was partially offset by a decrease in general and administrative expenses, due to lower amortization expense on intangible assets.
Loss from operations for the first quarter of 2015 was $10.0 million, compared to a loss of $13.7 million for the first quarter of 2014. Loss from operations included intangible amortization of $2.6 million and $7.6 million for the first quarter of 2015 and 2014, respectively. Net loss attributable to common stockholders for the first quarter of 2015 was $14.3 million, or $(0.37) per diluted share, compared to a net loss attributable to common stockholders of $15.9 million, or $(0.71) per diluted share, for the first quarter of 2014. Net loss attributable to common stockholders included the impact of non-realized foreign currency transaction losses of $4.1 million, or $(0.11) per diluted share, compared to non-realized foreign currency transaction gain of $0.2 million, or $0.01 per diluted share, in the first quarter of fiscal 2014. The decrease in loss per share was also in part due to our increased number of shares outstanding resulting from our February 2015 follow-on offering. Foreign currency translation gain/loss impacted operating results due to changes in the average exchange rates of the U.S. Dollar, Pound Sterling and Euro applied to intercompany transactions in both periods.
As of March 31, 2015, cash and cash equivalents were $39.0 million compared to $11.4 million as of December 31, 2014. Working capital was $99.3 million, compared to working capital of $69.7 million as of December 31, 2014. As of March 31, 2015, we had no outstanding indebtedness and borrowing capacity of $34.3 million under our revolving credit facility.
New Product Approvals, Introductions and Launches
During the first quarter, K2M continued to expand its complex spine portfolio by obtaining 510(k) clearance from the FDA for the MESA® 2 Deformity Spinal System, the Company’s next generation pedicle screw system designed to address the most complex spinal pathologies.
K2M also obtained 510(k) clearance and CE Mark for its NILE™ Alternative Fixation Spinal System, another addition to its portfolio of complex spine products.
2015 Outlook
- For the full year 2015, the Company continues to expect:
- Total constant currency revenue growth of 15% to 17% year-over-year, representing estimated revenue of $214 million to $218 million. The Company continues to expect total revenue on a reported basis to be impacted by foreign exchange fluctuations, which represented 130 basis points of growth year-over-year in Q1.
- Total net loss in a range of $34 million to $38 million, compared to a total net loss of $59.6 million in fiscal year 2014.
- Adjusted EBITDA in a range of ($2.0) million to $2.0 million, compared to Adjusted EBITDA of ($8.8) million in fiscal year 2014.
Conference Call
Management will host a conference call for analysts and investors today beginning at 6:00 p.m. ET. Individuals interested in listening to the conference call may dial 888-438-5535 for domestic callers or 719-325-2452 for international callers and provide access code: 2852908, or access the webcast on the “Investors Relations” section of the Company’s Web site at:http://investors.k2m.com. For those unable to participate, a replay of the call will be available for two weeks at 888-203-1112 (719-457-0820 for international callers); access code: 2852908. The webcast will be archived on the investor relations section of the Company’s website. The webcast will also be available on the Company’s website for 14 days following the completion of the call.
About K2M Group Holdings, Inc.
K2M Group Holdings, Inc. is a global medical device company focused on designing, developing and commercializing innovative complex spine and minimally invasive spine technologies and techniques used by spine surgeons to treat some of the most difficult and challenging spinal pathologies. K2M has leveraged these core competencies to bring to market an increasing number of products for patients suffering from degenerative spinal conditions. These technologies and techniques, in combination with a robust product pipeline, enable the Company to favorably compete in the global spinal surgery market. Additional information is available online at www.K2M.com.
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