Shares in Wright Medical (NSDQ:WMGI) plunged 25% this morning on news of a “knife fight” with competitors over sales reps, and a $2 million lag in sales of its Cartiva arthritis treatment device.
CEO Robert Palmisano told analysts late yesterday that smaller, privately owned competitors — which share the same independent distributor salesforce— are beating Wright at luring design surgeons, surgeon investors and competitive sales reps.
“In Q2 our reps were specifically targeted by these competitors, resulting in a larger than normal regrettable turnover rate and salesforce distraction that impacted our core foot performance,” Palmisano said in an earnings call transcribed by Seeking Alpha.
Wright Medical’s EPS of $0.02 for Q2 beat Wall Street by 1¢, but the company cut its outlook for the rest of the year to $925 to $930 million, down from $954 million to $966 million.
Overall sales for the quarter of $229.73 million were up by nearly 12%, but missed analysts’ expectations by $3.3 million. Cartiva sales slid from $8 million in Q2 2018 to $7.87 million in the second quarter of 2019.
Wright said it expects to log adjusted EPS of $ $0.15 to $0.20 this year, down from prior guidance of $0.17 to $0.25 and cut its top-line outlook to $925 million to $930 million, down from $954 million to $966 million previously.
To combat the salesforce hemorrhage, Wright has upped their compensation, according to Palmisano. The company is also adding to its lower extremities salesforce and “aggressively filling our open positions with experienced reps with many already on board,” he added.
Wright has also signed contracts with “a very large private, tax-exempt, non-governmental health system in the United States and a leading health care provider currently serving more than 10 million members,” Palmisano said.
WMGI shares slipped by 7% in early July after an analyst said early adopters of its Cartiva toe implant are cutting back. Memphis-based Wright last October paid $435 million for Cartiva and its synthetic cartilage implant for treating arthritis in the big toe.
“We are disappointed in our Q2 revenue performance and the resulting lower outlook for revenue for the year,” Palmisano told analysts. “It is frustrating for all of us: shareholders, management and employees; when there is a setback. When they occur, you have to acknowledge it and take swift aggressive action to address it and we have done that. The overall fundamentals of our business and our markets have not changed and we remain confident in the opportunities in our business. We continue to be in a great position strategically and have a full pipeline of future innovative implants and digital solutions. Despite the issues with the Cartiva distributor territories and the core foot business landing at the same time, we still grew 9.4% organic constant currency in Q2 and expect to grow 10% organic constant currency for the full year. We are also still on track to deliver on our full year and Q4 EBITDA margin goal, despite the lower revenue levels, and remain confident in our ability to achieve our long-term financial goal of double-digit organic revenue growth, maintaining gross margins in the high 70% range, and achieving non-GAAP adjusted EBITDA margin of mid-20% range exiting 2021.”
