PLAINSBORO, N.J., Nov. 7, 2004 (PRIMEZONE) -- Integra LifeSciences Holdings Corporation (Nasdaq:IART) today reported its third quarter revenues and earnings. Total revenues in the third quarter of 2004 increased by $12.1 million to $59.1 million, a 26% increase over the third quarter of 2003. Product revenues increased by $15.4 million to $58.9, or 35%, over the prior year period. Excluding recently acquired product lines, third quarter 2004 product revenues increased by $9.6 million, or 22%, over the prior year period.
We reported a net loss of $7.6 million, or $0.25 per share, for the third quarter of 2004, compared to net income of $6.8 million, or $0.23 per share, in the third quarter of 2003. During the past quarter, we recorded a $23.9 million share-based compensation charge on our grant of contract stock units to our President and Chief Executive Officer in connection with the extension of his employment agreement, a $1.4 million in-process research and development charge in connection with our making of a milestone payment to a third-party developer, a $0.8 million incremental tax charge incurred in connection with the reorganization of certain European operations, and a $0.5 million charge relating to a license payment for technology under development. Excluding these special charges, net earnings for the third quarter of 2004 were $8.7 million, or $0.28 per share.
"I am very pleased with our performance in the third quarter," said Stuart M. Essig, Integra's President and Chief Executive Officer, "As we once again produced organic revenue growth of over 20%, with particularly strong performances from the DuraGen(R) and DuraGen Plus(TM) products, the INTEGRA(R) Dermal Regeneration Template and the INTEGRA(TM) Bilayer Matrix Wound Dressing. In addition, we have positioned ourselves for continued growth through our recent introduction of new and innovative products, such as the DuraGen Plus(TM) Adhesion Barrier Matrix, the NeuroSensor(R) Cerebral Blood Flow and IntraCranial Pressure System, the NPH(TM) Low Flow Hydrocephalus Valve, the INTEGRA(TM) Matrix Wound Dressing, the INTEGRA(TM) Dermal Regeneration Template - Terminally Sterilized and the KraniOS(TM) Cranial Closure System."
Our revenues for the periods were as follows:
Three Months Nine Months
Ended September 30, Ended September 30,
2004 2003 2004 2003
-------- -------- -------- --------
Product Revenue:
Neuromonitoring products $ 12,689 $ 11,679 $ 35,700 $ 32,763
Operating room products 20,823 13,555 58,566 38,976
Instruments 19,933 13,141 54,982 31,746
Private label products 5,412 5,092 17,480 16,349
-------- -------- -------- --------
Total Product Revenue 58,857 43,467 166,728 119,834
Other revenue 273 3,591 1,286 6,740
-------- -------- -------- --------
Total Revenue $ 59,130 $ 47,058 $168,014 $126,574
Increased sales of our intracranial monitoring products, including our Camino(R) and LICOX(R) monitoring systems, provided most of the year-over-year growth in neuromonitoring product revenues.
Continued strong growth in sales of our DuraGen and DuraGen Plus Dural Graft Matrix products and direct selling of the INTEGRA Dermal Regeneration Template and INTEGRA Bilayer Matrix Wound Dressing accounted for most of the increase in operating room product revenues.
Sales of recently acquired product lines contributed $5.8 million of the year-over-year increase in instrument revenues for the third quarter. Increased sales of our JARIT(R) and Ruggles(TM) surgical instrument lines provided the remainder of the growth in instrument product revenues.
The increase in revenues attributable to our remaining private label products, including the Absorbable Collagen Sponge that we supply for use in Medtronic's INFUSE(TM) bone graft product, more than offset the removal of INTEGRA Dermal Regeneration Template revenues from our private label products category.
Changes in foreign currency exchange rates contributed $0.6 million to our year-over-year product revenue growth.
Gross margin on product revenues in the third quarter of 2004 was 62%. Our gross margin was positively affected by changes in the mix of our products sold during the quarter and by the resumption of direct sales of the INTEGRA Dermal Regeneration Template.
General and administrative expense increased $26.3 million in the third quarter of 2004 to $30.1 million, largely due to the share-based compensation charge recorded with respect to the grant of contract stock units to our President and Chief Executive Officer in connection with the renewal of his employment agreement. Research and development expense increased from $2.6 million in the third quarter of 2003 to $5.1 million in the current period primarily as a result of a $1.4 million dollar in-process research and development charge in connection with a milestone payment to a third-party developer and a $0.5 million license fee charge. Sales and marketing expense increased by $2.4 million to $12.5 million in the third quarter of 2004, but decreased as a percentage of product sales to 21% from 23% in the prior year period.
We reported net interest income of $243,000 in the third quarter of 2004, as compared to net interest expense of $188,000 in the prior year period. Third quarter results also reflect an increase in our annual effective tax rate to 39%, largely attributable to an incremental tax charge we recorded in the period.
We repurchased 500,000 shares of our common stock at an average price of $28.48 in the period and had cash and investments totaling $191.0 million at September 30, 2004.
We are updating our expectations for revenues, gross margin and earnings per share for 2004 and 2005. In accordance with our usual practice, our expectations for 2004 and 2005 financial performance do not include the impact of acquisitions or other strategic corporate transactions that have not yet closed.
Subsequent to Integra's issuance of contingent convertible notes in 2003, the Emerging Issues Task Force (EITF) Issue 04-08 proposed that the unissued shares underlying contingent convertible notes be treated as if such shares were issued and outstanding for the purposes of calculating earnings per share if such impact would be dilutive. On October 13, 2004, the Financial Accounting Standards Board (FASB) ratified this new accounting treatment for periods ending after December 15, 2004. Consequently, Integra will reflect the dilutive effect of its contingent convertible senior notes on earnings per share in the fourth quarter of 2004.
It is important to note that our $120 million of contingent convertible senior notes can convert into 3.5 million shares of our common stock at any time that our common stock trades above $37.56 per share. The ratification of EITF Issue 04-08 will have no effect on Integra's operating results, revenues, net income or cash position as reported in our fourth quarter 2004, and full year 2004 and 2005 guidance. Rather, it requires a revised method of calculating earnings per share. In order to provide clarity, we are providing guidance both before and after the effects of the new pronouncement.
Our guidance for the fourth quarter of 2004 is for total revenues in the range of $60 million to $63 million and earnings per share of $0.29 to $0.31, before giving effect to the change in accounting for our convertible contingent senior notes and the increase in our effective tax rate to 39%. Including the effect of the EITF Issue 04-08 and the increase in our effective tax rate for 2004, earnings per diluted share are expected to be between $0.27 and $0.29.
We expect total revenues of between $270 million and $280 million in 2005. Consolidated gross margin is expected to be 64%. We expect our earnings to be within a range of $1.42 to $1.47 per share in 2005 before the change in accounting for the company's contingent convertible notes. Including this accounting change, earnings per diluted share for 2005 are expected to be between $1.35 and $1.39.
We have scheduled a conference call for 9:00 am EDT tomorrow, November 8, 2004, to discuss the financial results for the third quarter of 2004 and forward-looking financial guidance. The call is open to all listeners and will be followed by a question and answer session. Access to the live call is available by dialing (973) 582-2732 or through a listen-only webcast via a link provided on the home page of Integra's website at www.Integra-LS.com. A replay of the conference call will be accessible starting one hour following the live event. Access to the replay is available through November 22, 2004 by dialing (973) 341-3080 (access code 4865983) or through the webcast accessible on our home page.
Integra LifeSciences Holdings Corporation is a diversified medical technology company that develops, manufactures, and markets medical devices for use in a variety of applications. The primary applications for our products are neuro-trauma and neurosurgery, plastic and reconstructive surgery and general surgery. Integra is a leader in applying the principles of biotechnology to medical devices that improve patients' quality of life. Our corporate headquarters are in Plainsboro, New Jersey, and we have research, manufacturing and distribution facilities located throughout the world. We have approximately 1,200 employees. Please visit our website at (http://www.Integra-LS.com).
This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements concerning future financial performance, including projections for revenues, gross margins, earnings per share and cash flows. Such forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from predicted or expected results. Among other things, our ability to maintain relationships with customers of acquired entities, physicians' willingness to adopt our recently launched and planned products and our ability to secure regulatory approval for products in development may adversely affect our future product revenues; our ability to increase sales and product volumes may adversely affect our future gross margins; our ability to integrate acquired businesses, increase product sales and gross margins, and control non-product costs may affect our earnings per share; and our future net income results and our ability to effectively manage working capital may affect our future cash flows. In addition, the economic, competitive, governmental, technological and other factors identified under the heading "Factors That May Affect Our Future Performance" included in the Business section of Integra's Annual Report on Form 10-K for the year ended December 31, 2003 and information contained in subsequent filings with the Securities and Exchange Commission could affect actual results.
Regulation G, "Conditions for Use of Non-GAAP Financial Measures," and other provisions of the Securities Exchange Act of 1934, as amended, define and prescribe the conditions for the use of certain non-GAAP financial information. In this news release, we provide "growth in product revenues excluding recently acquired product lines," which is a non-GAAP financial measure. A reconciliation of this non-GAAP financial measure to the most comparable GAAP measure is provided in the tables of financial information contained at the end of this news release.
Non-GAAP financial measures should not be relied upon to the exclusion of GAAP financial measures. Management believes that this non-GAAP financial measure is important supplemental information to investors which reflects an additional way of viewing aspects of our operations that, when viewed with our GAAP results and the accompanying reconciliations, provides a more complete understanding of factors and trends affecting our ongoing business and operations. Management strongly encourages investors to review our financial statements and filed reports in their entirety and to not rely on any single financial measure. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names.
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
(In thousands, except per share data)
(UNAUDITED)
Statement of Operations Data:
Three Months Ended
September 30,
-----------------------------------------
2004 2003
------------------------------ --------
Before
Special Special
Reported Charges Charges Reported
Product revenues $58,857 $58,857 $43,467
Other revenues 273 273 3,591
------- ------- -------
Total revenues 59,130 59,130 47,058
Cost of product revenues 22,412 22,412 18,870
Research and development 5,103 1,900 3,203 2,616
Sales and marketing 12,488 12,488 10,090
General and administrative 30,112 23,876 6,236 3,787
Amortization 1,195 1,195 773
------- ------- -------
Total costs and expenses 71,310 25,776 45,534 36,136
Operating income (loss) (12,180) 25,776 13,596 10,922
Interest income (expense),
net 243 243 (188)
Other income (expense), net 306 306 309
------- ------- -------
Income (loss) before income
taxes (11,631) 25,776 14,145 11,043
Provision (benefit) for
income taxes (1) (4,034) 9,504 5,470 4,210
------- ------- ------- -------
Net income (loss) $(7,597) $16,272 $8,675 $6,833
Diluted earnings (loss)
per share $ (0.25) $ 0.28 $ 0.23
Diluted weighted average
common shares outstanding 30,326 31,256 30,286
Nine Months Ended
September 30,
-----------------------------------------
2004 2003
------------------------------ --------
Before
Special Special
Reported Charges Charges Reported
Product revenues $166,728 $166,728 $119,834
Other revenues 1,286 1,286 6,740
-------- -------- --------
Total revenues 168,014 168,014 126,574
Cost of product revenues 64,078 64,078 49,663
Research and development 10,565 1,900 8,665 8,043
Sales and marketing 36,799 36,799 26,748
General and administrative 42,297 23,876 18,421 13,357
Amortization 3,127 3,127 2,112
-------- -------- --------
Total costs and expenses 156,866 25,776 131,090 99,923
Operating income 11,148 25,776 36,924 26,651
Interest income (expense),
net 460 460 390
Other income (expense),
net 424 424 1,109
-------- -------- --------
Income before income
taxes 12,032 25,776 37,808 28,150
Provision for income
taxes (1) 4,674 9,504 14,178 10,461
-------- ------- -------- --------
Net income $ 7,358 $16,272 $ 23,630 $ 17,689
Diluted earnings per
share $ 0.24 $ 0.76 $ 0.58
Diluted weighted average
common shares outstanding 31,026 31,026 30,404
(1) The income tax adjustment is the result of excluding the tax
impact of the special charges reflected above and the incremental
tax charge recorded in connection with the European reorganization.
These adjustments resulted in an annualized effective tax rate of
37.5%.
Condensed Balance Sheet Data:
September 30, December 31,
2004 2003
------------ ------------
Cash and marketable securities,
including non-current portion $190,998 $206,743
Accounts receivable, net 38,028 28,936
Inventory, net 52,400 41,046
Total assets 440,187 412,526
Current liabilities 23,766 20,618
Long-term debt 119,220 119,257
Total liabilities 147,552 143,996
Stockholders' equity 292,635 268,530
Reconciliation of non-GAAP financial measure to the most
comparable GAAP measure:
Growth in product revenues excluding recently acquired product lines
Excluding recently acquired product lines, third quarter 2004
product revenues increased by $9.6 million, or 22%, over the
prior year period.
Quarter Ended Increase
September 30, (Decrease)
2004 2003 $ %
------- ------- ------- -----
($ in thousands)
Total product revenues,
as reported $58,857 $43,467 $15,390 35%
Less: Product revenues
acquired since the beginning
of the third quarter of 2003 5,833 21 5,812 NM
------- ------- ------- -----
Product revenues excluding
acquired products $53,024 $43,446 $ 9,578 22%