Integra LifeSciences Reports Second Quarter 2012 Financial Results

Raises 2012 Full-Year Revenue Guidance

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| Source: Integra LifeSciences Holdings Corp.

PLAINSBORO, N.J., July 26, 2012 (GLOBE NEWSWIRE) -- Integra LifeSciences Holdings Corporation (Nasdaq:IART) today reported its financial results for the second quarter ending June 30, 2012. Total revenues for the second quarter were $210.2 million, reflecting an increase of $16.8 million, or 9%, over the second quarter of 2011. Excluding the impact of currency exchange rates, revenues increased 10% over the second quarter of 2011.

The Company reported GAAP net income of $8.5 million, or $0.30 per diluted share, for the second quarter of 2012, compared to GAAP net income of $0.7 million, or $0.02 per diluted share, for the second quarter of 2011.

Net income for the second quarter of 2012 computed with the adjustments to GAAP reporting set forth in the attached reconciliation, was $21.1 million, or $0.74 per diluted share, compared to adjusted net income of $21.2 million, or $0.70 per diluted share, in the second quarter of 2011.

"We had a good quarter across all our businesses and are making solid progress against our priorities," said Peter Arduini, President and Chief Executive Officer. "Revenues, gross margin, and earnings per share all increased both year-over-year and sequentially."

EBITDA for the second quarter of 2012, computed with the adjustments to GAAP reporting set forth in the attached reconciliation, was $40.6 million, an increase of 7% compared to the second quarter last year. Adjusted EBITDA excluding stock-based compensation for the second quarter of 2012, computed with the adjustments to GAAP reporting set forth in the attached reconciliation, was $42.9 million, an increase of 4% compared to the second quarter last year.

During the quarter, Integra borrowed $155 million on its credit facility to fund the maturity of its 2012 Senior Convertible Notes. Of the $165 million payment at maturity, $30.6 million was classified as accreted interest and therefore classified as an operating use of cash under GAAP. Including that payment, Integra generated $2.3 million in cash flow from operations and invested $14.2 million in capital expenditures during the quarter.

Outlook for 2012

The Company increased its expectations for the full year 2012 revenues to $828 - $838 million, at current exchange rates. The Company revised its GAAP earnings per diluted share for the full year of 2012 between $1.34 and $1.43 and reiterated its guidance for adjusted earnings per diluted share of between $2.97 and $3.06.

"The strong revenues in the second quarter make it more likely that we will exceed the high end of our original range for the year," said Jack Henneman, Integra's Chief Financial Officer. "That said, we expect higher expenses than originally planned through the balance of the year, particularly around our major initiatives, so we are not raising our guidance for adjusted earnings per share."

In accordance with our usual practice, expectations for financial performance do not include the impact of acquisitions or other strategic corporate transactions that have not yet closed.  

In the future, the Company may record, or expects to record, certain additional revenues, gains, expenses or charges as described in the Discussion of Adjusted Financial Measures below that it will exclude in the calculation of adjusted EBITDA and adjusted earnings per share for historical periods and in providing adjusted earnings per share guidance.

Conference Call

Integra has scheduled a conference call for 8:30 AM ET today to discuss financial results for the second quarter and forward-looking financial guidance. The conference call will be hosted by Integra's senior management team and will be open to all listeners. Additional forward-looking information may be discussed in a question and answer session following the call.

Access to the live call is available by dialing 719-457-2698 and using the passcode 2559486. The call can also be accessed through a webcast via a link provided on the Investor Relations homepage of Integra's website at investor.integralife.com. Access to the replay is available through August 9, 2012 by dialing 719-457-0820 and using the passcode 2559486. The webcast will also be archived on the website.

Integra LifeSciences, a world leader in medical devices, is dedicated to limiting uncertainty for surgeons, so they can concentrate on providing the best patient care. Integra offers innovative solutions in orthopedics, neurosurgery, spine, reconstructive and general surgery. For more information, please visit www.integralife.com.

This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks, uncertainties and reflect the Company's judgment as of the date of this release. Forward-looking statements include, but are not limited to, statements concerning future financial performance, including projections for revenues, GAAP and adjusted net income, GAAP and adjusted earnings per diluted share, non-GAAP adjustments such as global enterprise resource planning ("ERP") system implementation charges, acquisition-related charges, non-cash amortization of imputed interest for convertible debt, intangible asset amortization, and income tax expense (benefit) related to non-GAAP adjustments. Such forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from predicted or expected results. Such risks and uncertainties include, but are not limited to: the Company's ability to execute its operating plan effectively; global macroeconomic conditions; the effects of inventory reduction initiatives by the Company's instruments distributors; continued weakness in sales outside of the U.S. ; the Company's ability to manage its direct sales channels effectively; the Company's ability to maintain relationships with customers of acquired entities; physicians' willingness to adopt and third-party payors' willingness to provide reimbursement for the Company's recently launched and planned products; the Company's ability to manufacture sufficient quantities of its products to meet its customers' demand; initiatives launched by the Company's competitors; the Company's ability to secure regulatory approval for products in development; the Company's ability to remediate quality systems violations; fluctuations in hospital spending for capital equipment; the Company's ability to comply with and obtain approvals for products of human origin and comply with recently enacted regulations regarding products containing materials derived from animal sources; difficulties in controlling expenses, including costs to procure and manufacture our products; the impact of changes in management or staff levels; the Company's ability to integrate acquired businesses; the Company's ability to leverage its existing selling organizations and administrative infrastructure; the Company's ability to increase product sales and gross margins, and control non-product costs; the amount and timing of acquisition and integration related costs; the geographic distribution of where the Company generates its taxable income; the effect of legislation effecting healthcare reform in the United States; fluctuations in foreign currency exchange rates; the amount of our convertible notes and bank borrowings outstanding, and the economic, competitive, governmental, technological and other risk factors and uncertainties identified under the heading "Risk Factors" included in Item 1A of Integra's Annual Report on Form 10-K for the year ended December 31, 2011 and information contained in subsequent filings with the Securities and Exchange Commission. These forward-looking statements are made only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

Discussion of Adjusted Financial Measures

In addition to our GAAP results, we provide adjusted revenues, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), adjusted EBITDA excluding stock-based compensation, adjusted net income and adjusted earnings per diluted share. Adjusted revenues consist of growth in total revenues excluding the effects of currency exchange rates on the current period's revenues. The various measures of adjusted EBITDA consist of GAAP net income, excluding: (i) depreciation and amortization, (ii) other income (expense), net, (iii) interest income and expense, (iv) income taxes, (v) those operating expenses also excluded from adjusted net income and, as appropriate (vi) stock-based compensation expense. The measure of adjusted net income consists of GAAP net income, excluding: (i) Plainsboro, New Jersey manufacturing facility remediation costs; (ii) global ERP implementation charges; (iii) facility optimization charges; (iv) certain employee termination charges; (v) discontinued product lines charges; (vi) acquisition-related charges; (vii) impairment charges; (viii) European entity restructuring charges; (ix) certain executive compensation charges, (x) financing charges, (xi) convertible debt non-cash interest; (xii) intangible asset amortization expense; and (xiii) income tax impact from adjustments and other items. The adjusted earnings per diluted share measure is calculated by dividing adjusted net income attributable to diluted shares by diluted weighted average shares outstanding. Reconciliations of GAAP revenues to adjusted revenues for the quarter ended June 30, 2012 and GAAP net income to adjusted EBITDA, adjusted EBITDA excluding stock-based compensation and adjusted net income, and GAAP earnings per diluted share to adjusted earnings per diluted share for the quarters ended June 30, 2012 and 2011 appear in the financial tables in this release.

Integra believes that the presentation of adjusted revenues and the various adjusted EBITDA, adjusted net income, and adjusted earnings per diluted share measures provides important supplemental information to management and investors regarding financial and business trends relating to the Company's financial condition and results of operations. For further information regarding why Integra believes that these non-GAAP financial measures provide useful information to investors, the specific manner in which management uses these measures, and some of the limitations associated with the use of these measures, please refer to the Company's Current Report on Form 8-K regarding this earnings press release filed today with the Securities and Exchange Commission. This Current Report on Form 8-K is available on the SEC's website at www.sec.gov or on our website at www.integralife.com.

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
(In thousands, except per share amounts)  
  Three Months Ended
  June 30,
  2012 2011
Total revenues $210,170 $193,329
     
Costs and expenses:    
Cost of goods sold 78,274 72,838
Research and development 13,131 12,709
Selling, general and administrative 96,097 95,732
Intangible asset amortization 4,647 4,050
Total costs and expenses 192,149 185,329
     
Operating income 18,021 8,000
     
Interest income 415 127
Interest expense (7,103) (6,722)
Other income (expense), net 236 593
Income before income taxes 11,569 1,998
     
Income tax expense 3,055 1,299
Net income 8,514 699
     
Diluted net income per share $0.30 $0.02
Weighted average common shares outstanding for diluted net income per share 28,609 30,178
     

Listed below are the items included in GAAP revenues and GAAP net income that management excludes in computing the adjusted financial measures referred to in the text of this press release and further described under Discussion of Adjusted Financial Measures.

Segment revenues and growth in total revenues excluding the effects of currency exchange rates are as follows:

(In thousands)  
  Three Months Ended
  June 30,
  2012 2011 Change
U.S. Neurosurgery  $42,324 $41,316 2%
U.S. Instruments 41,269  37,836 9%
U.S. Extremities 32,048  23,210 38%
U.S. Spine & Other 48,823  43,267 13%
International 45,706  47,700 (4)%
Total Revenue  $210,170 $193,329 9%
       
Impact of changes in currency exchange rates $2,970 --  
Total revenues excluding the effects of currency exchange rates $213,140 $193,329 10%

The International segment revenues reflect sales that are actively managed by our International division. This does not constitute all recorded sales outside the U.S., as some Instrument and Private Label product sales in those regions are managed by their respective U.S. divisions. Therefore, from a geographic perspective, Non-U.S. revenue (see below) exceeds that of our International segment.

Worldwide product category revenues are as follows:

(In thousands)  
  Three Months Ended
  June 30,
  2012 2011 Change
WW Orthopedics* $95,695 $81,479 17%
U.S.  80,720  66,238 22%
Non-U.S.  14,975  15,241 (2)%
       
WW Neurosurgery 67,775  68,174 (1)%
U.S. 42,165  41,227 2%
Non-U.S. 25,610  26,947 (5)%
       
WW Instruments 46,700  43,676 7%
U.S. 40,598  37,029 10%
Non-U.S. 6,102  6,647 (8)%
Total Revenue $210,170  $193,329 9%
       

*The WW Orthopedics revenue category includes segment revenue from U.S. Extremities, U.S. Spine & Other, and International segment revenue related to those product areas.

Items included in GAAP net income and location where each item is recorded are as follows:

(In thousands)            
  Three Months Ended June 30, 2012
   
Item Total Amount COGS(a) SG&A(b) Amort.(c) Interest Exp(Inc)(d) Tax(e)
Plainsboro, New Jersey manufacturing facility remediation costs $1,770 $1,770 $ -- $ -- $ -- $ --
             
Global ERP implementation charges 3,607 -- 3,607 -- -- --
             
Facility optimization charges 2,984 896 2,088 -- -- --
             
Acquisition-related charges 1,019 1,019 -- -- -- --
             
Convertible debt non-cash interest 2,969 -- -- -- 2,969 --
             
Intangible asset amortization expense 6,262 1,615 -- 4,647 -- --
             
Estimated income tax impact from adjustments and other items 6,060 -- -- -- -- 6,060
             
Depreciation expense 6,971          
             
Stock-based compensation expense 2,285          
 
a)  COGS – Cost of goods sold
b)  SG&A – Selling, general and administrative
c)  Amort. – Intangible asset amortization
d)  Interest Inc(Exp) – Interest income (expense), net
e)  Tax – Income tax expense
 
  Three Months Ended June 30, 2011
             
Item Total Amount COGS SG&A Amort. Interest Exp(Inc) Tax
Global ERP implementation charges $2,932 $ -- $2,932 $ -- $ -- $ --
Facility optimization charges 271 271   -- -- --
Certain employee termination charges 812 -- 812 -- -- --
Discontinued product lines charges 3,079 1,191 1,888 -- -- --
Acquisition-related charges 1,620 554 1,066 -- -- --
Impairment charges 2,400 1,500 -- 900 -- --
European entity restructuring charges 116 -- 116 -- -- --
Certain executive compensation charges 8,379 -- 8,379 -- -- --
Financing charges 790 -- -- -- 790 --
Convertible debt non-cash interest 1,998 -- -- -- 1,998 --
Intangible asset amortization expense* 4,666 1,515 -- 3,151 -- --
Estimated income tax impact from adjustments and other items (6,547) -- -- -- -- (6,547)
Depreciation expense** 6,246          
Stock-based compensation expense 3,450          

*For the period ending June 30, 2011, "Intangible asset amortization expense" excludes $2,400 already included in "Impairment charges" above.

** For the period ending June 30, 2011, "Depreciation expense" excludes $1,888 already included in "discontinued product line charges"

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
RECONCILIATION OF NON-GAAP ADJUSTMENTS – GAAP NET INCOME TO ADJUSTED EBITDA AND ADJUSTED
EBITDA EXCLUDING STOCK BASED COMPENSATION
(UNAUDITED)
   
(In thousands)  
  Three Months Ended
  June 30,
  2012 2011
     
GAAP net income $8,514 $699
Non-GAAP adjustments:    
     
Depreciation and intangible asset amortization expense 13,232 10,204
     
Other (income) expense, net (236) (593)
     
Interest (income) expense, net 6,688 6,595
     
Income tax expense 3,055 1,299
     
Plainsboro, New Jersey manufacturing facility remediation costs 1,770 --
     
Global ERP implementation charges 3,607 2,932
     
Facility optimization charges 2,984 271
     
Certain employee termination charges -- 812
     
Discontinued product lines charges -- 3,079
     
Acquisition-related charges 1,019 1,620
     
Certain executive compensation charges -- 8,379
     
Impairment charges -- 2,400
     
European entity restructuring charges -- 116
     
Total of non-GAAP adjustments 32,119 37,144
     
Adjusted EBITDA $40,633 $37,813
     
Stock-based compensation 2,285 3,450
     
Adjusted EBITDA excluding stock-based compensation $42,918 $41,263
 
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
RECONCILIATION OF NON-GAAP ADJUSTMENTS – GAAP NET INCOME TO MEASURES OF ADJUSTED NET INCOME
AND ADJUSTED EARNINGS PER SHARE
(UNAUDITED)
   
(In thousands, except per share amounts)  
  Three Months Ended
  June 30,
  2012 2011
     
GAAP net income $8,514 $699
Non-GAAP adjustments:    
     
Plainsboro, New Jersey manufacturing facility remediation costs 1,770 --
     
Global ERP implementation charges 3,607 2,932
     
Facility optimization charges 2,984 271
     
Certain employee termination charges -- 812
     
Discontinued product lines charges -- 3,079
     
Acquisition-related charges 1,019 1,620
     
Financing charges -- 790
     
Certain executive compensation charges -- 8,379
     
Impairment charges -- 2,400
     
European entity restructuring charges -- 116
     
Convertible debt non-cash interest 2,969 1,998
     
Intangible asset amortization expense 6,262 4,666
     
Estimated income tax impact from adjustments and other items (6,060) (6,547)
     
Total of non-GAAP adjustments 12,551 20,516
     
Adjusted net income $21,065 $21,215
     
Adjusted diluted net income per share $0.74 $0.70
     
Weighted average common shares outstanding for diluted net income per share 28,609 30,178
 
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED BALANCE SHEET DATA
(UNAUDITED)
     
(In thousands)    
  June 30, December 31,
  2012 2011
     
Cash and cash equivalents $75,470 $100,808
Short-term investments 39,315 --
Accounts receivable, net 115,571 118,129
Inventory, net 172,541 171,261
     
Bank line of credit 321,875 179,688
Convertible securities 194,072 352,576
     
Stockholders' equity 507,212 492,638
 
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
RECONCILIATION OF NON-GAAP ADJUSTMENTS – GUIDANCE
     
(In thousands, except per share amounts)    
  Recorded
Year to Date
Projected
Year Ended
  June 30, 2012 December 31, 2012
    Low High
GAAP net income $15,207 $38,473 $40,973
Non-GAAP adjustments:      
       
Plainsboro, New Jersey manufacturing facility remediation costs 3,405 4,140 4,140
       
Global ERP implementation charges 7,276 17,225 17,225
       
Facility optimization charges 4,620 13,180 13,180
       
Certain employee termination charges 501 501 501
       
Discontinued product lines charges 835 835 835
       
Acquisition-related charges 1,721 3,520 3,520
       
Impairment charges 141 141 141
       
Convertible debt non-cash interest 6,497 10,100 10,100
       
Intangible asset amortization expense 12,662 24,880 24,880
       
Estimated income tax impact from adjustments and other items (11,810) (27,995) (27,995)
       
Total of non-GAAP adjustments 25,848 46,527 46,527
       
Adjusted net income $41,055 $85,000 $87,500
       
GAAP diluted net income per share $0.53 $1.34 $1.43
       
Non-GAAP adjustments detailed above (per share) $0.91 $1.90 $1.90
       
Adjusted diluted net income per share $1.44 $2.97 $3.06
       
Weighted average common shares outstanding for diluted net income per share 28,549 28,600 28,600
       

Items included in GAAP net income guidance and location where each item is expected to be recorded is as follows:

(In thousands)  
  Projected Year Ended December 31, 2012
   
Item Total Amount COGS SG&A Amort. Interest Exp(Inc) Tax
Plainsboro, New Jersey manufacturing facility remediation costs $4,140 $4,140 $-- $-- $-- $--
             
Global ERP implementation charges 17,225 -- 17,225 -- -- --
             
Facility optimization charges 13,180 8,787 4,393 -- -- --
             
Certain employee termination charges 501 -- 501 -- -- --
             
Discontinued product lines charges 835 835 -- -- -- --
             
Acquisition-related charges 3,520 3,520 -- -- -- --
             
Impairment charges 141 141 -- -- -- --
             
Convertible debt non-cash interest 10,100 -- -- -- 10,100 --
             
Intangible asset amortization expense 24,480 6,540 -- 18,340 -- --
             
Estimated income tax impact from adjustments and other items (27,995) -- -- -- -- (27,995)
Integra LifeSciences Holdings Corporation
John B. Henneman, III
Executive Vice President,
Finance and Administration,
and Chief Financial Officer
(609) 275-0500


Investor Relations
Angela Steinway
(609) 936-2268