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Integra LifeSciences Reports Fourth Quarter 2012 Financial Results

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Constant Currency Growth of 5.7%

Introduces 2013 Full-Year Guidance

PLAINSBORO, N.J., Feb. 21, 2013 (GLOBE NEWSWIRE) -- Integra LifeSciences Holdings Corporation (Nasdaq:IART) today reported its financial results for the fourth quarter ending December 31, 2012. Total revenues for the fourth quarter were $214.4 million, reflecting an increase of $10.9 million, or 5.4%, over the fourth quarter of 2011. Total revenues in the full year of 2012 were $830.9 million, reflecting an increase of $50.8 million, or 6.5%, over 2011.

Excluding the impact of currency exchange rates, revenues increased 5.7% over the fourth quarter of 2011 and 7.4% over the full year 2011.

The Company reported GAAP net income of $12.8 million, or $0.46 per diluted share, for the fourth quarter of 2012, compared to GAAP net income of $4.6 million, or $0.16 per diluted share, for the fourth quarter of 2011. The Company reported GAAP net income of $41.2 million, or $1.44 per diluted share, for the full year 2012, compared to GAAP net income of $28.0 million, or $0.95 per diluted share in 2011.

Net income for the fourth quarter of 2012, computed with the adjustments to GAAP reporting set forth in the attached reconciliation, was $22.0 million, or $0.78 per diluted share, compared to adjusted net income of $20.6 million, or $0.72 per diluted share, in the fourth quarter of 2011. Adjusted net income for the full year 2012, computed with the adjustments to GAAP reporting set forth in the attached reconciliation, was $87.2 million, or $3.06 per diluted share, compared to $82.2 million, or $2.79 per diluted share in 2011.

"We are pleased to have hit our growth objectives and the high end of the guidance we provided a year ago," said Peter Arduini, President and Chief Executive Officer. "The entire organization is focused on executing our strategy and growing the company."

Integra used $3.8 million of cash for operations in the fourth quarter of 2012, including a $29.8 million tax withholding payment made in connection with the release of the former CEO's deferred stock units. Integra also invested $24.7 million in capital expenditures in the fourth quarter of 2012. For the full year ended December 31, 2012, Integra's cash flows from operations totaled $58.7 million, including the tax withholding payment and $30.6 million of accreted interest paid at the maturity of the Company's 2012 Senior Convertible Notes. The Company invested $69.0 million in capital expenditures during the year.

Adjusted EBITDA for the fourth quarter of 2012 was $40.7 million, an increase of 4.9% compared to the fourth quarter last year. Adjusted EBITDA excluding stock-based compensation for the fourth quarter of 2012 was $43.1 million, an increase of 3.1% compared to the fourth quarter last year. Adjusted EBITDA for the full year 2012 was $166.3 million, an increase of 7.5% compared to last year. Adjusted EBITDA excluding stock-based compensation for the full year 2012 was $175.4 million, an increase of 4.3% compared to last year. All references to EBITDA in this paragraph were computed with the adjustments to GAAP reporting set forth in the attached reconciliations.

For the fourth quarter and full year 2012, both GAAP and adjusted net income include a benefit to interest expense reflecting an out-of-period correction for interest expense that should have been capitalized as part of capital projects not yet placed in service.

Because the American Taxpayer Relief Act of 2012 was not enacted until 2013, the extension of the R&D tax credit for 2012 is not recognized in the Company's 2012 financial results and instead will be reflected in the Company's 2013 GAAP and adjusted financial results.

Outlook for 2013

The Company expects 2013 revenues for the full year to be between $865 and $880 million. The Company expects its GAAP earnings per diluted share for the full year to be between $1.68 and $1.87 and adjusted earnings per diluted share to be between $3.08 and $3.27.

"Our plan for 2013 anticipates strong execution, both by our sales organizations and on the cost savings initiatives we laid out last fall," said Jack Henneman, Chief Financial Officer. "The Medical Device Excise Tax and new depreciation on our ERP system will temper otherwise robust margin improvement in the business."

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, Thursday, February 21, 2013 to discuss financial results for the fourth 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 913-312-0417 and using the passcode 9249791. 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 March 7, 2013 by dialing 719-457-0820 and using the passcode 9249791. 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.

The Integra LifeSciences Holdings Corp. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=440

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 fourth-party payors' willingness to provide reimbursement for the Company's recently launched and planned products; the Company's ability to manufacture and ship sufficient quantities of its products to meet its customers' demand; initiatives launched by the Company's competitors; downward pricing pressures for customers; 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 and year ended December 31, 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 and years ended December 31, 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
December 31,
Twelve Months Ended
December 31,
2012 2011 2012 2011
Total revenues $214,432 $203,523 $830,871 $780,078
Costs and expenses:
Cost of goods sold 81,930 82,740 314,427 299,150
Research and development 12,864 13,402 51,012 51,451
Selling, general and administrative 96,529 94,808 373,114 358,132
Intangible asset amortization 4,551 4,824 18,536 16,433
Total costs and expenses 195,874 195,774 757,089 725,166
Operating income 18,558 7,749 73,782 54,912
Interest income 312 111 1,205 465
Interest expense (1,656) (7,862) (22,237) (27,640)
Other income (expense), net (603) 378 (721) 757
Income before income taxes 16,611 376 52,029 28,494
Income tax expense (benefit) 3,825 (4,184) 10,825 505
Net income 12,786 4,560 41,204 27,989
Diluted net income per share $0.46 $0.16 $1.44 $0.95
Weighted average common shares outstanding for diluted net income per share 28,064 28,434 28,516 29,495

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

(In thousands)

Three Months Ended
December 31,
Twelve Months Ended
December 31,
2012 2011 Change 2012 2011 Change
U.S. Neurosurgery $45,502 $43,406 4.8% $171,278 $165,652 3.4%
U.S. Instruments 41,591 38,901 6.9% 162,323 155,833 4.2%
U.S. Extremities* 31,251 28,768 8.6% 122,847 98,109 25.2%
U.S. Spine & Other 47,725 45,594 4.7% 190,546 174,479 9.2%
International* 48,363 46,854 3.2% 183,877 186,005 (1.1)%
Total Revenue $214,432 $203,523 5.4% $830,871 $780,078 6.5%
Impact of changes in currency exchange rates $626 $— $6,798 $—
Total revenues excluding the effects of currency exchange rates $215,058 $203,523 5.7% $837,669 $780,078 7.4%

* The Company revised revenues in the U.S. Extremities and International segments in the fourth quarter and full year of 2011. This revision moves $1.0 million of international revenues resulting from the Ascension acquisition from the U.S. Extremities segment to the International segment during those periods.

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
December 31,
Twelve Months Ended
December 31,
2012 2011 Change 2012 2011 Change
WW Orthopedics* $93,279 $89,504 4.2% $369,312 $328,933 12.3%
U.S. 78,902 74,164 6.4% 312,868 271,837 15.1%
Non-U.S. 14,377 15,340 (6.3)% 56,444 57,096 (1.1)%
WW Neurosurgery 74,028 69,409 6.7% 277,527 272,538 1.8%
U.S. 45,268 43,217 4.7% 170,735 165,283 3.3%
Non-U.S. 28,760 26,192 9.8% 106,792 107,255 (0.4)%
WW Instruments 47,125 44,610 5.6% 184,032 178,607 3.0%
U.S. 40,573 38,241 6.1% 159,227 152,826 4.2%
Non-U.S. 6,552 6,369 2.9% 24,805 25,781 (3.8)%
Total Revenue $214,432 $203,523 5.4% $830,871 $780,078 6.5%

* 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 December 31, 2012

Item
Total Amount COGS(a) SG&A(b) Amort.(c) Interest
Exp(Inc)(d)
Tax(e)
Plainsboro, New Jersey manufacturing facility remediation costs $746 $746 $— $— $— $—
Global ERP implementation charges 4,287 4,287
Facility optimization charges 2,617 838 1,779
Certain employee termination charges 217 156 61
Discontinued product lines charges 310 310
Acquisition-related charges 485 485
Convertible debt non-cash interest 236 236
Intangible asset amortization expense 6,132 1,582 4,550
Estimated income tax impact from adjustments and other items (5,850) (5,850)
Depreciation expense 7,357
Stock-based compensation expense 2,420
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 December 31, 2011
(In thousands)

Item
Total Amount COGS (a) R&D (b) SG&A (c) Amort. (d) Interest
Exp/(Inc) (e)
Tax (f)
Global ERP implementation charges $5,236 $— $— $5,236 $— $— $—
Certain employee termination and related charges 1,859 369 1,490
Facility optimization charges 829 829
Discontinued product lines charges 262 262
Acquisition-related charges 1,026 1,373 (347)
Plainsboro, New Jersey manufacturing facility remediation costs 4,082 4,082
Certain executive compensation charges 4,912 4,912
Convertible debt non-cash interest 3,472 3,472
Intangible asset amortization expense 7,003 2,179 4,824
Estimated income tax impact from adjustments and other items (12,643) (12,643)
Depreciation expense 5,866
Stock-based compensation expense 2,996
a) COGS - Cost of goods sold
b) R&D - Research and development
c) SG&A - Selling, general and administrative
d) Amort. - Intangible asset amortization
e) Interest Inc(Exp) - Interest income (expense), net
f) Tax - Income tax expense

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

(In thousands)

Twelve Months Ended December 31, 2012

Item
Total Amount COGS(a) SG&A(b) Amort.(c) Interest
Exp(Inc)(d)
Tax(e)
Plainsboro, New Jersey manufacturing facility remediation costs $7,939 $7,939 $— $— $— $—
Global ERP implementation charges 16,384 16,384
Facility optimization charges 10,098 3,720 6,378
Certain employee termination charges 1,356 449 907
Discontinued product lines charges 1,368 1,368
Acquisition-related charges 2,808 2,808
Intangible asset impairment charges 141 141
Convertible debt non-cash interest 8,520 8,520
Intangible asset amortization expense* 24,991 6,455 18,536
Estimated income tax impact from adjustments and other items (27,590) (27,590)
Depreciation expense 27,479
Stock-based compensation expense 9,051
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

* This amount excludes $141 of intangible asset amortization expense included in "intangible asset impairment charges" above.

Twelve Months Ended December 31, 2011
(In thousands)

Item
Total Amount COGS (a) R&D (b) SG&A (c) Amort. (d) Interest
Exp(Inc) (e)
Tax (f)
Global ERP implementation charges $17,068 $— $— $17,068 $— $— $—
Facility optimization charges 2,956 2,262 694
European entities restructuring charges 378 378
Discontinued product lines charges 3,926 2,038 1,888
Acquisition-related charges 5,253 3,254 300 1,699
Certain employee termination and related charges 2,705 34 369 2,302
Intangible asset impairment charges 2,648 1,597 1,051
Plainsboro, New Jersey manufacturing facility remediation costs 5,830 5,830
Certain executive compensation charges 13,391 13,391
Convertible debt non-cash interest 10,521 10,521
Financing charges 790 790
Intangible asset amortization expense* 21,979 6,597 15,382
Estimated income tax impact from adjustments and other items (33,244) (33,244)
Depreciation expense 23,657
Stock-based compensation expense 13,514

* This amount excludes $2,648 of intangible asset amortization expense included in "intangible asset impairment charges" above.

a) COGS - Cost of goods sold
b) R&D - Research and development
c) SG&A - Selling, general and administrative
d) Amort. - Intangible asset amortization
e) Interest Inc(Exp) - Interest income (expense), net
f) Tax - Income tax expense
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
December 31,
Twelve Months Ended
December 31,
2012 2011 2012 2011
GAAP net income $12,786 $4,560 $41,204 $27,989
Non-GAAP adjustments:
Depreciation and intangible asset amortization expense 13,489 12,869 52,470 45,636
Other (income) expense, net 603 (378) 721 (757)
Interest (income) expense, net 1,344 7,751 21,032 27,175
Income tax expense (benefit) 3,825 (4,184) 10,825 505
Plainsboro, New Jersey manufacturing facility remediation costs 746 4,082 7,939 5,830
Global ERP implementation charges 4,287 5,236 16,384 17,068
Facility optimization charges 2,617 829 10,098 2,956
Certain employee termination charges 217 1,859 1,356 2,705
Discontinued product lines charges 310 262 1,368 3,926
Intangible asset impairment charges 141 2,648
Acquisition-related charges 485 1,026 2,808 5,253
Changes related to restructuring European entities 378
Certain executive compensation charges 4,912 13,391
Total of non-GAAP adjustments 27,923 34,264 125,142 126,714
Adjusted EBITDA $40,709 $38,824 $166,346 $154,703
Stock-based compensation 2,420 2,996 9,051 13,514
Adjusted EBITDA excluding stock-based compensation $43,129 $41,820 $175,397 $168,217
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
December 31,
Twelve Months Ended
December 31,
2012 2011 2012 2011
GAAP net income $12,786 $4,560 $41,204 $27,989
Non-GAAP adjustments:
Plainsboro, New Jersey manufacturing facility remediation costs 746 4,082 7,939 5,830
Global ERP implementation charges 4,287 5,236 16,384 17,068
Facility optimization charges 2,617 829 10,098 2,956
Intangible asset impairment charges 141 2,648
Certain employee termination charges 217 1,859 1,356 2,705
Discontinued product lines charges 310 262 1,368 3,926
Acquisition-related charges 485 1,026 2,808 5,253
European entity restructuring charges 378
Certain executive compensation charges 4,912 13,391
Financing charges 790
Convertible debt non-cash interest 236 3,472 8,520 10,521
Intangible asset amortization expense 6,132 7,003 24,991 21,979
Estimated income tax impact from adjustments and other items (5,850) (12,643) (27,590) (33,244)
Total of non-GAAP adjustments 9,180 16,038 46,015 54,201
Adjusted net income $21,966 $20,598 $87,219 $82,190
Adjusted diluted net income per share $0.78 $0.72 $3.06 $2.79
Weighted average common shares outstanding for diluted net income per share 28,064 28,434 28,516 29,495
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED BALANCE SHEET DATA
(UNAUDITED)
(In thousands)
December 31, December 31,
2012 2011
Cash and cash equivalents $96,938 $100,808
Accounts receivable, net 114,916 118,129
Inventory, net 171,806 171,261
Bank line of credit 321,875 179,688
Convertible securities 197,672 352,576
Stockholders' equity 517,775 492,638
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
RECONCILIATION OF NON-GAAP ADJUSTMENTS - GUIDANCE
(In thousands, except per share amounts)
Projected Year Ended
December 31, 2013
Low High
GAAP net income $47,440 $52,840
Non-GAAP adjustments:
Plainsboro, New Jersey manufacturing facility remediation costs 1,630 1,630
Global ERP implementation charges 16,270 16,270
Facility optimization charges 18,340 18,340
Acquisition-related charges 1,400 1,400
Convertible debt non-cash interest 6,220 6,220
Intangible asset amortization expense 19,010 19,010
Estimated income tax impact from adjustments and other items (23,510) (23,510)
Total of non-GAAP adjustments 39,360 39,360
Adjusted net income $86,800 $92,200
GAAP diluted net income per share $1.68 $1.87
Non-GAAP adjustments detailed above (per share) $1.40 $1.40
Adjusted diluted net income per share $3.08 $3.27
Weighted average common shares outstanding for diluted net income per share 28,200 28,200

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, 2013
Item Total Amount COGS SG&A Amort. Interest
Exp(Inc)
Tax
Plainsboro, New Jersey manufacturing facility remediation costs $1,630 $1,630 $— $— $— $—
Global ERP implementation charges 16,270 16,270
Facility optimization charges 18,340 13,630 4,710
Acquisition-related charges 1,400 1,400
Convertible debt non-cash interest 6,220 6,220
Intangible asset amortization expense 19,010 19,010
Estimated income tax impact from adjustments and other items 23,510 23,510

CONTACT: Integra LifeSciences Holdings Corporation John B. Henneman, III Corporate Vice President, Finance and Administration, and Chief Financial Officer (609) 275-0500 Investor Relations: Angela Steinway (609) 936-2268 angela.steinway@integralife.com

Source:Integra LifeSciences Holdings Corp.