Delaware | 0-26224 | 51-0317849 |
(State or other jurisdiction of incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification No.) |
• | supplementing the financial results and forecasts reported to the Company's board of directors; |
• | evaluating, managing and benchmarking the operating performance of the Company; |
• | establishing internal operating budgets; |
• | determining compensation under bonus or other incentive programs; |
• | enhancing comparability from period to period; |
• | comparing performance with internal forecasts and targeted business models; and |
• | evaluating and valuing potential acquisition candidates. |
• | Structural optimization charges. These charges, which include employee severance and other costs associated with exit or disposal of facilities, costs related to transferring manufacturing and/or distribution activities to different locations, and rationalization or enhancement of our organization, existing manufacturing, distribution, administrative, functional and commercial infrastructure. Some of these cost-saving and efficiency-driven activities are identified as opportunities in connection with acquisitions that provide the Company with additional capacity or economies of scale. Although recurring in nature, given management's ongoing review of the efficiency of our organization and structure, including manufacturing, distribution and administrative facilities and operations, management excludes these items when evaluating the operating performance of the Company because the frequency and amount of such charges vary significantly based on the timing and magnitude of the Company's rationalization activities and are, in some cases, dependent upon opportunities identified in acquisitions, which also vary in frequency and magnitude. |
• | Acquisition- and integration-related charges. Acquisition- and integration-related charges include (i) up-front fees and milestone payments that are expensed as incurred in connection with acquiring licenses or rights to technology for which no product has been approved for sale by regulatory authorities and such approval is not reasonably assured at the time such up-front fees or milestone payments are made, (ii) inventory fair value purchase accounting adjustments, (iii) changes in the fair value of contingent consideration after the acquisition date, (iv) costs related to acquisition integration, including systems, operations, retention and severance and (v) legal, accounting and other outside consultants expenses directly related to acquisitions or divestitures. Inventory fair value purchase accounting adjustments consist of the increase to cost of goods sold that occur as a result of expensing the “step up” in the fair value of inventory that we purchased in connection with acquisitions as that inventory is sold during the financial period. Although recurring, given the ongoing character of our development and acquisition programs, these acquisition, divestiture and in-licensing related charges are not factored into the evaluation of our performance by management after completion of development programs or acquisitions because they are of a temporary nature, they are not related to our core operating performance and the frequency and amount of such charges vary significantly based on the timing and magnitude of our development, acquisition and divestiture transactions as well as the level of inventory on hand at the time of acquisition. |
• | Hurricane related expenses. Management excludes this item when evaluating the Company’s performance because of the infrequent nature of this activity. |
• | Litigation charges. Management excludes this item when evaluating the Company’s operating performance because costs incurred related to non-recurring litigation are not reflective of its ongoing operations. |
• | Discontinued product lines charges. These charges represent charges taken in connection with product lines that the Company discontinues. Management excludes this item when evaluating the Company’s operating performance because discontinued products do not provide useful information regarding the Company’s prospects for future performance. |
• | Intangible asset amortization expense. Management excludes this item when evaluating the Company's operating performance because it is a non-cash expense. |
• | Impairment charges. These charges represent the impairment of certain completed technology assets due to updates in contracts or revenue projections. Management excludes this item when evaluating the Company's operating performance because it is a non-cash expense. |
• | Income tax impact from adjustments. Estimated impact on income tax expense related to the following: |
(i) | Adjustments to income tax expense for the amount of additional tax expense that the Company estimates that it would record if it used non-GAAP results instead of GAAP results in the calculation of its tax provision, based on the statutory rate applicable to jurisdictions in which the above non-GAAP adjustments relate. |
(ii) | When we calculate the adjusted tax rate, we include a full year estimate for all discrete items. We then apply that full year rate to the year-to-date results and calculate the current quarter’s rate to arrive at the year-to-date adjusted tax rate. We believe this removes significant variability in our results and creates a more operationally consistent result for our investors to use for comparability purposes. |
• | The Company periodically acquires other companies or businesses, and we expect to continue to incur acquisition-related expenses and charges in the future. These costs can directly impact the amount of the Company's available funds or could include costs for aborted deals which may be significant and reduce GAAP net income. |
• | All of the adjustments to GAAP net income have been tax affected at the Company's actual tax rates. Depending on the nature of the adjustments and the tax treatment of the underlying items, the effective tax rate related to adjusted net income could differ significantly from the effective tax rate related to GAAP net income. |
INTEGRA LIFESCIENCES HOLDINGS CORPORATION | ||
Date: October 31, 2018 | By: | /s/ Glenn G. Coleman |
Glenn G. Coleman | ||
Title: | Chief Financial Officer and Corporate Vice President, | |
International | ||
Investor Relations Contacts: | |
Sravan Emany | |
Senior Vice President, Strategy, Treasury & Investor Relations | |
(609) 936-2488 | |
sravan.emany@integralife.com | |
Michael Beaulieu | |
Director, Investor Relations | |
(609) 750-2827 | |
michael.beaulieu@integralife.com | |
Media Contact: | |
Laurene Isip | |
Senior Director, Global Corporate Communications | |
(609) 750-7984 | |
laurene.isip@integralife.com |
• | Reported revenue was $365.9 million, an increase of 31.2% compared to the third quarter of 2017 with the acquisition of Codman contributing $78.9 million, and organic revenues increased 6.2% over the third quarter of 2017; |
• | GAAP earnings per share was $0.15, compared to $0.04 in the third quarter of 2017; |
• | Adjusted earnings per share was $0.59, reflecting an increase of 31.1% compared to the third quarter of 2017; |
• | The company is revising its full-year 2018 guidance as follows: |
◦ | Total revenue is now expected to be a range of $1.467 billion to $1.472 billion (previously $1.475 billion to $1.490 billion); |
▪ | Guidance range reflects lower forecasted revenue from extremities orthopedics, Codman revenue in select countries outside the U.S. where commercial operations have not yet transferred to Integra ("Day 2 Countries"), and a lower foreign currency benefit; |
◦ | Organic revenue growth guidance is now expected to be approximately 4% (previously approximately 5%); |
• | The company is reiterating its full-year 2018 GAAP earnings per share of $0.71 to $0.77 and adjusted earnings per share of $2.36 to $2.42. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Total revenues, net | $ | 365,854 | $ | 278,834 | $ | 1,089,126 | $ | 819,634 | |||||||
Costs and expenses: | |||||||||||||||
Cost of goods sold | 143,245 | 101,757 | 425,032 | 287,340 | |||||||||||
Research and development | 20,309 | 15,034 | 57,742 | 46,275 | |||||||||||
Selling, general and administrative | 173,355 | 145,945 | 513,518 | 433,457 | |||||||||||
Intangible asset amortization | 5,268 | 5,456 | 15,944 | 14,976 | |||||||||||
Total costs and expenses | 342,177 | 268,192 | 1,012,236 | 782,048 | |||||||||||
Operating income | 23,677 | 10,642 | 76,890 | 37,586 | |||||||||||
Interest income | 75 | 89 | 325 | 160 | |||||||||||
Interest expense | (14,478 | ) | (6,761 | ) | (50,750 | ) | (18,073 | ) | |||||||
Other income (expense), net | 1,750 | (735 | ) | 6,422 | (3,691 | ) | |||||||||
Income before taxes | 11,024 | 3,235 | 32,887 | 15,982 | |||||||||||
Income tax expense (benefit) | (2,271 | ) | 76 | (2,776 | ) | (4,406 | ) | ||||||||
Net income | $ | 13,295 | $ | 3,159 | $ | 35,663 | $ | 20,388 | |||||||
Net income per share: | |||||||||||||||
Diluted net income per share | $ | 0.15 | $ | 0.04 | $ | 0.43 | $ | 0.26 | |||||||
Weighted average common shares outstanding for diluted net income per share | 86,299 | 79,455 | 83,142 | 78,973 |
Three Months Ended September 30, | |||
2018 | 2017 | Change | |
Codman Specialty Surgical | $239,035 | $164,760 | 45.1% |
Orthopedics and Tissue Technologies | 126,819 | 114,074 | 11.2% |
Total revenues | $365,854 | $278,834 | 31.2% |
Impact of changes in currency exchange rates | 1,109 | - | |
Less contribution of revenues from acquisitions(1) | (78,872) | - | |
Less contribution of revenues from discontinued and divested products(2) | (2,074) | (9,637) | |
Total organic revenues | $286,017 | $269,197 | 6.2% |
Item | Total Amount | COGS(a) | SG&A(b) | Amort.(c) | OI&E(d) | Tax(e) |
Structural optimization charges | 3,345 | 974 | 2,371 | — | — | |
Acquisition and integration related charges(1) | 23,515 | 5,458 | 18,057 | — | — | — |
Litigation charges | 1,637 | — | 1,637 | — | — | — |
Intangible asset amortization expense | 16,479 | 11,211 | — | 5,268 | — | — |
Impairment charges | 4,941 | 4,941 | — | — | — | — |
Estimated income tax impact from above adjustments | (12,633) | — | — | — | — | (12,633) |
Total adjustments | $37,284 | $22,584 | $22,065 | $5,268 | $— | $(12,633) |
Depreciation expense | 10,709 | — | — | — | — | — |
a) | COGS - Cost of goods sold |
b) | SG&A - Selling, general and administrative |
c) | Amort. - Intangible asset amortization |
d) | OI&E - Interest (income) expense, net and other (income) expense, net |
e) | Tax - Income tax expense |
Item | Total Amount | COGS (a) | SG&A (b) | Amort. (c) | OI&E (d) | Tax (e) | |
Structural optimization charges | 1,944 | 1,309 | 635 | — | — | — | |
Acquisition and integration related charges(1) | 24,904 | 1,572 | 23,332 | — | — | — | |
Hurricane-related losses | 1,261 | 1,261 | — | — | — | — | |
Intangible asset amortization expense | 12,499 | 7,043 | — | 5,456 | — | — | |
Impairment charges | 3,290 | 3,290 | — | — | — | — | |
Estimated income tax impact from above adjustments | (10,991) | — | — | — | — | (10,991) | |
Total adjustments | $32,907 | $14,475 | $23,967 | $5,456 | $— | $(10,991) | |
Depreciation expense | 8,470 | — | — | — | — | — |
a) | COGS - Cost of goods sold |
b) | SG&A - Selling, general and administrative |
c) | Amort. - Intangible asset amortization |
d) | OI&E - Interest (income) expense, net and other (income) expense, net |
e) | Tax - Income tax expense |
Three Months Ended Sept 30, | |||||||
2018 | 2017 | ||||||
GAAP net income | $ | 13,295 | $ | 3,159 | |||
Non-GAAP adjustments: | |||||||
Depreciation and intangible asset amortization expense | 27,189 | 20,969 | |||||
Other (income) expense, net | (1,750 | ) | 735 | ||||
Interest expense, net | 14,403 | 6,672 | |||||
Income tax expense (benefit) | (2,271 | ) | 76 | ||||
Structural optimization charges | 3,345 | 1,944 | |||||
Litigation Charges | 1,637 | — | |||||
Acquisition and integration related charges(1) | 23,515 | 24,904 | |||||
Hurricane related expenses | — | 1,261 | |||||
Impairment charges | 4,941 | 3,290 | |||||
Total of non-GAAP adjustments | 71,009 | 59,851 | |||||
Adjusted EBITDA | $ | 84,304 | $ | 63,010 | |||
Three Months Ended Sept 30, | |||||||
2018 | 2017 | ||||||
GAAP net income | $13,295 | $3,159 | |||||
Non-GAAP adjustments: | |||||||
Structural optimization charges | 3,345 | 1,944 | |||||
Acquisition and integration related charges(1) | 23,515 | 24,904 | |||||
Litigation Charges | 1,637 | — | |||||
Impairment charges | 4,941 | 3,290 | |||||
Intangible asset amortization expense | 16,479 | 12,499 | |||||
Hurricane related expenses | — | 1,261 | |||||
Estimated income tax impact from adjustments and other items | (12,633 | ) | (10,991 | ) | |||
Total of non-GAAP adjustments | 37,284 | 32,907 | |||||
Adjusted net income | $ | 50,579 | $ | 36,066 | |||
Adjusted diluted net income per share | $0.59 | $0.45 | |||||
Weighted average common shares outstanding for diluted net income per share | 86,299 | 79,455 |
September 30, 2018 | December 31, 2017 | ||||||
Cash and cash equivalents | $ | 205,991 | $ | 174,935 | |||
Accounts receivable, net | 248,738 | 251,799 | |||||
Inventories, net | 290,846 | 296,332 | |||||
Total debt | 1,432,251 | 1,841,142 | |||||
Stockholders' equity | $ | 1,365,081 | $ | 962,306 |
Nine Months Ended September 30, | |||||||
2018 | 2017 | ||||||
Net cash provided by operating activities | $ | 156,995 | $ | 102,995 | |||
Net cash used in investing activities | (24,375 | ) | (237,767 | ) | |||
Net cash (used in) provided by financing activities | (96,817 | ) | 504,733 | ||||
Effect of exchange rate changes on cash and cash equivalents | (4,747 | ) | 9,927 | ||||
Net increase in cash and cash equivalents | $ | 31,056 | $ | 379,888 | |||
Three Months Ended September 30, | ||||||
2018 | 2017 | |||||
Net cash provided by operating activities | $ | 79,255 | $ | 45,240 | ||
Purchases of property and equipment | (16,669 | ) | (7,796 | ) | ||
Free cash flow | 62,586 | 37,444 | ||||
Adjusted net income(1) | $ | 50,579 | $ | 36,066 | ||
Adjusted free cash flow conversion | 123.7 | % | 103.8 | % | ||
Twelve Months Ended September 30, | ||||||
2018 | 2017 | |||||
Net cash provided by operating activities(2) | $ | 168,552 | $ | 152,302 | ||
Purchases of property and equipment | (65,753 | ) | (50,998 | ) | ||
Adjusted free cash flow | 102,799 | 101,304 | ||||
Adjusted net income(1) | $ | 198,271 | $ | 143,088 | ||
Adjusted free cash flow conversion | 51.8 | % | 70.8 | % | ||
Recorded Year to Date | Projected Year Ended | ||||||||||
(In millions, except per share amounts) | September 30, 2018 | December 31, 2018 | |||||||||
Low | High | ||||||||||
GAAP net income | $ | 35.7 | $ | 61 | $ | 67 | |||||
Non-GAAP adjustments: | |||||||||||
Structural optimization charges | 11.9 | 17.8 | 17.8 | ||||||||
Litigation charges | 3.1 | 3.1 | 3.1 | ||||||||
Acquisition and integration charges | 76.1 | 89.3 | 89.3 | ||||||||
Intangible asset amortization expense | 50.2 | 66.8 | 66.8 | ||||||||
Impairment charges | 4.9 | 4.9 | 4.9 | ||||||||
Estimated income tax impact from adjustments and other items | (34.7 | ) | (43.0 | ) | (43.0 | ) | |||||
Total of non-GAAP adjustments | 111.5 | 138.9 | 138.9 | ||||||||
Adjusted net income | $ | 147.2 | $ | 198 | $ | 204 | |||||
GAAP diluted net income per share | $0.43 | $0.71 | $0.77 | ||||||||
Non-GAAP adjustments detailed above (per share) | $1.34 | $1.65 | $1.65 | ||||||||
Adjusted diluted net income per share | $1.77 | $2.36 | $2.42 | ||||||||
Weighted average common shares outstanding for diluted net income per share | 83.1 | 84 | 84 |
Item | YTD Amount | FY Guidance | COGS | SG&A | R&D | Amort. | Interest (Inc)Exp | Tax | ||||||||
Structural optimization charges | 11.9 | 17.8 | 5.2 | 11.8 | — | — | 0.8 | — | ||||||||
Litigation charges | 3.1 | 3.1 | — | 3.1 | — | — | — | — | ||||||||
Acquisition-related charges | 76.1 | 89.3 | 24.1 | 65.2 | — | — | — | |||||||||
Intangible asset amortization expense | 50.2 | 66.8 | 45.8 | — | — | 21.0 | — | — | ||||||||
Impairment charges | 4.9 | 4.9 | 4.9 | — | — | — | — | — | ||||||||
Estimated income tax impact from adjustments and other items | (34.7 | ) | (43.0 | ) | — | — | — | — | — | (43.0 | ) | |||||
Total | 111.5 | 138.9 | 80.0 | 80.1 | — | 21.0 | 0.8 | (43.0 | ) |