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Integra LifeSciences Reports Second Quarter 2019 Financial Results

Reported revenues increased 4.8% to $383.6 million; organic revenues increased 6.6%

 GAAP and adjusted earnings per diluted share were $0.34 and $0.73, respectively

The Company reaffirms revenue guidance and updates EPS guidance

PLAINSBORO, N.J., July 24, 2019 (GLOBE NEWSWIRE) -- Integra LifeSciences Holdings Corporation (IART), a leading global medical technology company, today reported financial results for the second quarter ending June 30, 2019.

Second Quarter 2019 Highlights

  • Reported revenues were $383.6 million, an increase of 4.8% compared to the second quarter of 2018, and organic revenues increased 6.6% over the prior-year quarter;
       -   Reported revenues in the Codman Specialty Surgical segment increased 4.1% compared to the second quarter of 2018;
       -   Reported revenues in the Orthopedics and Tissue Technologies segment increased 6.1% compared to the second quarter of 2018;
       -   Foreign currency exchange rate changes negatively impacted reported revenues by $4.0 million in the second quarter of 2019;
  • GAAP gross margin was 62.6%, an increase of 20 basis points compared to the second quarter of 2018. Adjusted gross margin was 67.4%, unchanged from the prior-year quarter;
  • Adjusted EBITDA margin was 25.5%, an increase of 200 basis points compared to the second quarter of 2018;
  • GAAP earnings per diluted share were $0.34, more than double the prior-year quarter;
  • Adjusted earnings per diluted share were $0.73, an increase of 21.7% over the second quarter of 2018;
  • The Company reaffirms its revenue guidance for the full-year 2019, which includes total reported revenues of $1.515 billion to $1.525 billion and organic revenue growth of approximately 5%;
  • The Company reaffirms its GAAP earnings per diluted share guidance range for the full-year 2019 of $1.46 to $1.53.  The Company is raising guidance for adjusted earnings per diluted share to a new range of $2.70 to $2.75.

"Strong performance across our entire product portfolio, and in particular new product launches, drove our second quarter results," said Peter Arduini, Integra's president and chief executive officer.  "As we near the end of the Codman integration, we are experiencing a more stable operating environment and realizing the strategic benefits of the combined organizations."

The company reported GAAP net income of $29.7 million, or $0.34 per diluted share, in the second quarter of 2019, compared to GAAP net income of $11.4 million, or $0.14 per diluted share, in the second quarter of 2018.  The improvement was driven by higher revenues, lower integration costs, improved operating leverage and lower interest expense.

Adjusted net income for the second quarter of 2019 was $63.4 million, an increase of 25.4% from the prior year.  The increase in adjusted net income is a result of higher revenues, improved operating leverage and lower interest expense.  Adjusted earnings per diluted share for the second quarter of 2019 was $0.73, an increase of 21.7% over the prior year's quarter.

Adjusted EBITDA for the second quarter of 2019 was $97.9 million, or 25.5% of revenue, a 200 basis point improvement compared to $85.9 million, or 23.5% of revenue, in the second quarter of 2018. This increase was driven mostly by improved operating leverage.

2019 Full-Year Outlook

The Company reaffirms its revenue guidance for the full-year 2019, which includes total reported revenues of $1.515 billion to $1.525 billion and organic revenue growth of approximately 5%.

The Company reaffirms its GAAP earnings per diluted share guidance range for the full-year 2019 of $1.46 to $1.53.  The Company is raising guidance for adjusted earnings per diluted share to a new range of $2.70 to $2.75 from its prior range of $2.65 to $2.72.

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, which will be excluded from the calculation of adjusted EBITDA, adjusted earnings per share for historical periods and in adjusted earnings per share guidance.

Conference Call and Presentation Available Online

Integra has scheduled a conference call for 8:30 AM ET today, Wednesday, July 24, 2019, 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.

Integra's management team will reference a presentation during the conference call. The presentation can be found on investor.integralife.com.

Access to the live call is available by dialing (888) 394-8218 and using the passcode 2606382. The call can also be accessed via a webcast link provided on investor.integralife.com.  A replay of the call will be available through July 29, 2019 by dialing (888) 203-1112 and using the passcode 2606382. The webcast will also be archived on the website.

About Integra

Integra LifeSciences is a global leader in regenerative technologies, neurosurgical and extremity orthopedic solutions dedicated to limiting uncertainty for clinicians, so they can focus on providing the best patient care. Integra offers a comprehensive portfolio of high quality, leadership brands that include AmnioExcel®, Bactiseal®, Cadence®, Certas™, Codman®, CUSA®, DuraGen®, DuraSeal®, ICP Express®, Integra®, MediHoney®, MicroFrance®, PriMatrix®, Salto Talaris®, SurgiMend®, TCC-EZ®, Titan™ and VersaTru™.  For the latest news and information about Integra and its brands, 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 and uncertainties and reflect the Company's judgment as of the date of this release.  All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements. Some of these forward-looking statements may contain words like “will,” “believe,” “may,” “could,” “would,” “might,” “possible,” “should,” “expect,” “intend,” “plan,” “anticipate,” or “continue,” the negative of these words, other terms of similar meaning or they may use future dates. Forward-looking statements contained in this news release include, but are not limited to, statements concerning future financial performance, including projections for revenues, expected revenue growth (both reported and organic), GAAP and adjusted net income, GAAP and adjusted earnings per diluted share, non-GAAP adjustments such as acquisition and integration-related charges, litigation charges, impairment charges, intangible asset amortization, structural optimization charges, EU Medical Device Regulation-related charges and income tax expense (benefit) related to non-GAAP adjustments and other items.  It is important to note that the Company’s goals and expectations are not predictions of actual performance.  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 following: the Company's ability to execute its operating plan effectively; the Company’s ability to achieve sales growth in a timely fashion and execute on its channel expansion in its Orthopedics and Tissue Technologies segment; the Company’s ability to successfully integrate the Codman Neurosurgery business and other acquired businesses, including the realignment of acquired global sales territories; the Company's ability to manufacture and ship sufficient quantities of its products to meet its customers' demands; the ability of third-party suppliers to supply us with raw materials and finished products; global macroeconomic and political conditions; the Company's ability to manage its direct sales channels effectively; the sales performance of third-party distributors on whom the Company relies to generate revenue for certain products and geographic regions; the Company's ability to maintain relationships with customers of acquired entities and businesses; physicians' willingness to adopt and third-party payors' willingness to provide or maintain reimbursement for the Company's recently launched, planned and existing products; initiatives launched by the Company's competitors; downward pricing pressures from customers; the Company's ability to secure regulatory approval for products in development; the Company's ability to remediate quality systems violations; fluctuations in hospitals' spending for capital equipment; the Company's ability to comply with and obtain approvals for products of human origin and comply with 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 impact of goodwill and intangible asset impairment charges if future operating results of acquired businesses are significantly less than the results anticipated at the time of the acquisitions, 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 Company’s ability to achieve anticipated growth rates, margins and scale and execute its strategy generally; 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 and internationally; fluctuations in foreign currency exchange rates; the amount of our bank borrowings outstanding and other factors influencing liquidity; 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, 2018 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 certain non-GAAP measures, including organic revenues, adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA"), adjusted net income, adjusted earnings per diluted share, free cash flow and adjusted free cash flow conversion.  Organic revenues consist of total revenues excluding the effects of currency exchange rates, revenues from current-period acquisitions and product discontinuances.  Adjusted EBITDA consists of GAAP net income excluding: (i) depreciation and amortization; (ii) other income (expense); (iii) interest income and expense; (iv) income tax expense (benefit); and (v) those operating expenses also excluded from adjusted net income.  The measure of adjusted net income consists of GAAP net income, excluding: (i) structural optimization charges; (ii) acquisition and integration-related charges; (iii) litigation charges; (iv) EU Medical Device Regulation-related charges; (v) discontinued product lines charges; (vi) intangible asset amortization expense; (vii) income tax impact from adjustments.  The adjusted earnings per diluted share measure is calculated by dividing adjusted net income attributable to diluted shares by diluted weighted average shares outstanding.  The measure of free cash flow consists of GAAP net cash provided by operating activities less purchases of property and equipment.  The adjusted free cash flow conversion measure is calculated by dividing free cash flow by adjusted net income.

Reconciliations of GAAP revenues to adjusted revenues and GAAP Adjusted Net Income to adjusted EBITDA, and adjusted net income, and GAAP earnings per diluted share to adjusted earnings per diluted share all for the quarters ended June 30, 2019 and 2018, and the free cash flow and free cash flow conversion for the quarters ended June 30, 2019 and 2018, appear in the financial tables in this release.

The Company believes that the presentation of organic revenues and the other non-GAAP measures provide 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,
  2019   2018
Total revenues, net $ 383,645     $ 366,190  
       
Costs and expenses:      
Cost of goods sold 143,671     137,565  
Research and development 17,633     19,108  
Selling, general and administrative 165,378     176,597  
Intangible asset amortization 11,004     5,286  
Total costs and expenses 337,686     338,556  
       
Operating income 45,959     27,634  
       
Interest income 2,710     174  
Interest expense (13,384 )   (17,504 )
Other income, net 1,098     2,427  
Income before taxes 36,383     12,731  
Income tax expense 6,647     1,355  
Net income $ 29,736     $ 11,376  
       
Net income per share:      
Diluted net income per share $ 0.34     $ 0.14  
       
Weighted average common shares outstanding for diluted net income per share 86,257     83,513  
           


The following table presents revenues disaggregated by the major sources for the three months ended June 30, 2019 and 2018 (amounts in thousands):
   
  Three Months Ended June 30,
    2019     2018   Change
Neurosurgery $ 177,411   $ 170,589   4.0%
Precision Tools and Instruments   71,847     68,915   4.3%
Total Codman Specialty Surgical $ 249,258   $ 239,504   4.1%
       
Wound Reconstruction and Care   82,282     78,311   5.1%
Extremity Orthopedics   21,762     22,017   (1.2)%
Private Label   30,343     26,358   15.1%
Total Orthopedics and Tissue Technologies (1)   134,387     126,686   6.1%
Total reported revenues $ 383,645   $ 366,190   4.8%
       
Impact of changes in currency exchange rates   3,958        
Less contribution of revenues from divested products   (1,364 )   (2,390 )  
Less contribution of revenues from discontinued products   (6,288 )   (7,361 )  
Total organic revenues (2) $ 379,951   $ 356,439   6.6%
 
(1) Prior period amounts were reclassified between categories within Orthopedics and Tissue Technologies segment to conform to the current period presentation.
 
(2) Organic revenues have been adjusted to exclude foreign currency (current period) and to account for divested and discontinued products.


Items included in GAAP net income and location where each item is recorded are as follows:
 
(In thousands)
Three Months Ended June 30, 2019
 

Item
Total Amount COGS(a) SG&A(b) Amort.(c) Tax(d)
Structural optimization charges   3,017     2,153   864      
Acquisition and integration-related charges(1)   12,821     2,857   9,964      
Litigation charges   1,051       1,051      
EU Medical Device Regulation charges   114       114      
Discontinued product lines charges   2,321     2,321        
Intangible asset amortization expense   22,339     11,334     11,005    
Estimated income tax impact from above adjustments and other items   (8,048 )         (8,048 )

Total adjustments
$ 33,615   $ 18,665 $ 11,993 $ 11,005 $ (8,048 )
           
Depreciation expense   10,319            
  1. COGS - Cost of goods sold
  2. SG&A - Selling, general and administrative
  3. Amort. - Intangible asset amortization
  4. Tax - Income tax expense (benefit)

(1) Acquisition and integration-related charges are associated with the Codman Neurosurgery acquisition and include banking, legal, consulting, systems, and other expenses.

 
 
Three Months Ended June 30, 2018
 
(In thousands)
 

Item
Total Amount COGS (a) SG&A (b) Amort. (c) OI&E (d) Tax (e)
Structural optimization charges   6,947     2,022   4,134     791    
Acquisition and integration-related charges(1)   23,697     4,614   19,083        
Litigation charges   1,502       1,502        
Intangible asset amortization expense   16,729     11,443     5,286      
Estimated income tax impact from above adjustments and other items   (9,740 )           (9,740 )

Total adjustments
$ 39,135   $ 18,079 $ 24,719 $ 5,286 $ 791 $ (9,740 )
             
Depreciation expense   10,177              
  1. COGS - Cost of goods sold
  2. SG&A - Selling, general and administrative
  3. Amort. - Intangible asset amortization
  4. OI&E - Interest (income) expense, net and other (income) expense, net
  5. Tax - Income tax expense (benefit)

(1) Acquisition and integration-related charges are associated with the Derma Sciences and Codman Neurosurgery acquisitions and include banking, legal, consulting, systems, and other expenses.

 
 
RECONCILIATION OF NON-GAAP ADJUSTMENTS - GAAP NET INCOME TO ADJUSTED EBITDA
(UNAUDITED)
(In thousands)
 
  Three Months Ended June 30,
  2019   2018
       
GAAP net income $ 29,736     $ 11,376  
Non-GAAP adjustments:      
Depreciation and intangible asset amortization expense 32,658     26,906  
Other income, net $ (1,098 )   (2,427 )
Interest expense, net 10,674     16,539  
Income tax benefit 6,647     1,355  
Discontinued product lines charges 2,321      
Structural optimization charges 3,017     6,947  
Litigation Charges 1,051     1,502  
EU Medical Device Regulation charges 114      
Acquisition and integration-related charges(1) 12,821     23,697  
       
Total of non-GAAP adjustments 68,205     74,519  
Adjusted EBITDA $ 97,941     $ 85,895  
       
(1) Acquisition and integration-related charges are associated with the Derma Sciences and Codman Neurosurgery acquisitions and include banking, legal, consulting, systems, and other expenses.
       


   
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,
  2019
  2018
               
GAAP net income $ 29,736     $ 11,376  
Non-GAAP adjustments:              
Structural optimization charges   3,017       6,947  
Acquisition and integration-related charges(1)   12,821       23,697  
EU Medical Device Regulation charges   114        
Litigation Charges   1,051       1,502  
Discontinued product lines charges   2,321        
Intangible asset amortization expense   22,339       16,729  
Estimated income tax impact from adjustments and other items   (8,048 )     (9,740 )
               
  Total of non-GAAP adjustments   33,615       39,135  
Adjusted net income $ 63,351     $ 50,511  
               
Adjusted diluted net income per share $ 0.73     $ 0.60  
Weighted average common shares outstanding for diluted net income per share   86,257       83,513  
               
(1) Acquisition and integration-related charges are associated with the Derma Sciences and Codman Neurosurgery acquisitions and include banking, legal, consulting, systems, and other expenses.


 
CONDENSED BALANCE SHEET DATA
(UNAUDITED)
 
(In thousands)
  June 30,
2019
  December 31,
 2018
       
Cash and cash equivalents $ 176,084     $ 138,838  
Accounts receivable, net 296,507     265,737  
Inventories, net 296,505     280,347  
       
Senior credit facility 1,249,537     1,233,013  
Accounts receivable securitization 102,400     121,200  
       
       
Stockholders' equity $ 1,420,951     $ 1,375,796  


   
CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
   
(In thousands) Six Months Ended June 30,
  2019   2018
       
Net cash provided by operating activities $ 78,008     $ 77,744  
Net cash used in investing activities (33,220 )   (8,032 )
Net cash used in financing activities (7,799 )   (56,978 )
Effect of exchange rate changes on cash and cash equivalents 257     (3,898 )
       
Net increase in cash and cash equivalents $ 37,246     $ 8,836  
       



 
RECONCILIATION OF NON-GAAP ADJUSTMENTS - GAAP OPERATING CASH FLOW TO
MEASURES OF FREE CASH FLOW AND FREE CASH FLOW CONVERSION
(UNAUDITED)
(In thousands)
 
  Three Months Ended June 30,
  2019 2018
Net cash provided by operating activities $ 48,530   $ 36,212  
     
     
Purchases of property and equipment (17,664 ) (19,999 )
Free cash flow 30,866   16,213  
     
Adjusted net income(1) $ 63,351   $ 50,511  
Adjusted free cash flow conversion 48.7 % 32.1 %
     
     
     
  Twelve Months Ended June 30,
  2019 2018
Net cash provided by operating activities $ 199,953   $ 134,538  
     
Purchases of property and equipment (76,105 ) (56,880 )
Adjusted free cash flow 123,848   77,658  
     
Adjusted net income(1) $ 226,552   $ 183,758  
Adjusted free cash flow conversion 54.7 % 42.3 %
     
(1) Adjusted net income for quarters ended June 30, 2018 and 2019 are reconciled above.  Adjusted net income for remaining quarters in the trailing twelve months calculation have been previously reconciled and are publicly available in the Quarterly Earnings Call Presentations on our website at investor.integralife.com under Events & Presentations.
     

The Company calculates adjusted free cash flow conversion by dividing its free cash flow by adjusted net income.  The Company believes this measure is useful in evaluating the significance of the cash special charges in its adjusted earnings measures.

           
           
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
RECONCILIATION OF NON-GAAP ADJUSTMENTS - GUIDANCE
           
  Recorded Year
to Date
  Projected Year Ended
(In millions, except per share amounts) June 30, 2019   December 31, 2019
        Range  
GAAP net income $ 62.5       127.0           133.0
Non-GAAP adjustments:                        
Structural optimization charges   7.8             17.0      
Litigation charges   2.3             2.3      
Acquisition and integration charges   32.3             45.0      
Discontinued product lines charges   3.7             3.7      
Intangible asset amortization expense   39.0             71.0      
EU Medical Device Regulation-related charges   1.2             10.0      
Estimated income tax impact from adjustments and other items(1)   (29.0 )           (41.0 )    
Total of non-GAAP adjustments   57.3             108.0      
Adjusted net income $ 119.8     $ 235.0         $ 240.0
                         
GAAP diluted net income per share $ 0.72     $ 1.46         $ 1.53
Non-GAAP adjustments detailed above (per share) $ 0.67           $ 1.24      
Adjusted diluted net income per share $ 1.39     $ 2.70         $ 2.75
                         
Weighted average common shares outstanding for diluted net income per share   86.4       87.0           87.0


               
GUIDANCE - SPECIAL CHARGES
               
Item YTD
Amount
FY
Guidance
COGS SG&A R&D Amort. Tax
Structural optimization charges 7.8   17.0   6.0   11.0        
Litigation charges 2.3   2.3     2.3        
Acquisition-related charges 32.3   45.0   8.0   36.0   1.0      
Discontinued product lines charges 3.7   3.7   3.7          
Intangible asset amortization expense 39.0   71.0   45.0       26.0    
EU Medical Device Regulation-related charges 1.2   10.0     10.0        
Estimated income tax impact from adjustments and other items(1) (29.0 ) (41.0 )         (41.0 )
Total 57.3   108.0   62.7   59.3   1.0   26.0   (41.0 )
                             
(1)  Includes a one-time tax benefit of $10.8 million related to a federal tax holiday in Switzerland granted in March 31, 2019


 

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