Fourth Quarter Highlights
- Net earnings increased 30% to $66.5 million
- Net earnings per diluted share increased 26% to $0.92
- Total revenue increased 17% to $433.6 million
- Research and development expenses increased 58% to $18.3 million
Full-Year Highlights
- Net earnings increased 21% to $237.1 million
- Net earnings per diluted share increased 23% to $3.31
- Total revenue increased 17% to $1.61 billion
- Research and development expenses increased 38% to $50.5 million
- Refinancing costs and expenses reduced net earnings by $4.5 million, or $0.06 per diluted share
San Antonio, Texas, January 29, 2008 – Kinetic Concepts, Inc. (NYSE: KCI) today reported fourth quarter and full year 2007 total revenue of $433.6 million and $1.61 billion, respectively, an increase of 17% from the same respective periods of 2006. Foreign currency exchange movements favorably impacted total revenue for the fourth quarter and full year of 2007 by 4% and 3%, respectively, compared to the corresponding periods of the prior year.
Net earnings for the fourth quarter of 2007 were $66.5 million, a 30% increase from $51.3 million for the same period last year. Net earnings per diluted share for the fourth quarter of 2007 increased 26% to $0.92 compared to $0.73 per diluted share for the same period in the prior year. For the full year of 2007, net earnings were $237.1 million, up 21% from $195.5 million for the prior year. Net earnings per diluted share for the full year of 2007 were $3.31, an increase of 23% from last year.
During the third quarter of 2007, KCI completed a new $500 million revolving credit facility due July 2012. The Company recorded expenses of $4.5 million, net of income taxes, or $0.06 per diluted share, related to the refinancing.
“For 2007, we strengthened our business fundamentals, resulting in solid financial performance,” said Catherine Burzik, President and Chief Executive Officer of KCI. “For 2008, we’ve established an experienced senior leadership team that is focused on executing our strategic plans. I am enthusiastic about the coming year.”
Revenue Recap – Fourth Quarter of 2007
Domestic revenue was $303.6 million for the fourth quarter of 2007, an increase of $35.3 million, or 13%, from the prior-year period. The growth in domestic revenue over the prior-year period was due primarily to increased rental and sales volumes for advanced wound healing devices and increased rental volumes of therapeutic surfaces. International revenue of $130.0 million for the fourth quarter of 2007 increased 26% compared to the prior-year period due primarily to higher V.A.C. revenue and favorable foreign currency exchange rate movements.
Domestic V.A.C. revenue of $250.9 million for the fourth quarter was 14% higher than the same period one year ago due primarily to an increase in V.A.C. rental unit volume. Domestic surfaces revenue was $52.6 million for the fourth quarter of 2007, an increase of 8% from the same period in the prior year due primarily to growth of both rental and sales volumes in the acute care setting. Fourth quarter international V.A.C. revenue of $93.9 million increased 27% compared to the year-ago period due primarily to continued market penetration. International surfaces revenue of $36.1 million for the fourth quarter increased 22% compared to the prior-year period due to higher rental unit volumes. Foreign currency exchange movements favorably impacted total international revenue by 14% in the fourth quarter.
Revenue Recap – Full Year of 2007
Domestic revenue for 2007 was $1.15 billion, up $156.4 million, or 16%, from 2006 due substantially to increased rental and sales volumes for advanced wound healing devices and therapeutic surfaces. International revenue for 2007 of $459.7 million, increased $81.9 million, or 22%, compared to the prior year due primarily to higher V.A.C. unit volumes and favorable foreign currency exchange rate movements.
Worldwide V.A.C. revenue was $1.28 billion for 2007, an increase of 20% from the prior year due to increased market penetration resulting in higher rental and sales volumes. Foreign currency exchange movements favorably impacted worldwide V.A.C. revenue by 2% for the year.
Worldwide surfaces revenue was $330.3 million, an increase of 9% from the prior year. Foreign currency exchange movements favorably impacted worldwide surfaces revenue by 3% for the year.
Gross Profit Margin
Gross profit for the fourth quarter and full year of 2007 was $213.9 million and $779.4 million, respectively, representing increases of 21% from the same respective periods of the prior year. Gross profit margin for the fourth quarter of 2007 was 49.3% compared to 47.7% for the same period one year ago. For the full year of 2007, gross profit margin was 48.4%, up from 47.0% for the same period of the prior year. Fourth quarter 2007 gross profit margin was favorably impacted by lower selling costs, due primarily to a slower expansion of our clinical sales force and lower marketing spending and a reduced level of depreciation expense, as a percent of revenue, compared to the prior-year period.
Research and Development
Research and development (“R&D”) expenses for the fourth quarter and full year of 2007 were $18.3 million and $50.5 million, respectively, representing increases of 58% and 38%, respectively, from the prior-year periods. The fourth quarter increase was due primarily to additional clinical research activities supporting new indications and products while the full-year increase represents the continued expansion of our clinical and product research and development activities targeting new indications and innovative products. Fourth quarter and full-year 2007 R&D expenditures, as a percent of total revenue, were 4.2% and 3.1%, respectively.
Share-Based Compensation
During the fourth quarter and full year of 2007, KCI recorded share-based compensation expense, before income taxes, totaling $5.8 million and $23.7 million, respectively, or $0.06 and $0.23, respectively, per diluted share, under the provisions of Statement of Financial Accounting Standards No. 123R. Prior to 2006, the Company accounted for share-based compensation under Accounting Principles Board Opinion No. 25. Share-based compensation expense was recognized in the condensed consolidated statement of earnings as follows (dollars in thousands, except per share data):
| | | Three months ended | | | Year ended | |
| | | December 31, | | | December 31, | |
| | | 2007 | | | 2006 | | | 2007 | | | 2006 | |
| | | | | | | | | | | | | |
| Rental expenses | | $ | 1,200 | | | $ | 1,271 | | | $ | 5,322 | | | $ | 4,285 | |
| Cost of sales | | | 110 | | | | 141 | | | | 623 | | | | 487 | |
| Selling, general and administrative expenses | | | 4,496 | | | | 4,298 | | | | 17,769 | | | | 12,335 | |
| | | | | | | | | | | | | | | | | |
| Pre-tax share-based compensation expense | | | 5,806 | | | | 5,710 | | | | 23,714 | | | | 17,107 | |
| Less: Income tax benefit | | | (1,813 | ) | | | (1,749 | ) | | | (6,933 | ) | | | (5,071 | ) |
| | | | | | | | | | | | | | | | | |
| Total share-based compensation expense, net of tax | | $ | 3,993 | | | $ | 3,961 | | | $ | 16,781 | | | $ | 12,036 | |
| | | | | | | | | | | | | | | | | |
| Diluted net earnings per share impact | | $ | 0.06 | | | $ | 0.06 | | | $ | 0.23 | | | $ | 0.17 | |
Income Tax Rate
The effective income tax rate for the fourth quarter of 2007 was 34.0% compared to 34.7% in the prior-year period. The effective income tax rate for the full year of 2007 was 33.8% compared to 33.1% in 2006. The increase in the 2007 effective income tax rate was due primarily to the favorable resolution of certain tax contingencies during the first half of 2006.
Outlook
The following guidance is based on current information and expectations as of January 29, 2008:
KCI currently projects full-year 2008 total revenue to be $1.77 – $1.82 billion, representing revenue growth of 10 - 13%, comprised of mid-teens growth from its V.A.C. negative pressure wound therapy product lines and related supplies, partially offset by relatively flat therapeutic surfaces revenue. The Company currently projects net earnings per diluted share for 2008 of $3.85 – $3.95, based upon a weighted average diluted share estimate of 72.0 – 73.0 million shares, representing diluted EPS growth of 16 – 19%.
The Company’s practice is to provide guidance on a full-year basis. However, the Company has historically experienced a seasonal fluctuation in sequential revenue between the fourth quarter and first quarter of each year. As a result of this historical experience and sales force reorganization activities, the Company currently expects that revenue in the first quarter of 2008 will reflect a modest decline from the fourth quarter of 2007.
Earnings Release Conference Call
As previously announced, we have scheduled an earnings release conference call for 8:30 a.m. Eastern Standard Time today, Tuesday, January 29, 2008. The dial-in numbers for this conference call are as follows:
| Domestic Dial-in Number: | 800-798-2801 |
| International Dial-in Number: | +617-614-6205 |
| Participant Code: | 34471997 |
This call is being webcast by CCBN and can be accessed at the Kinetic Concepts, Inc. web site at http://www.kci1.com/investor/index.asp, and clicking on Web cast – Q4 2007 Kinetic Concepts, Inc. Earnings Conference Call. The webcast is also being distributed over Thomson’s Investor Distribution Network to both institutional and individual investors. Individual investors can listen to the call through Thomson's individual investor center at www.fulldisclosure.com and institutional investors can access the call via CCBN's password-protected event management site, StreetEvents (www.streetevents.com). An archive of the webcast will be available until January 28, 2009 at http://www.kci1.com/investor/index.asp.
KCI's business outlook as of today is expected to be available on KCI's Investor Relations web site. It is currently expected that a business outlook update will not be announced until the release of KCI's next quarterly earnings announcement, notwithstanding subsequent developments. Although KCI undertakes no duty to update its business outlook, KCI may update the full business outlook or any portion thereof at any time.
About KCI
Kinetic Concepts, Inc. is a global medical technology company with leadership positions in advanced wound-care and therapeutic surfaces. We design, manufacture, market and service a wide range of proprietary products that can improve clinical outcomes and can help reduce the overall cost of patient care. Our advanced wound-care systems incorporate our proprietary Vacuum Assisted Closureâ, or V.A.C. â Therapy technology, which has been demonstrated clinically to promote wound healing through unique mechanisms of action and can help reduce the cost of treating patients with serious wounds. Our therapeutic surfaces, including specialty hospital beds, mattress replacement systems and overlays, are designed to address pulmonary complications associated with immobility, to reduce skin breakdown and assist caregivers in the safe and dignified handling of obese patients. We have an infrastructure designed to meet the specific needs of medical professionals and patients across all health care settings, including acute care hospitals, extended care organizations and patients' homes, both in the United States and abroad. For more information, visit www.kci1.com.
Forward-Looking Statements
This press release contains forward-looking statements including, among other things, management's outlook, estimates of future performance, revenue, earnings per share, growth objectives and weighted average shares outstanding. These forward-looking statements contained herein are based on our current expectations and are subject to a number of risks and uncertainties that could cause us to fail to achieve our current financial projections and other expectations, such as changes in the demand for the V.A.C. â resulting from increased competition, the seasonal slowing of V.A.C. â unit growth in the fourth and first quarter of each year, changes in payer reimbursement policies, and our ability to protect our intellectual property rights. All information set forth in this release and its attachments is as of January 29, 2008. We undertake no duty to update this information. More information about potential factors that could cause our results to differ or adversely affect our business and financial results is included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 and in our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2007, June 30, 2007 and September 30, 2007, including, among other sections, under the captions, "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." These reports are on file with the SEC and available at the SEC's website at www.sec.gov. Additional information will also be set forth in those sections in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007, which will be filed with the SEC in late February 2008.
FOR MORE INFORMATION CONTACT:
Media Relations:
Kristie Madara, 210-255-6232
kristie.madara@kci1.com
Investor Relations:
David Holmes, 210-255-6892
david.holmes@kci1.com
