News Release
Contacts:
Integra LifeSciences Holdings Corporation
David B. Holtz Maria Platsis
Senior Vice President, Finance Senior Director of Investor Relations
(609) 936-2334 and Corporate Development
dholtz@Integra-LS.com (609) 936-2333
mplatsis@Integra-LS.com
Integra LifeSciences Reports Record Revenues
for the Second Quarter 2005
Plainsboro, New Jersey, August 7, 2005 - Integra LifeSciences Holdings
Corporation (NASDAQ: IART) today reported its second quarter financial results.
Total revenues in the second quarter of 2005 were $69.8 million, reflecting an
increase of $13.3 million, or 24%, over the second quarter of 2004.
We reported net income of $7.7 million, or $0.23 per diluted share, for the
second quarter of 2005, compared to net income of $7.5 million, or $0.23 per
diluted share in the second quarter of 2004.
When adjusted for certain acquisition, integration and restructuring related
charges, net income for the second quarter of 2005 was $9.6 million, or $0.29
per diluted share. These charges included costs associated with the closing of
various facilities and related transitions, employee terminations, product line
discontinuations and other acquisition, integration and restructuring related
costs, including inventory fair value purchase accounting adjustments.
Excluding recently acquired product lines, second quarter 2005 revenues
increased by $7.4 million, or 14%, over the prior-year period. We continue to
expect organic revenue growth to accelerate in the second half of 2005. Our
long-term organic growth rate expectation for revenues is in the range of 15% to
20% per annum.
"We achieved record revenues in the second quarter," said Stuart M. Essig,
Integra's President and Chief Executive Officer. "During the quarter, we
continued the integration of the Newdeal group's international business with our
existing international sales and distribution network and expanded our domestic
Reconstructive Surgery salesforce with a focus on extremities. In addition, we
increased administrative headcount to support our expanding activities and
continued to consolidate certain of our operations."
Our revenues for the period were as follows:
<table>
<caption>
Three Months
Ended June 30, % Increase/
2005 2004 (Decrease)
---- ---- ----------
($ in thousands)
<s> <c> <c> <c>
Revenue:
Implants $27,120 $19,412 40%
Instruments 22,785 19,006 20%
Monitoring 12,025 11,813 2%
Private label & other 7,848 6,210 26%
----- ----- ---
Total Revenue $69,778 $56,441 24%
</table>
<page>
Rapid growth in the NeuraGen(TM) Nerve Guide, the INTEGRA(R) Dermal Regeneration
Template and the INTEGRA(TM) Bilayer Matrix Wound Dressing products and new
sales of Newdeal products for the foot and ankle accounted for most of the
increase in implant product revenues. Sales of our NeuraGen(TM) and
NeuraWrap(TM) products increased approximately 70% over the prior-year period.
Sales of our INTEGRA(R) family of dermal repair products increased approximately
45% over the second quarter of 2004. Newdeal product revenues were $4.1 million,
and we are receiving strong feedback on the Newdeal system of foot and ankle
products. Newdeal sales in the United States are growing along with the
expansion and training of our reconstructive surgery sales force, which we
expect to reach 50 people by the end of the year. Sales of the NPH(TM) Low Flow
Hydrocephalus Valve that we introduced in late 2004 also contributed to the
growth in implant product revenues for the quarter. Our DuraGen(R) family of
duraplasty products achieved record revenues in the quarter, although it grew at
slower rates than in recent years.
Increased sales of our JARIT(R) surgical instrument and Selector(R) Ultrasonic
Aspirator product lines provided most of the internal growth in instrument
product revenues. The Mayfield(R) product line acquired during the second
quarter of 2004 also continues to provide strong results.
Year-over-year growth in monitoring product revenues continued to be affected by
slower-than-expected acceptance of our LICOX(R) Brain Oxygen Monitoring System
in the United States and slower growth in external drainage systems. We expect
that our NeuroSensor(R) cerebral blood flow monitoring system and Accudrain(R)
external drainage system will contribute to improvements in the performance of
this category in future periods.
Increased revenues of the Absorbable Collagen Sponge that we supply for use in
Medtronic's INFUSE(TM) bone graft product and revenues of Biopatch(R), a product
that we manufacture for Johnson & Johnson, more than offset the removal of the
Signature Technologies revenues from our private label products category. We
received a one-time royalty payment of $0.5 million based on additional patent
claims associated with the Biopatch(R) product license.
Gross margin on total revenues in the second quarter of 2005 was 61%. Although
we had strong growth in higher gross margin products, we incurred $1.8 million
in restructuring and manufacturing transfer costs, fair value purchase
accounting adjustments and certain inventory write-offs associated with a
discontinued product line. These charges reduced our gross margin by 3%.
Research and development expense increased $148,000 to $2.8 million in the
second quarter of 2005.
Selling, general and administrative expense increased by $6.6 million to $26.0
million in the second quarter of 2005, increasing as a percentage of revenue to
37% from 35% in the prior-year period. This included $1.0 million of charges
associated with the closing of various facilities and related transitions,
employee terminations and other acquisition, integration and restructuring
related costs. This increase was primarily attributable to selling, general and
administrative expense of acquired operations, as well as accelerated hiring to
support our growth, particularly in reconstructive surgery.
We reported net interest income of $85,000 in the second quarter of 2005
compared to $160,000 in the prior-year period. Other expense in the second
quarter of 2005 was $541,000 and included a $522,000 expense related to foreign
exchange losses.
The Company generated $16.3 million in cash flows from operations in the second
quarter of 2005. We repurchased 750,000 shares of our common stock in the
quarter for an aggregate purchase price of approximately $24.7 million. Our cash
and investments totaled $148 million at June 30, 2005.
<page>
We are updating our expectations for total revenues and earnings per share for
2005 and reiterate our expectations for 2006. In accordance with our usual
practice, our expectations for 2005 and 2006 financial performance do not
include the impact of acquisitions or other strategic corporate transactions
that have not yet closed.
Total revenues in 2005 are expected to be between $283 million and $290 million.
Total revenues in 2006 are expected to be between $340 million and $350 million.
Our guidance for the third quarter of 2005 is for total revenues in the range of
$70 million to $74 million.
In the second quarter we began to review our European manufacturing and
distribution operations for possible restructuring. We began implementing the
restructuring later in the second quarter by entering into an agreement with the
labor representatives of employees affected by the closing of one of our
facilities.
The Company will continue discussions of further potential restructurings of its
European operations with local labor representatives. The costs of these
activities will depend upon various considerations, including the number of
employees to be terminated and their locations, the availability of other jobs
within Integra LifeSciences, and the level of severance benefits. We expect to
reinvest the bulk of the savings from these activities in further building out
our European sales, marketing and distribution organization, and integrating the
Newdeal group's business with our existing sales and distribution network.
The Company may incur significant costs over the remainder of this year in
connection with employee severance, legal, and other items related to
restructuring and integration activities, largely in Europe. Based on
management's preliminary assessment, Integra LifeSciences estimates that the
costs of its restructuring and integration activities (including those discussed
above) will not exceed $8 million in the aggregate. Through the six months ended
June 30, 2005 we have incurred $3.8 million of these charges. We currently
expect the remaining charges to occur over the remainder of 2005 and to impact
our 2005 GAAP reported earnings per diluted share guidance by approximately
$0.14.
Our adjusted earnings per share guidance that excludes charges related to
acquisitions, integrations and restructurings are expected to be within a range
of $1.29 to $1.34 in the full year 2005 and $0.33 to $0.36 in the third quarter.
On a GAAP reported basis, we expect earnings per share in 2005 to be within a
range of $1.15 to $1.20 in the full year and $0.28 to $0.31 in the third
quarter.
While we expect a positive impact of the restructuring and integration
activities with projected cost savings of approximately $3 million per year for
2006 and beyond, such results remain uncertain. We also expect to invest some of
the benefit of the restructuring and integration activities in expanding our
European sales and marketing activities. For this reason, our expectations for
earnings per diluted share in 2006 remain unchanged in a range of $1.65 to
$1.75. Our expectation ranges for 2006 earnings per diluted share do not reflect
the impact of expensing stock options beginning January 1, 2006 under the
accounting standard recently issued by the Financial Accounting Standards Board
(FASB).
We have scheduled a conference call for 9:00 am EST tomorrow, August 8, 2005, to
discuss the financial results for the second quarter of 2005 and forward-looking
financial guidance. The call is open to all listeners and will be followed by a
question and answer session. Access to the live call is available by dialing
(973) 935-8511 or through a listen-only webcast via a link provided on the home
page of Integra's website at www.Integra-LS.com. A replay of the conference call
will be accessible starting one hour following the live event. Access to the
replay is available through August 22, 2005 by dialing (973) 341-3080 (access
code 6175823) or through the webcast accessible on our home page.
Integra LifeSciences Holdings Corporation is a diversified medical technology
company that develops, manufactures, and markets medical devices for use in a
variety of applications. The primary applications for our products are
neuro-trauma and neurosurgery, reconstructive surgery and general surgery.
<page>
Integra is a leader in applying the principles of biotechnology to medical
devices that improve patients' quality of life. Our corporate headquarters are
in Plainsboro, New Jersey, and we have research, manufacturing and distribution
facilities located throughout the world. We have approximately 1,300 employees.
Please visit our website at (http://www.Integra-LS.com).
This news release contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
include, but are not limited to, statements concerning future financial
performance, including projections for revenues, gross margins, earnings per
share and cash flows. Such forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially from
predicted or expected results. Among other things, our ability to maintain
relationships with customers of acquired entities, physicians' willingness to
adopt our recently launched and planned products and our ability to secure
regulatory approval for products in development may adversely affect our future
product revenues; our ability to increase sales and product volumes may
adversely affect our future gross margins; our ability to integrate acquired
businesses, increase product sales and gross margins, and control non-product
costs may affect our earnings per share; our future net income results and our
ability to effectively manage working capital may affect our future cash flows;
and our ability to complete the restructuring and integration activities may
affect our operating income. In addition, the economic, competitive,
governmental, technological and other factors identified under the heading
"Factors That May Affect Our Future Performance" included in the Business
section of Integra's Annual Report on Form 10-K for the year ended December 31,
2004 and information contained in subsequent filings with the Securities and
Exchange Commission could affect actual results.
Regulation G, "Conditions for Use of Non-GAAP Financial Measures," and other
provisions of the Securities Exchange Act of 1934, as amended, define and
prescribe the conditions for the use of certain non-GAAP financial information.
In this news release, we provide "growth in revenues excluding recently acquired
product lines", "adjusted net income", which excludes charges related to
acquisitions, integrations and restructurings, and "adjusted earnings per
share", all of which are non-GAAP financial measures. We believe that, given our
on-going, active strategy of seeking acquisitions and the non-recurring nature
of the restructuring, focusing on net income and earnings per share adjusted to
exclude costs related to acquisitions, integrations and restructurings is a
useful additional basis to measure the performance of our business operations,
both in this quarter and in future periods. A reconciliation of these non-GAAP
financial measures to the most comparable GAAP measures is provided in the
tables of financial information contained at the end of this news release.
Non-GAAP financial measures should not be relied upon to the exclusion of GAAP
financial measures. Management believes that these non-GAAP financial measures
are important supplemental information to investors which reflect an additional
way of viewing aspects of our operations that, when viewed with our GAAP results
and the accompanying reconciliations, provides a more complete understanding of
factors and trends affecting our ongoing business and operations. Management
strongly encourages investors to review our financial statements and filed
reports in their entirety and to not rely on any single financial measure.
Because non-GAAP financial measures are not standardized, it may not be possible
to compare these financial measures with other companies' non-GAAP financial
measures having the same or similar names.
<table>
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONSOLIDATED FINANCIAL RESULTS
(In thousands, except per share data)
(UNAUDITED)
Statement of Operations Data:
<caption>
------------------------------------------------------ -----------------------
Three Months Ended
Three Months Ended June 30, 2005 June 30, 2004
------------------------------------------------------ -----------------------
Reported Adjustments As Adjusted Reported
<s> <c> <c> <c> <c>
Total revenues $69,778 $69,778 $56,441
Cost of revenues 27,139 $1,849 (a) 25,290 21,665
Research and development 2,787 24 (b) 2,763 2,639
Selling, general and administrative 26,041 965 (c) 25,076 19,488
Amortization 1,668 216 (d) 1,452 1,049
------- ----- -----
Total costs and expenses 57,635 54,581 44,841
Operating income 12,143 15,197 11,600
Interest income (expense), net 85 85 160
Other income (expense), net (541) (541) 135
----- ----- ---
Income before income taxes 11,687 14,741 11,895
Provision for
income taxes 4,032 1,098 (e) 5,130 4,377
------- ------- ------
Net income $7,655 $9,611 $7,518
Earnings per share calculation:
Add back of after tax interest
expense 488 488 496
------ ------ ------
Net income for diluted EPS $8,143 $10,099 $8,014
Diluted earnings per share $0.23 $0.29 $0.23
Diluted weighted average 34,739 34,739 34,479
Common shares outstanding
<fn>
<f1>
Notes:
(a) Inventory fair value purchase accounting adjustments, discontinued product lines and employee terminations
(b) Employee terminations
(c) Acquisition and integration related costs, including costs associated with the closing of various facilities and related
transitions, and employee terminations
(d) Amortization for discontinued product lines
(e) Adjustment to provision for income taxes for above adjustments
</fn>
</table>
<table>
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONSOLIDATED FINANCIAL RESULTS
(In thousands, except per share data)
(UNAUDITED)
Statement of Operations Data:
<caption>
------------------------------------------------------ -----------------------
Six Months Ended
Six Months Ended June 30, 2005 June 30, 2004
------------------------------------------------------ -----------------------
Reported Adjustments As Adjusted Reported
<s> <c> <c> <c> <c>
Total revenues $135,617 $135,617 $108,885
Cost of revenues 51,271 $2,118 (a) 49,153 41,666
Research and development 6,146 24 (b) 6,122 5,462
Selling, general and administrative 49,957 1,482 (c) 48,475 36,496
Amortization 3,143 216 (d) 2,927 1,932
------ ----- -----
Total costs and expenses 110,517 106,678 85,556
Operating income 25,100 28,939 23,329
Interest income (expense), net 112 112 217
Other income (expense), net (634) (634) 118
----- ----- ---
Income before income taxes 24,578 28,417 23,664
Provision for
income taxes 8,480 1,381 (e) 9,861 8,708
------- ------- -------
Net income $16,098 $18,557 $14,956
Earnings per share calculation:
Add back of after tax interest
expense 1,032 1,032 1,016
-------- -------- --------
Net income for diluted EPS $17,130 $19,589 $15,972
Diluted earnings per share $0.49 $0.56 $0.46
Diluted weighted average 34,941 34,941 34,426
Common shares outstanding
<fn>
<f1>
Notes:
(a) Inventory fair value purchase accounting adjustments, discontinued product lines and employee terminations.
(b) Employee terminations
(c) Acquisition and integration related costs, including costs associated with the closing of various facilities and related
transitions and foreign dealer terminations, and employee terminations
(d) Amortization for discontinued product lines
(e) Adjustment to provision for income taxes for above adjustments
</fn>
</table>
<table>
Condensed Balance Sheet Data:
<caption>
June 30, December 31,
2005 2004
----- ----
<s> <c> <c>
Cash and marketable securities,
including non-current portion $147,848 $195,982
Accounts receivable, net 46,275 46,765
Inventory, net 69,206 55,947
Total assets 451,686 456,713
Current liabilities 32,263 24,234
Long-term debt 119,159 118,900
Total liabilities 156,990 148,890
Stockholders' equity 294,696 307,823
</table>
Reconciliation of non-GAAP financial measures to the most comparable GAAP
measure:
A. Growth in product revenues excluding recently acquired product lines
<table>
<caption>
Quarter Ended Increase
June 30, (Decrease)
2005 2004 $ %
-------- -------- ------- -----
($ in thousands)
<s> <c> <c> <c> <c>
Total revenues, as reported $ 69,778 $ 56,441 $13,337 24%
Less: Revenues of product lines acquired
since the beginning of the
second quarter of 2004 8,666 2,770 5,896 N/A
-------- -------- ------- -----
Revenues excluding recently
acquired product lines $ 61,112 $ 53,671 $ 7,441 14%
</table>
B. Reconciliation of Net Income and Adjusted Net Earnings
<table>
<caption>
Quarter Ended
June 30,
2005 2004
-------- --------
($ in thousands)
<s> <c> <c>
Net Income $ 7,655 $ 7,518
Employee termination costs 2,074 --
Inventory fair value adjustments 197 69
Facility consolidation, acquisition integration
and related costs 305 --
Discontinued product lines 478 --
Tax effect on above adjustments (1,098) --
-------- --------
Adjusted Net Income $ 9,611 $ 7,587
</table>
C. Reconciliation of Diluted EPS and Adjusted Diluted EPS
<table>
<caption>
Quarter Ended
June 30,
2005 2004
------- -------
<s> <c> <c>
Diluted EPS $0.23 $0.23
Employee termination costs 0.06 --
Inventory fair value adjustments 0.01 --
Facility consolidation, acquisition integration
and related costs 0.01 --
Discontinued product lines 0.01 --
Tax effect on above adjustments (0.03) --
------- -------
Adjusted Diluted EPS $0.29 $0.23
</table>
D. Reconciliation of Projected Diluted EPS and Projected Adjusted Diluted EPS
<table>
<caption>
Range
---------------------
Low High
------ ------
<s> <c> <c>
Projected three months ended September 30, 2005:
Diluted EPS $0.28 $0.31
Employee termination costs 0.07 0.07
Facility consolidation, acquisition integration
and related costs 0.01 0.01
Tax effect on above adjustments (0.03) (0.03)
----- -----
Adjusted Diluted EPS $0.33 $0.36
Projected twelve months ended December 31, 2005:
Diluted EPS $1.15 $1.20
Employee termination costs 0.16 0.16
Inventory fair value adjustments 0.01 0.01
Facility consolidation, acquisition integration
and related costs 0.03 0.03
Discontinued product lines 0.01 0.01
Tax effect on above adjustments (0.07) (0.07)
------ ------
Adjusted Diluted EPS $1.29 $1.34
</table>
"MAYFIELD" is a registered trademark of SM USA, Inc., a wholly owned subsidiary
of Schaerer Mayfield USA, Inc.
Source: Integra LifeSciences Holdings Corporation