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 Operating Earnings
for the Third Quarter 2005
Plainsboro, New Jersey, October 30, 2005 - Integra LifeSciences Holdings
Corporation (NASDAQ: IART) today reported its third quarter financial results.
Total revenues in the third quarter of 2005 were $69.3 million, reflecting an
increase of $10.2 million, or 17%, over the third quarter of 2004.
We reported net income of $10.5 million, or $0.33 per diluted share, for the
third quarter of 2005, compared to a net loss of $7.6 million, or $0.25 per
diluted share in the third quarter of 2004.
When adjusted for certain acquisition, integration and restructuring related
charges, net income for the third quarter of 2005 was $11.5 million, or $0.36
per diluted share. These charges included a $0.5 million in-process research and
development charge, costs associated with the closing of various facilities and
related transitions, employee terminations, and other integration and
restructuring related costs. Net income for the third quarter of 2004, when
adjusted for certain charges as set forth in the tables at the end of this
release, was $8.6 million, or $0.26 per diluted share.
"We achieved record operating income in the third quarter, and exceeded analyst
consensus estimates for adjusted earnings per share," 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 sales force. In addition, selling, general and
administrative expense decreased as a percentage of revenue and we continued to
consolidate certain of our operations. We also entered into an agreement to
acquire the assets of the Radionics Division of Tyco Healthcare Group, L.P. for
$80 million in cash, subject to certain adjustments, and acquired certain assets
of Eunoe, Inc. Prior to ceasing operations, Eunoe, Inc. was engaged in the
development of its innovative COGNIShunt(R) system for the treatment of
Alzheimer's disease patients."
<table>
Our revenues for the period were as follows:
<caption>
Three Months Nine Months
Ended September 30, Ended September 30,
2005 2004 2005 2004
---- ---- ---- ----
($ in thousands)
<s> <c> <c> <c> <c>
Revenue:
Implants $26,769 $20,823 $79,777 $58,566
Instruments 22,597 19,933 67,909 54,982
Monitoring 12,509 12,689 35,908 35,700
Private label & other 7,458 5,685 21,357 18,766
----- ----- ------- ------
Total Revenue $69,333 $59,130 $204,951 $168,014
</table>
Rapid growth in the NeuraGen(TM) Nerve Guide, the INTEGRA(R) Dermal Regeneration
Template and the INTEGRA(TM) Bilayer Matrix Wound Dressing products and sales of
Newdeal products for the foot and ankle accounted for most of the increase in
implant product revenues. Sales of the NPH(TM) Low Flow Hydrocephalus Valve also
contributed to the growth in implant product revenues for the quarter. Our
DuraGen(R) family of duraplasty products continued to grow, although it grew at
slower rates than in recent years. Growth in sales of this group of products was
led by sales of the DuraGen Plus(TM) and Suturable DuraGen(TM) Dural
Regeneration Matricies. Sales of our Reconstructive Surgery products grew
particularly well. INTEGRA(R) dermal repair product revenues increased
approximately 42% over the third quarter of 2004, and Newdeal foot and ankle
product revenues exceeded our expectations for the quarter.
Increased sales of our JARIT(R) surgical instrument, reconstructive surgical
instrument, Selector(R) Ultrasonic Aspirator and Mayfield(R) product lines
provided most of the growth in instrument product revenues.
Lower than expected sales of our Camino(R) Intracranial Pressure Monitors and
external drainage systems affected our monitoring product revenues negatively.
Sales of our LICOX(R) Brain Oxygen Monitoring System product line, which
increased approximately 12% over the prior-year period, partially offset the
negative impact of the Camino and external drainage systems' sales. We have
developed a new targeted account sales and marketing strategy for products in
this category, and expect that it will contribute to improvements in the
performance of our monitoring products in future periods.
Increased revenues of the Absorbable Collagen Sponge that we supply for use in
Medtronic's INFUSE(TM) bone graft product, BioPatch(R), a product that we
manufacture for Johnson & Johnson, and BioMend(R), a product that we manufacture
for Zimmer Holdings, Inc., led the growth in revenues from our private label
products category.
Excluding recently acquired product lines, third quarter 2005 revenues increased
by $6.7 million, or 11%, over the prior-year period. We expect long-term organic
growth in the range of 15% to 20% per annum.
Gross margin on total revenues in the third quarter of 2005 was 62%. Although we
had strong growth in higher gross margin products, we incurred approximately
$800,000 in restructuring and manufacturing transfer costs. These charges
reduced our gross margin by approximately 1%.
Research and development expense of $3.1 million in the third quarter of 2005
included a $0.5 million in-process research and development charge.
Selling, general and administrative expense decreased to $22.7 million in the
third quarter of 2005, decreasing as a percentage of revenue to 33%. This
included approximately $250,000 of charges associated with the closing of
various facilities and related transitions, employee terminations and other
acquisition, integration and restructuring related costs. These charges
increased selling, general and administrative expense by 1% of revenues.
We reported net interest expense of $393,000 in the third quarter of 2005
compared to net interest income of $243,000 in the prior-year period.
The Company generated $12.4 million in cash flows from operations in the third
quarter of 2005. Our cash and investments totaled $159 million at September 30,
2005.
In September, we entered into an agreement to acquire the assets of Radionics, a
leader in the design, manufacture and sale of advanced minimally-invasive
medical instruments and systems for radiation therapy. Radionics' products
include the CRW(TM) stereotactic system, the XKnife(TM) stereotactic
radiosurgery system, the OmniSight(TM) EXcel image guided surgery system, and
the CUSA EXcel(TM) ultrasonic surgical aspiration system.
The Radionics business generated revenues of $62.2 million and pre-tax income of
$13.4 million for the year ending September 30, 2004, the most recent audited
period. On the closing of this acquisition, Integra will acquire the Radionics
facility in Burlington Massachusetts, which employs approximately 135 employees,
and enter into transitional supply and distribution agreements with Tyco
Healthcare for products currently manufactured at Tyco facilities not included
in the transaction.
Tyco Healthcare sells the Radionics products in over 75 countries, using a
network of independent distributors in the United States and both independent
distributors and Tyco Healthcare affiliates internationally. Although Radionics
currently sells directly through many Tyco affiliates internationally, after
closing Integra is likely to use distributors in many of these markets. As a
result, after Integra takes over the Radionics business, we expect that revenue
and pre-tax income (on a pro forma basis) attributable to the acquired product
lines will be reduced by approximately 20% from the 2004 reported levels, prior
to any impact associated with purchase accounting related to the transaction.
Overall, the acquired business has been growing at rates below our corporate
growth rate targets.
Completion of the transaction is subject to customary closing conditions, a
fiscal year-end financial audit, regulatory approvals and expiration of the
requisite waiting period under the Hart-Scott-Rodino Antitrust Improvements Act,
as amended. After we have closed the acquisition, we expect to provide more
detailed guidance regarding the financial aspects of the transaction and its
anticipated impact on Integra's future financial results. We do not expect the
transaction to close before the end of 2005.
We are updating our expectations for total revenues and earnings per share for
2005 and 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, including the
pending Radionics acquisition.
Our guidance for the fourth quarter of 2005 is for total revenues in the range
of $71 million to $74 million. Total revenues in 2006 are expected to be between
$330 million and $340 million.
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, as well as the pending Radionics
acquisition. Through the nine months ended September 30, 2005 we have incurred
$5.5 million of these charges. We currently expect additional charges of $2.5
million to occur in the fourth quarter of 2005.
We expect our adjusted earnings per diluted share, which excludes charges
related to acquisitions, integrations and restructurings, to be within a range
of $0.36 to $0.40 in the fourth quarter. On a GAAP reported basis, we expect
earnings per share to be within a range of $0.31 to $0.35 in the fourth quarter.
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).
Our Board of Directors has authorized us to repurchase shares of our common
stock for an aggregate purchase price not to exceed $50 million through December
31, 2006. We may repurchase shares under this program either in the open market
or in privately negotiated transactions.
We have scheduled a conference call for 9:00 am EST tomorrow, October 31, 2005,
to discuss the financial results for the third 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 November 14, 2005 by dialing
(973) 341-3080 (access code 6474836) or through the webcast accessible on our
home page.
Integra LifeSciences Holdings Corporation is a diversified medical technology
company. We develop, manufacture, and market medical devices for use in
neurosurgery, reconstructive surgery and general surgery. 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. We have 1,300 employees located in our research, manufacturing and
distribution facilities throughout the world. 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 "adjusted net income" and "adjusted earnings
per share", which exclude charges related to acquisitions, integrations and
restructurings, and "growth in revenues excluding recently acquired product
lines", all of which are non-GAAP financial measures. We believe that, given our
on-going, active strategy of seeking acquisitions and our current focus on
rationalizing our existing manufacturing and distribution infrastructure, net
income and earnings per share adjusted to exclude costs related to acquisitions,
integrations and restructurings, and growth in revenues excluding recently
acquired product lines, are useful additional bases 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.
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONSOLIDATED FINANCIAL RESULTS
(In thousands, except per share data)
(UNAUDITED)
<table>
Statement of Operations Data:
<Caption>
----------------------------------------------- -------------------------
Three Months
Ended
Three Months Ended September 30, 2005 September 30, 2004
----------------------------------------------- -------------------------
Reported Adjustments As Adjusted Reported
<s> <c> <c> <c> <c>
Total revenues $69,333 $69,333 $59,130
Cost of revenues 26,013 $802 (a) 25,211 22,412
Research and development 3,110 611 (b) 2,499 5,103
Selling, general and administrative 22,653 246 (c) 22,407 42,600
Amortization 1,466 1,466 1,195
----- ----- -----
Total costs and expenses 53,242 51,583 71,310
Operating income (loss) 16,091 17,750 (12,180)
Interest income (expense), net (393) (393) 243
Other income (expense), net (4) (4) 306
--- --- ---
Income (loss) before income taxes 15,694 17,353 (11,631)
Provision (benefit) for
income taxes 5,213 623 (d) 5,836 (4,034)
----- ----- -------
Net income (loss) $10,481 $11,517 ($7,597)
Earnings per share calculation:
Add back of after tax interest
expense 800 800 --
------ ------ ---------
Net income (loss) for diluted EPS $11,281 $12,317 ($7,597)
Diluted earnings (loss) per share $0.33 $0.36 ($0.25)
Diluted weighted average 34,297 34,297 30,326
Common shares outstanding
<FN>
<F1>
Notes:
(a) Costs associated with the closing of various manufacturing facilities and related employee terminations and manufacturing
transfers
(b) In-process research and development charge and facility closings and related employee terminations
(c) Costs associated with the closing of various manufacturing facilities and employee terminations
(d) Adjustment to provision for income taxes for above adjustments
</FN>
</table>
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONSOLIDATED FINANCIAL RESULTS
(In thousands, except per share data)
(UNAUDITED)
<table>
Statement of Operations Data:
<Caption>
------------------------------------------------ -------------------------
Nine Months
Ended
Nine Months Ended September 30, 2005 September 30, 2004
----------------------------------------------- -------------------------
Reported Adjustments As Adjusted Reported
<s> <c> <c> <c> <c>
Total revenues $204,951 $204,951 $168,014
Cost of revenues 77,284 $2,920 (a) 74,364 64,078
Research and development 9,256 635 (b) 8,621 10,565
Selling, general and administrative 72,610 1,728 (c) 70,882 79,095
Amortization 4,609 216 (d) 4,393 3,127
----- ----- -----
Total costs and expenses 163,759 158,261 156,865
Operating income 41,192 46,690 11,149
Interest income (expense), net (281) (281) 460
Other income (expense), net (638) (638) 424
----- ----- ---
Income before income taxes 40,273 45,771 12,033
Provision for
income taxes 13,693 2,004 (e) 15,697 4,674
------ ------ ------
Net income $26,580 $30,075 $7,359
Earnings per share calculation:
Add back of after tax interest
expense 1,832 1,832 --
-------- -------- -----
Net income for diluted EPS $28,412 $31,907 $7,359
Diluted earnings per share $0.82 $0.92 $0.24
Diluted weighted average 34,727 34,727 31,256
Common shares outstanding
<FN>
<F1>
Notes:
(a) Inventory fair value purchase accounting adjustments, discontinued product lines, costs associated with the closing of various
manufacturing facilities, employee terminations, and manufacturing transfers
(b) In-process research and development charge and facility closings and related employee terminations
(c) Acquisition and integration related costs, including costs associated with the closing of various facilities, 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>
September 30, December 31,
2005 2004
----- ----
<s> <c> <c>
Cash and marketable securities,
including non-current portion $159,033 $195,982
Accounts receivable, net 46,786 46,765
Inventory, net 69,014 55,947
Total assets 465,881 456,713
Current liabilities 33,536 24,234
Long-term debt 118,468 118,900
Total liabilities 158,279 148,890
Stockholders' equity 307,602 307,823
</table>
Reconciliation of non-GAAP financial measures to the most comparable GAAP
measure:
<table>
A. Reconciliation of Net Income and Adjusted Net Earnings
<caption>
Quarter Ended
September 30,
2005 2004
-------- --------
($ in thousands)
<s> <c> <c>
Net Income (Loss) $ 10,481 $(7,597)
Employee termination costs 794 --
Equity-based compensation charge -- 23,876
Facility consolidation, acquisition integration
manufacturing transfer and related costs 365 --
In-process R&D charge and technology licensee fee 500 1,855
Tax effect on above adjustments (623) (9,488)
--------- --------
Adjusted Net Income $ 11,517 $ 8,646
Earnings per share calculation:
Add back of after tax interest expense 800 452
--------- --------
Adjusted Net Income for diluted EPS $ 12,317 $ 9,098
Adjusted Diluted earnings per share $0.36 $0.26
Diluted weighted average common shares outstanding 34,297 30,326
Shares added for contingently convertible debt
and impact of dilutive stock options -- 4,444
--------- --------
Diluted weighted average common shares outstanding
For Adjusted Diluted earnings per share calculation 34,297 34,770
</table>
The calculation of diluted earnings (loss) per share for the above periods
is presented in the tables above.
<table>
C. Growth in product revenues excluding recently acquired product lines
<caption>
Quarter Ended Increase
September 30, (Decrease)
2005 2004 $ %
-------- -------- ------- -----
($ in thousands)
<s> <c> <c> <c> <c>
Total revenues, as reported $ 69,333 $ 59,130 $10,203 17%
Less: Revenues of product lines acquired
since the beginning of the
third quarter of 2004 3,531 -- 3,531 N/A
-------- -------- ------- -----
Revenues excluding recently
acquired product lines $ 65,802 $ 59,130 $ 6,672 11%
</table>
<table>
D. Reconciliation of Projected Diluted EPS and Projected Adjusted Diluted EPS
<caption>
Range
----------------------
Low High
------ ------
<s> <c> <c>
Projected three months ended December 30, 2005:
Diluted EPS $0.31 $0.35
Employee termination costs 0.05 0.05
Facility consolidation, acquisition integration
and related costs 0.03 0.03
Tax effect on above adjustments (0.03) (0.03)
----- -----
Adjusted Diluted EPS $0.36 $0.40
</table>
"MAYFIELD" is a registered trademark of SM USA, Inc., a wholly owned subsidiary
of Schaerer Mayfield USA, Inc.
Source: Integra LifeSciences Holdings Corporation