News Release
Contacts:
Integra LifeSciences Holdings Corporation
Maureen B. Bellantoni Maria Platsis
Executive Vice President Vice President, Corporate Development
and Chief Financial Officer (609) 936-2333
(609) 936-6822 mplatsis@Integra-LS.com
maureen.bellantoni@Integra-LS.com
Integra LifeSciences Reports Second Quarter 2006 Financial Results
Total Revenues For Quarter Exceed $100 million
Plainsboro, New Jersey, August 2, 2006 - Integra LifeSciences Holdings
Corporation (NASDAQ: IART) today reported its second quarter financial results.
Total revenues in the second quarter of 2006 were $100.1 million, reflecting an
increase of $30.3 million, or 43%, over the second quarter of 2005.
We reported net income of $8.0 million, or $0.26 per diluted share, for the
second quarter of 2006, compared to net income of $7.7 million, or $0.23 per
diluted share in the second quarter of 2005. Reported earnings per share for the
second quarter of 2006 includes a $0.07 per diluted share impact related to the
implementation of SFAS 123(R), Share-Based Payment. We adopted this new
accounting standard on January 1, 2006 using the modified-prospective method, so
we are not adjusting our historical financial statements to reflect the impact
of share-based compensation. Therefore, earnings per share for the second
quarter of 2005 do not reflect the impact of share-based compensation.
When adjusted for certain acquisition and restructuring related charges, costs
related to systems integrations and the impact of share-based compensation, net
income for the second quarter of 2006 was $13.4 million, or $0.41 per diluted
share. Acquisition and restructuring related charges include costs associated
with the closing of various facilities and related transitions, discontinuation
of certain development programs, and other integration and restructuring related
costs, including inventory fair value purchase accounting adjustments. In the
second quarter of 2005, net income, when adjusted for certain charges set forth
in the tables at the end of this release, was $9.6 million, or $0.29 per diluted
share.
Operating income for the period was $13.2 million. Reported operating income
includes the impact of share-based compensation expense.
"We achieved record revenues in the second quarter," said Stuart M. Essig,
Integra's President and Chief Executive Officer. "During the quarter, we
acquired Miltex Holdings, Inc. and began the integration of that business into
Integra. In addition, we continued the integration of the Radionics Division of
Tyco Healthcare Group LP into the company. In June, we announced our agreement
to acquire Kinetikos Medical (KMI), which closed on July 31, and last month we
launched a direct sales force in Canada through the acquisition of our
longstanding Canadian distributor. Each of these transactions will play an
important role in growing one or more of our businesses."
We present our revenues in two categories: Neurosurgical/Orthopedic Implants
and Medical/Surgical Equipment.
Our revenues for the period were as follows:
Three Months
Ended June 30, % Increase/
2006 2005 (Decrease)
---- ---- ----------
($ in thousands)
<s> <c> <c> <c>
Revenue:
Neuro/Ortho Implants $38,896 $34,319 13%
MedSurg Equipment 61,225 35,459 73%
------ ------- ---
Total Revenue $100,121 $69,778 43%
In the Neuro/Ortho Implants category, sales of our Reconstructive Surgery
implant products grew particularly well. Rapid growth in the NeuraGen(TM) Nerve
Guide, the INTEGRA(TM) dermal repair products and sales of Newdeal products for
the foot and ankle accounted for much of the increase in implant product
revenues. INTEGRA(TM) dermal repair product revenues increased approximately 30%
over the second quarter of 2005, nerve repair product revenues increased by 34%,
and our Newdeal foot and ankle products increased approximately 35%. Our
DuraGen(R) family of duraplasty products achieved record revenues in the
quarter. Increased revenues of both the Absorbable Collagen Sponge that we
supply for use in Medtronic's INFUSE(TM) bone graft product and the dental
products we supply to Zimmer, also contributed to the growth in implant
revenues.
In the MedSurg Equipment category, JARIT(R) surgical instruments, monitoring
products and Radionics and Miltex products provided most of the year-over-year
growth in product revenues for the second quarter. Radionics and Miltex products
(both acquired in 2006) contributed $23.6 million of sales to the quarter.
Gross margin on total revenues in the second quarter of 2006 was 59%. We
recognized $2.1 million in inventory fair value purchase accounting adjustments
from the Radionics and Miltex acquisitions and $0.3 million in restructuring,
manufacturing transfer and systems integration costs. These charges reduced our
gross margin by approximately 2%.
Research and development expense increased $3.6 million in the second quarter of
2006 to $6.4 million. This increase was primarily attributable to accelerated
spending on research and development activities, as well as the activities
acquired in the Radionics transaction. We recognized $1.6 million in costs
related to the discontinuation of an ultrasonic aspirator-related development
project.
Selling, general and administrative expense increased by $11.2 million to $37.2
million in the second quarter of 2006, remaining at 37% of revenue. $3.2 million
of this increase was attributable to the impact of adopting FAS 123(R),
Share-Based Payment.
We reported net interest expense of $1.5 million in the second quarter of 2006,
primarily due to increased borrowing on our revolving line of credit.
The Company generated $15.5 million in cash flow from operations in the second
quarter of 2006. We repurchased 401,000 shares of our common stock in the
quarter at an average price of $37.87 per share for an aggregate purchase price
of approximately $15.2 million. At June 30, 2006, our cash and investments
totaled $43.6 million and we had approximately $64.0 million drawn under our
credit facility. After the closing of the KMI transaction, we had approximately
$34 million in cash and investments and approximately $100.0 of outstanding
borrowings under our credit facility.
We are updating our guidance for total revenues for the full years 2006 and
2007, including the impact of the recent KMI and Canada Microsurgical
transactions. We are also updating our expectations for earnings per share and
providing our initial guidance for the third quarter of 2006. In accordance with
our usual practice, our expectations for 2006 and 2007 financial performance do
not include the impact of acquisitions or other strategic corporate transactions
that have not yet closed.
We expect to record an in-process research and development charge of between
$4.0 million and $8.0 million in the third quarter of 2006 related to the KMI
acquisition. The amount of the charge is currently under evaluation.
We expect total revenues in 2006 to be between $405 million and $420 million,
and total revenues in 2007 to be between $500 million and $520 million.
The Company may incur significant costs this year in connection with
restructuring and integration activities, including inventory purchase
accounting charges related to the four acquisitions we have closed this year. We
currently expect these charges to total approximately $11.4 million in 2006, of
which $5.4 have already been incurred in the first half of the year.
The Company also expects the annual impact of estimated share-based compensation
expense for 2006 and 2007 to be approximately $0.28 per diluted share.
We expect earnings per diluted share to be within a range of $1.03 to $1.18 in
2006 and within a range of $1.72 to $1.87 in 2007. Excluding restructuring and
integration charges, in-process research and development charges, and the impact
of estimated share-based compensation expense, we expect earnings per diluted
share to be within a range of $1.69 to $1.76 in 2006. Excluding the impact of
estimated share-based compensation expense, we expect earnings per diluted share
to be within a range of $2.00 to $2.15 in 2007.
Our guidance for the third quarter of 2006 is for total revenues in the range of
$110 million to $115 million, including an incremental contribution of
approximately $33.0 million from product lines acquired this year, and earnings
per diluted share of $0.08 to $0.20. We expect adjusted earnings per diluted
share in the third quarter of 2006 to be within a range of $0.38 to $0.42,
excluding restructuring and integration charges of $0.08, an in-process research
and development charge of between $0.07 and $0.15, and the impact of estimated
share-based compensation expense of $0.07.
We have scheduled a conference call for 9:00 am EST today, August 2, 2006, to
discuss the financial results for the second quarter of 2006 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
(719) 457-2662 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 16, 2006 by dialing (719) 457-0820 (access
code 3716541) 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 a
variety of applications. The primary applications for our products are
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 research, manufacturing and distribution facilities throughout
the world. We have approximately 1,650 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, third-party payors'
willingness to provide reimbursement for these 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 our 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,
2005 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 share-based compensation expense, and charges related
to systems integrations and acquisitions and restructurings, which are non-GAAP
financial measures. We also provide guidance as to earnings per diluted share,
excluding the impact of estimated share-based compensation expense and
restructuring and integration charges. We believe that, given our on-going,
active strategy of seeking acquisitions and our current focus on rationalizing
our existing manufacturing and distribution infrastructure, focusing on these
measures are useful additional bases to measure the performance of our business
operations, both in this quarter and in future periods. In addition, excluding
share-based compensation charges from our net income and earnings per share
allows for comparability to historical periods that did not reflect the impact
of share-based compensation. 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)
Statement of Operations Data:
------------------------------------------------------ -----------------------
Three Months Ended
Three Months Ended June 30, 2006 June 30, 2005
------------------------------------------------------ -----------------------
Reported Adjustments As Adjusted Reported
<s> <c> <c> <c> <c>
Total revenues $100,121 $100,121 $69,778
Cost of product revenues 41,373 $(2,600) (a) 38,773 27,518
Research and development 6,354 (1,710) (b) 4,644 2,787
Selling, general and administrative 37,219 (3,348) (c) 33,871 26,041
Amortization 2,017 2,017 1,289
----- ------ ----- -----
Total costs and expenses 86,963 (7,658) 79,305 57,635
Operating income 13,158 7,658 20,816 12,143
Interest income (expense), net (1,479) (1,479) 85
Other income (expense), net (99) (99) (541)
---- ---- -----
Income before income taxes 11,580 7,658 19,238 11,687
Provision for 3,603 2,260 (d) 5,863 4,032
income taxes ----- ----- ----- -----
Net income $7,977 $5,398 $13,375 $ 7,655
Earnings per share calculation:
Add back of after tax interest
expense 684 684 488
--- --- ---
Net income for diluted EPS $8,661 $14,059 $8,143
Diluted earnings per share $0.26 $0.41 $0.23
Diluted weighted average
Common shares outstanding 33,804 154 33,958 34,739
Notes:
(a) Equity based compensation charge, inventory fair value purchase
accounting adjustments, employee terminations, acquisition integration,
and systems integrations costs
(b) Equity based compensation charge and R&D project discontinuation costs
(c) Equity based compensation charge, employee terminations related costs,
and net share settlement fees
(d) Adjustment to provision for income taxes for above adjustments
Condensed Balance Sheet Data:
June 30, December 31,
2006 2005
----- ----
<s> <c> <c>
Cash and marketable securities,
including non-current portion $43,643 $143,384
Accounts receivable, net 74,135 49,007
Inventory, net 92,981 67,476
Total assets 564,218 448,432
Current liabilities 113,619 31,287
Long-term debt 118,112 118,378
Total liabilities 252,172 158,614
Stockholders' equity 312,046 289,818
Reconciliation of non-GAAP financial measures to the most comparable GAAP
measure:
A. Reconciliation of Net Income and Adjusted Net Earnings
Quarter Ended
June 30,
2006 2005
-------- --------
($ in thousands,
except per share amounts)
<s> <c> <c>
Net Income $ 7,977 $ 7,655
Employee termination and related costs 208 2,074
Equity-based compensation charge 3,437 --
Inventory fair value adjustments 2,149 197
Facility consolidation, acquisition integration,
manufacturing transfer, system integration,
and related costs 199 305
Discontinued product lines -- 478
Discontinued R&D project 1,578 --
Net share settlement costs 87 --
Tax effect on above adjustments (2,260) (1,098)
--------- --------
Adjusted Net Income $ 13,375 $ 9,611
Earnings per share calculation:
Add back of after tax interest expense 684 488
--------- --------
Adjusted Net Income for diluted EPS $ 14,059 $10,099
Adjusted Diluted earnings per share $0.41 $0.29
Diluted weighted average common shares outstanding 33,804 34,739
Increase in potentially dilutive securities "as if"
using intrinsic value method of accounting for
share-based payment 154 --
--------- --------
Diluted weighted average common shares outstanding
For Adjusted Diluted earnings per share calculation 33,958 34,739
The calculation of diluted earnings per share for the above periods is presented
in the table above.
B. Reconciliation of Projected Diluted EPS and Projected Adjusted Diluted EPS
Range
----------------------
Low High
------ ------
<s> <c> <c>
Projected three months ended September 30, 2006:
Diluted EPS $0.08 $0.20
Facility consolidation and acquisition integration
and related costs, including inventory
fair value adjustments, net of tax 0.08 0.08
In-process research and development charge, net of tax 0.15 0.07
Share-based compensation expense, net of tax 0.07 0.07
------ ------
Adjusted Diluted EPS $0.38 $0.42
Range
----------------------
Low High
------ ------
Projected year ended December 31, 2006:
Diluted EPS $1.03 $1.18
Facility consolidation and acquisition integration
and related costs, including inventory
fair value adjustments, net of tax 0.23 0.23
In-process research and development charge, net of tax 0.15 0.07
Share-based compensation expense, net of tax 0.28 0.28
------ ------
Adjusted Diluted EPS $1.69 $1.76
Range
----------------------
Low High
------ ------
Projected year ended December 31, 2007:
Diluted EPS $1.72 $1.87
Share-based compensation expense, net of tax 0.28 0.28
------ ------
Adjusted Diluted EPS $2.00 $2.15
Source: Integra LifeSciences Holdings Corporation