Exhibit 99.1
NEWS RELEASE
Contacts:
Integra LifeSciences Holdings Corporation
Maureen B. Bellantoni John Bostjancic
Executive Vice President Vice President, Corporate Development
and Chief Financial Officer and Investor Relations
(609) 936-6822 (609) 936-2239
maureen.bellantoni@Integra-LS.com jbostjancic@Integra-LS.com
INTEGRA LIFESCIENCES REPORTS THIRD QUARTER 2006 FINANCIAL RESULTS
REVENUES FOR QUARTER EXCEED $116 MILLION
Plainsboro, New Jersey, November 2, 2006 - Integra LifeSciences Holdings
Corporation (NASDAQ: IART) today reported its third quarter financial results.
Total revenues in the third quarter of 2006 were $116.6 million, reflecting an
increase of $47.3 million, or 68%, over the third quarter of 2005. Revenues from
products acquired in 2006 totaled $35.7 million for the quarter.
We reported net income of $2.6 million, or $0.09 per diluted share, for the
third quarter of 2006, compared to net income of $10.5 million, or $0.33 per
diluted share in the third quarter of 2005. Reported earnings for the third
quarter of 2006 include $3.8 million of share-based compensation expense related
to the implementation of SFAS 123R Share-Based Payment in January 2006. Reported
earnings for the third quarter of 2005 do not reflect the impact of share-based
compensation expense.
In addition to GAAP results, Integra reports adjusted net income and adjusted
diluted earnings per share. A further discussion of these non-GAAP financial
measures can be found below, and reconciliations of GAAP net income to adjusted
net income and GAAP diluted earnings per share to adjusted diluted earnings per
share for the three months ended September 30, 2006 and 2005 appear in the
financial statements attached to this release.
Adjusted net income for the third quarter of 2006, computed with the adjustments
to GAAP reporting set forth in the attached reconciliation, was $13.7 million,
or $0.43 per diluted share. In the third quarter of 2005 adjusted net income was
$11.5 million, or $0.36 per diluted share.
"We achieved record revenues in the third quarter," said Stuart M. Essig,
Integra's President and Chief Executive Officer. "During the quarter, we
acquired Kinetikos Medical (KMI) and launched a direct sales force in Canada
through the acquisition of our longstanding Canadian distributor. We have
integrated Radionics and Miltex and are now integrating KMI into our
Reconstructive Surgery sales channel."
We present our revenues in two categories: a) Neurosurgical and Orthopedic
Implants and b) Medical Surgical Equipment.
Our revenues for the period were as follows:
Three Months
Ended September 30, % Increase/
2006 2005 (Decrease)
---- ---- ----------
($ in thousands)
Revenue:
Neuro/Ortho Implants $43,136 $33,516 29%
MedSurg Equipment 73,511 35,818 105%
------ ------- ----
Total Revenue $116,647 $69,334 68%
In the Neuro/Ortho Implants category, sales of our reconstructive surgery
implant products continued to grow strongly. Rapid growth in nerve and dermal
repair products and sales of products for the hand, foot and ankle accounted for
much of the increase in implant product revenues. INTEGRA(TM) dermal repair
product revenues increased 32% over the third quarter of 2005, nerve repair
product revenues increased by 44%, and our hand, foot and ankle products more
than doubled. Revenues from bone graft and collagen dental products increased by
57% over the third quarter of 2005. KMI products contributed $1.9 million of
sales to the quarter.
In the MedSurg Equipment category, acquired products, surgical instruments, and
monitoring products provided most of the year-over-year growth in product
revenues for the third quarter. Radionics, Miltex and non-Integra distributed
products sold through our former Canadian distributor (all acquired in 2006)
contributed $33.8 million of sales to the quarter.
Gross margin on total revenues in the third quarter of 2006 was 59%. In cost of
product revenues, we recognized $1.4 million in inventory fair value purchase
accounting adjustments from recent acquisitions. These charges reduced our gross
margin by approximately 1%.
Research and development expense increased $7.9 million in the third quarter of
2006 to $11.0 million. In the third quarter of 2006, we recorded an in-process
research and development charge of $5.6 million related to the KMI acquisition
and a $0.5 million charge related to an upfront payment pursuant to a new
product development alliance.
Selling, general and administrative expense increased by $20.8 million to $43.4
million in the third quarter of 2006, or 37% of revenue, as compared to 33% in
the third quarter of 2005. Included in this increase was $3.5 million of
share-based compensation expense attributable to the impact of adopting FAS
123R.
Operating income for the third quarter of 2006 was $11.8 million.
We reported net interest expense of $4.0 million in the third quarter of 2006,
which includes $1.4 million of interest expense under our revolving line of
credit.
In September 2006, Integra completed an exchange of $115.2 million (out of a
total of $120.0 million) of its old contingent convertible notes for the
equivalent amount of new notes with a "net share settlement" feature and
takeover protection. In connection with the exchange offer, Integra recorded a
$1.8 million charge in the third quarter of 2006 related to $0.6 million of fees
paid in connection with the exchange and a $1.2 million write-off of the
unamortized debt issuance costs associated with the old contingent convertible
notes that were exchanged. We reported $1.5 million of this charge in net
interest expense.
In October 2006, Integra issued an additional $4.3 million of new notes in
exchange for an equal amount of old notes.
We reported $1.8 million of other expense in the third quarter of 2006. In
September 2006, Integra terminated its $50.0 million notional amount interest
rate swap, which was used to hedge the risk of changes in fair value
attributable to interest rate risk with respect to a portion of Integra's old
contingent convertible notes. The interest rate swap qualified as a fair value
hedge under Statement of Financial Accounting Standard No. 133, as amended,
"Accounting for Derivative Instruments and Hedging Activities." In connection
with the termination of the interest rate swap, Integra discontinued hedge
accounting and recorded a $1.4 million charge to other expense in the third
quarter of 2006 to write-off the unamortized mark-to-market fair value
adjustment recorded against the contingent convertible notes.
Our effective income tax rate was 57% for the third quarter of 2006, or a 37%
effective rate for the year-to-date period. In the first half of 2006, we
recorded income tax expense at an expected full year effective rate of 31%. The
increase in the expected year-to-date effective rate was primarily driven by the
nondeductible nature of the $5.6 million in-process research and development
charge recorded in connection with the KMI acquisition in the third quarter of
2006. We expect an effective income tax rate for 2007 of approximately 31%.
We generated $24.2 million in cash flow from operations in the third quarter of
2006. We repurchased 456,750 shares of our common stock in the quarter at an
average price of $36.46 per share for an aggregate purchase price of
approximately $16.7 million. On October 30, 2006 our Board of Directors
authorized us to repurchase up to an additional $75 million of our common stock
through December 31, 2007.
At September 30, 2006, our cash totaled $24.2 million and we had outstanding
borrowings of $87.0 million under our credit facility.
We are updating our guidance for total revenues for the full years 2006 and
2007. We are also updating our expectations for earnings per share and providing
guidance for the fourth 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.
For the fourth quarter of 2006, we expect total revenues to be in the range of
$116 million to $121 million and earnings per diluted share in the range of
$0.37 to $0.43. Accordingly, we expect total revenues in 2006 to be between $410
million and $415 million and earnings per diluted share to be between $1.00 and
$1.05. We expect adjusted earnings per diluted share, computed with the
adjustments to GAAP reporting set forth in the attached reconciliation, to be in
the range of $0.47 and $0.52 for the fourth quarter of 2006 and $1.68 and $1.73
for the full year 2006.
For 2007, we expect total revenues to be between $500 million and $520 million
and earnings per diluted share to be between $1.76 and $1.85. We expect adjusted
earnings per diluted share, computed with the adjustments to GAAP reporting set
forth in the attached reconciliation, to be in the range of $2.08 and $2.17.
Integra has incurred significant costs in 2006 in connection with restructuring
and integration activities, including inventory purchase accounting charges,
in-process research and development charges, and discontinued research and
development projects related to the acquisitions we have closed this year, and
charges related to the contingent convertible notes exchange offer and the
termination of our interest rate swap. We currently expect these charges to
total approximately $16.2 million in 2006, of which $15.6 million have already
been incurred through the end of the third quarter.
We have scheduled a conference call for 9:00 am EST today, November 2, 2006, to
discuss the financial results for the third 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
(913) 981-5560 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 16, 2006 by dialing (719) 457-0820 (access
code 5413428) 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. 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, GAAP and adjusted earnings per
diluted share, and costs to be incurred in connection with restructuring and
integration activities. 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 integrate acquired businesses, increase
product sales and gross margins, and control non-product costs may affect our
GAAP and adjusted earnings per share; and the ultimate scope of our
restructuring and integration activities and our ability to complete these
activities may affect the total costs to be incurred in connection with these
activities. 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.
Discussion of Adjusted Financial Measures
Adjusted net income consists of net income excluding equity-based compensation
charges, acquisition-related charges, charges incurred in connection with the
exchange offer of convertible notes and the termination of the interest rate
swap agreement, facility consolidation, manufacturing transfer and system
integration charges, and certain employee termination and related costs.
Adjusted earnings per diluted share are calculated by dividing adjusted net
income for diluted earnings per share by adjusted diluted weighted average
shares outstanding. Because all equity-based compensation expense is added back
in the calculation of adjusted net income, the calculation of diluted weighted
average shares outstanding is adjusted to exclude the benefits of unearned
equity-based compensation costs attributable to future services and not yet
recognized in the financial statements. These unearned equity-based compensation
costs are treated as proceeds assumed to be used to repurchase shares, based on
the average trading price of Integra common stock during the period reported, in
the calculation of GAAP diluted weighted average shares outstanding.
Integra believes that the presentation of adjusted net income and adjusted
earnings per diluted share provides important supplemental information to
management and investors regarding non-cash expenses and 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. The section of the Company's report is available on the
SEC's website at www.sec.gov or on our website at www.Integra-LS.com.
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended
September 30,
--------------------------
2006 2005
--------- ---------
TOTAL REVENUE $ 116,647 $ 69,334
COSTS AND EXPENSES
Cost of product revenues 47,559 26,394
Research and development 10,991 3,110
Selling, general and
administrative 43,431 22,653
Intangible asset amortization 2,852 1,085
--------- ---------
Total costs and expenses 104,833 53,242
Operating income 11,814 16,092
Interest income 375 952
Interest expense (4,362) (1,345)
Other income (expense), net (1,765) (4)
--------- ---------
Income before income taxes 6,062 15,695
Income tax expense 3,468 5,213
--------- ---------
Net income $ 2,594 $ 10,482
Add back of after tax interest
expense -- 800
Net income for diluted earnings
per share $ 2,594 $ 11,281
Diluted net income per share $ 0.09 $ 0.33
Weighted average common shares
outstanding for diluted net
income per share 29,863 34,297
Listed below are the items included in net income that management excludes in
computing the adjusted financial measures referred to in the text of this press
release and further described under Discussion of Adjusted Financial Measures.
Three Months Ended
September 30,
-----------------------
2006 2005
------- -------
Equity-based compensation $ 3,809 $ --
Acquisition-related charges 6,999 500
Facility consolidation,
manufacturing transfer and
system integration charges -- 365
Employee termination and
related costs -- 794
Charges associated with
convertible debt exchange
offer 1,792
Charges associated with
termination of interest rate
swap 1,425
Income tax expense (benefit)
related to above adjustments (2,969) (623)
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
RECONCILIATION OF NON-GAAP ADJUSTMENTS - HISTORICAL
(UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended
September 30,
----------------------
2006 2005
-------- --------
GAAP net income $ 2,594 $ 10,481
Non-GAAP adjustments:
Equity-based compensation 3,809 --
Acquisition-related charges 6,999 500
Facility consolidation, manufacturing
transfer and system integration charges -- 365
Employee termination and related costs -- 794
Charges associated with convertible debt
exchange offer 1,792 --
Charges associated with termination of
interest rate swap 1,425 --
Income tax expense (benefit) related to
above adjustments (2,969) (623)
-------- --------
Total of non-GAAP adjustments 11,056 1,036
Adjusted net income $ 13,650 $ 11,517
Add back of after tax interest expense (1) 755 800
-------- --------
Adjusted net income for diluted earnings
per share $ 14,405 $ 12,317
Weighted average common shares
outstanding for diluted net income per share 29,863 34,297
Shares issuable upon conversion of
convertible notes (1) 3,381 --
Non-GAAP adjustment 106 --
-------- --------
Adjusted weighted average common shares
outstanding for adjusted diluted net income
per share 33,350 34,297
GAAP diluted net income per share $ 0.09 $ 0.33
Non-GAAP adjustments detailed
above (per share) $ 0.34 $ 0.03
-------- --------
Adjusted diluted net income per share $ 0.43 $ 0.36
(1) The "as if converted" method related to the convertible notes is
applied in the calculation of adjusted diluted net income per share
for the three months ended September 30, 2006 because its effects are
more dilutive.
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
RECONCILIATION OF NON-GAAP ADJUSTMENTS - GUIDANCE
(In thousands, except per share amounts)
Projected Three Months Ended Projected Year Ended
December 31, 2006 December 31, 2006
---------------------------- --------------------------
Low High Low High
GAAP net income $ 11,150 $ 12,800 $ 30,426 $ 32,076
Add back of after tax interest expense -- -- 2,252 2,252
-------- -------- -------- --------
GAAP net income for diluted earnings
per share 11,150 12,800 32,678 34,328
Non-GAAP adjustments:
Equity-based compensation 3,600 3,600 13,882 13,882
Acquisition-related charges 600 600 11,790 11,790
Facility consolidation,
manufacturing transfer and
system integration charges -- -- 717 717
Employee termination and related
costs -- -- 421 421
Charges associated with
convertible debt exchange offer -- -- 1,879 1,879
Charges associated with
termination of interest rate -- -- 1,425 1,425
swap
Income tax expense (benefit) related
to above adjustments (1,325) (1,325) (7,814) (7,814)
-------- -------- -------- --------
Total of non-GAAP adjustments 2,875 2,875 22,300 22,300
-------- -------- -------- --------
Adjusted net income $ 14,025 $ 15,675 $ 54,978 $ 56,628
Weighted average common shares
outstanding for diluted net income per
share 29,875 29,875 32,688 32,688
Non-GAAP adjustment (1) 106 106 126 126
-------- -------- -------- --------
Adjusted weighted average common shares
outstanding for adjusted diluted net
income per share 29,981 29,981 32,814 32,814
GAAP diluted net income per share $ 0.37 $ 0.43 $ 1.00 $ 1.05
Non-GAAP adjustments detailed above
(per share) 0.10 0.09 0.68 0.68
-------- -------- -------- --------
Adjusted diluted net income per share $ 0.47 $ 0.52 $ 1.68 $ 1.73
(1) For ease of computation, the Company has assumed that the same
adjustment that applied for the three months ended September 30, 2006
(106 shares) is the applicable adjustment for the projected three
months ended December 31, 2006 and the year ended December 31, 2007.
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
RECONCILIATION OF NON-GAAP ADJUSTMENTS - GUIDANCE
(In thousands, except per share amounts)
Projected Year Ended
December 31, 2007
------------------------
Low High
GAAP net income $ 52,000 $ 54,500
Add back of after tax interest expense -- --
-------- --------
GAAP net income for diluted earnings
per share 52,000 54,500
Non-GAAP adjustments:
Equity-based compensation 14,000 14,000
Income tax expense (benefit)
related to above adjustments (4,300) (4,300)
-------- --------
Total of non-GAAP adjustments 9,700 9,700
-------- --------
Adjusted net income $ 61,700 64,200
Weighted average common shares
outstanding for diluted net income per
share 29,500 29,500
Non-GAAP adjustment (1) 106 106
-------- --------
Adjusted weighted average common shares
outstanding for adjusted diluted net
income per share 29,606 29,606
GAAP diluted net income per share $ 1.76 1.85
Non-GAAP adjustments detailed above
(per share) 0.32 0.32
-------- --------
Adjusted diluted net income per share $ 2.08 $ 2.17
(1) For ease of computation, the Company has assumed that the same
adjustment that applied for the three months ended September 30, 2006
(106 shares) is the applicable adjustment for the projected three
months ended December 31, 2006 and the year ended December 31, 2007.
Condensed Balance Sheet Data:
September 30, December 31,
2006 2005
---- ----
Cash and marketable securities,
including non-current portion $ 24,322 $143,384
Accounts receivable, net 76,715 49,007
Inventory, net 93,773 67,476
Total current assets 219,115 265,952
Total assets 593,667 448,432
Bank line of credit 87,000 --
Demand notes (1) 115,205 --
Total current liabilities 255,456 31,287
Long term debt (1) 4,889 118,378
Total liabilities 288,186 158,614
Stockholders' equity 305,481 289,818
(1) The closing price of Integra's common stock on the issuance date of the
new convertible notes was higher than the market price trigger of the new
notes. Therefore, the new notes are considered demand debt and are
classified as current liabilities on the balance sheet since the holders
have the option to call this debt at any time.
SOURCE: INTEGRA LIFESCIENCES HOLDINGS CORPORATION