Oct 31, 2011

Integra LifeSciences Reports Third Quarter 2011 Financial Results

Revenues Increase 8% to a Record $202 Million

PLAINSBORO, N.J., Oct. 31, 2011 (GLOBE NEWSWIRE) -- Integra LifeSciences Holdings Corporation (Nasdaq:IART) today reported its financial results for the third quarter ending September 30, 2011. Total revenues for the third quarter were $202.2 million, reflecting an increase of $15.6 million, or 8%, over the third quarter of 2010. Excluding the impact of currency exchange rates, revenues increased 7% over the third quarter of 2010. We present revenues by product category in a table at the end of this press release.

"Our performance during the third quarter again highlights the strength of our diversified business," said Stuart Essig, Chief Executive Officer. "Despite a challenging selling environment, recent acquisitions, persistent execution and aggressive cost management delivered solid results."

The Company reported GAAP net income of $11.2 million, or $0.39 per diluted share, for the third quarter of 2011, compared to GAAP net income of $16.5 million, or $0.55 per diluted share, for the third quarter of 2010.

Adjusted net income for the third quarter of 2011, computed with the adjustments to GAAP reporting set forth in the attached reconciliation, was $22.3 million, or $0.77 per diluted share, compared to $22.1 million, or $0.73 per diluted share, in the third quarter of 2010.

Integra generated $23.8 million in cash flows from operations and used $12.2 million of cash on capital expenditures in the third quarter of 2011. During the quarter, Integra completed several transactions, accomplishing the following:

Adjusted EBITDA for the third quarter of 2011, computed with the adjustments to GAAP reporting set forth in the attached reconciliation, was $41.4 million.

Adjusted EBITDA excluding stock-based compensation for the third quarter of 2011, computed with the adjustments to GAAP reporting set forth in the attached reconciliation, was $44.5 million.

Outlook for 2011

The Company's revenue guidance for the full year 2011 remains unchanged at $785 million to $800 million. The Company is updating its earnings per share guidance for the full year 2011. The Company is guiding to GAAP earnings per diluted share of between $1.22 and $1.30 and to adjusted earnings per diluted share of between $2.88 and $2.96. In accordance with our usual practice, expectations for financial performance do not include the impact of acquisitions or other strategic corporate transactions that have not yet closed.  

In the future, the Company may record, or expects to record, certain additional revenues, gains, expenses or charges as described in the Discussion of Adjusted Financial measures below that it will exclude in the calculation of adjusted EBITDA and adjusted earnings per share for historical periods and in providing adjusted earnings per share guidance.

Conference Call

Integra has scheduled a conference call for 8:30 AM ET on Monday, October 31, 2011 to discuss financial results for the third quarter and forward-looking financial guidance. The conference call will be hosted by Integra's senior management team and will be open to all listeners. Additional forward-looking information may be discussed in a question and answer session following the call.

Access to the live call is available by dialing 719-325-2348 and using the passcode 4635416. The call can also be accessed through a webcast via a link provided on the Investor Relations homepage of Integra's website at www.integralife.com. Access to the replay is available through November 14, 2011 by dialing 719-457-0820 and using the passcode 4635416. The webcast will also be archived on the website.

Integra LifeSciences, a world leader in medical devices, is dedicated to limiting uncertainty for surgeons, so they can concentrate on providing the best patient care. Integra offers innovative solutions in orthopedics, neurosurgery, spine, reconstructive and general surgery. For more information, please visit www.integralife.com.

This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks, uncertainties and reflect the Company's judgment as of the date of this release. Forward-looking statements include, but are not limited to, statements concerning future financial performance, including projections for revenues, GAAP and adjusted net income, GAAP and adjusted earnings per diluted share, non-GAAP adjustments such as system implementations charges, acquisition-related charges, non-cash amortization of imputed interest for convertible debt, intangible asset amortization, and income tax expense (benefit) related to non-GAAP adjustments. Such forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from predicted or expected results. Such risks and uncertainties include, but are not limited to: the Company's ability to maintain relationships with customers of acquired entities; physicians' willingness to adopt and third-party payors' willingness to provide reimbursement for the Company's recently launched and planned products; the Company's ability to manufacture sufficient quantities of its products to meet its customers' demand; initiatives launched by the Company's competitors; the Company's ability to secure regulatory approval for products in development; the Company's ability to remediate quality systems violations; fluctuations in hospital spending for capital equipment; the Company's ability to comply with and obtain approvals for products of human origin and comply with recently enacted regulations regarding products containing materials derived from animal sources; difficulties in controlling expenses, including costs to procure and manufacture our products; the impact of changes in management or staff levels; the Company's ability to integrate acquired businesses; the Company's ability to leverage its existing selling organizations and administrative infrastructure; the Company's ability to increase product sales and gross margins, and control non-product costs; the amount and timing of acquisition and integration related costs; the geographic distribution of where the Company generates its taxable income; the effect of legislation effecting healthcare reform in the United States; fluctuations in foreign currency exchange rates; the amount of our convertible notes and bank borrowings outstanding, and the economic, competitive, governmental, technological and other risk factors and uncertainties identified under the heading "Risk Factors" included in Item 1A of Integra's Annual Report on Form 10-K for the year ended December 31, 2010 and information contained in subsequent filings with the Securities and Exchange Commission. These forward-looking statements are made only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

Discussion of Adjusted Financial Measures

In addition to our GAAP results, we provide adjusted revenues, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), adjusted EBITDA excluding stock-based compensation, adjusted net income and adjusted earnings per diluted share. Adjusted revenues consist of growth in total revenues excluding the effects of currency exchange rates on the current period's revenues. The various measures of adjusted EBITDA consist of GAAP net income, excluding: (i) depreciation and amortization, (ii) other income (expense), net, (iii) interest income and expense, (iv) income taxes, (v) those operating expenses also excluded from adjusted net income and, as appropriate (vi) stock-based compensation expense. The measure of adjusted net income consists of GAAP net income, excluding: (i) acquisition-related charges; (ii) certain employee termination and related charges; (iii) intangible asset impairment charges; (iv) charges associated with discontinued product lines; (v) systems implementation charges; (vi) facility consolidation, manufacturing and distribution transfer charges**; (vii) charges related to restructuring our European entities; (viii) charges related to extending our Chief Executive Officer's employment contract; (ix) expenses related to issuance costs in connection with the revised credit agreement; (x) expenses related to our Chief Operating Officer joining the Company; (xi) expenses associated with remediation and related unplanned idle time and underutilization at our Plainsboro, New Jersey manufacturing facility, (xii) non-cash amortization of imputed interest for convertible debt; (xiii) intangible asset amortization expense; and (xiv) income tax expense related to above adjustments, quarterly adjustments to income tax expense related to the cumulative impact of changes in estimated tax rates and certain infrequently occurring items that affected the reported tax rate. The adjusted earnings per diluted share measure is calculated by dividing adjusted net income attributable to diluted shares by diluted weighted average shares outstanding. Reconciliations of GAAP revenues to adjusted revenues for the quarter ended September 30, 2011 and GAAP net income to adjusted EBITDA, adjusted EBITDA excluding stock-based compensation and adjusted net income, and GAAP earnings per diluted share to adjusted earnings per diluted share for the quarters ended September 30, 2011 and 2010 appear in the financial tables in this release.

Integra believes that the presentation of adjusted revenues and the various adjusted EBITDA, adjusted net income, and adjusted earnings per diluted share measures provides important supplemental information to management and investors regarding 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. This Current Report on Form 8-K is available on the SEC's website at www.sec.govor on our website at www.integralife.com.

** Effective starting in the fourth quarter of 2011, Integra will report certain costs to transfer production of its collagen products from its existing manufacturing facility in Plainsboro to a new manufacturing facility in Plainsboro and its existing manufacturing facility in Anasco, Puerto Rico in the "facility consolidation, manufacturing and distribution transfer charges" adjustment category. These costs were not previously adjusted out in the calculation of our adjusted net income or various adjusted EBITDA measures. Accordingly, our adjusted net income and adjusted net income per diluted share estimates for the year-ended December 31, 2011 reflect this change for the fourth quarter of 2011 only.

 
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
(In thousands, except per share amounts)
  Three Months Ended
September 30,
  2011 2010
 
Total revenues
$202,185 $186,641
     
Costs and expenses:    
Cost of product revenues 78,651 69,194
Research and development 13,187 11,721
Selling, general and administrative 87,508 75,738
Intangible asset amortization 4,548 2,679
     
Total costs and expenses 183,894 159,332
     
Operating income 18,291 27,309
 
Interest income
 
154
 
59
Interest expense (7,587) (4,390)
Other income (expense), net 429 (707)
     
Income before income taxes 11,287 22,271
     
Income tax expense 44 5,788
     
Net income 11,243 16,483
     
Diluted net income per share * $0.39 $0.55
     
Weighted average common shares outstanding for diluted net income per share 29,029 30,072

* In accordance with the authoritative guidance related to determining whether instruments issued in share-based payment transactions are participating securities, certain of the Company's unvested restricted share units contain rights to receive non-forfeitable dividends, and thus, are participating securities requiring the two-class method of computing earnings per share. The calculation of earnings per share for common stock shown above excludes the income attributable to the unvested restricted share units with dividend rights from the numerator and excludes the dilutive impact of those units from the denominator. This had an insignificant impact (less than $0.01 per share) on diluted net income per share for both periods shown above.

Listed below are the items included in GAAP revenues and GAAP 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.

Growth in total revenues excluding the effects of currency exchange rates
(In thousands)
 
  Three Months Ended
September 30,
  2011 2010 Change
Orthopedics $86,435 $72,970 18%
Neurosurgery $72,426 $69,816 4%
Instruments $43,324 $43,855 -1%
Total revenues $202,185 $186,641 8%
       
Impact of changes in currency exchange rates $(2,906) --  
Total revenues excluding the effects of currency exchange rates $199,279 $186,641 7%
 
Items included in GAAP net income and location where each item is recorded
(In thousands)
 
Three Months Ended September 30, 2011
Item Total Amount COPR(a) SG&A(b) Amort.(c) Interest
Exp(Inc)(d)
Tax
(e)
Acquisition-related charges $1,665 $1,042 $623 -- -- --
 
Charges associated with discontinued product lines
485 485 -- -- -- --
 
Systems implementation charges
6,245 -- 6,245 -- -- --
 
Facility consolidation, manufacturing and distribution transfer charges
34 243 (209) -- -- --
 
Expenses associated with remediation and related unplanned idle time and underutilization at our Plainsboro, New Jersey manufacturing facility
1,748 1,748 -- -- -- --
 
Expenses related to our Chief Operating Officer joining the Company
100 -- 100 -- -- --
 
Non-cash amortization of imputed interest for convertible debt
3,417 -- -- -- 3,417 --
 
Intangible asset amortization expense
6,068 1,520 -- 4,548 -- --
 
Income tax expense related to above adjustments, quarterly adjustments to income tax expense related to the cumulative impact of changes in estimated tax rates and certain infrequently occurring items that affected the reported tax rate
(8,721) -- -- -- -- (8,721)
 
Depreciation expense
6,784          
 
Stock-based compensation expense
3,034          

a) COPR — Cost of product revenues
b) SG&A — Selling, general and administrative
c) Amort. — Intangible asset amortization
d) Interest Exp(Inc) — Interest income (expense), net
e) Tax — Income tax expense
 

Three Months Ended September 30, 2010
Item Total Amount COPR
 
SG&A
 
Amort.
 
Interest Exp(Inc) Tax
 
Acquisition-related charges $889 $604 $285 -- -- --
 
Certain employee termination and related charges
531 350 181 -- -- --
 
Intangible asset impairment charges
59 -- -- 59 -- --
 
Systems implementation charges
1,105 -- 1,105 -- -- --
 
Facility consolidation, manufacturing and distribution transfer charges
242 242 -- -- -- --
 
Non-cash amortization of imputed interest for convertible debt
1,578 -- -- -- 1,578 --
 
Charges related to restructuring European subsidiaries
395 -- 395 -- -- --
 
Intangible asset amortization expense*
4,126 1,506 -- 2,620 -- --
 
Income tax expense related to above adjustments, quarterly adjustments to income tax expense related to the cumulative impact of changes in estimated tax rates and certain infrequently occurring items that affected the reported tax rate
(3,337) -- -- -- -- (3,337)
 
Depreciation expense
5,531          
 
Stock-based compensation expense
3,933          
             
*For the period ending September 30, 2010, "Intangible asset amortization expense" excludes $59 already included in "Intangible asset impairment charges" above.            
 
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
RECONCILIATION OF NON-GAAP ADJUSTMENTS — GAAP NET INCOME TO ADJUSTED EBITDA AND ADJUSTED
EBITDA EXCLUDING STOCK BASED COMPENSATION
(UNAUDITED)
 
(In thousands)
  Three Months Ended
September 30,
  2011 2010
     
GAAP net income $11,243 $16,483
Non-GAAP adjustments:    
     
Depreciation and intangible asset amortization expense 12,852 9,657
     
Other (income) expense, net (429) 707
     
Interest (income) expense, net 7,433 4,331
     
Income tax expense 44 5,788
     
Acquisition-related charges 1,665 889
     
Certain employee termination and related charges -- 531
     
Intangible asset impairment charges -- 59
     
Charges associated with discontinued product lines 485 --
     
Systems implementation charges 6,245 1,105
     
Facility consolidation, manufacturing and distribution transfer charges 34 242
     
Expenses associated with remediation and related unplanned idle time and underutilization at our Plainsboro, New Jersey manufacturing facility 1,748 --
     
Expenses related to our Chief Operating Officer joining the Company 100 --
     
Charges related to restructuring our European entities -- 395
     
 Total of non-GAAP adjustments 30,177 23,704
     
Adjusted EBITDA $41,420 $40,187
     
Stock-based compensation 3,034 3,933
     
Adjusted EBITDA excluding stock-based compensation $44,454 $44,120
     
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
RECONCILIATION OF NON-GAAP ADJUSTMENTS — GAAP NET INCOME TO MEASURES OF ADJUSTED NET INCOME
AND ADJUSTED EARNINGS PER SHARE
(UNAUDITED)
 
(In thousands, except per share amounts)
  Three Months Ended
September 30,
  2011 2010
     
GAAP net income $11,243 $16,483
Non-GAAP adjustments:    
     
Acquisition-related charges 1,665 889
     
Certain employee termination and related charges -- 531
     
Intangible asset impairment charges -- 59
     
Charges associated with discontinued product lines 485 --
     
Systems implementation charges 6,245 1,105
     
Facility consolidation, manufacturing and distribution transfer charges 34 242
     
Expenses associated with remediation and related unplanned idle time and underutilization at our Plainsboro, New Jersey manufacturing facility 1,748 --
     
Expenses related to our Chief Operating Officer joining the Company 100 --
     
Charges related to restructuring our European entities -- 395
     
Non-cash amortization of imputed interest for convertible debt 3,417 1,578
     
Intangible asset amortization expense 6,068 4,126
     
Income tax expense related to above adjustments, quarterly adjustments to income tax expense related to the cumulative impact of changes in estimated tax rates and certain infrequently occurring items that affected the reported tax rate (8,721) (3,337)
     
 Total of non-GAAP adjustments 11,041 5,588
     
Adjusted net income $22,284 $22,071
     
Adjusted diluted net income per share * $0.77 $0.73
     
Weighted average common shares outstanding for diluted net income per share 29,029 30,072

* In accordance with the authoritative guidance related to determining whether instruments issued in share-based payment transactions are participating securities, certain of the Company's unvested restricted share units contain rights to receive non-forfeitable dividends, and thus, are participating securities requiring the two-class method of computing earnings per share. The calculation of earnings per share for common stock shown above excludes the income attributable to the unvested restricted share units with dividend rights from the numerator and excludes the dilutive impact of those units from the denominator. This had an insignificant impact (less than $0.01 per share) on adjusted diluted net income per share for both periods shown above.

 
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED BALANCE SHEET DATA
(UNAUDITED)
 
 (In thousands)
   
  September 30,
2011
December 31,
2010
     
 Cash and cash equivalents $110,991 $128,763
 Accounts receivable, net 117,777 106,005
 Inventory, net 181,430 146,928
     
Term loan -- 148,126
Bank line of credit 192,500 100,000
Convertible securities 349,104 155,154
     
Stockholders' equity 501,521 499,963
 
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
RECONCILIATION OF NON-GAAP ADJUSTMENTS — GUIDANCE
 
 (In thousands, except per share amounts)
  Recorded Year to Date
September 30, 2011
Projected Year Ended
December 31, 2011
    Low High
GAAP net income $23,429 $35,900 $38,300
       
Non-GAAP adjustments:      
       
Acquisition-related charges 4,227 6,400 6,400
       
Certain employee termination and related charges 846 2,285 2,285
       
Intangible asset impairment charges 2,648 2,648 2,648
       
Charges associated with discontinued product lines 3,664 3,664 3,664
       
Systems implementation charges 11,832 16,375 16,375
       
Facility consolidation, manufacturing and distribution transfer charges 2,127 3,100 3,100
       
Expenses associated with remediation and related unplanned idle time and underutilization at our Plainsboro, New Jersey manufacturing facility 1,748 2,680 2,680
       
Charges related to restructuring our European entities 378 840 840
       
Charges related to extending our Chief Executive Officer's employment contract 8,379 8,379 8,379
       
Expenses related to issuance costs in connection with the revised credit agreement 790 790 790
       
Expenses related to our Chief Operating Officer joining the Company 100 100 100
       
Non-cash amortization of imputed interest for convertible debt 7,049 10,485 10,485
       
Intangible asset amortization expense 14,976 21,460 21,460
       
Income tax expense related to above adjustments and certain infrequently occurring items (19,837) (30,106) (30,106)
       
Total of non-GAAP adjustments 38,927 49,100 49,100
       
Adjusted net income $62,356 $85,000 $87,400
       
GAAP diluted net income per share $0.79 $1.22 $1.30
       
Non-GAAP adjustments detailed above (per share) $1.30 $1.66 $1.66
       
Adjusted diluted net income per share $2.09 $2.88 $2.96
       
Weighted average common shares outstanding for diluted net income per share 29,820 29,500 29,500
 
Items included in GAAP net income guidance and location where each item is expected to be recorded
(In thousands)
 
Projected Year Ended December 31, 2011
Item Total Amount COPR
 
R&D
 
SG&A
 
Amort.
 
Interest Exp(Inc) Other Exp(Inc) Tax
 
Acquisition-related charges $6,400 $3,415 $300 $2,685 -- -- -- --
 
Certain employee termination and related charges
2,285 34 480 1,771 -- -- -- --
 
Intangible asset impairment charges
2,648 1,597 -- -- 1,051 -- -- --
 
Charges associated with discontinued product lines
3,664 1,776 -- 1,888 -- -- -- --
 
Systems implementation charges
16,375 -- -- 16,375 -- -- -- --
 
Facility consolidation, manufacturing and distribution transfer charges
3,100 2,405 -- 695 -- -- -- --
 
Expenses associated with remediation and related unplanned idle time and underutilization at our Plainsboro, New Jersey manufacturing facility
2,680 2,680 -- -- -- -- -- --
 
Charges related to restructuring our European entities
840 -- -- 840 -- -- -- --
 
Charges related to extending our Chief Executive Officer's employment contract
8,379 -- -- 8,379 -- -- -- --
 
Expenses related to issuance costs in connection with the revised credit agreement
790 -- -- -- -- 790 -- --
 
Expenses related to our Chief Operating Officer joining the Company
100 -- -- 100 -- -- -- --
 
Non-cash amortization of imputed interest for convertible debt
10,485 -- -- -- -- 10,485 -- --
 
Intangible asset amortization expense
21,460 6,070 -- -- 15,390 -- -- --
 
Income tax expense related to above adjustments, quarterly adjustments to income tax expense related to the cumulative impact of changes in estimated tax rates and certain infrequently occurring items that affected the reported tax rate
 (30,106) -- -- -- -- -- --  (30,106)
CONTACT: Integra LifeSciences Holdings Corporation

         John B. Henneman, III

         Executive Vice President, Chief Financial Officer

         (609) 275-0500

         jack.henneman@integralife.com

         

         Investor Relations:

         Angela Steinway

         (609) 936-2268

         angela.steinway@integralife.com