May 2, 2013

Integra LifeSciences Reports First Quarter 2013 Financial Results

Results In Line With Preliminary Announcement

Revises 2013 Guidance

PLAINSBORO, N.J., May 2, 2013 (GLOBE NEWSWIRE) -- Integra LifeSciences Holdings Corporation (Nasdaq:IART) today reported its financial results for the first quarter ending March 31, 2013. Total revenues for the first quarter were $196.7 million, reflecting an increase of $0.5 million over the first quarter of 2012. Currency exchange rates had a negligible effect on revenues.

The Company reduced its revenue in the quarter by $2.9 million because of product returned in the voluntary recall announced on April 10, 2013, and estimates that it was unable to satisfy customer demand for an additional $6 million to $7 million.

The Company reported GAAP net loss of $4.1 million, or $0.15 per diluted share, for the first quarter of 2013, compared to GAAP net income of $6.7 million, or $0.23 per diluted share, for the first quarter of 2012.

Adjusted net income for the first quarter of 2013, computed with the adjustments to GAAP reporting set forth in the attached reconciliation, was $10.9 million, or $0.39 per diluted share, compared to adjusted net income of $20.2 million, or $0.71 per diluted share, in the first quarter of 2012.

Integra generated $7.8 million in cash flows from operations and invested $10.9 million in capital expenditures during the quarter.

Adjusted EBITDA for the first quarter of 2013, computed with the adjustments to GAAP reporting set forth in the attached reconciliation, was $24.3 million, a decrease of 38% compared to $39.0 million achieved in the first quarter last year. Adjusted EBITDA excluding stock-based compensation for the first quarter of 2013, computed with the adjustments to GAAP reporting set forth in the attached reconciliation, was $26.4 million, a decrease of 36% compared to $41.1 million achieved in the first quarter last year.

Outlook for 2013

The Company now expects full year 2013 revenues of $840 million to $852 million. The Company is revising its expectations for GAAP earnings per diluted share for the full year to between $0.92 and $1.22 and for adjusted earnings per diluted share to between $2.40 and $2.70.

"The recent voluntary product recall and related product shortages created a near-term challenge, driving our outlook for 2013 lower," said Peter Arduini, Integra's President and Chief Executive Officer. "However, we remain committed to delivering on our long-term strategy, including sustainable margin improvement and accelerating top line growth, and look forward to realizing our growth and margin objectives in the years to come."

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 today, Thursday, May 2, 2013 to discuss financial results for the first 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 719-457-2727 and using the passcode 7359654. The call can also be accessed through a webcast via a link provided on the Investor Relations homepage of Integra's website at investor.integralife.com. Access to the replay is available through May 16, 2013 by dialing 719-457-0820 and using the passcode 7359654. The webcast will also be archived on the website.

Integra LifeSciences, a world leader in medical technology, is dedicated to limiting uncertainty for surgeons, so they can concentrate on providing the best patient care. Integra offers innovative solutions in orthopedic extremity surgery, neurosurgery, spine surgery, and 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 (loss)/income, GAAP and adjusted (loss)/earnings per diluted share, non-GAAP adjustments such as global enterprise resource planning ("ERP") system implementation charges, certain expenses associated with product recalls, 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 execute its operating plan effectively, the Company's ability to manufacture and ship sufficient quantities of its products to meet its customers' demand; global macroeconomic conditions; continued weakness in sales outside of the U.S.; the Company's ability to manage its direct sales channels effectively; 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; initiatives launched by the Company's competitors; downward pricing pressures for customers; 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 other factors influencing liquidity; 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, 2012 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 (loss)/income, excluding: (i) depreciation and amortization, (ii) other income (expense), (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 (loss)/income, excluding: (i) manufacturing facility remediation costs; (ii) global ERP implementation charges; (iii) facility optimization charges; (iv) certain employee termination charges; (v) discontinued product lines charges; (vi) acquisition-related charges; (vii) impairment charges; (viii) certain expenses associated with product recalls; (ix) convertible debt non-cash interest; (x) intangible asset amortization expense; and (xi) income tax impact from adjustments and other items. The adjusted earnings per diluted share measure is calculated by dividing adjusted net income attributable to diluted shares by diluted weighted average shares outstanding. Because the Company reported a GAAP net loss in the first quarter of 2013, the calculation of GAAP diluted weighted average shares outstanding for the first quarter of 2013 excludes the effects of stock options and unvested restricted stock, as the effect of these equity awards would be anti-dilutive. The Company included the dilutive effects of these equity awards in the calculation of adjusted diluted weighted average shares outstanding used to calculate adjusted earnings per diluted share for the first quarter of 2013 because their effects are dilutive in relation to adjusted net income.

Reconciliations of GAAP revenues to adjusted revenues for the quarter ended March 31, 2013 and GAAP net (loss)/income to adjusted EBITDA, adjusted EBITDA excluding stock-based compensation and adjusted net income, and GAAP (losses)/earnings per diluted share to adjusted earnings per diluted share for the quarters ended March 31, 2013 and 2012 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.gov or on our website at www.integralife.com.

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share amounts)
     
  Three Months Ended
  March 31,
  2013 2012
Total revenues  $ 196,652  $ 196,185
     
Costs and expenses:    
Cost of goods sold 80,268 74,675
Research and development 12,716 11,912
Selling, general and administrative 100,161 87,411
Intangible asset amortization 3,551 4,720
Total costs and expenses 196,696 178,718
     
Operating (loss)/income (44) 17,467
     
Interest income 63 378
Interest expense (4,800) (7,929)
Other income (expense), net (974) (323)
(Loss)/Income before income taxes (5,755) 9,593
     
Income tax (benefit)/expense (1,705) 2,900
Net (loss)/income  $ (4,050)  $ 6,693
     
Diluted net (loss)/income per share  $ (0.15)  $ 0.23
Weighted average common shares outstanding for diluted net (loss)/income per share 27,796 28,488
 
Segment revenues and growth in total revenues excluding the effects of currency exchange rates are as follows:
(In thousands)
       
  Three Months Ended March 31,
  2013 2012 Change
U.S. Neurosurgery $38,996 $40,183 (3.0)%
U.S. Instruments 36,948 37,994 (2.8)%
U.S. Extremities 31,361 26,587 18.0%
U.S. Spine & Other 43,548 44,810 (2.8)%
International* 45,799 46,611 (1.7)%
Total Revenue $196,652 $196,185 0.2%
       
Impact of changes in currency exchange rates $239  
Total revenues excluding the effects of currency exchange rates $196,891 $196,185 0.4%

*The International segment revenues reflect sales that are actively managed by our International division. This does not constitute all recorded sales outside the U.S., as some Instrument and Private Label product sales in those regions are managed by their respective U.S. divisions.

 
Items included in GAAP net (loss)/income and location where each item is recorded are as follows:
(In thousands)
Three Months Ended March 31, 2013
             
Item Total Amount COGS(a) SG&A(b) Amort.(c) Interest Exp(Inc)(d) Tax(e)
Manufacturing facility remediation costs $2,125 $1,843 $282 $— $— $—
Certain expenses associated with product recalls 1,279 1,279
Global ERP implementation charges 6,149 6,149
Facility optimization charges 3,408 1,061 2,347
Acquisition-related charges 388 318 70
Convertible debt non-cash interest 1,610 1,610
Intangible asset amortization expense 5,204 1,653 3,551
Estimated income tax impact from adjustments and other items (5,251) (5,251)
Depreciation expense* 5,825          
Stock-based compensation expense 2,072          
             
*For the period ending March 31, 2013, "Depreciation expense" excludes $360 already included in "Facility optimization charges" above.
             
a)  COGS - Cost of goods sold
b)  SG&A - Selling, general and administrative
c)  Amort. - Intangible asset amortization
d)  Interest (Inc)Exp - Interest (income) expense, net
e)  Tax - Income tax expense
Three Months Ended March 31, 2012
(in thousands)
             
Item Total Amount COGS (a) SG&A (b) Amort. (c)  Interest Exp(Inc) (d) Tax (e)
Global ERP implementation charges $3,669 $— $3,669 $— $— $—
Facility optimization charges 1,636 1,231 405
Certain employee termination charges 501 501
Discontinued product lines charges 835 835
Acquisition-related charges 702 702
Manufacturing facility remediation costs 1,635 1,635
Impairment charges 141 141
Convertible debt non-cash interest 3,528 3,528
Intangible asset amortization expense* 6,400 1,679 4,721
Estimated income tax impact from adjustments and other items (5,584) (5,584)
Depreciation expense 6,035          
Stock-based compensation expense 2,070          
             
*For the period ending March 31, 2012, "Intangible asset amortization expense" excludes $141 already included in "impairment charges" above.
             
a)  COGS - Cost of goods sold
b)  SG&A - Selling, general and administrative
c)  Amort. - Intangible asset amortization
d)  Interest (Inc)Exp - Interest (income) expense, net
e)  Tax - Income tax expense
 
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
RECONCILIATION OF NON-GAAP ADJUSTMENTS - GAAP NET (LOSS)/INCOME TO ADJUSTED EBITDA AND ADJUSTED EBITDA EXCLUDING STOCK-BASED COMPENSATION
(UNAUDITED)
(In thousands, except per share amounts)
     
  Three Months Ended
  March 31,
  2013 2012
     
GAAP net (loss)/income  $ (4,050)  $ 6,693
Non-GAAP adjustments:    
Depreciation and intangible asset amortization expense 11,029 12,435
Other (income) expense, net 974 323
Interest (income) expense, net 4,737 7,551
Income tax expense (benefit) (1,705) 2,900
Manufacturing facility remediation costs 2,125 1,635
Global ERP implementation charges 6,149 3,669
Certain expenses associated with product recalls 1,279
Facility optimization charges 3,408 1,636
Certain employee termination charges 501
Discontinued product lines charges 835
Acquisition-related charges 388 702
Impairment charges 141
     
Total of non-GAAP adjustments 28,384 32,328
Adjusted EBITDA  $ 24,334  $ 39,021
     
Stock-based compensation 2,072 2,070
     
Adjusted EBITDA excluding stock-based compensation  $ 26,406  $ 41,091
 
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
RECONCILIATION OF NON-GAAP ADJUSTMENTS - GAAP NET (LOSS)/INCOME TO MEASURES OF ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE
(UNAUDITED)
(In thousands, except per share amounts)
     
  Three Months Ended
  March 31,
  2013 2012
     
GAAP net (loss)/income  $ (4,050)  $ 6,693
Non-GAAP adjustments:    
Manufacturing facility remediation costs 2,125 1,635
Global ERP implementation charges 6,149 3,669
Certain expenses associated with product recalls 1,279
Facility optimization charges 3,408 1,636
Certain employee termination charges 501
Discontinued product lines charges 835
Acquisition-related charges 388 702
Impairment charges 141
Convertible debt non-cash interest 1,610 3,528
Intangible asset amortization expense 5,204 6,400
     
Estimated income tax impact from adjustments and other items (5,251) (5,584)
     
Total of non-GAAP adjustments 14,912 13,463
Adjusted net income  $ 10,862  $ 20,156
     
Adjusted diluted net income per share $0.39 $0.71
     
Weighted average common shares outstanding for diluted net loss per share 27,796 28,488
     
Non-GAAP adjustment for dilutive effects of equity awards 414
     
Weighted average common shares outstanding for adjusted diluted net income per share 28,210 28,488
 
CONDENSED BALANCE SHEET DATA
(UNAUDITED)
     
(In thousands)
     
  March 31, December 31,
  2013 2012
     
Cash and cash equivalents  $ 89,691  $ 96,938
Accounts receivable, net 111,944 114,916
Inventory, net 179,558 171,806
     
Bank line of credit 321,875 321,875
Convertible securities 199,511 197,672
     
Stockholders' equity 509,889 517,775
 
INTEGRA LIFESCIENCES HOLDINGS CORPORATION
RECONCILIATION OF NON-GAAP ADJUSTMENTS - GUIDANCE
       
 (In thousands, except per share amounts)
       
  Recorded Year to Date Projected Year Ended
  March 31, 2013 December 31, 2013
    Low High
GAAP net (loss)/income  $ (4,050)  $ 25,891  $ 34,391
Non-GAAP adjustments:      
Manufacturing facility remediation costs 2,125 6,760 6,760
Global ERP implementation charges 6,149 18,310 18,310
Certain expenses associated with product recalls 1,279 1,279 1,279
Facility optimization charges 3,408 12,860 12,860
Acquisition-related charges 388 1,480 1,480
Convertible debt non-cash interest 1,610 6,430 6,430
Intangible asset amortization expense 5,204 19,355 19,355
       
Estimated income tax impact from adjustments and other items (5,251) (24,765) (24,765)
       
Total of non-GAAP adjustments 14,912 41,709 41,709
Adjusted net income  $ 10,862  $ 67,600  $ 76,100
       
GAAP diluted net (loss)/income per share  $ (0.15)  $ 0.92  $ 1.22
Non-GAAP adjustments detailed above (per share)  $ 0.54  $ 1.48  $ 1.48
Adjusted diluted net income per share  $ 0.39  $ 2.40  $ 2.70
       
Weighted average common shares outstanding for diluted net (loss)/income per share 27,796 28,200 28,200
       
Non-GAAP adjustment for dilutive effects of equity awards 414
       
Weighted average common shares outstanding for adjusted diluted net income per share 28,210 28,200 28,200
 
Items included in GAAP net income guidance and location where each item is expected to be recorded is as follows:
(In thousands)
             
Projected Year Ended December 31, 2013
             
Item Total Amount COGS SG&A Amort. Interest Exp(Inc) Tax
Manufacturing facility remediation costs $6,760 $6,380 $380 $— $— $—
Global ERP implementation charges 18,310 18,310
Certain expenses associated with product recalls 1,279 1,279
Facility optimization charges 12,860 8,510 4,350
Acquisition-related charges 1,480 1,413 70
Convertible debt non-cash interest 6,430 6,430
Intangible asset amortization expense 19,355 6,675 12,680
Estimated income tax impact from adjustments and other items (24,765) (24,765)
CONTACT: Integra LifeSciences Holdings Corporation

         John B. Henneman, III

         Executive Vice President,

         Finance and Administration,

         and Chief Financial Officer

         (609) 275-0500

         jack.henneman@integralife.com

         

         Investor Relations:

         Angela Steinway

         (609) 936-2268

         angela.steinway@integralife.com


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