IART
$52.65
Integra Lifesciences
($1.63)
(3.00%)
Earnings Details
3rd Quarter September 2018
Wednesday, October 31, 2018 6:00:00 AM
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Summary

Integra LifeSciences Lowers Revenue Guidance

Integra Lifesciences (IART) reported 3rd Quarter September 2018 earnings of $0.59 per share on revenue of $365.9 million. The consensus earnings estimate was $0.59 per share on revenue of $370.6 million. Revenue grew 31.2% on a year-over-year basis.

The company said it continues to expect 2018 earnings of $2.36 to $2.42 per share but now expects revenue of $1.467 billion to $1.472 billion. The company's previous guidance was revenue of $1.475 billion to $1.49 billion and the current consensus earnings estimate is $2.40 per share on revenue of $1.49 billion for the year ending December 31, 2018.

Integra Lifesciences Holdings Corp is engaged in the development, manufacturing, and marketing of cost-effective surgical implants and medical instruments.

Results
Reported Earnings
$0.59
Earnings Whisper
-
Consensus Estimate
$0.59
Reported Revenue
$365.9 Mil
Revenue Estimate
$370.6 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Integra LifeSciences Reports Third Quarter 2018 Financial Results

Revenue Increased 31.2% to $365.9 million; Organic Revenue Increased 6.2%

Reported EPS of $0.15; Adjusted EPS of $0.59

Revises Full-Year 2018 Revenue Guidance to $1.467 Billion to $1.472 Billion and Organic Revenue Growth to Approximately 4%

PLAINSBORO, N.J., Oct. 31, 2018 (GLOBE NEWSWIRE) -- Integra LifeSciences Holdings Corporation (NASDAQ: IART), a leading global medical technology company, today reported financial results for the third quarter ending September 30, 2018.

Third Quarter 2018 Consolidated Results

  • Reported revenue was $365.9 million, an increase of 31.2% compared to the third quarter of 2017 with the acquisition of Codman contributing $78.9 million, and organic revenues increased 6.2% over the third quarter of 2017;

  • GAAP earnings per share was $0.15, compared to $0.04 in the third quarter of 2017;

  • Adjusted earnings per share was $0.59, reflecting an increase of 31.1% compared to the third quarter of 2017;

  • The company is revising its full-year 2018 guidance as follows:

    • Total revenue is now expected to be a range of $1.467 billion to $1.472 billion (previously $1.475 billion to $1.490 billion);

      • Guidance range reflects lower forecasted revenue from extremities orthopedics, Codman revenue in select countries outside the U.S. where commercial operations have not yet transferred to Integra ("Day 2 Countries"), and a lower foreign currency benefit;

    • Organic revenue growth guidance is now expected to be approximately 4% (previously approximately 5%);

  • The company is reiterating its full-year 2018 GAAP earnings per share of $0.71 to $0.77 and adjusted earnings per share of $2.36 to $2.42.

Total revenues for the third quarter of 2018 were $365.9 million, reflecting an increase of 31.2% over the third quarter of 2017. Sales in the Codman Specialty Surgical segment increased 45.1% compared to the third quarter of 2017, driven by the Codman acquisition and strong performance in the Dural Access and Repair, Advanced Energy, and Neuro Monitoring businesses.  Sales in the Orthopedics and Tissue Technologies segment increased 11.2%, reflecting continued strength in our Regenerative Technologies and Private Label businesses.

Total organic revenues increased 6.2% over the third quarter of 2017, excluding acquisitions, divestitures and the effect of currency exchange rates.

"Despite some revenue softness in the second half of the year, we continue to make solid progress with the Codman integration and the channel expansion efforts, particularly in Regenerative Technologies," said Peter Arduini, Integra's president and chief executive officer.  "We remain confident that 2019 organic sales will grow within our targeted long-term range of 5% to 7% and accelerate from our full-year 2018 results."

The company reported GAAP net income of $13.3 million, or $0.15 per diluted share, for the third quarter of 2018, compared to GAAP net income of $3.2 million, or $0.04 per diluted share, in the third quarter of 2017. The increase in GAAP net income is a result of higher revenues, better operating expense leverage and a lower tax rate.

The adjusted measures discussed below are computed with the adjustments to GAAP reporting that are set forth in the attached reconciliation.

Adjusted EBITDA for the third quarter of 2018 was $84.3 million, or 23.0% of revenue, compared to $63.0 million, or 22.6% of revenue, in the third quarter of 2017. The margin improvement was largely based on better operating expense leverage, mostly from selling, general and administrative costs.

Adjusted net income for the third quarter of 2018 was $50.6 million, an increase of 40.2% from the prior year's third quarter. Adjusted earnings per share for the third quarter of 2018 was $0.59, an increase of 31.1% over the prior year's quarter.

2018 Full-Year Outlook

The company is revising its full-year 2018 total revenue guidance to a new range of $1.467 billion to $1.472 billion.  This includes an expectation for organic growth of approximately 4% for the full year 2018 versus the previous guidance of approximately 5%.

The company is reiterating its full-year 2018 GAAP earnings per share guidance range of $0.71 to $0.77, and adjusted earnings per share guidance range of $2.36 to $2.42.

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, which will be excluded from the calculation of adjusted EBITDA, adjusted earnings per share for historical periods and in adjusted earnings per share guidance.

Conference Call and Presentation Available Online

Integra has scheduled a conference call for 8:30 AM ET today, Wednesday, October 31, 2018, 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.

Integra's management team will reference a presentation during the conference call. The presentation can be found on investor.integralife.com.

Access to the live call is available by dialing (334) 323-0522 and using the passcode 3216000. The call can also be accessed via a webcast link provided on investor.integralife.com.  A replay of the call will be available through November 5, 2018 by dialing (719) 457-0820 and using the passcode 3216000. The webcast will also be archived on the website.

About Integra

Integra LifeSciences is a global leader in regenerative technologies, neurosurgical and extremity orthopedic solutions dedicated to limiting uncertainty for clinicians, so they can focus on providing the best patient care. Integra offers a comprehensive portfolio of high quality, leadership brands that include AmnioExcel®, Bactiseal®, Cadence®, Certas™, Codman®, CUSA®, DuraGen®, DuraSeal®, ICP Express®, Integra®, MediHoney®, MicroFrance®, PriMatrix®, Salto Talaris®, SurgiMend®, TCC-EZ®, Titan™ and VersaTru™.  For the latest news and information about Integra and its brands, 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 and uncertainties, and reflect the Company's judgment as of the date of this release.  All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements. Some of these forward-looking statements may contain words like “will,” “believe,” “may,” “could,” “would,” “might,” “possible,” “should,” “expect,” “intend,” “plan,” “anticipate,” or “continue,” the negative of these words, other terms of similar meaning or they may use future dates. Forward-looking statements contained in this news release include, but are not limited to, statements concerning future financial performance, including projections for revenues, expected revenue growth (both reported and organic), GAAP and adjusted net income, GAAP and adjusted earnings per diluted share, non-GAAP adjustments such as global enterprise resource planning ("ERP") system implementation charges, acquisition-related charges, litigation charges, goodwill impairment charges, non-cash amortization of imputed interest for convertible debt, intangible asset amortization, and income tax expense (benefit) related to non-GAAP adjustments.  It is important to note that the Company’s goals and expectations are not predictions of actual performance.  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 following: the Company's ability to execute its operating plan effectively; the Company’s ability to achieve sales growth in a timely fashion and successfully complete its channel expansion in its Orthopedics and Tissue Technologies segment; the Company’s ability to successfully integrate the Codman Neurosurgery business and other acquired businesses, including the realignment of acquired global sales territories; the Company's ability to manufacture and ship sufficient quantities of its products to meet its customers' demands; the ability of third-party suppliers to supply us with raw materials and finished products; global macroeconomic and political conditions; the Company's ability to manage its direct sales channels effectively; the sales performance of third-party distributors on whom the Company relies to generate revenue for certain products and geographic regions; the Company's ability to maintain relationships with customers of acquired entities and businesses; physicians' willingness to adopt and third-party payors' willingness to provide or maintain reimbursement for the Company's recently launched, planned and existing products; initiatives launched by the Company's competitors; downward pricing pressures from customers; the Company's ability to secure regulatory approval for products in development; the Company's ability to remediate quality systems violations; fluctuations in hospitals' spending for capital equipment; the Company's ability to comply with and obtain approvals for products of human origin and comply with 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 impact of goodwill and intangible asset impairment charges if future operating results of acquired businesses are significantly less than the results anticipated at the time of the acquisitions, 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 Company’s ability to achieve anticipated growth rates, margins and scale and execute its strategy generally; 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 and internationally; fluctuations in foreign currency exchange rates; the amount of our 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, 2017 and information contained in subsequent filings with the Securities and Exchange Commission, including in Item 1A of Integra’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018.

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 organic revenues, adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA"), adjusted net income, adjusted earnings per diluted share, free cash flow and adjusted free cash flow conversion.  Organic revenues consist of total revenues excluding the effects of currency exchange rates, acquired revenues and product discontinuances.  Adjusted EBITDA consists of GAAP net income excluding: (i) depreciation and amortization; (ii) other income (expense); (iii) interest income and expense; (iv) income tax expense (benefit); and (v) those operating expenses also excluded from adjusted net income.  The measure of adjusted net income consists of GAAP net income, excluding: (i) hurricane related expenses; (ii) structural optimization charges; (iii) acquisition- and integration-related charges; (iv) litigation charges; (v) intangible asset amortization expense; (vi) discontinued product lines charges; (vii) income tax impact from adjustments; and (viii) impairment charges.  The adjusted earnings per diluted share measure is calculated by dividing adjusted net income attributable to diluted shares by diluted weighted average shares outstanding.  The measure of free cash flow consists of GAAP net cash provided by operating activities from less purchases of property and equipment.  The adjusted free cash flow conversion measure is calculated by dividing free cash flow by adjusted net income.           

Reconciliations of GAAP revenues to adjusted revenues and GAAP Adjusted Net Income to adjusted EBITDA, and adjusted net income, and GAAP earnings per diluted share to adjusted earnings per diluted share all for the quarters ended September 30, 2018 and 2017, and the free cash flow and free cash flow conversion for the quarters ended September 30, 2018 and 2017, appear in the financial tables in this release.

The Company believes that the presentation of organic revenues and the other non-GAAP measures provide 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.

 
Investor Relations Contacts:
Sravan Emany
Senior Vice President, Strategy, Treasury & Investor Relations
(609) 936-2488
sravan.emany@integralife.com
 
Michael Beaulieu
Director, Investor Relations
(609) 750-2827
michael.beaulieu@integralife.com
 
Media Contact:
Laurene Isip
Senior Director, Global Corporate Communications
(609) 750-7984
laurene.isip@integralife.com
 
 

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(In thousands, except per share amounts)

 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2018 2017 2018 2017
Total revenues, net$365,854  $278,834  $1,089,126  $819,634 
        
Costs and expenses:       
Cost of goods sold143,245  101,757  425,032  287,340 
Research and development20,309  15,034  57,742  46,275 
Selling, general and administrative173,355  145,945  513,518  433,457 
Intangible asset amortization5,268  5,456  15,944  14,976 
Total costs and expenses342,177  268,192  1,012,236  782,048 
        
Operating income23,677  10,642  76,890  37,586 
        
Interest income75  89  325  160 
Interest expense(14,478) (6,761) (50,750) (18,073)
Other income (expense), net1,750  (735) 6,422  (3,691)
Income before taxes11,024  3,235  32,887  15,982 
Income tax expense (benefit)(2,271) 76  (2,776) (4,406)
Net income$13,295  $3,159  $35,663  $20,388 
        
Net income per share:       
Diluted net income per share$0.15  $0.04  $0.43  $0.26 
        
Weighted average common shares outstanding for diluted net income per share86,299  79,455  83,142  78,973 
            
            

Segment revenues and growth in total revenues excluding the effects of currency exchange rates, acquisitions, and discontinued products are as follows:

(In thousands)

 Three Months Ended September 30,
 2018 2017 Change
Codman Specialty Surgical$239,035 $164,760 45.1%
Orthopedics and Tissue Technologies 126,819  114,074 11.2%
Total revenues$365,854 $278,834 31.2%
    
Impact of changes in currency exchange rates 1,109  -  
Less contribution of revenues from acquisitions(1) (78,872) -  
Less contribution of revenues from discontinued and divested products(2) (2,074) (9,637) 
Total organic revenues$286,017 $269,197 6.2%
         

(1) Acquisitions include Codman Neurosurgery
(2) Organic Revenues have been adjusted to reflect revenues under the TMA to Natus in the current year and restated for prior year 2017 to account for divestitures to Natus related to the Codman acquisition.


Items included in GAAP net income and location where each item is recorded are as follows:

(In thousands)

Three Months Ended September 30, 2018

ItemTotal AmountCOGS(a) SG&A(b) Amort.(c)OI&E(d)Tax(e)
Structural optimization charges 3,345  974 2,371    
Acquisition and integration related charges(1) 23,515  5,458 18,057    
Litigation charges 1,637   1,637    
Intangible asset amortization expense 16,479  11,211  5,268   
Impairment charges 4,941  4,941     
Estimated income tax impact from above adjustments (12,633)     (12,633)
Total adjustments$37,284 $22,584$22,065$5,268$$(12,633)
       
Depreciation expense 10,709       

 


 a)COGS - Cost of goods sold
 b)SG&A - Selling, general and administrative
 c)Amort. - Intangible asset amortization
 d)OI&E - Interest (income) expense, net and other (income) expense, net
 e)Tax - Income tax expense
   
(1) Acquisition related charges are primarily associated with the Derma Sciences and Codman Neurosurgery acquisitions and include banking, legal, consulting, systems, and other expenses.
 
 

Three Months Ended September 30, 2017

(In thousands)

ItemTotal AmountCOGS (a) SG&A (b) Amort. (c)OI&E (d)Tax (e)
Structural optimization charges 1,944  1,309 635    
Acquisition and integration related charges(1) 24,904  1,572 23,332    
Hurricane-related losses 1,261  1,261     
Intangible asset amortization expense 12,499  7,043  5,456   
Impairment charges 3,290  3,290     
Estimated income tax impact from above adjustments (10,991)     (10,991)
Total adjustments$32,907 $14,475$23,967$5,456$$(10,991)
       
Depreciation expense 8,470       


 a)COGS - Cost of goods sold
 b)SG&A - Selling, general and administrative
 c)Amort. - Intangible asset amortization
 d)OI&E - Interest (income) expense, net and other (income) expense, net
 e)Tax - Income tax expense
   
(1) Acquisition related charges are primarily associated with the Derma Sciences and Codman Neurosurgery acquisitions and include banking, legal, consulting, systems, and other expenses.
 
 

RECONCILIATION OF NON-GAAP ADJUSTMENTS - GAAP NET INCOME TO ADJUSTED EBITDA
(UNAUDITED)
(In thousands, except per share amounts)

 Three Months Ended Sept 30,
 2018 2017
    
GAAP net income$13,295  $3,159 
Non-GAAP adjustments:   
Depreciation and intangible asset amortization expense27,189  20,969 
Other (income) expense, net(1,750) 735 
Interest expense, net14,403  6,672 
Income tax expense (benefit)(2,271) 76 
Structural optimization charges3,345  1,944 
Litigation Charges1,637   
Acquisition and integration related charges(1)23,515  24,904 
Hurricane related expenses  1,261 
Impairment charges4,941  3,290 
    
Total of non-GAAP adjustments71,009  59,851 
Adjusted EBITDA$84,304  $63,010 
    

(1) Acquisition related charges are primarily associated with the Derma Sciences and Codman Neurosurgery acquisitions and include banking, legal, consulting, systems, and other expenses.


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 Sept 30,
  
 2018 2017
      
GAAP net income$13,295  $3,159 
Non-GAAP adjustments:       
Structural optimization charges 3,345   1,944 
Acquisition and integration related charges(1) 23,515   24,904 
Litigation Charges 1,637    
Impairment charges 4,941   3,290 
Intangible asset amortization expense 16,479   12,499 
Hurricane related expenses    1,261 
Estimated income tax impact from adjustments and other items (12,633)  (10,991)
        
Total of non-GAAP adjustments 37,284   32,907 
Adjusted net income$50,579  $36,066 
        
Adjusted diluted net income per share$0.59  $0.45 
Weighted average common shares outstanding for diluted net income per share 86,299   79,455 
        

(1) Acquisition related charges are primarily associated with the Derma Sciences and Codman Neurosurgery acquisitions and include banking, legal, consulting, systems, and other expenses.


CONDENSED BALANCE SHEET DATA
(UNAUDITED)

(In thousands)

 September 30,
 2018
 December 31,
 2017
    
Cash and cash equivalents$205,991  $174,935 
Accounts receivable, net248,738  251,799 
Inventories, net290,846  296,332 
    
Total debt1,432,251  1,841,142 
    
Stockholders' equity$1,365,081  $962,306 
        
        

CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)

(In thousands)

 Nine Months Ended September 30,
 2018 2017
    
Net cash provided by operating activities$156,995  $102,995 
Net cash used in investing activities(24,375) (237,767)
Net cash (used in) provided by financing activities(96,817) 504,733 
Effect of exchange rate changes on cash and cash equivalents(4,747) 9,927 
    
Net increase in cash and cash equivalents$31,056  $379,888 
    


RECONCILIATION OF NON-GAAP ADJUSTMENTS - GAAP OPERATING CASH FLOW TO
MEASURES OF FREE CASH FLOW AND FREE CASH FLOW CONVERSION
(UNAUDITED)
(In thousands)

 Three Months Ended
September 30,
 20182017
Net cash provided by operating activities$79,255 $45,240 
   
   
Purchases of property and equipment(16,669)(7,796)
Free cash flow62,586 37,444 
   
Adjusted net income(1)$50,579 $36,066 
Adjusted free cash flow conversion123.7%103.8%
   
   
   
 Twelve Months Ended
September 30,
 20182017
Net cash provided by operating activities(2)$168,552 $152,302 
   
Purchases of property and equipment(65,753)(50,998)
Adjusted free cash flow102,799 101,304 
   
Adjusted net income(1)$198,271 $143,088 
Adjusted free cash flow conversion51.8%70.8%
   

(1) Adjusted net income for quarters ended September 30, 2017 and 2018 are reconciled above.  Adjusted net income for remaining quarters in the trailing twelve months calculation have been previously reconciled and are publicly available in the Quarterly Earnings Call Presentations on our website at investor.integralife.com under Events & Presentations.

(2) Net cash provided by operating activities for the twelve-month period ending September 30, 2017 of $152.3M includes an adjustment of $42.8M for accreted interest associated with the 2016 Convertible Notes.

The Company calculates adjusted free cash flow conversion by dividing its free cash flow by adjusted net income.  The Company believes this measure is useful in evaluating the significance of the cash special charges in its adjusted earnings measures.


INTEGRA LIFESCIENCES HOLDINGS CORPORATION
RECONCILIATION OF NON-GAAP ADJUSTMENTS - GUIDANCE

      
 Recorded Year
to Date
 Projected Year Ended
(In millions, except per share amounts)September 30,
2018
 December 31, 2018
   Low High
GAAP net income$35.7  $61  $67 
Non-GAAP adjustments:           
Structural optimization charges 11.9   17.8   17.8 
Litigation charges 3.1   3.1   3.1 
Acquisition and integration charges 76.1   89.3   89.3 
Intangible asset amortization expense 50.2   66.8   66.8 
Impairment charges 4.9   4.9   4.9 
Estimated income tax impact from adjustments and other items (34.7)  (43.0)  (43.0)
              
Total of non-GAAP adjustments 111.5   138.9   138.9 
Adjusted net income$147.2  $198  $204 
             
GAAP diluted net income per share$0.43  $0.71  $0.77 
Non-GAAP adjustments detailed above (per share)$1.34  $1.65  $1.65 
Adjusted diluted net income per share$1.77  $2.36  $2.42 
            
Weighted average common shares outstanding for diluted net income per share 83.1   84   84 
            
            

GUIDANCE - SPECIAL CHARGES

         
ItemYTD
Amount
FY
Guidance
COGSSG&AR&DAmort.Interest
(Inc)Exp
Tax
Structural optimization charges11.9 17.8 5.2 11.8   0.8  
Litigation charges3.1 3.1  3.1     
Acquisition-related charges76.1 89.3 24.1 65.2     
Intangible asset amortization expense50.2 66.8 45.8   21.0   
Impairment charges4.9 4.9 4.9      
Estimated income tax impact from adjustments and other items(34.7)(43.0)     (43.0)
Total111.5 138.9 80.0 80.1  21.0 0.8 (43.0)

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Source: Integra LifeSciences Holdings Corporation