Attached files
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| 8-K - 8-K - Acelity L.P. Inc. | a2014q38-kearningsrelease.htm |
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FOR MORE INFORMATION, CONTACT:
Investors | News Media |
Nathan Speicher | Mike Barger |
Office: (210) 255-6027 | Office: (210) 255-6824 |
nathan.speicher@acelity.com | mike.barger@acelity.com |
ACELITY L.P. INC. REPORTS THIRD QUARTER AND
FIRST NINE MONTHS FINANCIAL RESULTS FOR 2014
- Third quarter 2014 worldwide Acelity L.P. Inc. (“Acelity”) revenue of $488.7 million, up 10.9% from the prior-year period as reported and 11.1% from the prior-year period on a constant currency basis
- Third quarter 2014 loss from continuing operations of $1.8 million compared to a loss from continuing operations of $398.3 million for the prior-year period
- Third quarter 2014 total Adjusted EBITDA from continuing operations1 of $194.1 million compared to $191.5 million for the prior-year period
Highlights of the third quarter and nine months ended September 30, 2014
Acelity revenue for the third quarter of 2014 was $488.7 million, up from the prior-year comparable period by 10.9% as reported and 11.1% on a constant currency basis. Our loss from continuing operations for the third quarter of 2014 was $1.8 million compared to $398.3 million in the prior-year period. Adjusted EBITDA from continuing operations were $194.1 million for the third quarter of 2014, compared to $191.5 million in the prior-year period.
Acelity revenue for the nine months ended September 30, 2014 was $1.4 billion, up from the prior-year comparable period by 8.7% as reported and 8.8% on a constant currency basis. Our loss from continuing operations for the nine months ended September 30, 2014 was $200.9 million compared to $503.6 million in the prior-year period. Adjusted EBITDA from continuing operations were $519.0 million for the nine months ended September 30, 2014, compared to $525.2 million in the prior-year period.
“We achieved a number of important milestones as a Company this quarter. We launched our new brand, Acelity, which unites the three businesses under one banner and will help drive tangible improvements for our customers and employees. We achieved organic growth in our NPWT business for the first time since 2011 and grew core product volumes for the fifth consecutive quarter. Our emerging markets and focus products are growing strongly and the evidence supporting our product efficacy continues to mount,” said Joe Woody, President and Chief Executive Officer.
Financial Position
Total cash at September 30, 2014 was $224.9 million. During the first nine months of 2014, Acelity generated cash of $105.0 million from operations, used cash of $61.8 million in investing activities and used cash of $21.3 million in financing activities.
As of September 30, 2014, total long-term debt outstanding was $4.86 billion and our Net Leverage Ratio2 was 6.2x.
Acquisition of Systagenix
In the fourth quarter of 2013, we closed the acquisition of Systagenix, an established provider of advanced wound therapeutics products. Financial results of Systagenix are included within our consolidated financial statements for the period subsequent to the acquisition date. Combining Systagenix's advanced wound dressings with our KCI wound care business and innovation pipeline will enable us to create additional value for customers by providing more complete solutions for patients and clinicians.
Transfer of SPY® Elite System Marketing and Distribution Rights
On October 29, 2014, LifeCell Corporation entered into an agreement with Novadaq® Technologies Inc. (“Novadaq”) to transfer all marketing and distribution rights to the SPY® Elite System from LifeCell to Novadaq, effective November 30, 2014. In connection with the transfer, the parties agreed to terminate various distribution agreements entered into between 2010 and 2011. The U.S. agreement for the core fields of plastic, general, and gastrointestinal surgeries was set to expire in November 2015. The termination agreement provides for a one-time payment of $4.5 million to LifeCell on November 30, 2014 and the repurchase of existing inventory. LifeCell has agreed to provide limited transition services to Novadaq through year end. In connection with the transfer, the parties have also resolved all legal disputes between them.
Company Structure
Acelity is a non-operating holding company whose business is comprised of the operations of wholly owned subsidiaries that commercialize our advanced wound therapeutics and regenerative medicine products. Our advanced wound therapeutics business is conducted by KCI and its subsidiaries, including Systagenix, and our regenerative medicine business is conducted by LifeCell. Acelity is controlled by investment funds advised by Apax Partners and controlled affiliates of Canada Pension Plan Investment Board and the Public Sector Pension Investment Board and certain other co-investors. Unless otherwise noted in this report, the terms “we,” “our” or “Company,” refer to Acelity and its subsidiaries, collectively.
Non-GAAP Financial Information
Within this document, we have presented 1) Adjusted EBITDA from continuing operations, as defined in our senior secured credit agreement and 2) supplemental revenue data to exclude the impact of foreign currency fluctuations on a non-GAAP basis.
These non-GAAP financial measures do not replace the presentation of our GAAP results. We have provided this supplemental non-GAAP information because it may provide meaningful information regarding our results on a basis that better facilitates an understanding of our results of operations which may not be otherwise apparent under GAAP. Management uses this non-GAAP financial information, along with GAAP information, for reviewing the operating results of its business segments and for analyzing potential future business trends. In addition, we believe some investors may use this information in a similar fashion. A reconciliation of certain GAAP selected financial information for the periods presented to the non-GAAP selected financial information provided is included herein.
1Adjusted EBITDA from continuing operations excludes the operations of our previously divested TSS business and the impact of merger-related expenses, foreign currency gains or losses, business optimization expenses and other expenses specified in the reconciliation within this release.
2 The Net Leverage Ratio represents Net Debt divided by Consolidated EBITDA for the last twelve months. Net Debt consists of total indebtedness including capital leases and other financing obligations, less cash and cash equivalents up to the greater of$300.0 million or 40% of Consolidated EBITDA for the last twelve months. Consolidated EBITDA, as defined in our senior secured credit agreement, represents Adjusted EBITDA from continuing operations plus "run rate" cost savings and a pro forma adjustment related to EBITDA of Systagenix for the pre-acquisition period beginning October 1, 2013, which is not included in our condensed consolidated financial statements.
ACELITY L.P. INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(dollars in thousands)
(unaudited)
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||
2014 | 2013 | % Change | 2014 | 2013 | % Change | ||||||||||||||||
Revenue: | |||||||||||||||||||||
Rental | $ | 190,465 | $ | 191,041 | (0.3 | )% | 532,258 | 569,449 | (6.5 | )% | |||||||||||
Sales | 298,186 | 249,520 | 19.5 | 869,103 | 719,675 | 20.8 | |||||||||||||||
Total revenue | 488,651 | 440,561 | 10.9 | 1,401,361 | 1,289,124 | 8.7 | |||||||||||||||
Rental expenses | 84,744 | 85,746 | (1.2 | ) | 257,574 | 273,479 | (5.8 | ) | |||||||||||||
Cost of sales | 86,314 | 66,151 | 30.5 | 251,923 | 181,707 | 38.6 | |||||||||||||||
Gross profit | 317,593 | 288,664 | 10.0 | 891,864 | 833,938 | 6.9 | |||||||||||||||
Selling, general and administrative expenses | 163,176 | 152,053 | 7.3 | 510,122 | 518,478 | (1.6 | ) | ||||||||||||||
Research and development expenses | 15,879 | 17,961 | (11.6 | ) | 51,602 | 56,140 | (8.1 | ) | |||||||||||||
Acquired intangible asset amortization | 47,918 | 45,116 | 6.2 | 147,361 | 139,123 | 5.9 | |||||||||||||||
Wake Forest settlement | — | — | — | 198,578 | — | — | |||||||||||||||
Impairment of goodwill and intangible assets | — | 443,400 | — | — | 443,400 | — | |||||||||||||||
Operating earnings (loss) | 90,620 | (369,866 | ) | — | (15,799 | ) | (323,203 | ) | (95.1 | ) | |||||||||||
Interest income and other | 23 | 217 | (89.4 | ) | 245 | 1,279 | (80.8 | ) | |||||||||||||
Interest expense | (104,475 | ) | (101,398 | ) | 3.0 | (308,475 | ) | (315,144 | ) | (2.1 | ) | ||||||||||
Loss on extinguishment of debt | — | (200 | ) | — | — | (2,364 | ) | — | |||||||||||||
Foreign currency gain (loss) | 9,599 | (8,738 | ) | — | 13,687 | (11,935 | ) | — | |||||||||||||
Derivative instruments gain (loss) | 1,630 | (6,840 | ) | — | (2,670 | ) | 3,200 | — | |||||||||||||
Loss from continuing operations before income tax benefit | (2,603 | ) | (486,825 | ) | (99.5 | ) | (313,012 | ) | (648,167 | ) | (51.7 | ) | |||||||||
Income tax benefit | (766 | ) | (88,519 | ) | (99.1 | ) | (112,075 | ) | (144,543 | ) | (22.5 | ) | |||||||||
Loss from continuing operations | (1,837 | ) | (398,306 | ) | (99.5 | ) | (200,937 | ) | (503,624 | ) | (60.1 | ) | |||||||||
Loss from discontinued operations, net of tax | — | (255 | ) | — | — | (2,299 | ) | — | |||||||||||||
Net loss | $ | (1,837 | ) | $ | (398,561 | ) | (99.5 | )% | $ | (200,937 | ) | $ | (505,923 | ) | (60.3 | )% | |||||
ACELITY L.P. INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
September 30, 2014 | December 31, 2013 | ||||||
Assets: | (unaudited) | ||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 224,905 | $ | 206,949 | |||
Accounts receivable, net | 371,381 | 407,578 | |||||
Inventories, net | 184,590 | 181,567 | |||||
Deferred income taxes | 28,218 | 23,621 | |||||
Prepaid expenses and other | 39,604 | 53,161 | |||||
Total current assets | 848,698 | 872,876 | |||||
Net property, plant and equipment | 293,366 | 333,725 | |||||
Debt issuance costs, net | 83,926 | 102,054 | |||||
Deferred income taxes | 30,353 | 31,459 | |||||
Goodwill | 3,378,931 | 3,378,661 | |||||
Identifiable intangible assets, net | 2,429,166 | 2,549,201 | |||||
Other non-current assets | 4,950 | 4,669 | |||||
$ | 7,069,390 | $ | 7,272,645 | ||||
Liabilities and Equity: | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 57,575 | $ | 50,316 | |||
Accrued expenses and other | 410,725 | 328,975 | |||||
Current installments of long-term debt | 25,847 | 26,311 | |||||
Income taxes payable | 4,900 | 3,368 | |||||
Deferred income taxes | 28,512 | 2,199 | |||||
Total current liabilities | 527,559 | 411,169 | |||||
Long-term debt, net of current installments and discount | 4,830,009 | 4,865,503 | |||||
Non-current tax liabilities | 33,757 | 53,682 | |||||
Deferred income taxes | 859,078 | 1,003,784 | |||||
Other non-current liabilities | 124,542 | 40,432 | |||||
Total liabilities | 6,374,945 | 6,374,570 | |||||
Equity: | |||||||
General partner's capital | — | — | |||||
Limited partners’ capital | 700,485 | 900,218 | |||||
Accumulated other comprehensive loss, net | (6,040 | ) | (2,143 | ) | |||
Total equity | 694,445 | 898,075 | |||||
$ | 7,069,390 | $ | 7,272,645 | ||||
ACELITY L.P. INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited) | |||||||
Nine months ended September 30, | |||||||
2014 | 2013 | ||||||
Cash flows from operating activities: | |||||||
Net loss | $ | (200,937 | ) | $ | (505,923 | ) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||
Amortization of debt issuance costs and discount | 29,179 | 26,356 | |||||
Depreciation and other amortization | 234,514 | 252,026 | |||||
Loss on disposition of assets | — | 3,189 | |||||
Amortization of fair value step-up in inventory | 6,680 | — | |||||
Fixed asset and inventory impairment | — | 30,259 | |||||
Impairment of goodwill and intangible assets | — | 443,400 | |||||
Write-off of other intangible assets | — | 16,885 | |||||
Provision for bad debt | 11,613 | 5,051 | |||||
Loss on extinguishment of debt | — | 2,164 | |||||
Equity-based compensation expense | 2,966 | 2,046 | |||||
Deferred income tax benefit | (127,799 | ) | (165,456 | ) | |||
Unrealized gain on derivative instruments | (9,310 | ) | (5,729 | ) | |||
Unrealized loss (gain) on revaluation of cross currency debt | (27,559 | ) | 8,174 | ||||
Change in assets and liabilities: | |||||||
Decrease (increase) in accounts receivable, net | 26,065 | (23,046 | ) | ||||
Increase in inventories, net | (9,275 | ) | (10,498 | ) | |||
Decrease (increase) in prepaid expenses and other | 12,341 | (17,137 | ) | ||||
Increase in accounts payable | 7,402 | 3,273 | |||||
Increase in accrued expenses and other | 161,227 | 68,440 | |||||
Increase (decrease) in tax liabilities, net | (12,076 | ) | 2,021 | ||||
Net cash provided by operating activities | 105,031 | 135,495 | |||||
Cash flows from investing activities: | |||||||
Additions to property, plant and equipment | (46,760 | ) | (59,868 | ) | |||
Increase in inventory to be converted into equipment for short-term rental | (3,289 | ) | (8,881 | ) | |||
Dispositions of property, plant and equipment | 2,251 | 1,052 | |||||
Businesses acquired in purchase transaction, net of cash acquired | (4,613 | ) | — | ||||
Increase in identifiable intangible assets and other non-current assets | (9,351 | ) | (4,273 | ) | |||
Net cash used by investing activities | (61,762 | ) | (71,970 | ) | |||
Cash flows from financing activities: | |||||||
Settlement of profits interest units | (1,416 | ) | — | ||||
Distribution to limited partners | — | (1,572 | ) | ||||
Repayments of long-term debt and capital lease obligations | (19,863 | ) | (60,429 | ) | |||
Payment of debt issuance costs | — | (21,604 | ) | ||||
Net cash used by financing activities | (21,279 | ) | (83,605 | ) | |||
Effect of exchange rate changes on cash and cash equivalents | (4,034 | ) | (151 | ) | |||
Net increase (decrease) in cash and cash equivalents | 17,956 | (20,231 | ) | ||||
Cash and cash equivalents, beginning of period | 206,949 | 383,150 | |||||
Cash and cash equivalents, end of period | $ | 224,905 | $ | 362,919 | |||
ACELITY L.P. INC. AND SUBSIDIARIES
Reconciliation from GAAP to Non-GAAP
Supplemental Revenue Data
(dollars in thousands)
(unaudited)
Three months ended September 30, | GAAP % Change | Constant Currency % Change (1) | |||||||||||||||||||
2014 | 2013 GAAP | ||||||||||||||||||||
GAAP | FX Impact | Constant Currency | |||||||||||||||||||
Advanced Wound Therapeutics revenue: | |||||||||||||||||||||
Rental | $ | 188,843 | $ | 173 | $ | 189,016 | $ | 189,528 | (0.4 | )% | (0.3 | )% | |||||||||
Sales | 188,338 | 650 | 188,988 | 131,351 | 43.4 | 43.9 | |||||||||||||||
Total | 377,181 | 823 | 378,004 | 320,879 | 17.5 | 17.8 | |||||||||||||||
Regenerative Medicine revenue: | |||||||||||||||||||||
Rental | 1,622 | — | 1,622 | 1,513 | 7.2 | 7.2 | |||||||||||||||
Sales | 109,848 | 107 | 109,955 | 118,169 | (7.0 | ) | (7.0 | ) | |||||||||||||
Total | 111,470 | 107 | 111,577 | 119,682 | (6.9 | ) | (6.8 | ) | |||||||||||||
Total Revenue: | |||||||||||||||||||||
Rental | 190,465 | 173 | 190,638 | 191,041 | (0.3 | ) | (0.2 | ) | |||||||||||||
Sales | 298,186 | 757 | 298,943 | 249,520 | 19.5 | 19.8 | |||||||||||||||
Total | $ | 488,651 | $ | 930 | $ | 489,581 | $ | 440,561 | 10.9 | % | 11.1 | % | |||||||||
Nine months ended September 30, | GAAP % Change | Constant Currency % Change (1) | |||||||||||||||||||
2014 | 2013 GAAP | ||||||||||||||||||||
GAAP | FX Impact | Constant Currency | |||||||||||||||||||
Advanced Wound Therapeutics revenue: | |||||||||||||||||||||
Rental | $ | 527,449 | $ | 450 | $ | 527,899 | $ | 564,683 | (6.6 | )% | (6.5 | )% | |||||||||
Sales | 537,366 | 328 | 537,694 | 379,843 | 41.5 | 41.6 | |||||||||||||||
Total | 1,064,815 | 778 | 1,065,593 | 944,526 | 12.7 | 12.8 | |||||||||||||||
Regenerative Medicine revenue: | |||||||||||||||||||||
Rental | 4,809 | — | 4,809 | 4,766 | 0.9 | 0.9 | |||||||||||||||
Sales | 331,737 | (77 | ) | 331,660 | 339,832 | (2.4 | ) | (2.4 | ) | ||||||||||||
Total | 336,546 | (77 | ) | 336,469 | 344,598 | (2.3 | ) | (2.4 | ) | ||||||||||||
Total Revenue: | |||||||||||||||||||||
Rental | 532,258 | 450 | 532,708 | 569,449 | (6.5 | ) | (6.5 | ) | |||||||||||||
Sales | 869,103 | 251 | 869,354 | 719,675 | 20.8 | 20.8 | |||||||||||||||
Total | $ | 1,401,361 | $ | 701 | $ | 1,402,062 | $ | 1,289,124 | 8.7 | % | 8.8 | % | |||||||||
(1) Represents percentage change between 2014 non-GAAP Constant Currency revenue and 2013 GAAP revenue.
ACELITY L.P. INC. AND SUBSIDIARIES
Reconciliation from GAAP to Non-GAAP
Selected Financial Information
(dollars in thousands)
(unaudited)
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Net loss | $ | (1,837 | ) | $ | (398,561 | ) | $ | (200,937 | ) | $ | (505,923 | ) | |||
Loss from discontinued operations, net of tax | — | 255 | — | 2,299 | |||||||||||
Interest expense, net of interest income | 104,462 | 101,185 | 308,273 | 314,648 | |||||||||||
Income tax benefit | (766 | ) | (88,519 | ) | (112,075 | ) | (144,543 | ) | |||||||
Foreign currency (gain) loss | (9,599 | ) | 8,738 | (13,687 | ) | 11,935 | |||||||||
Depreciation and other amortization | 73,986 | 80,832 | 234,514 | 252,026 | |||||||||||
Derivative instruments (gain) loss | (1,630 | ) | 6,840 | 2,670 | (3,200 | ) | |||||||||
Management fees and expenses | 1,505 | 1,371 | 3,694 | 4,123 | |||||||||||
Equity-based compensation expense | 863 | 850 | 2,966 | 2,046 | |||||||||||
Acquisition, disposition and financing expenses (1) | 554 | 7,436 | 5,092 | 22,846 | |||||||||||
Business optimization expenses (2) | 16,290 | 18,285 | 54,672 | 68,693 | |||||||||||
Wake Forest settlement | — | — | 198,578 | — | |||||||||||
Other permitted expenses (3) | 10,246 | 452,768 | 35,196 | 500,284 | |||||||||||
Adjusted EBITDA from continuing operations | 194,074 | 191,480 | 518,956 | 525,234 | |||||||||||
Adjusted EBITDA from discontinued operations (4) | — | (340 | ) | — | (350 | ) | |||||||||
Total adjusted EBITDA | $ | 194,074 | $ | 191,140 | $ | 518,956 | $ | 524,884 | |||||||
Adjusted EBITDA from continuing operations as a percentage of revenue | 39.7 | % | 43.4 | % | 37.0 | % | 40.7 | % | |||||||
(1) Represents labor, travel, training, consulting and other costs associated with acquisition, disposition and financing activities, such as the acquisitions of Systagenix and Attenuate and the repricing of our senior secured credit facility.
(2) Represents labor, travel, training, consulting and other costs associated exclusively with our business optimization initiatives.
(3) Represents charges for the impairment of goodwill, intangible assets and fixed assets, the write-off of in-process research and development and other intangible assets, amortization of the fair value step-up in inventory and other permitted expenses.
(4) Adjusted EBITDA from discontinued operations includes the (gain) loss from discontinued operations, excluding any related gain or loss on
disposition of assets, adjusted as defined in our senior secured credit agreement.