INTEGRA LIFESCIENCES HOLDINGS CORPORATION (NASDAQ:IART) Files An 8-K Results of Operations and Financial Condition
ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On April 26, 2017, Integra LifeSciences Holdings Corporation (the
Company) issued a press release announcing financial results for
the quarter ended March 31, 2017 (the Press Release). A copy of the
Press Release is attached as Exhibit 99.1 to this Current Report on
Form 8-K and is incorporated by reference into this Item. In the
financial statements portion of the Press Release, the Company has
included a reconciliation of GAAP revenues to organic revenues for
the quarters and years ended March 31, 2017 and 2016, GAAP net
income to adjusted earnings before interest, taxes, depreciation
and amortization (EBITDA) for the quarters and years ended March
31, 2017 and 2016, GAAP net income to adjusted net income for the
quarters and years ended March 31, 2017 and 2016, GAAP diluted
weighted average shares outstanding to adjusted diluted weighted
average shares outstanding for the quarters and years ended March
31, 2017 and 2016, GAAP earnings per diluted share to adjusted
earnings per diluted share for the quarters and years ended March
31, 2017 and 2016, and GAAP operating cash flow to free cash flow
and adjusted free cash flow conversion used by management for the
quarters and years ended March 31, 2017 and 2016 as well as GAAP
net income to adjusted net income and GAAP earnings per diluted
share to adjusted earnings per diluted share used by management for
guidance for the year 2017. In addition, the Company included a
supplemental disclosure of revenue by reporting segments in the
financial statements portion of the Press Release.
Company) issued a press release announcing financial results for
the quarter ended March 31, 2017 (the Press Release). A copy of the
Press Release is attached as Exhibit 99.1 to this Current Report on
Form 8-K and is incorporated by reference into this Item. In the
financial statements portion of the Press Release, the Company has
included a reconciliation of GAAP revenues to organic revenues for
the quarters and years ended March 31, 2017 and 2016, GAAP net
income to adjusted earnings before interest, taxes, depreciation
and amortization (EBITDA) for the quarters and years ended March
31, 2017 and 2016, GAAP net income to adjusted net income for the
quarters and years ended March 31, 2017 and 2016, GAAP diluted
weighted average shares outstanding to adjusted diluted weighted
average shares outstanding for the quarters and years ended March
31, 2017 and 2016, GAAP earnings per diluted share to adjusted
earnings per diluted share for the quarters and years ended March
31, 2017 and 2016, and GAAP operating cash flow to free cash flow
and adjusted free cash flow conversion used by management for the
quarters and years ended March 31, 2017 and 2016 as well as GAAP
net income to adjusted net income and GAAP earnings per diluted
share to adjusted earnings per diluted share used by management for
guidance for the year 2017. In addition, the Company included a
supplemental disclosure of revenue by reporting segments in the
financial statements portion of the Press Release.
The information contained in Item 2.02 of this Current Report on
Form 8-K (including the Press Release and selected historical
financial information) is being furnished and shall not be deemed
filed for the purposes of Section 18 of the Securities Exchange Act
of 1934, as amended (the Exchange Act), or otherwise subject to the
liabilities of that Section. The information contained in Item 2.02
of this Current Report on Form 8-K (including the Press Release and
selected historical financial information) shall not be
incorporated by reference into any registration statement or other
document to the Securities Act of 1933, as amended, or the Exchange
Act, except as shall be expressly set forth by specific reference
in any such filing.
Form 8-K (including the Press Release and selected historical
financial information) is being furnished and shall not be deemed
filed for the purposes of Section 18 of the Securities Exchange Act
of 1934, as amended (the Exchange Act), or otherwise subject to the
liabilities of that Section. The information contained in Item 2.02
of this Current Report on Form 8-K (including the Press Release and
selected historical financial information) shall not be
incorporated by reference into any registration statement or other
document to the Securities Act of 1933, as amended, or the Exchange
Act, except as shall be expressly set forth by specific reference
in any such filing.
Discussion of Adjusted Financial Measures
In addition to our GAAP results, we provide organic revenues,
adjusted EBITDA, adjusted net income, adjusted earnings per diluted
share, adjusted diluted weighted average shares outstanding, 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. The
various measures of adjusted EBITDA consist of GAAP net income,
excluding: (i) depreciation and amortization, (ii) other income
(expense), (iii) interest income and expense, (iv) income taxes,
(v) and those operating expenses also excluded from adjusted net
income. The measure of adjusted net income consists of GAAP net
income, excluding: (i) global enterprise resource planning (ERP)
implementation charges; (ii) structural optimization charges; (iii)
certain employee severance charges; (iv) acquisition-related
charges; (v) convertible debt non-cash interest; (vi) intangible
asset amortization expense; (vii) discontinued product lines
charges; and (viii) income tax impact from adjustments and other
items. The measure of adjusted diluted weighted average shares
outstanding is calculated by adding the economic benefit of the
convertible note hedge transactions relating to Integras 2016
convertible notes. The adjusted earnings per diluted share measure
is calculated by dividing adjusted net income attributable to
diluted shares by adjusted diluted weighted average shares
outstanding. The measure of free cash flow consists of GAAP net
cash provided by operating activities less purchases of property
and equipment. The measure of adjusted free cash flow consists of
free cash flow adjusted for certain one-time unusual items. The
adjusted free cash flow conversion measure is calculated by
dividing free cash flow by adjusted net income.
adjusted EBITDA, adjusted net income, adjusted earnings per diluted
share, adjusted diluted weighted average shares outstanding, 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. The
various measures of adjusted EBITDA consist of GAAP net income,
excluding: (i) depreciation and amortization, (ii) other income
(expense), (iii) interest income and expense, (iv) income taxes,
(v) and those operating expenses also excluded from adjusted net
income. The measure of adjusted net income consists of GAAP net
income, excluding: (i) global enterprise resource planning (ERP)
implementation charges; (ii) structural optimization charges; (iii)
certain employee severance charges; (iv) acquisition-related
charges; (v) convertible debt non-cash interest; (vi) intangible
asset amortization expense; (vii) discontinued product lines
charges; and (viii) income tax impact from adjustments and other
items. The measure of adjusted diluted weighted average shares
outstanding is calculated by adding the economic benefit of the
convertible note hedge transactions relating to Integras 2016
convertible notes. The adjusted earnings per diluted share measure
is calculated by dividing adjusted net income attributable to
diluted shares by adjusted diluted weighted average shares
outstanding. The measure of free cash flow consists of GAAP net
cash provided by operating activities less purchases of property
and equipment. The measure of adjusted free cash flow consists of
free cash flow adjusted for certain one-time unusual items. The
adjusted free cash flow conversion measure is calculated by
dividing free cash flow by adjusted net income.
The Company believes that the presentation of organic revenues and
the various adjusted EBITDA, adjusted net income, adjusted earnings
per diluted share, adjusted diluted weighted average shares
outstanding, free cash flow and adjusted free cash flow conversion
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.
Management uses non-GAAP financial measures in the form of organic
revenues, adjusted EBITDA, adjusted net income, adjusted earnings
per diluted share, adjusted diluted weighted average shares
outstanding, free cash flow and adjusted free cash flow conversion
when evaluating operating performance because we believe that the
inclusion or exclusion of the items described below, for which the
amounts and/or timing may vary significantly depending upon the
Company’s acquisition, integration, and restructuring activities,
for which the amounts are non-cash in nature, or for which the
amounts are not expected to recur at the same magnitude, provides a
supplemental measure of our operating results that facilitates
comparability of our financial condition and operating performance
from period to period, against our business model objectives, and
against other companies in our industry. We have chosen to provide
this information to investors so they can analyze our operating
results in the same way that management does and use this
information in their assessment of our core business and the
valuation of our Company.
the various adjusted EBITDA, adjusted net income, adjusted earnings
per diluted share, adjusted diluted weighted average shares
outstanding, free cash flow and adjusted free cash flow conversion
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.
Management uses non-GAAP financial measures in the form of organic
revenues, adjusted EBITDA, adjusted net income, adjusted earnings
per diluted share, adjusted diluted weighted average shares
outstanding, free cash flow and adjusted free cash flow conversion
when evaluating operating performance because we believe that the
inclusion or exclusion of the items described below, for which the
amounts and/or timing may vary significantly depending upon the
Company’s acquisition, integration, and restructuring activities,
for which the amounts are non-cash in nature, or for which the
amounts are not expected to recur at the same magnitude, provides a
supplemental measure of our operating results that facilitates
comparability of our financial condition and operating performance
from period to period, against our business model objectives, and
against other companies in our industry. We have chosen to provide
this information to investors so they can analyze our operating
results in the same way that management does and use this
information in their assessment of our core business and the
valuation of our Company.
Organic revenues, adjusted EBITDA, adjusted net income, adjusted
earnings per diluted share, adjusted diluted weighted average
shares outstanding, free cash flow and adjusted free cash flow
conversion are significant measures used by management for purposes
of:
earnings per diluted share, adjusted diluted weighted average
shares outstanding, free cash flow and adjusted free cash flow
conversion are significant measures used by management for purposes
of:
|
|
supplementing the financial results and forecasts reported to
the Company’s board of directors; |
|
|
evaluating, managing and benchmarking the operating
performance of the Company; |
|
|
establishing internal operating budgets;
|
|
|
determining compensation under bonus or other incentive
programs; |
|
|
enhancing comparability from period to period;
|
|
|
comparing performance with internal forecasts and targeted
business models; and |
|
|
evaluating and valuing potential acquisition candidates.
|
The measure of organic revenues that we report reflects the
increase in total revenues for the quarter ended March 31, 2017
adjusted for the effects of currency exchange rates, acquired
revenues, and product discontinuations on current period revenues.
We provide this measure because changes in foreign currency
exchange rates can distort our revenue reduction favorably or
unfavorably, depending upon the strength of the U.S. dollar in
relation to the various foreign currencies in which we generate
revenues. We generate significant revenues outside the United
States in multiple foreign currencies including euros, British
pounds, Swiss francs and Australian and Canadian dollars. We
believe this measure provides useful information to determine the
success of our international selling organizations in increasing
sales of products in their local currencies without regard to
fluctuations in currency exchanges rates, for which we do not
control. Additionally, significant acquisitions and discontinued
product lines can distort our current period revenues when compared
to prior periods.
increase in total revenues for the quarter ended March 31, 2017
adjusted for the effects of currency exchange rates, acquired
revenues, and product discontinuations on current period revenues.
We provide this measure because changes in foreign currency
exchange rates can distort our revenue reduction favorably or
unfavorably, depending upon the strength of the U.S. dollar in
relation to the various foreign currencies in which we generate
revenues. We generate significant revenues outside the United
States in multiple foreign currencies including euros, British
pounds, Swiss francs and Australian and Canadian dollars. We
believe this measure provides useful information to determine the
success of our international selling organizations in increasing
sales of products in their local currencies without regard to
fluctuations in currency exchanges rates, for which we do not
control. Additionally, significant acquisitions and discontinued
product lines can distort our current period revenues when compared
to prior periods.
The measure of adjusted net income reflects GAAP net income
adjusted for one or more of the following items, as applicable:
adjusted for one or more of the following items, as applicable:
|
|
Global ERP implementation charges. Global ERP implementation
charges consist of the non-capitalizable portion of internal labor and outside consulting costs related to the implementation of a global ERP system. We have inherited many diverse business processes and different information systems through our numerous acquisitions. Accordingly, we are undertaking this initiative in order to standardize business processes globally and to better integrate all of our existing and acquired operations using one information system. Although recurring in nature given the expected timeframe to complete the implementation for our existing operations and our expectation to continue to acquire new businesses and operations, management excludes these charges when evaluating the operating performance of the Company because the frequency and amount of such charges vary significantly based on the timing and magnitude of the Company’s implementation activities. |
|
|
Structural optimization charges. These charges, which include
employee severance and other costs associated with exit or disposal of facilities, costs related to transferring manufacturing and/or distribution activities to different locations, and rationalization or enhancement of our organization, existing manufacturing, distribution, administrative, functional and commercial infrastructure. Some of these cost-saving and efficiency-driven activities are identified as opportunities in connection with acquisitions that provide the Company with additional capacity or economies of scale. Although recurring in nature given management’s ongoing review of the efficiency of our organization and structure, including manufacturing, distribution and administrative facilities and operations, management excludes these items when evaluating the operating performance of the Company because the frequency and amount of such charges vary significantly based on the timing and magnitude of the Company’s rationalization activities and are, in some cases, dependent upon opportunities identified in acquisitions, which also vary in frequency and magnitude. |
|
|
Certain employee severance charges. Certain employee
severance and related charges consist of charges related to senior management level terminations and certain significant reductions in force that are not initiated in connection with restructuring. Management excludes these items when evaluating the Company’s operating performance because these amounts do not affect our core operations and because of the infrequent and/or large scale nature of these activities. |
|
|
Acquisition-related charges. Acquisition-related charges
include (i) up-front fees and milestone payments that are expensed as incurred in connection with acquiring licenses or rights to technology for which no product has been approved for sale by regulatory authorities and such approval is not reasonably assured at the time such up-front fees or milestone payments are made, (ii) inventory fair value purchase accounting adjustments, (iii) changes in the fair value of contingent consideration after the acquisition date, (iv) costs related to acquisition integration including systems, operations, retention, and severance and (v) legal, accounting and other outside consultants expenses directly related to acquisitions or divestitures. Inventory fair value purchase accounting adjustments consist of the increase to cost of goods sold that occur as a result of expensing the step up in the fair value of inventory that we purchased in connection with acquisitions as that inventory is sold during the financial period. Although recurring given the ongoing character of our development and acquisition programs, these acquisition, divestiture and in-licensing related charges are not factored into the evaluation of our performance by management after completion of development programs or acquisitions because they are of a temporary nature, they are not related to our core operating performance and the frequency and amount of such charges vary significantly based on the timing and magnitude of our development, acquisition and divestiture transactions as well as the level of inventory on hand at the time of acquisition. |
|
|
Discontinued product lines charges. These charges represent
charges taken in connection with product lines that the Company discontinues. Management excludes this item when evaluating the Companys operating performance because discontinued products do not provide useful information regarding the Companys prospects for future performance. |
|
|
Intangible asset amortization expense. Management excludes
this item when evaluating the Company’s operating performance because it is a non-cash expense. |
|
|
Convertible debt non-cash interest. The convertible debt
accounting requires separate accounting for the liability and equity components of the Company’s convertible debt instruments, which may be settled in cash upon conversion, in a manner that reflects an applicable non-convertible debt borrowing rate at the time that we issued such convertible debt instruments. Management excludes this item when evaluating the Company’s operating performance because of the non-cash nature of the expense. |
|
|
Income tax impact from adjustments and other items. Estimated
impact on income tax expense related to the following: |
|
(i)
|
Adjustments to income tax expense for the amount of
additional tax expense that the Company estimates that it would record if it used non-GAAP results instead of GAAP results in the calculation of its tax provision, based on the statutory rate applicable to jurisdictions in which the above non-GAAP adjustments relate. |
|
(ii)
|
When we calculate the adjusted tax rate, we include a full
year estimate for all discrete items. We then apply that full year rate to the year-to-date results and calculate the current quarters rate to arrive at the year-to-date adjusted tax rate. We believe this removes significant variability in our results and creates a more operationally consistent result for our investors to use for comparability purposes. Specifically, the adoption of the FASB Update No. 2016-09 accounting standard has the effect of generating a significant tax expense benefit in each of the first three quarters of 2016. For the adjusted tax rate, we are treating this as a rate item, which is consistent with how other discrete tax expense items are handled in our current adjusted tax expense measure. |
Weighted average shares used to calculate GAAP diluted EPS includes
the convertible notes and warrant transactions because they are
dilutive. The measure of adjusted diluted weighted average shares
outstanding used to calculate adjusted diluted EPS includes the
effect of the convertible notes hedge transactions, which is
anti-dilutive. Integra believes the non-GAAP measure is useful for
understanding the economic benefit of the convertible notes hedge
transactions.
the convertible notes and warrant transactions because they are
dilutive. The measure of adjusted diluted weighted average shares
outstanding used to calculate adjusted diluted EPS includes the
effect of the convertible notes hedge transactions, which is
anti-dilutive. Integra believes the non-GAAP measure is useful for
understanding the economic benefit of the convertible notes hedge
transactions.
Organic revenues, adjusted EBITDA, adjusted net income, adjusted
earnings per diluted share, adjusted diluted weighted average
shares outstanding, free cash flow and adjusted free cash flow
conversion are not calculated in accordance with GAAP, and should
be considered supplemental to, and not as a substitute for, or
superior to, financial measures calculated in accordance with GAAP.
Non-GAAP financial measures have limitations in that they do not
reflect all of the revenues, costs or benefits associated with the
operations of the Company’s business as determined in accordance
with GAAP. As a result, you should not consider these measures in
isolation or as a substitute for analysis of the Company’s results
as reported under GAAP. The Company expects to continue to acquire
businesses and product lines and to incur expenses of a nature
similar to many of the non-GAAP adjustments described above, and
exclusion of these items from its adjusted financial measures
should not be construed as an inference that all of these revenue
adjustments or costs are unusual, infrequent or non-recurring. Some
of the limitations in relying on the adjusted financial measures
are:
earnings per diluted share, adjusted diluted weighted average
shares outstanding, free cash flow and adjusted free cash flow
conversion are not calculated in accordance with GAAP, and should
be considered supplemental to, and not as a substitute for, or
superior to, financial measures calculated in accordance with GAAP.
Non-GAAP financial measures have limitations in that they do not
reflect all of the revenues, costs or benefits associated with the
operations of the Company’s business as determined in accordance
with GAAP. As a result, you should not consider these measures in
isolation or as a substitute for analysis of the Company’s results
as reported under GAAP. The Company expects to continue to acquire
businesses and product lines and to incur expenses of a nature
similar to many of the non-GAAP adjustments described above, and
exclusion of these items from its adjusted financial measures
should not be construed as an inference that all of these revenue
adjustments or costs are unusual, infrequent or non-recurring. Some
of the limitations in relying on the adjusted financial measures
are:
|
|
The Company periodically acquires other companies or
businesses, and we expect to continue to incur acquisition-related expenses and charges in the future. These costs can directly impact the amount of the Company’s available funds or could include costs for aborted deals which may be significant and reduce GAAP net income. |
|
|
The Company has initiated a long term effort to implement a
global ERP system, and we expect to continue to incur significant systems implementation charges until that effort is completed. These costs can directly impact the amount of the Company’s available funds and reduce GAAP net income. |
|
|
All of the adjustments to GAAP net income have been tax
affected at the Company’s actual tax rates. Depending on the nature of the adjustments and the tax treatment of the underlying items, the effective tax rate related to adjusted net income could differ significantly from the effective tax rate related to GAAP net income. |
In the financial tables portion of the Press Release, the Company
has included a reconciliation of GAAP reported revenues to organic
revenues for the quarters ended March 31, 2017 and 2016 and GAAP
net income to adjusted EBITDA, GAAP
has included a reconciliation of GAAP reported revenues to organic
revenues for the quarters ended March 31, 2017 and 2016 and GAAP
net income to adjusted EBITDA, GAAP
net income to adjusted net income, GAAP diluted weighted average
shares outstanding to adjusted diluted weighted average shares
outstanding, GAAP earnings per diluted share to adjusted earnings
per diluted share, and GAAP operating cash flow to free cash flow
and adjusted free cash flow conversion used by management for the
quarters ended March 31, 2017 and 2016. Also included are
reconciliations for future periods.
shares outstanding to adjusted diluted weighted average shares
outstanding, GAAP earnings per diluted share to adjusted earnings
per diluted share, and GAAP operating cash flow to free cash flow
and adjusted free cash flow conversion used by management for the
quarters ended March 31, 2017 and 2016. Also included are
reconciliations for future periods.
Item 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(d) Exhibits
|
|
|
|
99.1
|
Press release with attachments, dated April 26,
2017-Earnings Release |
About INTEGRA LIFESCIENCES HOLDINGS CORPORATION (NASDAQ:IART)
Integra LifeSciences Holdings Corporation is a medical technology company. The Company focuses on the development, manufacturing and marketing of surgical implants and medical instruments. Its products are used in neurosurgery, extremity reconstruction, orthopedics and general surgery. Its segments include Specialty Surgical Solutions, which offers products, including specialty surgical instrumentation for a range of specialties. Its product category includes products and solutions for dural repair, precision tools and instruments, tissue ablation and neuro critical care, including product portfolios used in neurosurgery operation suites and critical care units, and Orthopedics and Tissue Technologies, which offers products of a combination of differentiated regenerative technology products for soft tissue repair and tissue regeneration products, and small bone fixation and joint replacement hardware products for both upper extremities and lower extremities. INTEGRA LIFESCIENCES HOLDINGS CORPORATION (NASDAQ:IART) Recent Trading Information
INTEGRA LIFESCIENCES HOLDINGS CORPORATION (NASDAQ:IART) closed its last trading session up +0.86 at 43.74 with 779,692 shares trading hands.