Acelity L.P. Inc. - FORM 8-K - EX-99.1 - EARNINGS RELEASE - May 6, 2014

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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@kci1.com
mike.barger@kci1.com

CENTAUR GUERNSEY L.P. INC. REPORTS
FIRST QUARTER FINANCIAL RESULTS FOR 2014


-  First quarter 2014 worldwide Centaur Guernsey L.P. Inc. (“Centaur”) revenue of $447.5 million, up 7.6% from the prior-year period as reported and 7.9% from the prior-year period on a constant currency basis

- First quarter 2014 loss from continuing operations of $46.4 million compared to a loss from continuing operations of $43.4 million for the prior-year period

-  First quarter 2014 total Adjusted EBITDA from continuing operations1 of $155.1 million compared to $156.7 million for the prior-year period


Highlights of the first quarter ended March 31, 2014

Centaur revenue for the first quarter of 2014 was $447.5 million, up from the prior-year comparable period by 7.6% as reported and 7.9% on a constant currency basis. Operating earnings for the first quarter of 2014 were $33.9 million compared to $35.5 million in the prior-year period. Adjusted EBITDA from continuing operations were $155.1 million for the first quarter of 2014, compared to $156.7 million in the prior-year period.

“This quarter marked the first full quarter we have operated as one company including KCI, LifeCell and Systagenix. We are pleased with the progress of the integration and the positive feedback we have received from customers. As the global leader in transformational healing solutions, we remain focused on delivering best in class products and services to caregivers and their patients,” said Joe Woody, President and Chief Executive Officer. 

Financial Position

Total cash at March 31, 2014 was $264.6 million. During the first quarter of 2014, Centaur generated cash of $82.8 million from operations, used cash of $18.6 million in investing activities and used cash of $6.6 million in financing activities. On January 22, 2014 we entered into an amendment of our senior secured credit agreement which reduced the nominal interest rate of our senior secured credit facility by 50 basis points.

As of March 31, 2014, total long-term debt outstanding was $4.89 billion and our Net Leverage Ratio2 was 6.1x.

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.







Company Structure

Centaur 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. Centaur 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 Centaur 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 April 1, 2013, which is not included in our consolidated financial statements.





CENTAUR GUERNSEY L.P. INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(dollars in thousands)
(unaudited)

 
Three months ended March 31,
 
2014
 
2013
 
% Change
Revenue:
 
 
 
 
 
Rental
$
166,558

 
$
188,163

 
(11.5
)%
Sales
280,981

 
227,721

 
23.4

Total revenue
447,539

 
415,884

 
7.6

 
 
 
 
 
 
Rental expenses
85,792

 
97,351

 
(11.9
)
Cost of sales
83,302

 
56,231

 
48.1

Gross profit
278,445

 
262,302

 
6.2

 
 
 
 
 
 
Selling, general and administrative expenses
176,361

 
161,442

 
9.2

Research and development expenses
17,490

 
17,782

 
(1.6
)
Acquired intangible asset amortization
50,689

 
47,546

 
6.6

Operating earnings
33,905

 
35,532

 
(4.6
)
 
 
 
 
 
 
Interest income and other
95

 
158

 
(39.9
)
Interest expense
(102,195
)
 
(108,088
)
 
(5.5
)
Foreign currency gain
236

 
4,575

 
(94.8
)
Derivative instruments loss
(3
)
 
(516
)
 
(99.4
)
Loss from continuing operations before income tax benefit
(67,962
)
 
(68,339
)
 
(0.6
)
Income tax benefit
(21,579
)
 
(24,968
)
 
(13.6
)
Loss from continuing operations
(46,383
)
 
(43,371
)
 
6.9

Loss from discontinued operations, net of tax
—

 
(1,416
)
 
—

Net loss
$
(46,383
)
 
$
(44,787
)
 
3.6
 %









CENTAUR GUERNSEY L.P. INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)

 
March 31,
2014
 
December 31,
2013
Assets:
(unaudited)
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
264,640

 
$
206,949

Accounts receivable, net
382,325

 
407,578

Inventories, net
182,107

 
181,567

Deferred income taxes
28,436

 
23,621

Prepaid expenses and other
37,124

 
53,161

Total current assets
894,632

 
872,876

 
 
 
 
Net property, plant and equipment
316,227

 
333,725

Debt issuance costs, net
95,999

 
102,054

Deferred income taxes
35,389

 
31,459

Goodwill
3,378,931

 
3,378,661

Identifiable intangible assets, net
2,518,629

 
2,549,201

Other non-current assets
4,846

 
4,669

 
 
 
 
 
$
7,244,653

 
$
7,272,645

 
 
 
 
Liabilities and Equity:
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
56,826

 
$
50,316

Accrued expenses and other
381,224

 
328,975

Current installments of long-term debt
26,134

 
26,311

Income taxes payable
8,845

 
3,368

Deferred income taxes
25,753

 
2,199

Total current liabilities
498,782

 
411,169

 
 
 
 
Long-term debt, net of current installments and discount
4,863,036

 
4,865,503

Non-current tax liabilities
53,415

 
53,682

Deferred income taxes
944,708

 
1,003,784

Other non-current liabilities
31,003

 
40,432

Total liabilities
6,390,944

 
6,374,570

Equity:
 
 
 
General partner's capital
—

 
—

Limited partners’ capital
854,559

 
900,218

Accumulated other comprehensive loss, net
(850
)
 
(2,143
)
Total equity
853,709

 
898,075

 
 
 
 
 
$
7,244,653

 
$
7,272,645










CENTAUR GUERNSEY L.P. INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

 
Three months ended March 31,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net loss
$
(46,383
)
 
$
(44,787
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Amortization of debt issuance costs and discount
9,668

 
8,406

Depreciation and other amortization
82,029

 
86,782

Loss on disposition of assets
—

 
2,300

Amortization of fair value step-up in inventory
6,680

 
—

Write-off of other intangible assets
—

 
9,400

Provision for bad debt
4,101

 
1,920

Equity-based compensation expense
941

 
533

Deferred income tax benefit
(44,674
)
 
(43,411
)
Unrealized gain on derivative instruments
(4,076
)
 
(1,013
)
Unrealized loss (gain) on revaluation of cross currency debt
241

 
(9,851
)
Change in assets and liabilities:
 
 
 
Decrease in accounts receivable, net
20,806

 
16,954

Increase in inventories, net
(7,302
)
 
(9,343
)
Decrease in prepaid expenses and other
17,546

 
10,485

Increase in accounts payable
6,473

 
5,176

Increase in accrued expenses and other
31,799

 
58,681

Increase in tax liabilities, net
4,997

 
3,347

Net cash provided by operating activities
82,846

 
95,579

 
 
 
 
Cash flows from investing activities:
 
 
 
Additions to property, plant and equipment
(10,801
)
 
(16,043
)
Increase in inventory to be converted into equipment for short-term rental
(2,240
)
 
(6,590
)
Dispositions of property, plant and equipment
377

 
142

Businesses acquired in purchase transaction, net of cash acquired
(4,613
)
 
—

Increase in identifiable intangible assets and other non-current assets
(1,281
)
 
(281
)
Net cash used by investing activities
(18,558
)
 
(22,772
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Repayments of long-term debt and capital lease obligations
(6,635
)
 
(5,691
)
Payment of debt issuance costs
—

 
(190
)
Net cash used by financing activities
(6,635
)
 
(5,881
)
Effect of exchange rate changes on cash and cash equivalents
38

 
(1,842
)
Net increase in cash and cash equivalents
57,691

 
65,084

Cash and cash equivalents, beginning of period
206,949

 
383,150

Cash and cash equivalents, end of period
$
264,640

 
$
448,234





CENTAUR GUERNSEY L.P. INC. AND SUBSIDIARIES
Reconciliation from GAAP to Non-GAAP
Supplemental Revenue Data
(dollars in thousands)
(unaudited)
 
Three months ended March 31,
 
GAAP % Change
 
Constant Currency % Change (1)
 
2014
 
2013 GAAP
 
 
 
GAAP
 
FX Impact
 
Constant
Currency
 
 
 
Advanced Wound Therapeutics revenue:
 
 
 
 
 
 
 
 
 
 
 
Rental
$
164,977

 
$
625

 
$
165,602

 
$
185,923

 
(11.3
)%
 
(10.9
)%
Sales
171,002

 
776

 
171,778

 
119,959

 
42.6

 
43.2

  Total
335,979

 
1,401

 
337,380

 
305,882

 
9.8

 
10.3

 
 
 
 
 
 
 
 
 
 
 
 
Regenerative Medicine revenue:
 
 
 
 
 
 
 
 
 
 
 
Rental
1,581

 
—

 
1,581

 
2,240

 
(29.4
)
 
(29.4
)
Sales
109,979

 
(50
)
 
109,929

 
107,762

 
2.1

 
2.0

  Total
111,560

 
(50
)
 
111,510

 
110,002

 
1.4

 
1.4

 
 
 
 
 
 
 
 
 
 
 
 
Total Revenue:
 
 
 
 
 
 
 
 
 
 
 
Rental
166,558

 
625

 
167,183

 
188,163

 
(11.5
)
 
(11.1
)
Sales
280,981

 
726

 
281,707

 
227,721

 
23.4

 
23.7

  Total
$
447,539

 
$
1,351

 
$
448,890

 
$
415,884

 
7.6
 %
 
7.9
 %

(1) Represents percentage change between 2014 non-GAAP Constant Currency revenue and 2013 GAAP revenue.





CENTAUR GUERNSEY L.P. INC. AND SUBSIDIARIES
Reconciliation from GAAP to Non-GAAP
Selected Financial Information
(dollars in thousands)
(unaudited)

 
Three months ended March 31,
 
2014
 
2013
 
 
 
 
Net loss
$
(46,383
)
 
$
(44,787
)
Loss from discontinued operations, net of tax
—

 
1,416

Interest expense, net of interest income
102,105

 
107,932

Income tax benefit
(21,579
)
 
(24,968
)
Foreign currency gain
(236
)
 
(4,575
)
Depreciation and other amortization
82,029

 
86,782

Derivative instruments loss
3

 
516

Management fees and expenses
990

 
1,402

Equity-based compensation expense
941

 
533

Acquisition, disposition and financing expenses (1)
2,810

 
3,401

Business optimization expenses (2)
18,309

 
17,767

Other permitted expenses (3)
16,145

 
11,320

Adjusted EBITDA from continuing operations
155,134

 
156,739

Adjusted EBITDA from discontinued operations (4)
—

 
(3
)
Total adjusted EBITDA
$
155,134

 
$
156,736

 
 
 
 
Adjusted EBITDA from continuing operations as a percentage of revenue
34.7
%
 
37.7
%

(1) Represents labor, travel, training, consulting and other costs associated with acquisition, disposition and financing activities, such as the disposition of our TSS business, acquisition of Attenuate and 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 write-off of in-process research and development, 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.




Acelity L.P. Inc. Reports