Acelity L.P. Inc. - FORM 8-K - EX-99.1 - PRESS RELEASE, DATED JULY 29, 2014 - July 29, 2014

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8-K - 8-K - Acelity L.P. Inc.a2014q28-kearningsrelease.htm



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
SECOND QUARTER AND FIRST HALF FINANCIAL RESULTS FOR 2014


-  Second quarter 2014 worldwide Centaur Guernsey L.P. Inc. (“Centaur”) revenue of $465.2 million, up 7.5% from the prior-year period as reported and 7.1% from the prior-year period on a constant currency basis

- Second quarter 2014 loss from continuing operations of $152.7 million compared to a loss from continuing operations of $61.9 million for the prior-year period

-  Second quarter 2014 total Adjusted EBITDA from continuing operations1 of $169.7 million compared to $177.0 million for the prior-year period


Highlights of the second quarter ended June 30, 2014

Centaur revenue for the second quarter of 2014 was $465.2 million, up from the prior-year comparable period by 7.5% as reported and 7.1% on a constant currency basis. Our loss from continuing operations for the second quarter of 2014 was $152.7 million compared to $61.9 million in the prior-year period. Adjusted EBITDA from continuing operations were $169.7 million for the second quarter of 2014, compared to $177.0 million in the prior-year period.

“This quarter, we made progress in a number of critical areas, including continued year-over-year growth in our core product volumes and solid performance from our recently acquired Systagenix business,” said Joe Woody, President and Chief Executive Officer. “I’m confident we are laying the foundation to deliver long-term sustainable growth.”


Financial Position

Total cash at June 30, 2014 was $213.7 million. During the first six months of 2014, Centaur generated cash of $61.4 million from operations, used cash of $40.8 million in investing activities and used cash of $14.7 million in financing activities.

As of June 30, 2014, total long-term debt outstanding was $4.88 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.






Wake Forest Patent Settlement

On June 30, 2014 , KCI entered into a settlement and release agreement (the “Settlement Agreement”) with Wake Forest to fully and finally resolve the pending patent disputes between them regarding Wake Forest’s NPWT patents formerly licensed to KCI. To fully resolve all the pending disputes between KCI and Wake Forest, KCI agreed to pay Wake Forest retrospective U.S. patent royalties in the amount of $280 million payable over 3 years. As a result, we recorded patent settlement charges of $198.6 million in the second quarter of 2014 representing the net present value of payments under the Settlement Agreement, net of the $63.2 million previously recorded liability.


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 July 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 June 30,
 
Six months ended June 30,
 
2014
 
2013
 
% Change
 
2014
 
2013
 
% Change
Revenue:
 
 
 
 
 
 
 
 
 
 
 
Rental
$
175,235

 
$
190,245

 
(7.9
)%
 
$
341,793

 
$
378,408

 
(9.7
)%
Sales
289,936

 
242,434

 
19.6

 
570,917

 
470,155

 
21.4

Total revenue
465,171

 
432,679

 
7.5

 
912,710

 
848,563

 
7.6

 
 
 
 
 
 
 
 
 
 
 
 
Rental expenses
87,038

 
90,382

 
(3.7
)
 
172,830

 
187,733

 
(7.9
)
Cost of sales
82,307

 
59,325

 
38.7

 
165,609

 
115,556

 
43.3

Gross profit
295,826

 
282,972

 
4.5

 
574,271

 
545,274

 
5.3

 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
170,585

 
204,983

 
(16.8
)
 
346,946

 
366,425

 
(5.3
)
Research and development expenses
18,233

 
20,397

 
(10.6
)
 
35,723

 
38,179

 
(6.4
)
Acquired intangible asset amortization
48,754

 
46,461

 
4.9

 
99,443

 
94,007

 
5.8

Wake Forest settlement
198,578

 
—

 
—

 
198,578

 
—

 
—

Operating earnings (loss)
(140,324
)
 
11,131

 
—

 
(106,419
)
 
46,663

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Interest income and other
127

 
904

 
(86.0
)
 
222

 
1,062

 
(79.1
)
Interest expense
(101,805
)
 
(105,658
)
 
(3.6
)
 
(204,000
)
 
(213,746
)
 
(4.6
)
Loss on extinguishment of debt
—

 
(2,164
)
 
—

 
—

 
(2,164
)
 
—

Foreign currency gain (loss)
3,852

 
(7,772
)
 
—

 
4,088

 
(3,197
)
 
—

Derivative instruments gain (loss)
(4,297
)
 
10,556

 
—

 
(4,300
)
 
10,040

 
—

Loss from continuing operations before income tax benefit
(242,447
)
 
(93,003
)
 
160.7

 
(310,409
)
 
(161,342
)
 
92.4

Income tax benefit
(89,730
)
 
(31,056
)
 
188.9

 
(111,309
)
 
(56,024
)
 
98.7

Loss from continuing operations
(152,717
)
 
(61,947
)
 
146.5

 
(199,100
)
 
(105,318
)
 
89.0

Loss from discontinued operations, net of tax
—

 
(628
)
 
—

 
—

 
(2,044
)
 
—

Net loss
$
(152,717
)
 
$
(62,575
)
 
144.1
 %
 
$
(199,100
)
 
$
(107,362
)
 
85.4
 %









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

 
June 30,
2014
 
December 31,
2013
Assets:
(unaudited)
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
213,667

 
$
206,949

Accounts receivable, net
371,061

 
407,578

Inventories, net
185,491

 
181,567

Deferred income taxes
32,551

 
23,621

Prepaid expenses and other
43,248

 
53,161

Total current assets
846,018

 
872,876

 
 
 
 
Net property, plant and equipment
306,642

 
333,725

Debt issuance costs, net
89,960

 
102,054

Deferred income taxes
35,734

 
31,459

Goodwill
3,378,931

 
3,378,661

Identifiable intangible assets, net
2,472,073

 
2,549,201

Other non-current assets
5,219

 
4,669

 
 
 
 
 
$
7,134,577

 
$
7,272,645

 
 
 
 
Liabilities and Equity:
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
54,846

 
$
50,316

Accrued expenses and other
428,491

 
328,975

Current installments of long-term debt
26,100

 
26,311

Income taxes payable
4,099

 
3,368

Deferred income taxes
17,219

 
2,199

Total current liabilities
530,755

 
411,169

 
 
 
 
Long-term debt, net of current installments and discount
4,856,928

 
4,865,503

Non-current tax liabilities
53,989

 
53,682

Deferred income taxes
860,070

 
1,003,784

Other non-current liabilities
133,360

 
40,432

Total liabilities
6,435,102

 
6,374,570

Equity:
 
 
 
General partner's capital
—

 
—

Limited partners’ capital
701,433

 
900,218

Accumulated other comprehensive loss, net
(1,958
)
 
(2,143
)
Total equity
699,475

 
898,075

 
 
 
 
 
$
7,134,577

 
$
7,272,645










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

 
Six months ended June 30,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net loss
$
(199,100
)
 
$
(107,362
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Amortization of debt issuance costs and discount
19,409

 
17,205

Depreciation and other amortization
160,528

 
171,194

Loss on disposition of assets
—

 
3,315

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

 
—

Fixed asset and inventory impairment
—

 
30,259

Write-off of other intangible assets
—

 
13,400

Wake Forest settlement
198,578

 
—

Provision for bad debt
8,239

 
3,521

Loss on extinguishment of debt
—

 
2,164

Equity-based compensation expense
2,103

 
1,196

Deferred income tax benefit
(141,532
)
 
(71,357
)
Excess tax benefit from equity-based payment arrangements
—

 
—

Unrealized gain on derivative instruments
(3,785
)
 
(11,697
)
Unrealized gain on revaluation of cross currency debt
(3,104
)
 
(4,318
)
Change in assets and liabilities:
 
 
 
Decrease in accounts receivable, net
27,186

 
5,912

Increase in inventories, net
(10,881
)
 
(10,997
)
Decrease (increase) in prepaid expenses and other
9,765

 
(15,315
)
Increase in accounts payable
4,412

 
2,939

Increase (decrease) in accrued expenses and other
(17,827
)
 
8,359

Increase in tax liabilities, net
707

 
1,975

Net cash provided by operating activities
61,378

 
40,393

 
 
 
 
Cash flows from investing activities:
 
 
 
Additions to property, plant and equipment
(28,382
)
 
(39,981
)
Increase in inventory to be converted into equipment for short-term rental
(4,121
)
 
(8,523
)
Dispositions of property, plant and equipment
532

 
432

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

Increase in identifiable intangible assets and other non-current assets
(4,230
)
 
(2,558
)
Net cash used by investing activities
(40,814
)
 
(50,630
)
 
 
 
 
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
(13,271
)
 
(52,926
)
Payment of debt issuance costs
—

 
(21,122
)
Net cash used by financing activities
(14,687
)
 
(75,620
)
Effect of exchange rate changes on cash and cash equivalents
841

 
(1,676
)
Net increase (decrease) in cash and cash equivalents
6,718

 
(87,533
)
Cash and cash equivalents, beginning of period
206,949

 
383,150

Cash and cash equivalents, end of period
$
213,667

 
$
295,617





CENTAUR GUERNSEY L.P. INC. AND SUBSIDIARIES
Reconciliation from GAAP to Non-GAAP
Supplemental Revenue Data
(dollars in thousands)
(unaudited)
 
Three months ended June 30,
 
GAAP % Change
 
Constant Currency % Change (1)
 
2014
 
2013 GAAP
 
 
 
GAAP
 
FX Impact
 
Constant
Currency
 
 
 
Advanced Wound Therapeutics revenue:
 
 
 
 
 
 
 
 
 
 
 
Rental
$
173,629

 
$
(348
)
 
$
173,281

 
$
189,232

 
(8.2
)%
 
(8.4
)%
Sales
178,026

 
(1,098
)
 
176,928

 
128,533

 
38.5

 
37.7

  Total
351,655

 
(1,446
)
 
350,209

 
317,765

 
10.7

 
10.2

 
 
 
 
 
 
 
 
 
 
 
 
Regenerative Medicine revenue:
 
 
 
 
 
 
 
 
 
 
 
Rental
1,606

 
—

 
1,606

 
1,013

 
58.5

 
58.5

Sales
111,910

 
(134
)
 
111,776

 
113,901

 
(1.7
)
 
(1.9
)
  Total
113,516

 
(134
)
 
113,382

 
114,914

 
(1.2
)
 
(1.3
)
 
 
 
 
 
 
 
 
 
 
 
 
Total Revenue:
 
 
 
 
 
 
 
 
 
 
 
Rental
175,235

 
(348
)
 
174,887

 
190,245

 
(7.9
)
 
(8.1
)
Sales
289,936

 
(1,232
)
 
288,704

 
242,434

 
19.6

 
19.1

  Total
$
465,171

 
$
(1,580
)
 
$
463,591

 
$
432,679

 
7.5
 %
 
7.1
 %


 
Six months ended June 30,
 
GAAP % Change
 
Constant Currency % Change (1)
 
2014
 
2013 GAAP
 
 
 
GAAP
 
FX Impact
 
Constant
Currency
 
 
 
Advanced Wound Therapeutics revenue:
 
 
 
 
 
 
 
 
 
 
 
Rental
$
338,606

 
$
277

 
$
338,883

 
$
375,155

 
(9.7
)%
 
(9.7
)%
Sales
349,028

 
(322
)
 
348,706

 
248,492

 
40.5

 
40.3

  Total
687,634

 
(45
)
 
687,589

 
623,647

 
10.3

 
10.3

 
 
 
 
 
 
 
 
 
 
 
 
Regenerative Medicine revenue:
 
 
 
 
 
 
 
 
 
 
 
Rental
3,187

 
—

 
3,187

 
3,253

 
(2.0
)
 
(2.0
)
Sales
221,889

 
(184
)
 
221,705

 
221,663

 
0.1

 
—

  Total
225,076

 
(184
)
 
224,892

 
224,916

 
0.1

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Total Revenue:
 
 
 
 
 
 
 
 
 
 
 
Rental
341,793

 
277

 
342,070

 
378,408

 
(9.7
)
 
(9.6
)
Sales
570,917

 
(506
)
 
570,411

 
470,155

 
21.4

 
21.3

  Total
$
912,710

 
$
(229
)
 
$
912,481

 
$
848,563

 
7.6
 %
 
7.5
 %

(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 June 30,
 
Six months ended June 30,
 
2014
 
2013
 
2014
 
2013
 
 
 
 
 
 
 
 
Net loss
$
(152,717
)
 
$
(62,575
)
 
$
(199,100
)
 
$
(107,362
)
Loss from discontinued operations, net of tax
—

 
628

 
—

 
2,044

Interest expense, net of interest income
101,706

 
105,531

 
203,811

 
213,463

Income tax benefit
(89,730
)
 
(31,056
)
 
(111,309
)
 
(56,024
)
Foreign currency gain
(3,852
)
 
7,772

 
(4,088
)
 
3,197

Depreciation and other amortization
78,499

 
84,412

 
160,528

 
171,194

Derivative instruments loss
4,297

 
(10,556
)
 
4,300

 
(10,040
)
Management fees and expenses
1,199

 
1,350

 
2,189

 
2,752

Equity-based compensation expense
1,162

 
663

 
2,103

 
1,196

Acquisition, disposition and financing expenses (1)
1,728

 
12,009

 
4,538

 
15,410

Business optimization expenses (2)
20,073

 
32,641

 
38,382

 
50,408

Wake Forest settlement
198,578

 
—

 
198,578

 
—

Other permitted expenses (3)
8,805

 
36,196

 
24,950

 
47,516

Adjusted EBITDA from continuing operations
169,748

 
177,015

 
324,882

 
333,754

Adjusted EBITDA from discontinued operations (4)
—

 
(7
)
 
—

 
(10
)
Total adjusted EBITDA
$
169,748

 
$
177,008

 
$
324,882

 
$
333,744

 
 
 
 
 
 
 
 
Adjusted EBITDA from continuing operations as a percentage of revenue
36.5
%
 
40.9
%
 
35.6
%
 
39.3
%

(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 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