Acelity L.P. Inc. - FORM 8-K - EX-99.1 - EXHIBIT 99.1 ACELITY L.P. INC. FIRST QUARTER FINANCIAL RESULTS FOR 2015 - April 29, 2015

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ACELITY L.P. INC. REPORTS
FIRST QUARTER FINANCIAL RESULTS FOR 2015
U.S. Advanced Wound Therapeutics revenue grew 11.0%


Financial Highlights

•
Revenue of $444.1 million, up 0.3% from the prior-year period and 4.2% on a constant currency basis

•
Adjusted EBITDA from continuing operations1 of $165.8 million, grew 7.7% versus the prior-year period and 10.5% on a constant currency basis, achieving an Adjusted EBITDA margin of 37.3%

•
Loss from continuing operations improved to $4.5 million compared to $47.1 million in the prior-year period


Operational Highlights

•
Celebrated the 20th anniversary of Acelity’s revolutionary V.A.C.® Therapy technology with record level of seasonally adjusted units in use

•
Launched two innovative product offerings: Nanova™, an advanced wound dressing enhanced by NPWT, and the industry-first iOn Healing™ mobile application designed to provide wound care clinicians with a suite of tools to improve customer support and increase productivity

•
Won arbitration with Vital Needs (“VNI”); the arbitration panel found that KCI has no liability for any of the claims asserted by VNI

•
Successfully amended senior secured credit facility to provide enhanced financial flexibility

Joe Woody, President and Chief Executive Officer, commented, “twenty years ago, we introduced the revolutionary V.A.C.® Therapy System which transformed the wound care landscape. This innovative technology has become the treatment of choice around the world, supported by more published clinical evidence than any other form of NPWT on the market and has treated more than 9 million wounds worldwide.”

“Our strong performance in the first quarter was driven by our North American Advanced Wound Therapeutics devices business, which delivered double-digit growth and achieved the highest seasonally adjusted volumes in the history of the Company. We are well positioned to build on this successful expansion of our core market, adapt to new payment models in the U.S. and abroad, and reduce the total overall cost of care. These operational successes, coupled with our relentless focus on balancing cost control with execution, position the Company to drive long-term value creation as a leading, globally diversified healthcare company.”





Results of the first quarter ended March 31, 2015

Acelity revenue for the first quarter of 2015 was $444.1 million, up from the prior-year period by 0.3% as reported and 4.2% on a constant currency basis.

•
Advanced Wound Therapeutics (“AWT”) revenue was $337.3 million, up 2.0% as reported and 6.7% on a constant currency basis, compared to the prior-year period. Growth in AWT revenue was fueled primarily by increased NPWT volumes during the quarter, double-digit focus product growth led by sales of Prevena™, and strong growth in our international markets as we increased our market penetration globally.

•
Regenerative Medicine revenue was $104.2 million, down 2.3% as reported and 1.0% on a constant currency basis, compared to the prior-year period. The decline was primarily due to lower volumes associated with hernia repair procedures, partially offset by mid-single digit growth in breast reconstruction and strong growth in international markets.

Adjusted EBITDA from continuing operations for the first quarter of 2015 increased 7.7% to $165.8 million from $154.0 million in the prior-year period and increased 10.5% on a constant currency basis. The growth rate of Adjusted EBITDA from continuing operations was negatively impacted by 2.8% due to unfavorable movements in foreign exchange rates. Growth in Adjusted EBITDA was attributable to strong revenue as well as expense savings associated with our integration and business optimization efforts. Our loss from continuing operations for the first quarter of 2015 was $4.5 million, compared to $47.1 million in the prior-year period.

Woody concluded, “Acelity is executing on a plan to achieve breakthrough performance in 2015, building off two consecutive quarters of revenue growth. We plan to reinvest in our business globally and expand our product portfolio through investments in innovation and complementary acquisitions to further accelerate growth and market penetration.”


Financial Position

Total cash at March 31, 2015 was $250.5 million. During the first quarter of 2015, Acelity generated cash of $102.3 million from operations, used cash of $15.0 million in investing activities and used cash of $13.2 million in financing activities. On March 10, 2015, we entered into Amendment No. 6 to our Senior Secured Credit Facility (“Amendment No. 6”). As a result of Amendment No. 6, the financial covenants were amended to remove the interest coverage ratio in its entirety and to set the total leverage ratio for any test period to be no greater than 8.25:1.00. In addition, Amendment No. 6 resulted in an increase to the nominal interest rates of each term loan under our senior secured credit facility by 50 basis points.

As of March 31, 2015, total long-term debt outstanding was $4.800 billion and our Net Leverage Ratio2 was 6.1x.


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 and EBITDA 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 SPY ELITE® 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.


FOR MORE INFORMATION, CONTACT:
Investors
Caleb Moore
Office: (210) 255-6433
caleb.moore@acelity.com
 
Media
Cheston Turbyfill
Office: (210) 255-7757
cheston.turbyfill@acelity.com





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

 
Three months ended March 31,
 
2015
 
2014
 
% Change
Revenue:
 
 
 
 
 
Rental
$
172,839

 
$
164,977

 
4.8
 %
Sales
271,211

 
277,658

 
(2.3
)
Total revenue
444,050

 
442,635

 
0.3

 
 
 
 
 
 
Rental expenses
78,178

 
84,649

 
(7.6
)
Cost of sales
73,414

 
81,390

 
(9.8
)
Gross profit
292,458

 
276,596

 
5.7

 
 
 
 
 
 
Selling, general and administrative expenses
147,763

 
175,612

 
(15.9
)
Research and development expenses
14,678

 
17,490

 
(16.1
)
Acquired intangible asset amortization
45,877

 
50,689

 
(9.5
)
Operating earnings
84,140

 
32,805

 
156.5

 
 
 
 
 


Interest income and other
147

 
95

 
54.7

Interest expense
(104,726
)
 
(102,195
)
 
2.5

Foreign currency gain
19,400

 
236

 
—

Derivative instruments loss
(3,348
)
 
(3
)
 
—

Loss from continuing operations before income tax expense (benefit)
(4,387
)
 
(69,062
)
 
(93.6
)
Income tax expense (benefit)
144

 
(22,002
)
 
—

Loss from continuing operations
(4,531
)
 
(47,060
)
 
(90.4
)
Earnings from discontinued operations, net of tax
—

 
677

 
—

Net loss
$
(4,531
)
 
$
(46,383
)
 
(90.2
)%









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

 
March 31,
2015
 
December 31,
2014
Assets:
(unaudited)
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
250,509

 
$
183,541

Accounts receivable, net
365,124

 
370,483

Inventories, net
182,457

 
178,222

Deferred income taxes
70,515

 
63,025

Prepaid expenses and other
28,337

 
27,563

Total current assets
896,942

 
822,834

 
 
 
 
Net property, plant and equipment
277,653

 
288,048

Debt issuance costs, net
72,094

 
77,896

Deferred income taxes
30,466

 
31,692

Goodwill
3,378,298

 
3,378,298

Identifiable intangible assets, net
2,352,814

 
2,397,251

Other non-current assets
4,709

 
4,694

 
 
 
 
 
$
7,012,976

 
$
7,000,713

 
 
 
 
Liabilities and Equity:
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
55,946

 
$
51,827

Accrued expenses and other
395,514

 
343,484

Current installments of long-term debt
25,385

 
25,721

Income taxes payable
9,981

 
1,305

Deferred income taxes
103,135

 
113,658

Total current liabilities
589,961

 
535,995

 
 
 
 
Long-term debt, net of current installments and discount
4,774,787

 
4,815,290

Non-current tax liabilities
33,845

 
33,300

Deferred income taxes
799,334

 
792,157

Other non-current liabilities
165,909

 
163,258

Total liabilities
6,363,836

 
6,340,000

Equity:
 
 
 
General partner’s capital
—

 
—

Limited partners’ capital
666,285

 
670,787

Accumulated other comprehensive loss, net
(17,145
)
 
(10,074
)
Total equity
649,140

 
660,713

 
 
 
 
 
$
7,012,976

 
$
7,000,713










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

 
Three months ended March 31,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net loss
$
(4,531
)
 
$
(46,383
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Amortization of debt issuance costs and discount
9,968

 
9,668

Depreciation and other amortization
66,331

 
82,029

Amortization of fair value step-up in inventory
—

 
6,680

Provision for bad debt
1,827

 
4,101

Equity-based compensation expense
535

 
941

Deferred income tax benefit
(11,971
)
 
(44,674
)
Unrealized gain on derivative instruments
(315
)
 
(4,076
)
Unrealized loss (gain) on revaluation of cross currency debt
(32,429
)
 
241

Change in assets and liabilities:
 
 
 
Decrease in accounts receivable, net
5,362

 
20,806

Increase in inventories, net
(3,666
)
 
(7,302
)
Decrease (increase) in prepaid expenses and other
(774
)
 
17,546

Increase in accounts payable
4,363

 
6,473

Increase in accrued expenses and other
56,048

 
31,799

Increase in tax liabilities, net
11,525

 
4,997

Net cash provided by operating activities
102,273

 
82,846

 
 
 
 
Cash flows from investing activities:
 
 
 
Additions to property, plant and equipment
(10,491
)
 
(10,801
)
Increase in inventory to be converted into equipment for short-term rental
(3,356
)
 
(2,240
)
Dispositions of property, plant and equipment
678

 
377

Businesses acquired in purchase transactions, net of cash acquired
—

 
(4,613
)
Increase in identifiable intangible assets and other non-current assets
(1,821
)
 
(1,281
)
Net cash used by investing activities
(14,990
)
 
(18,558
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Distribution to limited partners
(55
)
 
—

Settlement of profits interest units
(517
)
 
—

Repayments of long-term debt and capital lease obligations
(6,415
)
 
(6,635
)
Debt issuance costs
(6,256
)
 
—

Net cash used by financing activities
(13,243
)
 
(6,635
)
Effect of exchange rate changes on cash and cash equivalents
(7,072
)
 
38

Net increase in cash and cash equivalents
66,968

 
57,691

Cash and cash equivalents, beginning of period
183,541

 
206,949

Cash and cash equivalents, end of period
$
250,509

 
$
264,640





ACELITY 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)
 
2015
 
2014 GAAP
 
 
 
GAAP
 
FX Impact
 
Constant
Currency
 
 
 
Advanced Wound Therapeutics revenue:
 
 
 
 
 
 
 
 
 
 
 
Rental
$
172,839

 
$
3,608

 
$
176,447

 
$
164,977

 
4.8
 %
 
7.0
 %
Sales
164,420

 
12,083

 
176,503

 
165,818

 
(0.8
)
 
6.4

  Total
337,259

 
15,691

 
352,950

 
330,795

 
2.0

 
6.7

 
 
 
 
 
 
 
 
 
 
 
 
Regenerative Medicine revenue:
 
 
 
 
 
 
 
 
 
 
 
Sales
104,169

 
1,414

 
105,583

 
106,656

 
(2.3
)
 
(1.0
)
 
 
 
 
 
 
 
 
 
 
 
 
Other revenue:
 
 
 
 
 
 
 
 
 
 
 
Sales
2,622

 
250

 
2,872

 
5,184

 
(49.4
)
 
(44.6
)
 
 
 
 
 
 
 
 
 
 
 
 
Total revenue:
 
 
 
 
 
 
 
 
 
 
 
Rental
172,839

 
3,608

 
176,447

 
164,977

 
4.8

 
7.0

Sales
271,211

 
13,747

 
284,958

 
277,658

 
(2.3
)
 
2.6

  Total
$
444,050

 
$
17,355

 
$
461,405

 
$
442,635

 
0.3
 %
 
4.2
 %

(1) Represents percentage change between 2015 non-GAAP Constant Currency revenue and 2014 GAAP revenue.





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

 
Three months ended March 31,
 
2015
 
2014
 
 
 
 
Net loss
$
(4,531
)
 
$
(46,383
)
Earnings from discontinued operations, net of tax
—

 
(677
)
Interest expense, net of interest income
104,651

 
102,105

Income tax expense (benefit)
144

 
(22,002
)
Foreign currency gain
(19,400
)
 
(236
)
Depreciation and other amortization
66,331

 
82,029

Derivative instruments loss
3,348

 
3

Management fees and expenses
1,312

 
990

Equity-based compensation expense
535

 
941

Acquisition, disposition and financing expenses (1)
2,580

 
2,810

Business optimization expenses (2)
6,128

 
18,309

Other permitted expenses (3)
4,738

 
16,145

Adjusted EBITDA from continuing operations
165,836

 
154,034

Adjusted EBITDA from discontinued operations (4)
—

 
1,100

Total Adjusted EBITDA
$
165,836

 
$
155,134

 
 
 
 
Adjusted EBITDA from continuing operations as a percentage of revenue
37.3
%
 
34.8
%

(1) Represents labor, travel, training, consulting and other costs associated with acquisition, disposition and financing activities, such as the acquisition of Systagenix, technology acquisitions and the amendment 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 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, adjusted as defined in our senior secured credit agreement.


 
 
 
As Reported % Change
 
Constant Currency % Change (1)
 
2015
 
2014
As Reported
 
 
 
As Reported
 
FX Impact
 
Constant
Currency
 
 
 
Three months ended March 31,
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA from continuing operations
$
165,836

 
$
4,393

 
$
170,229

 
154,034

 
7.7
%
 
10.5
%

(1) Represents percentage change between 2015 Constant Currency EBITDA and 2014 As Reported EBITDA.




Acelity L.P. Inc. Reports