Attached files
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| 8-K - 8-K - Acelity L.P. Inc. | a2015q28-kearningsrelease.htm |
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ACELITY L.P. INC. REPORTS
SECOND QUARTER AND FIRST HALF FINANCIAL RESULTS FOR 2015
U.S. Advanced Wound Therapeutics revenue grew 10%
Second Quarter Financial Highlights
• | Revenue of $461.6 million, up 0.5% from the prior-year period and 5.1% on a constant currency basis |
• | Revenue from Advanced Wound Therapeutics (“AWT”) devices grew double digits in the U.S. led by double digit volume increases compared to the prior-year period |
• | Loss from continuing operations improved to $17.6 million compared to $153.8 million in the prior-year period |
• | Adjusted EBITDA from continuing operations1 of $172.9 million, grew 2.9% versus the prior-year period and 5.6% on a constant currency basis, achieving an Adjusted EBITDA margin of 37.5% |
Operational Highlights
• | Acelity’s revolutionary V.A.C.® Therapy technology achieves another record level of seasonally adjusted worldwide rental volumes |
• | Announced two innovative product offerings in Europe: TIELLE® Non Adhesive, intended to manage a range of exudate levels and increase the comfort and ease for a patient; and the REVOLVE™ System which offers fast, efficient and secure fat tissue processing in a range of reconstructive procedures |
Joe Woody, President and Chief Executive Officer, commented, “We delivered a strong financial performance in the second quarter, reflecting the power of Acelity’s growing global scale, innovative product portfolio and robust sales and service infrastructure.
“On a consolidated basis, we delivered another consecutive quarter of year over year revenue growth. We have extended our leading position in North America and have also generated strong growth in emerging markets with double-digit increases across Latin America, China and India. In addition, we successfully introduced new products including Nanova™, TIELLE® and REVOLVE™ as well as negotiated future sales channels and distributors.
“Looking ahead, we believe we have the right strategies in place to ensure a resilient platform for sustainable growth. We continue to invest in innovation, further penetration within emerging markets, and development of markets served by our focus products in order to generate long-term value creation.”
Results of the second quarter and six months ended June 30, 2015
Acelity revenue for the second quarter of 2015 was $461.6 million, up from the prior-year period by 0.5% as reported and 5.1% on a constant currency basis.
• | AWT revenue was $354.2 million, up 1.9% as reported and 7.4% on a constant currency basis, compared to the prior-year period. Growth in AWT revenue was driven by increased NPWT volumes, continued strength in focus product growth led by sales of Prevena™, and sustained growth in our international markets resulting from increased global market penetration. |
• | Regenerative Medicine revenue was $103.5 million, down 3.7% as reported and 2.3% on a constant currency basis, compared to the prior-year period. The decline was primarily due to lower volumes associated with U.S. hernia repair procedures, partially offset by strong growth in international markets. |
Adjusted EBITDA from continuing operations for the second quarter of 2015 increased 2.9% to $172.9 million from $167.9 million in the prior-year period and increased 5.6% on a constant currency basis. The growth rate of Adjusted EBITDA from continuing operations was negatively impacted by 2.7% due to unfavorable movements in foreign exchange rates. Growth in Adjusted EBITDA was primarily attributable to strong revenue coupled with lower expenses resulting from our integration and business optimization efforts. Our loss from continuing operations for the second quarter of 2015 was $17.6 million, compared to $153.8 million in the prior-year period.
Acelity revenue for the six months ended June 30, 2015 was $905.7 million, up from the prior-year period by 0.4% as reported and 4.7% on a constant currency basis.
• | AWT revenue was $691.5 million, up 1.9% as reported and 7.1% on a constant currency basis, compared to the prior-year period. Growth in AWT revenue was fueled primarily by higher NPWT volumes during the first half of 2015, double-digit focus product growth, and growth in our international markets. |
• | Regenerative Medicine revenue was $207.7 million, down 3.0% as reported and 1.7% on a constant currency basis, compared to the prior-year period. The decline was primarily due to lower volumes associated with U.S. hernia repair procedures, partially offset by growth in breast reconstruction and solid growth in international markets. |
Adjusted EBITDA from continuing operations for the six months ended June 30, 2015 increased 5.2% to $338.7 million from $322.0 million in the prior-year period and increased 8.0% 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 primarily attributable to solid revenue performance as well as expense savings associated with integration and business optimization efforts. Our loss from continuing operations for the six months ended June 30, 2015 was $22.2 million, compared to $200.9 million in the prior-year period.
Financial Position
Total cash at June 30, 2015 was $141.2 million. During the first six months of 2015, Acelity used cash of $5.3 million in operations, used cash of $39.0 million in investing activities and provided cash of $7.0 million from financing activities.
As of June 30, 2015, total long-term debt outstanding, net of discounts, was $4.837 billion and our Net Leverage Ratio2 was 6.3x.
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
The following provides information regarding non-GAAP financial measures used in this earnings release:
To supplement our consolidated results presented in accordance with accounting principles generally accepted in the United States (“GAAP”), we have disclosed non-GAAP financial measures of operating results that exclude or adjust certain items. A reconciliation of Adjusted EBITDA from continuing operations and Adjusted EBITDA to net loss is provided later in this earnings release. In addition, the Company presents certain of its financial results on a constant currency basis in addition to GAAP results. Constant currency information compares results between periods as if exchange rates had remained constant period-over-period. In this release, we calculate constant currency by calculating current-year results using prior-year foreign currency exchange rates.
Management believes these non-GAAP financial measures provide useful supplemental information for its and investors' evaluation of our business performance and are useful for period-over-period comparisons of the performance of our business. While management believes that these financial measures are useful in evaluating our business, this information should be considered as supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similarly entitled measures reported by other companies. See "Reconciliation from GAAP to Non-GAAP" included within this release for a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures.
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) 515-7757 |
cheston.turbyfill@acelity.com |
ACELITY L.P. INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(dollars in thousands)
(unaudited)
Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||
2015 | 2014 | % Change | 2015 | 2014 | % Change | ||||||||||||||||
Revenue: | |||||||||||||||||||||
Rental | $ | 180,397 | $ | 173,629 | 3.9 | % | $ | 353,236 | $ | 338,606 | 4.3 | % | |||||||||
Sales | 281,248 | 285,549 | (1.5 | ) | 552,459 | 563,207 | (1.9 | ) | |||||||||||||
Total revenue | 461,645 | 459,178 | 0.5 | 905,695 | 901,813 | 0.4 | |||||||||||||||
Rental expenses | 77,869 | 85,889 | (9.3 | ) | 156,047 | 170,538 | (8.5 | ) | |||||||||||||
Cost of sales | 75,509 | 80,082 | (5.7 | ) | 148,923 | 161,472 | (7.8 | ) | |||||||||||||
Gross profit | 308,267 | 293,207 | 5.1 | 600,725 | 569,803 | 5.4 | |||||||||||||||
Selling, general and administrative expenses | 158,994 | 169,765 | (6.3 | ) | 306,757 | 345,377 | (11.2 | ) | |||||||||||||
Research and development expenses | 14,391 | 18,233 | (21.1 | ) | 29,069 | 35,723 | (18.6 | ) | |||||||||||||
Acquired intangible asset amortization | 44,712 | 48,754 | (8.3 | ) | 90,589 | 99,443 | (8.9 | ) | |||||||||||||
Wake Forest settlement | — | 198,578 | — | — | 198,578 | — | |||||||||||||||
Operating earnings (loss) | 90,170 | (142,123 | ) | — | 174,310 | (109,318 | ) | — | |||||||||||||
Interest income and other | 67 | 127 | (47.2 | ) | 214 | 222 | (3.6 | ) | |||||||||||||
Interest expense | (107,374 | ) | (101,805 | ) | 5.5 | (212,100 | ) | (204,000 | ) | 4.0 | |||||||||||
Foreign currency gain (loss) | (6,799 | ) | 3,852 | — | 12,601 | 4,088 | — | ||||||||||||||
Derivative instruments loss | (919 | ) | (4,297 | ) | (78.6 | ) | (4,267 | ) | (4,300 | ) | (0.8 | ) | |||||||||
Loss from continuing operations before income tax expense (benefit) | (24,855 | ) | (244,246 | ) | (89.8 | ) | (29,242 | ) | (313,308 | ) | (90.7 | ) | |||||||||
Income tax benefit | (7,224 | ) | (90,423 | ) | (92.0 | ) | (7,080 | ) | (112,425 | ) | (93.7 | ) | |||||||||
Loss from continuing operations | (17,631 | ) | (153,823 | ) | (88.5 | ) | (22,162 | ) | (200,883 | ) | (89.0 | ) | |||||||||
Earnings from discontinued operations, net of tax | — | 1,106 | — | — | 1,783 | — | |||||||||||||||
Net loss | $ | (17,631 | ) | $ | (152,717 | ) | (88.5 | )% | $ | (22,162 | ) | $ | (199,100 | ) | (88.9 | )% | |||||
ACELITY L.P. INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
June 30, 2015 | December 31, 2014 | ||||||
Assets: | (unaudited) | ||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 141,152 | $ | 183,541 | |||
Accounts receivable, net | 371,295 | 370,483 | |||||
Inventories, net | 184,118 | 178,222 | |||||
Deferred income taxes | 51,166 | 63,025 | |||||
Prepaid expenses and other | 32,145 | 27,563 | |||||
Total current assets | 779,876 | 822,834 | |||||
Net property, plant and equipment | 278,126 | 288,048 | |||||
Debt issuance costs, net | 66,044 | 77,896 | |||||
Deferred income taxes | 30,584 | 31,692 | |||||
Goodwill | 3,378,298 | 3,378,298 | |||||
Identifiable intangible assets, net | 2,312,809 | 2,397,251 | |||||
Other non-current assets | 4,686 | 4,694 | |||||
$ | 6,850,423 | $ | 7,000,713 | ||||
Liabilities and Equity: | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 48,073 | $ | 51,827 | |||
Accrued expenses and other | 340,314 | 343,484 | |||||
Current installments of long-term debt | 25,382 | 25,721 | |||||
Income taxes payable | 4,661 | 1,305 | |||||
Deferred income taxes | 45,013 | 113,658 | |||||
Total current liabilities | 463,443 | 535,995 | |||||
Long-term debt, net of current installments and discount | 4,812,089 | 4,815,290 | |||||
Non-current tax liabilities | 34,336 | 33,300 | |||||
Deferred income taxes | 819,537 | 792,157 | |||||
Other non-current liabilities | 84,697 | 163,258 | |||||
Total liabilities | 6,214,102 | 6,340,000 | |||||
Equity: | |||||||
General partner’s capital | — | — | |||||
Limited partners’ capital | 648,531 | 670,787 | |||||
Accumulated other comprehensive loss, net | (12,210 | ) | (10,074 | ) | |||
Total equity | 636,321 | 660,713 | |||||
$ | 6,850,423 | $ | 7,000,713 | ||||
ACELITY L.P. INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited) | |||||||
Six months ended June 30, | |||||||
2015 | 2014 | ||||||
Cash flows from operating activities: | |||||||
Net loss | $ | (22,162 | ) | $ | (199,100 | ) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||
Amortization of debt issuance costs and discount | 20,311 | 19,409 | |||||
Depreciation and other amortization | 132,334 | 160,528 | |||||
Amortization of fair value step-up in inventory | — | 6,680 | |||||
Provision for bad debt | 3,266 | 8,239 | |||||
Equity-based compensation expense | 1,305 | 2,103 | |||||
Deferred income tax benefit | (30,224 | ) | (141,532 | ) | |||
Unrealized gain on derivative instruments | (3,078 | ) | (3,785 | ) | |||
Unrealized gain on foreign currency | (16,683 | ) | (3,104 | ) | |||
Change in assets and liabilities: | |||||||
Decrease (increase) in accounts receivable, net | (968 | ) | 27,186 | ||||
Increase in inventories, net | (10,856 | ) | (10,881 | ) | |||
Decrease (increase) in prepaid expenses and other | (4,685 | ) | 9,765 | ||||
Increase (decrease) in accounts payable | (3,533 | ) | 4,412 | ||||
Increase (decrease) in accrued expenses and other | (76,509 | ) | 180,751 | ||||
Increase in tax liabilities, net | 6,213 | 707 | |||||
Net cash provided (used) by operating activities | (5,269 | ) | 61,378 | ||||
Cash flows from investing activities: | |||||||
Additions to property, plant and equipment | (29,574 | ) | (28,382 | ) | |||
Increase in inventory to be converted into equipment for short-term rental | (4,144 | ) | (4,121 | ) | |||
Dispositions of property, plant and equipment | 1,265 | 532 | |||||
Businesses acquired in purchase transactions, net of cash acquired | (2,948 | ) | (4,613 | ) | |||
Increase in identifiable intangible assets and other non-current assets | (3,646 | ) | (4,230 | ) | |||
Net cash used by investing activities | (39,047 | ) | (40,814 | ) | |||
Cash flows from financing activities: | |||||||
Distribution to limited partners | (55 | ) | — | ||||
Settlement of profits interest units | (1,348 | ) | (1,416 | ) | |||
Proceeds from revolving credit facility | 30,000 | — | |||||
Repayments of long-term debt and capital lease obligations | (15,389 | ) | (13,271 | ) | |||
Debt issuance costs | (6,256 | ) | — | ||||
Net cash provided (used) by financing activities | 6,952 | (14,687 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | (5,025 | ) | 841 | ||||
Net increase (decrease) in cash and cash equivalents | (42,389 | ) | 6,718 | ||||
Cash and cash equivalents, beginning of period | 183,541 | 206,949 | |||||
Cash and cash equivalents, end of period | $ | 141,152 | $ | 213,667 | |||
ACELITY 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) | |||||||||||||||||||
2015 | 2014 GAAP | ||||||||||||||||||||
GAAP | FX Impact | Constant Currency | |||||||||||||||||||
Advanced Wound Therapeutics revenue: | |||||||||||||||||||||
Rental | $ | 180,397 | $ | 4,030 | $ | 184,427 | $ | 173,629 | 3.9 | % | 6.2 | % | |||||||||
Sales | 173,817 | 14,904 | 188,721 | 173,844 | — | 8.6 | |||||||||||||||
Total | 354,214 | 18,934 | 373,148 | 347,473 | 1.9 | 7.4 | |||||||||||||||
Regenerative Medicine revenue: | |||||||||||||||||||||
Sales | 103,529 | 1,496 | 105,025 | 107,524 | (3.7 | ) | (2.3 | ) | |||||||||||||
Other revenue: | |||||||||||||||||||||
Sales | 3,902 | 383 | 4,285 | 4,181 | (6.7 | ) | 2.5 | ||||||||||||||
Total revenue: | |||||||||||||||||||||
Rental | 180,397 | 4,030 | 184,427 | 173,629 | 3.9 | 6.2 | |||||||||||||||
Sales | 281,248 | 16,783 | 298,031 | 285,549 | (1.5 | ) | 4.4 | ||||||||||||||
Total | $ | 461,645 | $ | 20,813 | $ | 482,458 | $ | 459,178 | 0.5 | % | 5.1 | % | |||||||||
Six months ended June 30, | GAAP % Change | Constant Currency % Change (1) | |||||||||||||||||||
2015 | 2014 GAAP | ||||||||||||||||||||
GAAP | FX Impact | Constant Currency | |||||||||||||||||||
Advanced Wound Therapeutics revenue: | |||||||||||||||||||||
Rental | $ | 353,236 | $ | 7,638 | $ | 360,874 | $ | 338,606 | 4.3 | % | 6.6 | % | |||||||||
Sales | 338,237 | 26,987 | 365,224 | 339,662 | (0.4 | ) | 7.5 | ||||||||||||||
Total | 691,473 | 34,625 | 726,098 | 678,268 | 1.9 | 7.1 | |||||||||||||||
Regenerative Medicine revenue: | |||||||||||||||||||||
Sales | 207,698 | 2,910 | 210,608 | 214,180 | (3.0 | ) | (1.7 | ) | |||||||||||||
Other revenue: | |||||||||||||||||||||
Sales | 6,524 | 633 | 7,157 | 9,365 | (30.3 | ) | (23.6 | ) | |||||||||||||
Total revenue: | |||||||||||||||||||||
Rental | 353,236 | 7,638 | 360,874 | 338,606 | 4.3 | 6.6 | |||||||||||||||
Sales | 552,459 | 30,530 | 582,989 | 563,207 | (1.9 | ) | 3.5 | ||||||||||||||
Total | $ | 905,695 | $ | 38,168 | $ | 943,863 | $ | 901,813 | 0.4 | % | 4.7 | % | |||||||||
(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 June 30, | Six months ended June 30, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Net loss | $ | (17,631 | ) | $ | (152,717 | ) | $ | (22,162 | ) | $ | (199,100 | ) | |||
Earnings from discontinued operations, net of tax | — | (1,106 | ) | — | (1,783 | ) | |||||||||
Interest expense, net of interest income | 107,288 | 101,706 | 211,939 | 203,811 | |||||||||||
Income tax benefit | (7,224 | ) | (90,423 | ) | (7,080 | ) | (112,425 | ) | |||||||
Foreign currency (gain) loss | 6,799 | (3,852 | ) | (12,601 | ) | (4,088 | ) | ||||||||
Depreciation and other amortization | 66,003 | 78,499 | 132,334 | 160,528 | |||||||||||
Derivative instruments loss | 919 | 4,297 | 4,267 | 4,300 | |||||||||||
Management fees and expenses | 1,365 | 1,199 | 2,677 | 2,189 | |||||||||||
Equity-based compensation expense | 770 | 1,162 | 1,305 | 2,103 | |||||||||||
Acquisition, disposition and financing expenses (1) | 1,351 | 1,728 | 3,931 | 4,538 | |||||||||||
Business optimization expenses (2) | 7,222 | 20,073 | 13,350 | 38,382 | |||||||||||
Wake Forest settlement | — | 198,578 | — | 198,578 | |||||||||||
Other permitted expenses (3) | 6,028 | 8,805 | 10,766 | 24,950 | |||||||||||
Adjusted EBITDA from continuing operations | 172,890 | 167,949 | 338,726 | 321,983 | |||||||||||
Adjusted EBITDA from discontinued operations (4) | — | 1,799 | — | 2,899 | |||||||||||
Total Adjusted EBITDA | $ | 172,890 | $ | 169,748 | $ | 338,726 | $ | 324,882 | |||||||
Adjusted EBITDA from continuing operations as a percentage of revenue | 37.5 | % | 36.6 | % | 37.4 | % | 35.7 | % | |||||||
(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 June 30, | ||||||||||||||||||||
Adjusted EBITDA from continuing operations | $ | 172,890 | $ | 4,491 | $ | 177,381 | 167,949 | 2.9 | % | 5.6 | % | |||||||||
Six months ended June 30, | ||||||||||||||||||||
Adjusted EBITDA from continuing operations | 338,726 | 8,884 | $ | 347,610 | 321,983 | 5.2 | % | 8.0 | % | |||||||||||
(1) Represents percentage change between 2015 Constant Currency EBITDA and 2014 As Reported EBITDA.