Kinetic Concepts Inc. (NYSE:KCI) posted fourth-quarter sales of $526.8 million for the three months ended Dec. 31, 2009, up 7 percent compared with $492.5 million during the same period in the prior year. Net earnings rose 34.3 percent to $66.3 million, compared with $49.4 million during Q4 2008:
Press Release
Kinetic Concepts Reports Fourth Quarter and Full Year Financial Results for 2009
SAN ANTONIO–(BUSINESS WIRE)–Kinetic Concepts, Inc. (NYSE:KCI) today reported fourth quarter
and full year 2009 total revenue of $526.8 million and $1.993 billion,
respectively, an increase of 7% and 6% from the same respective periods
of 2008. Foreign currency exchange movements favorably impacted total
revenue for the fourth quarter of 2009 by 3%, but unfavorably impacted
revenue for the full year of 2009 by 2%, compared to the corresponding
periods of the prior year.
Net earnings for the fourth quarter of 2009 were $66.3 million, or $0.93
per diluted share, compared to $49.4 million, or $0.70 per diluted
share, for the fourth quarter of 2008, representing increases of 34% and
33%, respectively, from the prior-year period. Net earnings per diluted
share on a comparable, non-GAAP basis, which excludes non-cash
acquisition-related items, were $1.10 for the fourth quarter of 2009, up
$0.12, or 12%, from the prior-year period.
For the full year of 2009, net earnings were $228.7 million, or $3.24
per diluted share, compared to $166.4 million, or $2.32 per diluted
share for 2008, representing increases of 37% and 40%, respectively,
from the prior year. Net earnings per diluted share on a comparable,
non-GAAP basis were $3.99 for the full year of 2009, up $0.21, or 6%
from the prior year.
“I am pleased with the resilience we demonstrated this quarter and year,
particularly in the face of such a challenging 2009,” said Catherine M.
Burzik, President and Chief Executive Officer of KCI. “For 2010, we look
forward to several new product launches, the launch of V.A.C. Therapy in
Japan, continued expansion of our LifeCell business domestically and in
Europe, and stabilization of our TSS business.”
Revenue Recap – Fourth Quarter and
Full Year of 2009
Worldwide revenue from AHS products was $367.2 million for the fourth
quarter of 2009 and $1.407 billion for the full year of 2009, compared
to $347.5 million and $1.394 billion, respectively, for the
corresponding periods of 2008, representing increases of 6% and 1%,
respectively, from the prior-year periods. Foreign currency exchange
movements favorably impacted worldwide AHS revenue by 3% in the fourth
quarter of 2009, but unfavorably impacted worldwide AHS revenue by 2%
for the full year of 2009, compared to the prior-year periods. On a
constant currency basis, the growth in AHS revenue stemmed from
increased market penetration of V.A.C. Therapy, resulting in higher
rental and sales unit volumes. North American AHS revenue of $274.3
million for the fourth quarter and $1.066 billion for the full year of
2009 represented increases of approximately 3% and 2%, respectively,
compared to the same periods of the prior year due to continued market
penetration and increased therapy unit sales activity. Average U.S.
rental unit volume during the fourth quarter and full year of 2009
increased approximately 1% and 4%, respectively, over the corresponding
periods of 2008, due to continued market penetration, partly offset by
reduced treatment periods and a lower average realized price due to
payer mix and lower Medicare pricing. U.S. V.A.C. sales revenue
increased 11% in the fourth quarter of 2009, due to higher disposable
sales associated with increased rental units combined with an increase
in sales of therapy units, primarily to large facilities and other
customers. EMEA/APAC AHS revenue increased 16% to $93.0 million for the
fourth quarter yet decreased 1% to $340.5 million for the full year of
2009 from $80.1 million and $344.7 million, respectively, for the fourth
quarter and full year of 2008. On a non-GAAP, constant currency basis,
EMEA/APAC AHS revenue increased by 3% and 5%, respectively, for the
fourth quarter and full year of 2009 compared to the same periods one
year ago.
Total revenue from our Regenerative Medicine division was $76.9 million
and $285.9 million for the fourth quarter and full year of 2009,
respectively. Fourth quarter Regenerative Medicine revenue increased 13%
as compared to the same period one year ago. For the full year of 2009,
Regenerative Medicine revenue increased 18%, compared to the prior year
on a pro forma basis. Sales of Strattice™, our porcine-based
reconstructive tissue matrix, generated $27.1 million of total sales in
the quarter, or 35% of total Regenerative Medicine revenue for the
period. Total Strattice sales in the fourth quarter of 2009 increased
$12.1 million, or 80%, from the same period one year ago.
Worldwide TSS revenue was $82.7 million for the fourth quarter and
$300.2 million for the full year of 2009 compared to $77.0 million and
$327.1 million, respectively, for the same periods in the prior year.
North American revenue from TSS was $54.5 million for the fourth quarter
of 2009, a 1% increase from the prior-year period, due primarily to
increased demand in our rental business partially offset by lower sales
resulting from prolonged customer capital constraints. North American
TSS revenue for the full year of 2009 was $196.4 million, down 11% from
the prior year revenue of $221.7 million. EMEA/APAC TSS revenue of $28.2
million and $103.8 million for the fourth quarter and full year of 2009,
increased 22% yet decreased 2%, respectively, compared to the
corresponding periods of 2008. Excluding foreign currency exchange rate
movements, EMEA/APAC TSS revenue increased 9% and 4%, respectively, for
the fourth quarter and the full year of 2009 compared to the same
periods in the prior year due primarily to increased rental volume of
our bariatric and wound care products and higher wound care sales
volumes.
Profit Margins Improve on Mix and
Productivity Initiatives
Gross profit for the fourth quarter and the full year of 2009 was $297.6
million and $1.080 billion, respectively, representing increases of 19%
and 14% from the corresponding periods of the prior year. Gross profit
margin was approximately 56.5% for the fourth quarter of 2009, an
increase of approximately 580 basis points from the same period one year
ago. The gross profit margin increase was due primarily to higher V.A.C.
Therapy unit sales, increased field service operations productivity,
higher gross margins associated with the Regenerative Medicine business
unit and lower product royalty rates.
Fourth quarter selling, general and administrative (“SG&A”) expenses
increased approximately $16.7 million, or 13%, over the fourth quarter
of 2008. SG&A increases included higher legal expenses associated with
pending litigation matters, higher share-based compensation expense,
increased costs associated with the Company’s upcoming market entry in
Japan, higher marketing expenses related to new product launches and
global business transformation initiatives.
Research and development expenses for the fourth quarter of 2009
increased 6% from the prior-year period to $24.0 million, due in part to
increased activity related to the development of our next generation of
AHS products. Total research and development expenses represented
approximately 5% of revenue for the fourth quarter of 2009.
Other Income/Expense Reflects
Continued Deleveraging Progress
Fourth quarter 2009 interest expense decreased to $24.5 million, from
$31.7 million in the same period of the prior year, due to scheduled and
voluntary debt payments made over the last twelve months. Long-term debt
outstanding as of December 31, 2009 consisted of a senior secured term
loan of $750.0 million due 2013 and $690.0 million of 3.25% senior
convertible notes due 2015.
During the first quarter of 2009, the Company adopted required
accounting standards related to the accounting for certain convertible
debt instruments. The standards specify that issuers of such instruments
should account separately for the liability and equity components in a
manner that reflects the entity’s estimated non-convertible borrowing
rate at the date of issuance. As a result of the Company’s adoption of
these standards, we recorded $3.1 million, or $0.05 per diluted share,
of additional after-tax non-cash interest expense during the fourth
quarter of 2009. The required retroactive application of these standards
also resulted in additional after-tax, non-cash interest expense for the
fourth quarter of 2008 of $2.9 million, or $0.04 per diluted share.
Income Tax Rate
The effective income tax rate for the fourth quarter and full year of
2009 was 32.9% and 31.6%, respectively, compared to 26.2% and 39.5% for
the prior-year periods. The effective income tax rate for the fourth
quarter of 2008 was impacted by the favorable resolution of certain tax
contingencies while the higher full year 2008 tax rate resulted from
$61.6 million of non-deductible costs associated with our LifeCell
acquisition.
Reconciliation to Adjusted Diluted
Earnings per Share
Diluted earnings per share, on a non-GAAP basis, adjusted for certain
non-cash acquisition-related expenses and restructuring charges, were as
follows:
Three months ended |
Year ended | ||||||
December 31, | December 31, | ||||||
2009 | 2008 | 2009 | 2008 | ||||
Diluted EPS – GAAP basis | $0.93 | $0.70 | $3.24 | $2.32 | |||
Acquisition-related adjustments: | |||||||
Amortization of acquired intangibles |
0.09 | 0.09 | 0.36 | 0.21 | |||
Debt issuance cost amortization |
0.03 |
0.03 |
0.13 |
0.08 | |||
Expense from LifeCell inventory write-up |
– | 0.04 | – | 0.13 | |||
In-process research and development | – | – | – | 0.86 | |||
Interest expense – adoption of required accounting standards for |
0.05 | 0.04 | 0.17 | 0.10 | |||
Restructuring and other charges | – |
0.08 |
0.09 |
0.08 |
|||
Adjusted diluted EPS – non-GAAP basis | $1.10 | $0.98 | $3.99 | $3.78 |
Financial Position Again Demonstrates
Liquidity and Strength
Total cash at year-end was $263.2 million, an increase of $15.4 million
from year-end 2008. During the fourth quarter and year ended December
31, 2009, the Company made scheduled and voluntary senior credit
facility repayments totaling $50.0 million and $200.0 million,
respectively, from cash-on-hand. Operating cash flow less net capital
expenditures for the full year of 2009 was $292.7 million. Total
long-term debt outstanding at December 31, 2009 was $1.306 billion on a
GAAP-basis, including the discount associated with our adoption of
required accounting standards, and $1.440 billion on an economic, or
debt-instrument, basis. The long-term debt balances in our condensed
consolidated balance sheets reflect the discount associated with
applying the estimated non-convertible borrowing rate upon the issuance
of the convertible notes. The total discount will accrete over the term
of the notes. As of December 31, 2009 and 2008, these convertible notes
had balances of $556.2 million and $536.4 million, respectively, within
our condensed consolidated balance sheets.
Outlook
The following guidance is based on current information and expectations
as of January 26, 2010 (in millions, except per share data):
% Change | |||||
FY 2009 |
FY 2010 | from 2009 | |||
Total revenue | $1,993 | $2,050 – $2,090 | 3% – 5% | ||
|
|||||
Diluted EPS – GAAP basis |
$3.24 |
$3.56 – $3.66 | 10% – 13% | ||
Acquisition-related adjustments: | |||||
Amortization-related adjustments | 0.49 | 0.49 | |||
Non-cash interest – accounting for convertible debt |
0.17 | 0.19 | |||
Restructuring and other charges | 0.09 |
0.08 – 0.12 |
|||
Adjusted Diluted EPS – non-GAAP basis | $3.99 | $4.32 – $4.46 | 8% – 12% | ||
|
|||||
Diluted weighted average shares outstanding | 70.5 | 71.0 – 72.0 |
1% – 2% |
The revenue guidance reflects our expectation of (i) low-single digit
growth in AHS resulting from increased market penetration, partially
offset by lower realized pricing, (ii) mid-teens growth in Regenerative
Medicine revenue and (iii) stable revenue in the TSS business. Our 2010
outlook also assumes foreign currency exchange rates are comparable to
2009 and assumes the seasonal slowing of AHS revenue growth which we
have historically seen beginning late in the fourth quarter and
continuing into the first quarter. We believe this seasonal pattern is
generally caused by year-end clinical treatment patterns, such as the
postponement of elective surgeries and increased discharges of
individuals from the acute care setting around the winter holidays.
While we expect 2010 to be an investment year in terms of entering the
Japanese market and continuing with our global business transformation
efforts, earnings leverage is expected to be realized through favorable
product mix, operating efficiencies and continued debt reduction
activities. In addition, during the first half of 2010, the Company
expects to incur certain charges associated with its global business
transformation and other business unit initiatives.
About KCI
Kinetic Concepts, Inc. (NYSE:KCI), is a leading global medical
technology company devoted to the discovery, development, manufacture
and marketing of innovative, high-technology therapies and products for
the wound care, tissue regeneration and therapeutic support system
markets. Headquartered in San Antonio, Texas, KCI’s success spans more
than three decades and can be traced to a history deeply rooted in
innovation and a passion for significantly improving the healing and the
lives of patients around the world.
The Company employs approximately 6,700 people and markets its products
in more than 20 countries. For more information about KCI and how its
products are changing the practice of medicine, visit www.KCI1.com.