Third Quarter Financial Highlights
Revenue of $477.7 million, down 0.9% as reported on a GAAP basis from the prior-year period and grew 3.3% on a constant currency basis
Revenue from Advanced Wound Therapeutics (“AWT”), down 1.9% as reported on a GAAP basis, grew 3.1% on a constant currency basis, led by mid-single digit volume increases compared to the prior-year period
Revenue from Regenerative Medicine (“RM”) grew 4.5% as reported on a GAAP basis, and 5.9% on a constant currency basis, led by high-single digit increases in revenue related to breast reconstruction procedures
Operating earnings of $106.1 million, up 20.0% as reported on a GAAP basis from $88.3 million in the prior-year period
Adjusted EBITDA from continuing operations1 of $187.5 million, down 2.3% as reported from the prior-year period and grew 0.9% on a constant currency basis, achieving an Adjusted EBITDA margin of 39.2%
Reinforced the strategy of geographic expansion with double-digit growth in advanced wound dressings, driven by strong performance in markets outside the U.S. In addition, Acelity entered into a strategic commercial partnership with GHD GesundHeits GmbH Deutschland (“GHD”) to distribute Acelity’s advanced wound dressings portfolio in Germany. The partnership with GHD, the largest provider of homecare services in Germany, offers Acelity access to serve GHD’s breadth of customers in both acute and post-acute care settings.
Expanded our product offerings in Brazil by obtaining approval to sell StratticeTM, an acellular reconstructive tissue matrix designed to assist in soft-tissue procedures to reinforce tissue where weakness exists and promote tissue regeneration.
Expanded Acelity’s industry-leading product portfolio with additions to three renowned brands in order to provide clinicians more options when treating patients— Strattice™ Reconstructive Tissue Matrix Perforated (U.S.), a shorter Prevena™ dressing for smaller, anatomically-challenging incisions (U.S. and Europe) and TIELLE® Silicone Border (Europe), a hydropolymer foam dressing for increased patient comfort with exudate absorption.
Joe Woody, President and Chief Executive Officer, commented, “The execution of our strategy continues to drive momentum for our business and is reflected in our strong performance in the third quarter.
“Our core business continues to deliver solid results led by good volume progression in advanced devices, as well as strength in both Regenerative Medicine and advanced wound dressings. Sales of our expansion products, led by PREVENA™ and REVOLVE™, are at record levels and provide nice diversification to our traditional product offerings. We are investing in our franchise structure to drive more focus towards both organic and inorganic near adjacencies. Outside of the United States, we advanced the development of our global platform with double-digit revenue growth in our emerging markets. These results are a testament to the fact that our portfolio of products continues to meet the needs of a growing, global population. Our presence in markets around the world, coupled with our proven ability to innovate and commercialize new products, positions us for long-term sustainable growth.”
Results of the third quarter and nine months ended September 30, 2015
Revenue for the third quarter of 2015 was $477.7 million, down from the prior-year period by 0.9% as reported and grew by 3.3% on a constant currency basis.
AWT revenue was $365.8 million, down 1.9% as reported on a GAAP basis and grew 3.1% on a constant currency basis, compared to the prior-year period. Excluding the impact of foreign exchange rate movements, growth in AWT revenue was driven by mid-single digit volume growth in advanced devices, including strong PREVENA™ sales, as well as double-digit growth in advanced wound dressings.
RM revenue of $109.3 million, grew 4.5% as reported on a GAAP basis and 5.9% on a constant currency basis, compared to the prior-year period. The revenue growth was driven by a high-single digit increase in revenue related to breast reconstruction procedures, partially offset by a decline in revenue from abdominal wall reconstruction procedures.
Operating earnings for the third quarter of 2015 were $106.1 million, compared to $88.3 million in the prior-year period, the increase primarily attributable to improved production yields primarily in our RM business as well as expense savings associated with integration and business optimization efforts, partially offset by increased incentive compensation expense as a result of improved financial performance. Adjusted EBITDA from continuing operations for the third quarter of 2015 decreased 2.3% to $187.5 million from $191.8 million in the prior-year period and grew 0.9% on a constant currency basis.
Acelity revenue for the nine months ended September 30, 2015 was $1.383 billion, slightly down from the prior-year period as reported on a GAAP basis and up 4.2% on a constant currency basis.
AWT revenue was $1.057 billion, grew 0.6% as reported on a GAAP basis and 5.6% on a constant currency basis, compared to the prior-year period. Growth in AWT was driven by mid-single digit volume growth globally in advanced devices, strong PREVENA™ sales, as well as solid performance in advanced wound dressings.
RM revenue of $317.0 million, down 0.6% as reported on a GAAP basis and grew 0.8% on a constant currency basis, compared to the prior-year period. Excluding the impact of foreign exchange rate movements, the results of our RM segment were driven by a high-single digit increase in revenue related to breast reconstruction procedures as well as by continued high international demand for our products, partially offset by a decline in the number of abdominal wall reconstruction procedures that used our RM products.
Operating earnings for the nine months ended September 30, 2015 were $280.4 million, compared to an operating loss of $21.0 million in the prior-year period. The operating loss for the nine months ended September 30, 2014, was primarily attributable to the Wake Forest settlement. Excluding the impact of the Wake Forest settlement, growth in operating earnings were primarily attributable to improved production yields primarily in our RM business as well as expense savings associated with integration and business optimization efforts, partially offset by increased incentive compensation expense as a result of improved financial performance compared to the prior year period. Adjusted EBITDA from continuing operations for the nine months ended September 30, 2015 increased 2.4% to $526.2 million from $513.8 million in the prior-year period and increased 5.3% on a constant currency basis.
Total cash at September 30, 2015 was $197.0 million. During the first nine months of 2015, Acelity generated cash of $110.0 million from operations, used cash of $54.8 million in investing activities and used cash of $33.5 million in financing activities.
As of September 30, 2015, total long-term debt outstanding, net of discounts, was $4.806 billion and our Net Leverage Ratio2 was 6.2x
Acelity is a leading global medical technology company committed to the development and commercialization of advanced wound care and regenerative medicine solutions. Acelity was formed by uniting the strengths of three organizations, KCI, Systagenix and LifeCell, into our two business segments: Advanced Wound Therapeutics and Regenerative Medicine. Our mission is to change the clinical practice of medicine with solutions that speed healing, reduce complications, create economic value and improve patients’ lives. Acelity is controlled by investment funds advised by Apax Partners LLP and Apax Partners L.P. 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.
2The 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.