INTEGRA LIFESCIENCES HOLDINGS CORPORATION ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On
The information contained in Item 2.02 of this Current Report on Form 8-K (including the Press Release and selected historical financial information) is being furnished and shall not be deemed "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of that Section. The information contained in Item 2.02 of this Current Report on Form 8-K (including the Press Release and selected historical financial information) shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in any such filing.
Discussion of Adjusted Financial Measures
In addition to our GAAP results, we provide certain non-GAAP measures, including organic revenues, adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA"), adjusted net income, adjusted earnings per diluted share, free cash flow and adjusted free cash flow conversion. Organic revenues consist of total revenues excluding the effects of currency exchange rates, revenues from current-period acquisitions and product divestitures and discontinuances. Adjusted EBITDA consists of GAAP net income excluding: (i) depreciation and amortization; (ii) other income (expense); (iii) interest income and expense; (iv) income tax expense (benefit); and (v) those operating expenses also excluded from adjusted net income. The measure of adjusted net income consists of GAAP net income, excluding: (i) structural optimization charges; (ii) acquisition and integration-related charges; (iii) COVID-19 related charges; (iv) EU Medical Device Regulation-related charges; (v) litigation charges; (vi) discontinued product lines charges; (vii) intangible asset amortization expense; (viii) convertible debt non-cash interest; (ix) expenses related to debt refinancing; and (x) income tax impact from adjustments. The adjusted earnings per diluted share measure is calculated by dividing adjusted net income attributable to diluted shares by diluted weighted average shares outstanding. The measure of free cash flow consists of GAAP net cash provided by operating activities less purchases of property and equipment.
The Company believes that the presentation of organic revenues and the various adjusted EBITDA, adjusted net income, adjusted earnings per diluted share, free cash flow and adjusted free cash flow conversion measures provides important supplemental information to management and investors regarding financial and business trends relating to the Company's financial condition and results of operations. Management uses non-GAAP financial measures in the form of organic revenues, adjusted EBITDA, adjusted net income, adjusted earnings per diluted share, free cash flow and adjusted free cash flow conversion when evaluating operating performance because we believe that the inclusion or exclusion of the items described below, for which the amounts and/or timing may vary significantly depending upon the Company's acquisition, integration, and restructuring activities, for which the amounts are non-cash in nature, or for which the amounts are not expected to recur at the same magnitude, provides a supplemental measure of our operating results that facilitates comparability of our financial condition and operating performance from period to period, against our business model objectives, and against other companies in our industry. We have chosen to provide this information to investors so they can analyze our operating results in the same way that management does and use this information in their assessment of our core business and the valuation of our Company.
Organic revenues, adjusted EBITDA, adjusted net income, adjusted earnings per diluted share, free cash flow and adjusted free cash flow conversion are significant measures used by management for purposes of:
• supplementing the financial results and forecasts reported to the Company's board of directors; • evaluating, managing and benchmarking the operating performance of the Company;
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• establishing internal operating budgets; • determining compensation under bonus or other incentive programs; • enhancing comparability from period to period; • comparing performance with internal forecasts and targeted business models; and • evaluating and valuing potential acquisition candidates.
The measure of organic revenues that we report reflects the increase in total
revenues for the quarter ended
The measure of adjusted net income reflects GAAP net income adjusted for one or more of the following items, as applicable:
• Structural optimization charges. These charges, which include employee
severance and other costs associated with exit or disposal of facilities,
costs related to transferring manufacturing and/or distribution activities
to different locations, and rationalization or enhancement of our
organization, existing manufacturing, distribution, administrative,
functional and commercial infrastructure. Some of these cost-saving and
efficiency-driven activities are identified as opportunities in connection
with acquisitions that provide the Company with additional capacity or
economies of scale. Although recurring in nature, given management's
ongoing review of the efficiency of our organization and structure,
including manufacturing, distribution and administrative facilities and
operations, management excludes these items when evaluating the operating
performance of the Company because the frequency and amount of such
charges vary significantly based on the timing and magnitude of the
Company's rationalization activities and are, in some cases, dependent
upon opportunities identified in acquisitions, which also vary in
frequency and magnitude.
• Acquisition- and integration-related charges. Acquisition- and
integration-related charges include (i) up-front fees and milestone
payments that are expensed as incurred in connection with acquiring
licenses or rights to technology for which no product has been approved
for sale by regulatory authorities and such approval is not reasonably
assured at the time such up-front fees or milestone payments are made,
(ii) inventory fair value purchase accounting adjustments, (iii) changes
in the fair value of contingent consideration after the acquisition date,
(iv) costs related to acquisition integration, including systems,
operations, retention and severance and (v) legal, accounting and other
outside consultants expenses directly related to acquisitions or
divestitures. Inventory fair value purchase accounting adjustments consist
of the increase to cost of goods sold that occur as a result of expensing
the "step up" in the fair value of inventory that we purchased in
connection with acquisitions as that inventory is sold during the
financial period. Although recurring, given the ongoing character of our
development and acquisition programs, these acquisition, divestiture and
in-licensing related charges are not factored into the evaluation of our
performance by management after completion of development programs or
acquisitions because they are of a temporary nature, they are not related
to our core operating performance and the frequency and amount of such
charges vary significantly based on the timing and magnitude of our
development, acquisition and divestiture transactions as well as the level
of inventory on hand at the time of acquisition.
• COVID-19 related charges. These charges relate to business interruptions
and cost associated with the COVID-19 pandemic which impacted the
Company's operations globally, partially offset by Coronavirus government
relief programs. Due to the extraordinary one-time nature of the pandemic,
management concluded that certain charges should be classified as special
charges.
• EU Medical Device Regulation charges. These charges represent costs
specific to complying with the medical device reporting regulations and
other requirements of the European Union's regulation for medical devices.
Management excludes this item when evaluating the Company's operating
performance because these costs incurred are not reflective of its ongoing
operations.
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• Litigation charges. Management excludes this item when evaluating the
Company's operating performance because costs incurred related to
non-recurring litigation are not reflective of its ongoing operations.
• Discontinued product lines charges. These charges represent charges taken
in connection with product lines that the Company discontinues. Management
excludes this item when evaluating the Company's operating performance
because discontinued products do not provide useful information regarding
the Company's prospects for future performance.
• Intangible asset amortization expense. Management excludes this item when
evaluating the Company's operating performance because it is a non-cash
expense.
• Convertible debt non-cash interest. The convertible debt accounting
requires separate accounting for the liability and equity components of
the Company's convertible debt instruments, which may be settled in cash
upon conversion, in a manner that reflects an applicable non-convertible
debt borrowing rate at the time that we issued such convertible debt
instruments. Management excludes this item when evaluating the Company's
operating performance because of the non-cash nature of the expense.
• Expenses related to the debt refinancing. This item represents either a
write-off of previously deferred financing costs or the expensing of
current financing costs related to a modification of the credit agreement.
Management excludes these items when evaluating Integra's performance
because of the infrequent nature of these financing activities and related
costs incurred.
• Income tax impact from adjustments. Estimated impact on income tax expense
related to the following:
(i) Adjustments to income tax expense for the amount of additional tax
expense that the Company estimates that it would record if it used
non-GAAP results instead of GAAP results in the calculation of its tax
provision, based on the statutory rate applicable to jurisdictions in
which the above non-GAAP adjustments relate.
(ii) When we calculate the adjusted tax rate, we include a full year
estimate for all discrete items. We then apply that full year rate to
the year-to-date results and calculate the current quarter's rate to
arrive at the year-to-date adjusted tax rate. We believe this removes
significant variability in our results and creates a more operationally
consistent result for our investors to use for comparability purposes.
Organic revenues, adjusted EBITDA, adjusted net income, adjusted earnings per diluted share, free cash flow and adjusted free cash flow conversion are not calculated in accordance with GAAP, and should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Non-GAAP financial measures have limitations in that they do not reflect all of the revenues, costs or benefits associated with the operations of the Company's business as determined in accordance with GAAP. As a result, you should not consider these measures in isolation or as a substitute for analysis of the Company's results as reported under GAAP. The Company expects to continue to acquire businesses and product lines and to incur expenses of a nature similar to many of the non-GAAP adjustments described above, and exclusion of these items from its adjusted financial measures should not be construed as an inference that all of these revenue adjustments or costs . . .
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(d) Exhibits
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99.1 Press Release with attachments, dated
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