EX-99.1 2 d716350dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

 

Contact:    Doug Guarino    Director of Corporate Relations   

781-647-3900

   Jon Russell    Vice President of Finance   

ALERE INC. ANNOUNCES

FIRST QUARTER 2014 RESULTS

 

 

WALTHAM, MA…April 29, 2014…Alere Inc. (NYSE: ALR), a global leader in enabling individuals to take charge of their health at home through the merger of rapid diagnostics and health information solutions, today announced its financial results for the quarter ended March 31, 2014.

Ron Zwanziger, Chairman, Chief Executive Officer and President of Alere said, “Despite a difficult quarter from a revenue perspective, principally related to weak U.S. influenza sales and a larger-than-expected reduction in U.S. healthcare utilization which primarily impacted our U.S. infectious disease revenue, we are pleased to have delivered adjusted earnings per diluted share in excess of our prior year’s results. This was achieved in part through careful expense controls. Strong free cash flow generated during the quarter enabled us to reduce our net debt to adjusted EBITDA ratio during the quarter, again demonstrating our commitment to delivering continuing shareholder value.”

Financial results for the first quarter of 2014:

 

  •   Net revenue of $716.6 million for the first quarter of 2014, compared to $739.2 million for the first quarter of 2013. Non-GAAP adjusted net revenue was $717.0 million for the first quarter of 2014, compared to $739.9 million for the first quarter of 2013.

 

  •   Net loss of $11.5 million attributable to common stockholders of Alere Inc., and respective net loss per diluted common share of $0.14, for the first quarter of 2014, compared to net income of $7.2 million attributable to common stockholders of Alere Inc., and respective net income per diluted common share of $0.09, for the first quarter of 2013.

 

  •   Non-GAAP adjusted net income per diluted common share of $0.55 for the first quarter of 2014, compared to non-GAAP adjusted net income per diluted common share of $0.53 for the first quarter of 2013.

 

  •   Net product and services revenue from our Professional Diagnostics segment was $561.3 million in the first quarter of 2014, compared to net product and services revenue of $578.6 million in the first quarter of 2013. Non-GAAP adjusted net product and services revenue from our Professional Diagnostics segment was $561.8 million in the first quarter of 2014, compared to non-GAAP adjusted net product and services revenue of $579.3 million in the first quarter of 2013. Recent Professional Diagnostics acquisitions contributed $21.5 million of incremental net revenue, compared to the first quarter of 2013, offset by a $6.4 million decrease in net revenue related to our 2013 disposition of Spinreact.

  •   U.S. influenza, meter-based Triage products and mail-order diabetes revenues were $7.3 million, $22.9 million and $32.3 million, respectively, for the first quarter of 2014 compared to $34.3 million, $21.6 million and $33.2 million, respectively, for the first quarter of 2013. Lower influenza revenues reflect the relatively short 2013-2014 flu season, which we noted in our fourth quarter 2013 earnings call. Meter-based Triage products revenue increased from the prior year for the first time since our supply issues began in the second quarter of 2012, reflecting increased revenues from sales of our BNP, Cardiac Panel and D-dimer products. Despite an increase in patients served from 282,000 at the end of the first quarter of 2013 to 769,000 as of March 31, 2014, mail-order diabetes revenues declined slightly, as a result of lower reimbursement rates that became effective on July 1, 2013.

 

  •   Excluding the impact of the change in U.S. influenza revenues and the impact on revenues from the U.S. meter-based Triage product sales, currency adjusted organic growth in our Professional Diagnostics segment was negative 1%. This growth rate was adversely impacted by the decrease in reimbursement rates that became effective on July 1, 2013 for our U.S. mail-order diabetes business. Excluding revenues from our U.S. mail-order diabetes business and considering the flu and Triage adjustments, the currency adjusted organic growth rate for the first quarter of 2014 was 4% for the remainder of our Professional Diagnostics segment.

 

  •   The 4% adjusted organic growth rate for our Professional Diagnostic segment for the first quarter of 2014, adjusted for the impact of the U.S. influenza, meter-based Triage products and mail-order diabetes revenues as noted above, reflects a 2% decrease in adjusted U.S. revenues, compared to the first quarter of 2013, offset by an 8% increase in adjusted net revenues from our international business. The 2% decrease in the U.S. business principally resulted from lower infectious disease revenues reflecting lower utilization levels during 2014 than during 2013.

 

  •   Net product and services revenue from our Health Information Solutions segment was $123.7 million in the first quarter of 2014, compared to $134.2 million in the first quarter of 2013 and $130.0 million in the fourth quarter of 2013, as a result of the weak contracting season that we experienced during the second half of 2013.

 

  •   Gross margin was 49.0% of net revenue in the first quarter of 2014, compared to 49.3% in the first quarter of 2013. Non-GAAP adjusted gross margins, which exclude from cost of net revenue amortization of acquisition-related intangibles, stock-based compensation expense, restructuring charges, and non-cash charges associated with acquired inventory, was 51.5% of non-GAAP adjusted net revenue in the first quarter of 2014 compared to 52.1% in the first quarter of 2013. The lower gross margin in the current period principally reflects the lower U.S. influenza sales and reduced mail-order diabetes reimbursement rates noted above.

 

  •  

Operating expenses consisting of research and development and selling, general and administrative expenses were $325.3 million for the first quarter of 2014, compared to $333.8 million for the first quarter of 2013. Non-GAAP adjusted operating expenses, which exclude amortization of

 

acquisition-related intangibles, restructuring charges, stock-based compensation expense, acquisition-related fair value and compensation-related contingent consideration charges and acquisition and disposition costs, were $255.5 million for the first quarter of 2014, or 35.6% of non-GAAP adjusted net revenue, compared to $257.3 million, or 34.8% of non-GAAP adjusted net revenue, for the first quarter of 2013.

 

  •   Free cash flow for the first quarter of 2014 was $78.4 million, reflecting cash flow from operations of $105.9 million, offset by capital expenditures of $27.5 million. Free cash flow for the first quarter of 2013 was $35.0 million, reflecting cash flow from operations of $71.1 million, offset by capital expenditures of $36.1 million.

 

  •   Non-GAAP EBITDA for the first quarter of 2014 was $144.5 million, which reflects adjustments to add back non-interest related restructuring charges of $7.2 million, $0.3 million of acquisition-related costs and $3.0 million of costs associated with potential business dispositions. Non-GAAP EBITDA for the first quarter of 2013 was $153.3 million, which reflects adjustments to add back non-interest related restructuring charges of $3.9 million and $0.9 million of acquisition-related costs. Adjusted non-GAAP EBITDA, which reflects adjustments to add back restructuring, acquisition and disposition related and proxy costs, totaled $661.0 million for the twelve-month period ended March 31, 2014, compared to $619.5 million for the twelve-month period ended March 31, 2013.

 

  •   Debt, net of cash and restricted cash held to secure debt (“net debt”), was $3.37 billion as of March 31, 2014, compared to net debt of $3.53 billion as of March 31, 2013. Our net debt to adjusted non-GAAP EBITDA ratio was 5.1x as of March 31, 2014, compared to 5.7x as of March 31. 2013.

The Company’s GAAP results for the first quarter of 2014 exclude $0.4 million of revenue associated with acquired software license contracts that are not recognized due to business combination accounting rules and include $66.6 million of amortization, $7.3 million of restructuring charges, $5.7 million of stock-based compensation expense, $0.3 million of acquisition-related costs recorded in accordance with ASC 805, Business Combinations, $4.6 million of income recorded for fair value adjustments to acquisition-related contingent consideration, $3.0 million of costs associated with potential business dispositions, $0.4 million of interest expense recorded in connection with fees paid for certain debt modifications, $0.4 million in compensation charges and $0.1 million of related interest accretion associated with acquisition-related contingent consideration obligations. The Company’s GAAP results for the first quarter of 2013 exclude $0.6 million of revenue associated with acquired software license contracts that are not recognized due to business combination accounting rules and include $76.0 million of amortization, $3.9 million of restructuring charges, $4.1 million of stock-based compensation expense, $0.9 million of acquisition-related costs recorded in accordance with ASC 805, Business Combinations, $11.0 million of expense recorded for fair value adjustments to acquisition-related contingent consideration, $1.0 million of interest expense recorded in connection with fees paid for

certain debt modifications, $0.7 million in compensation charges associated with acquisition-related contingent consideration obligations, a $0.5 million charge associated with the write-up to fair market value of inventory acquired in connection with the acquisition of Epocal Inc. and $0.2 million of expense associated with the extinguishment of debt.

Detailed reconciliations of the non-GAAP financial measures presented in this release to the most directly comparable financial measures under GAAP, as well as a discussion regarding these non-GAAP financial measures, are included in the schedules to this press release.

The Company will host a conference call beginning at 8:30 a.m. (Eastern Time) today, April 29, 2014, to discuss these results, as well as other corporate matters. During the conference call, the Company may answer questions concerning business and financial developments and trends and other business and financial matters. The Company’s responses to these questions, as well as other matters discussed during the conference call, may contain or constitute material information that has not been previously disclosed.

The conference call may be accessed by dialing (877) 443-4809 (domestic) or (412) 902-6615 (international) and asking for Alere Inc. A webcast of the call can also be accessed via the Alere website at http://www.alere.com/us/en/about/investor-relations/events.html, or directly through the following link: http://www.videonewswire.com/event.asp?id=99047.

A replay of the call will be available approximately one hour after the conclusion of the call and will remain available for a period of seven days following the call. The replay may be accessed by dialing (877) 344-7529 (domestic) or (412) 317-0088 (international) and entering replay code 10045124. The replay will also be available via online webcast at http://www.videonewswire.com/event.asp?id=99047 or via the Alere website at http://www.alere.com/us/en/about/investor-relations/events.html for a period of 60 days following the call.

Additionally, reconciliations to non-GAAP financial measures not included in this press release that may be discussed during the call will also be available at the Alere website (http://www.alere.com/us/en/about/investor-relations/events.html) under the Earnings Calls and Releases section shortly before the conference call begins and will continue to be available on this website.

For more information about Alere, please visit our web site at http://www.alere.com.

By developing new capabilities in near-patient diagnosis, monitoring and health information solutions, Alere enables individuals to take charge of improving their health and quality of life at home. Alere’s global leading products and services, as well as its new product development efforts, focus on infectious disease, toxicology, cardiology and diabetes. Alere is headquartered in Waltham, Massachusetts.

Source: Alere Inc.

Alere Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

 

     Three Months Ended March 31,  
     2014     2013  

Net product sales and services revenue

    $ 711,410      $ 735,185   

License and royalty revenue

      5,212        4,064   
  

 

 

    

 

 

  

Net revenue

      716,622        739,249   

Cost of net revenue

      365,383        374,992   
  

 

 

    

 

 

  

Gross profit

      351,239        364,257   
  

 

 

    

 

 

  

Gross margin

      49 %      49 % 

Operating expenses:

     

Research and development

      38,699        41,454   

Selling, general and administrative

      286,600        292,314   
  

 

 

    

 

 

  

Total operating expenses

      325,299        333,768   
  

 

 

    

 

 

  

Operating income

      25,940        30,489   

Interest and other income (expense), net

      (47,322 )      (57,869 ) 
  

 

 

    

 

 

  

Loss before benefit for income taxes

      (21,382 )      (27,380 ) 

Benefit for income taxes

      (9,917 )      (36,871 ) 
  

 

 

    

 

 

  

Income (loss) before equity earnings of unconsolidated entities, net of tax

      (11,465 )      9,491   

Equity earnings of unconsolidated entities, net of tax

      5,352        2,934   
  

 

 

    

 

 

  

Net income (loss)

      (6,113 )      12,425   

Less: Net income (loss) attributable to non-controlling interests

      108        (25 ) 
  

 

 

    

 

 

  

Net income (loss) attributable to Alere Inc. and Subsidiaries

      (6,221 )      12,450   

Preferred stock dividends

      (5,250 )      (5,250 ) 
  

 

 

    

 

 

  

Net income (loss) available to common stockholders

    $ (11,471 )    $ 7,200   
  

 

 

    

 

 

  

Basic net income (loss) per common share

    $ (0.14 )    $ 0.09   
  

 

 

    

 

 

  

Diluted net income (loss) per common share

    $ (0.14 )    $ 0.09   
  

 

 

    

 

 

  

Weighted average shares - basic

      82,387        81,199   
  

 

 

    

 

 

  

Weighted average shares - diluted

      82,387        81,300   
  

 

 

    

 

 

  

Alere Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands)

 

     March 31,
2014		      December 31,
2013		  

ASSETS

      

CURRENT ASSETS:

      

Cash and cash equivalents

    $ 433,026       $ 361,908   

Restricted cash

      4,222         6,373   

Marketable securities

      781         858   

Accounts receivable, net

      528,793         548,729   

Inventories, net

      371,136         364,185   

Prepaid expenses and other current assets

      183,145         190,361   
  

 

 

     

 

 

  

Total current assets

      1,521,103         1,472,414   

PROPERTY, PLANT AND EQUIPMENT, NET

      545,051         545,164   

GOODWILL AND OTHER INTANGIBLE ASSETS, NET

      4,763,226         4,835,004   

RESTRICTED CASH - NON-CURRENT

      28,856         29,370   

DEFERRED FINANCING COSTS AND OTHER ASSETS, NET

      177,950         178,862   
  

 

 

     

 

 

  

Total assets

    $ 7,036,186       $ 7,060,814   
  

 

 

     

 

 

  

LIABILITIES AND STOCKHOLDERS’ EQUITY

      

CURRENT LIABILITIES:

      

Current portions of long-term debt and capital lease obligations

    $ 71,472       $ 55,967   

Other current liabilities

      620,709         617,219   
  

 

 

     

 

 

  

Total current liabilities

      692,181         673,186   
  

 

 

     

 

 

  

LONG-TERM LIABILITIES:

      

Long-term debt and capital lease obligations, net of current portions

      3,760,886         3,787,195   

Deferred tax liabilities

      307,574         329,249   

Other long-term liabilities

      194,989         188,336   
  

 

 

     

 

 

  

Total long-term liabilities

      4,263,449         4,304,780   
  

 

 

     

 

 

  

TOTAL EQUITY

      2,080,556         2,082,848   
  

 

 

     

 

 

  

Total liabilities and equity

    $ 7,036,186       $ 7,060,814   
  

 

 

     

 

 

  

Alere Inc. and Subsidiaries

Reconciliation to Non-GAAP Adjusted Operating Results

(in thousands, except per share amounts)

 

     Three Months Ended March 31,  
     2014      2013  

Reconciliation to Non-GAAP Adjusted Operating Income (1)

      

Operating income

    $ 25,940       $ 30,489   

Adjustment related to acquired software license contracts

      419         643   

Amortization of acquisition-related intangible assets

      66,473         75,867   

Restructuring charges

      7,215         3,892   

Stock-based compensation expense

      5,704         4,123   

Compensation charges associated with acquisition-related contingent consideration obligations

      422         690   

Acquisition-related costs

      321         896   

Fair value adjustments to acquisition-related contingent consideration

      4,550         11,018   

Non-cash charge associated with acquired inventory

      —           461   

Costs associated with potential business dispositions

      2,960         —     
  

 

 

     

 

 

  

Non-GAAP adjusted operating income

    $ 114,004       $ 128,079   
  

 

 

     

 

 

  

 

     Three Months Ended March 31,  
     2014     2013  

Reconciliation to Non-GAAP Adjusted Net Income (1)

     

Net income (loss) available to common stockholders

    $ (11,471 )    $ 7,200   

Adjustment related to acquired software license contracts

      419        643   

Amortization of acquisition-related intangible assets

      66,491        75,989   

Restructuring charges

      7,340        3,947   

Stock-based compensation expense

      5,704        4,123   

Compensation charges associated with acquisition-related contingent consideration obligations

      422        690   

Acquisition-related costs

      321        896   

Fair value adjustments to acquisition-related contingent consideration

      4,550        11,018   

Non-cash charge associated with acquired inventory

      —          461   

Costs associated with potential business dispositions

      2,960        —     

Interest expense recorded in connection with fees paid for certain debt modifications and the termination of our senior secured credit facility

      364        952   

Interest accretion associated with acquisition-related compensation charges

      95        —     

Expense associated with extinguishment of debt

      —          163   

Income tax effects on items above

      (29,858 )      (62,055 ) 
  

 

 

    

 

 

  

Non-GAAP adjusted net income available to common stockholders

    $ 47,337      $ 44,027   
  

 

 

    

 

 

  

Net income (loss) per diluted common share

    $ (0.14 )    $ 0.09   
  

 

 

    

 

 

  

Non-GAAP adjusted net income per diluted common share

    $ 0.55      $ 0.53   
  

 

 

    

 

 

  

Weighted average shares - diluted

      82,387        81,300   
  

 

 

    

 

 

  

Non-GAAP adjusted weighted average shares - diluted

      97,346        94,977   
  

 

 

    

 

 

  

 

(1)  In calculating “non-GAAP adjusted operating income” and “non-GAAP adjusted net income”, the Company excludes (i) certain non-cash charges, including amortization expense and stock-based compensation expense, (ii) non-recurring charges and income, and (iii) certain other charges and income that have a significant positive or negative impact on results yet do not occur on a consistent or regular basis in its business. In determining whether a particular item meets one of these criteria, management considers facts and circumstances that it believes are relevant. Management believes that excluding such charges and income from operating income and net income or loss allows investors and management to evaluate and compare the Company’s operating results from continuing operations from period to period in a meaningful and consistent manner. Due to the frequency of their occurrence in its business, the Company does not adjust operating income or net income or loss for the costs associated with litigation, including payments made or received through settlements. It should be noted that “non-GAAP adjusted operating income” and “non-GAAP adjusted net income” are not standard financial measurements under accounting principles generally accepted in the United States of America (“GAAP”) and should not be considered as an alternative to operating income and net income or loss or cash flow from operating activities, as a measure of liquidity or as an indicator of operating performance or any measure of performance derived in accordance with GAAP. In addition, all companies do not calculate non-GAAP financial measures in the same manner and, accordingly, “non-GAAP adjusted operating income” and “non-GAAP adjusted net income” presented in this press release may not be comparable to similar measures used by other companies.

Alere Inc. and Subsidiaries

Selected Consolidated Revenues by Business Area (1)

(in thousands)

 

Professional Diagnostics Segment

    Q1 2014      Q1 2013      % Change
Q1 14 v. Q1 13		  

Infectious disease

    $ 164,030       $ 189,844         –14 % 

Toxicology

      151,897         149,049         2 % 

Cardiology

      121,633         114,933         6 % 

Diabetes

      50,721         50,083         1 % 

Other (1)

      73,052         74,719         –2 % 
  

 

 

     

 

 

     

Professional diagnostics net product sales and services revenue (1)

      561,333         578,628         –3 % 

License and royalty revenue

      5,212         3,864         35 % 
  

 

 

     

 

 

     

Professional diagnostics net revenue

    $ 566,545       $ 582,492         –3 % 
  

 

 

     

 

 

     

Health Information Solutions Segment

    Q1 2014      Q1 2013      % Change
Q1 14 v. Q1 13		  

Condition and case management

    $ 49,319       $ 54,126         –9 % 

Wellness

      24,950         26,300         –5 % 

Women’s & children’s health

      22,215         29,080         –24 % 

Patient self-testing services

      27,184         24,701         10 % 
  

 

 

     

 

 

     

Health information solutions net revenue

    $ 123,668       $ 134,207         –8 % 
  

 

 

     

 

 

     

 

(1)  Revenues are presented in accordance with generally accepted accounting principles and exclude an adjustment of $0.4 million and $0.6 million related to acquired software license contracts which were not recognized during the three months ended March 31, 2014 and 2013, respectively, due to business combination accounting rules.

    

Alere Inc. and Subsidiaries

Reconciliation of Operating Income (Loss) to Non-GAAP Adjusted  Operating Income (Loss)

(in thousands)

  
     For the Three Months Ended March 31, 2014  
Operating Segment    Professional
Diagnostics		     Health
Information
Solutions		     Consumer
Diagnostics		     Corporate     Total  

Net revenue

    $ 566,545      $ 123,668      $ 26,409      $ —        $ 716,622   

Adjustment related to acquired software license contracts (1)

      419        —          —          —          419   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Non-GAAP adjusted net revenue

    $ 566,964      $ 123,668      $ 26,409      $ —        $ 717,041   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Operating income (loss)

    $ 51,326      $ (6,720 )    $ 2,248      $ (20,914 )    $ 25,940   

Adjustment related to acquired software license contracts (1)

      419        —          —          —          419   

Amortization of acquisition-related intangible assets

      57,285        8,899        289        —          66,473   

Restructuring charges

      4,303        2,817        —          95        7,215   

Stock-based compensation expense

      —          —          —          5,704        5,704   

Compensation charges associated with acquisition-related contingent consideration obligations

      422        —          —          —          422   

Acquisition-related costs

      —          —          —          321        321   

Fair value adjustments to acquisition-related contingent consideration

      5,461        (1,011 )      —          100        4,550   

Costs associated with potential business dispositions

      2,960        —          —          —          2,960   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Non-GAAP adjusted operating income (loss)

    $ 122,176      $ 3,985      $ 2,537      $ (14,694 )    $ 114,004   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Non-GAAP adjusted operating income (loss) as % of Non-GAAP adjusted net revenue

      21.5 %      3.2 %      9.6 %        15.9 % 
  

 

 

    

 

 

    

 

 

      

 

 

  

 

(1) Estimated revenue related to acquired software license contracts that was not recognized during the first quarter of 2014 due to business combination accounting rules.

 

     For the Three Months Ended March 31, 2013  
Operating Segment    Professional
Diagnostics		     Health
Information
Solutions		     Consumer
Diagnostics		     Corporate     Total  

Net revenue

    $ 582,492      $ 134,207      $ 22,550      $ —        $ 739,249   

Adjustment related to acquired software license contracts (1)

      643        —          —          —          643   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Non-GAAP adjusted net revenue

    $ 583,135      $ 134,207      $ 22,550      $ —        $ 739,892   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Operating income (loss)

    $ 59,840      $ (13,893 )    $ 2,280      $ (17,738 )    $ 30,489   

Adjustment related to acquired software license contracts (1)

      643        —          —          —          643   

Amortization of acquisition-related intangible assets

      64,293        11,038        536        —          75,867   

Restructuring charges

      1,389        2,503        —          —          3,892   

Stock-based compensation expense

      —          —          —          4,123        4,123   

Compensation charges associated with acquisition-related contingent consideration obligations

      690        —          —          —          690   

Non-cash charge associated with acquired inventory

      461        —          —          —          461   

Acquisition-related costs

      —          —          —          896        896   

Fair value adjustments to acquisition-related contingent consideration

      7,063        3,355        —          600        11,018   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Non-GAAP adjusted operating income (loss)

    $ 134,379      $ 3,003      $ 2,816      $ (12,119 )    $ 128,079   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Non-GAAP adjusted operating income (loss) as % of Non-GAAP adjusted net revenue

      23.0 %      2.2 %      12.5 %        17.3 % 
  

 

 

    

 

 

    

 

 

      

 

 

  

 

(1) Estimated revenue related to acquired software license contracts that was not recognized during the first quarter of 2013 due to business combination accounting rules.

 

 

Comments:

In calculating “adjusted operating income (loss)” in the schedule presented above, the Company excludes from operating income (loss) (i) certain non-cash charges, including amortization expense and stock-based compensation expense, (ii) non-recurring charges and income, and (iii) certain other charges and income that have a significant positive or negative impact on results yet do not occur on a consistent or regular basis in its business. In determining whether a particular item meets one of these criteria, management considers facts and circumstances that it believes are relevant. Management believes that excluding such charges and income from operating income (loss) allows investors and management to evaluate and compare the Company’s operating results from continuing operations from period to period in a meaningful and consistent manner. Due to the frequency of their occurrence in its business, the Company does not adjust operating income (loss) for the costs associated with litigation, including payments made or received through settlements. It should be noted that “adjusted operating income (loss)” is not a standard financial measurement under accounting principles generally accepted in the United States of America (“GAAP”) and should not be considered as an alternative to operating income (loss) as an indicator of operating performance or any measure of performance derived in accordance with GAAP. In addition, all companies do not calculate non-GAAP financial measures in the same manner and, accordingly, “adjusted operating income (loss)” presented in this schedule may not be comparable to similar measures used by other companies.

Reference should also be made to the Company’s financial results contained in our earnings press release respective to the periods presented in this schedule, which include a more detailed discussion of the adjustments to the GAAP operating results presented above.

Alere Inc. and Subsidiaries

Reconciliations to Non-GAAP Adjusted P&L Categories

(in thousands)

 

     Three Months Ended
March 31, 2014		     Three Months Ended
March 31, 2013		  

Net revenue

    $ 716,622      $ 739,249   

Adjustment related to acquired software license contracts

      419        643   
  

 

 

    

 

 

  

Non-GAAP adjusted net revenue

    $ 717,041      $ 739,892   
  

 

 

    

 

 

  

Cost of net revenue

    $ 365,383      $ 374,992   

Less adjustments:

     

Amortization of acquisition-related intangible assets

      (16,636 )      (19,170 ) 

Restructuring charges

      (875 )      (623 ) 

Stock-based compensation expense

      (287 )      (232 ) 

Non-cash charge associated with acquired inventory

      —          (461 ) 
  

 

 

    

 

 

  

Non-GAAP adjusted cost of net revenue

    $ 347,585      $ 354,506   
  

 

 

    

 

 

  

Non-GAAP adjusted gross profit

    $ 369,456      $ 385,386   
  

 

 

    

 

 

  
     Three Months Ended
March 31, 2014		     Three Months Ended
March 31, 2013		  

Research and development

    $ 38,699      $ 41,454   

Less adjustments:

     

Amortization of acquisition-related intangible assets

      (1,165 )      (1,282 ) 

Stock-based compensation expense

      (1,191 )      (747 ) 
  

 

 

    

 

 

  

Non-GAAP adjusted research and development

    $ 36,343      $ 39,425   
  

 

 

    

 

 

  
     Three Months Ended
March 31, 2014		     Three Months Ended
March 31, 2013		  

Selling, general and administrative

    $ 286,600      $ 292,314   

Less adjustments:

     

Amortization of acquisition-related intangible assets

      (48,672 )      (55,415 ) 

Restructuring charges

      (6,340 )      (3,269 ) 

Stock-based compensation expense

      (4,226 )      (3,144 ) 

Compensation charges associated with acquisition-related contingent consideration obligations

      (422 )      (690 ) 

Acquisition-related costs

      (321 )      (896 ) 

Fair value adjustments to acquisition-related contingent consideration

      (4,550 )      (11,018 ) 

Costs associated with potential business dispositions

      (2,960 )      —     
  

 

 

    

 

 

  

Non-GAAP adjusted selling, general and administrative

    $ 219,109      $ 217,882   
  

 

 

    

 

 

  
     Three Months Ended
March 31, 2014		     Three Months Ended
March 31, 2013		  

Interest and other income (expense), net

    $ (47,322 )    $ (57,869 ) 

Less adjustments:

     

Restructuring charges

      125        55   

Interest expense recorded in connection with fees paid for certain debt modifications and the termination of our senior secured credit facility

      364        952   

Interest accretion associated with acquisition-related compensation charges

      95        —     

Expense associated with extinguishment of debt

      —          163   
  

 

 

    

 

 

  

Non-GAAP adjusted interest and other income (expense), net

    $ (46,738 )    $ (56,699 ) 
  

 

 

    

 

 

  

 

     Three Months Ended
March 31, 2014		     Three Months Ended
March 31, 2013		  

Benefit for income taxes

    $ (9,917 )    $ (36,871 ) 

Add: Income tax effects on Non-GAAP adjustments

      29,887        62,061   
  

 

 

    

 

 

  

Non-GAAP adjusted provision for income taxes

    $ 19,970      $ 25,190   
  

 

 

    

 

 

  
     Three Months Ended
March 31, 2014		     Three Months Ended
March 31, 2013		  

Equity earnings of unconsolidated entities, net of tax

    $ 5,352      $ 2,934   

Less adjustments:

     

Amortization of acquisition-related intangible assets

      148        151   

Income tax effects on items above

      —          —     
  

 

 

    

 

 

  

Non-GAAP adjusted equity earnings of unconsolidated entities, net of tax

    $ 5,500      $ 3,085   
  

 

 

    

 

 

  

Alere Inc. and Subsidiaries

Reconciliations of Gross Profit/Margin to Non-GAAP Adjusted Gross Profit/Margin

(in thousands)

 

Alere Consolidated    Three Months Ended
March 31, 2013		     Three Months Ended
December 31, 2013		     Three Months Ended
March 31, 2014		  

Net revenue

    $ 739,249         $ 772,326         $ 716,622      

Adjustment related to acquired software license contracts

      643           470           419      
  

 

 

       

 

 

       

 

 

     

Non-GAAP adjusted net revenue

      739,892           772,796           717,041      
  

 

 

       

 

 

       

 

 

     

Cost of net revenue

      374,992           387,977           365,383      

Less adjustments:

                

Amortization of acquisition-related intangible assets

      19,170           17,656           16,636      

Stock-based compensation expense

      232           329           287      

Non-cash charge associated with acquired inventory

      461           624           —        

Restructuring charges

      623           2,957           875      
  

 

 

       

 

 

       

 

 

     

Non-GAAP adjusted cost of net revenue

      354,506           366,411           347,585      
  

 

 

       

 

 

       

 

 

     

Non-GAAP adjusted gross profit/margin

    $ 385,386         52.1 %    $ 406,385         52.6 %    $ 369,456         51.5 % 
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

     

 

 

  

 

Professional Diagnostics Segment    Three Months Ended
March 31, 2013		     Three Months Ended
December 31, 2013		     Three Months Ended
March 31, 2014		  

Net product sales and services revenue

    $ 578,628         $ 600,667         $ 561,333      

Adjustment related to acquired software license contracts

      643           470           419      
  

 

 

       

 

 

       

 

 

     

Non-GAAP adjusted net product sales and services revenue

      579,271           601,137           561,752      
  

 

 

       

 

 

       

 

 

     

Cost of net revenue

      278,453           292,183           273,542      

Less adjustments:

                

Amortization of acquisition-related intangible assets

      17,399           16,005           15,136      

Stock-based compensation expense

      232           329           287      

Non-cash charge associated with acquired inventory

      461           624           —        

Restructuring charges

      199           2,253           833      
  

 

 

       

 

 

       

 

 

     

Non-GAAP adjusted cost of net revenue

      260,162           272,972           257,286      
  

 

 

       

 

 

       

 

 

     

Non-GAAP adjusted gross profit/margin

    $ 319,109         55.1 %    $ 328,165         54.6 %    $ 304,466         54.2 % 
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

     

 

 

  

 

Health Information Solutions Segment    Three Months Ended
March 31, 2013		     Three Months Ended
December 31, 2013		     Three Months Ended
March 31, 2014		  

Net product sales and services revenue

    $ 134,207         $ 130,012         $ 123,668      
  

 

 

       

 

 

       

 

 

     

Cost of net revenue

      76,857           70,780           68,714      

Less adjustments:

                

Amortization of acquisition-related intangible assets

      1,482           1,440           1,413      

Restructuring charges

      424           704           42      
  

 

 

       

 

 

       

 

 

     

Non-GAAP adjusted cost of net revenue

      74,951           68,636           67,259      
  

 

 

       

 

 

       

 

 

     

Non-GAAP adjusted gross profit/margin

    $ 59,256         44.2 %    $ 61,376         47.2 %    $ 56,409         45.6 % 
  

 

 

     

 

 

    

 

 

     

 

 

    

 

 

     

 

 

  

Alere Inc. and Subsidiaries

Reconciliation of Net Loss to Non-GAAP EBITDA

(in thousands)

 

     Three Months Ended
March 31, 2014		  
  

 

 

  

Net loss (1)

   $ (6,113 ) 

Adjustment related to acquired software license contracts

      419   

Income tax benefit

      (9,917 ) 

Depreciation and amortization

      98,234   

Interest, net

      51,659   

Non-cash stock-based compensation expense

      5,704   

Non-cash fair value adjustments to acquisition-related contingent consideration

      4,550   
  

 

 

  

Non-GAAP EBITDA

    $ 144,536   
  

 

 

  

 

(1) Net loss for the three months ended March 31, 2014 includes non-interest related restructuring charges of $7.2 million, $0.3 million of acquisition-related costs and $3.0 million of costs associated with potential business dispositions which have not been added back for purposes of computing Non-GAAP EBITDA.

Reconciliation of Cash Flow from Operating Activities to Free Cash Flow

(in thousands)

 

     Three Months Ended
March 31, 2014		  
  

 

 

  

Cash flow from operating activities (GAAP)

    $ 105,908   

Capital expenditures

      (27,540 ) 
  

 

 

  

Free cash flow

    $ 78,368